BRICS wants to control a new a global currency

Started by Mountainshield, April 03, 2013, 09:49:18 AM

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TowardLiberty

Quote from: Mountainshield on April 24, 2013, 02:51:51 AM
I concede this topic to you as I have no more arguments left, personally I remain unsure but hopefully people will read your post and comprehend the issue better.

Thanks.

Well, thanks for the thoughtful debate.

But there is no need to approach these issues in a strict argument form, where one takes a position opposite the  other.

If you are interested in discussing this stuff further, I am too. I especially would like to hear you thoughts on the business cycle after watching that Garrison video.

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In a last defense of the Chicago school, this statement can be applied too Austrian economy too. As my own reservations against a Austrian currency is a lack of trust in the electorate and also my own ability to take personal responsibility for banking as a more active depositor, investor and watchman.

Ah but Friedman is not conceding this as an argument against freedom. He is saying that arguments against the free market involve or imply a lack of belief in freedom itself.

It is only through a better understanding of freedom that we can answer the critics of the market.

Regarding your reservations about competing monies, I have to ask, what electorate are we talking about here? A political body?

If money is a private good and legal tender laws do not exist, then I do not see much of a political role here. So no trust is necessary of a given political body, as it regards a functioning banking system.

And in terms of investors/ depositors taking on the role of watchmen, I would suggest that they do not need to, as the market does it for them.

Just as the spread on CDS contracts signal the perceived risk of various securities, the discount bank notes would receive relative to gold/silver (or other trusted bank notes) would signal depositors information about the relative riskiness of particular banks.

Mountainshield

#16
QuoteBut there is no need to approach these issues in a strict argument form, where one takes a position opposite the  other.

If you are interested in discussing this stuff further, I am too. I especially would like to hear you thoughts on the business cycle after watching that Garrison video.

That's true, but I don't really have much to say. I watched the lecture and it was good except I was painting while watching it and some of the sound effects startled me  :tounge: The conclusion is that savings gives better economic growth long term than inflation though it will be interesting to watch China in this regard with their style of monatery policy.

QuoteRegarding your reservations about competing monies, I have to ask, what electorate are we talking about here? A political body?

Yes, the electorate that votes in legislative representatives. My fear is that under a competing system of currency there will be many voters that will be hurt due to the mismanagement of their deposits in certain banks which will lead to politicians that are anti market being elected. Even though that bank is punished through the market, the depositors who knew nothing of the mismanagement lost their savings due to the inflation of that bank and have to reedem their deposit at a much lower or even a small fraction of their original value in another bank.

I understand from that video that austrian economics detests bringing psychology into the equation because that was Keynes fallacy in the business cycle, but I feel the austrian economists forget that politics are economical, and all the sociological models that make up political science are built on psychology of identification in economic matters as well as social ones.

And if a huge enough percentage of the population is hurt by this then they are going to vote in politicians that will do more than just attack the competing currencies, they will attack every aspect of the free market as we see today.

To use an example of how they then attack the market from my country, politicians regulate the market to such an extent that the market can not operate effectively, best example is employment. Politicians argue against free market because they claim it does not provide jobs for enough people, at the same time they regulate every aspect of a business that just managing one employee is a full time job in itself keeping up with the regulation in addition to enacting employer taxes that taxes an employer for hiring an employee even if the company does not have any revenue, minimum wage laws and all kinds of different gender, race etc policies. When the market then can't function optimally under this form of corperatism/socialism the politicians say "See, we said the market was bad and doesn't work! The answer to this problem is more regulation, stimulus and public sector jobs, because the superiority of the market is just a right wing myth".

So there are many aspects of economic freedom, but I think that free currencies is not sustainable politically in a democracy.
And I can sacrafice monetary freedom for a predictable central bank with only stability as its goal if it means that other sectors of the market will be left free.


TowardLiberty

#17
Quote from: Mountainshield on April 28, 2013, 12:25:16 AM
That's true, but I don't really have much to say. I watched the lecture and it was good except I was painting while watching it and some of the sound effects startled me  :tounge: The conclusion is that savings gives better economic growth long term than inflation though it will be interesting to watch China in this regard with their style of monatery policy.

Yea, those sound effects are kind of lame.

And yes, you have the conclusion, but do you understand the importance of accurate interest rates in order to achieve inter-temporal coordination of the various stages of production, aka the "production structure?"

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Yes, the electorate that votes in legislative representatives. My fear is that under a competing system of currency there will be many voters that will be hurt due to the mismanagement of their deposits in certain banks which will lead to politicians that are anti market being elected. Even though that bank is punished through the market, the depositors who knew nothing of the mismanagement lost their savings due to the inflation of that bank and have to reedem their deposit at a much lower or even a small fraction of their original value in another bank.

There is a risk in that.

But we also have to consider the possibility that self interest would lead to prudent management of bank finances. With the ever present risk of bank runs, bankruptcy and lawsuits that would follow from inflating bank credit, there just might be too much on the line for bankers to focus merely on the short term, without due consideration for long run solvency. Especially without the protection of deposit insurance or implicit too big to fail status.

Though I do not suggest that your fears are misguided.

I only suggest that it is not a foregone conclusion that the competitive banking system would burn some depositors.

Recall the information transmitted by the private clearinghouse, via the spread on bank notes of various "trustworthiness," and the role this information will play in advising people where to put their money.

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I understand from that video that austrian economics detests bringing psychology into the equation because that was Keynes fallacy in the business cycle, but I feel the austrian economists forget that politics are economical, and all the sociological models that make up political science are built on psychology of identification in economic matters as well as social ones.

Well, psychology really is not too important for economics.

It is not important to explain the underlying processes at work in the formation of individual preferences.

Economics takes the preferences as a given, as it's starting point and then traces out their implications.

We can leave the formation of belief, preference and value to the other science.

Though, I would agree that there is a good deal of economics going on in the motivations of individuals actors, including those on the political scene. Every human acts to achieve some goal, even those in politics.

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And if a huge enough percentage of the population is hurt by this then they are going to vote in politicians that will do more than just attack the competing currencies, they will attack every aspect of the free market as we see today.

Sure.

But why would we think the market would fail in such a spectacular way?

In fact, I would suggest that what you are saying already happened, albeit in a slightly different manner. In the period of free banking, in the US, the various state chartered banks won political privileges that ended up hampering the market mechanism that regulated bank credit inflation. So banks inflated, as they were now free to do.

The end result was a series of panics and bank runs that led to  a clamor for government intervention.

Step by step, the market was dismantled, until the project was complete, in 1933, with the great gold confiscation.

And each step was cheered on by the hapless citizenry, as they had already seen how competition had failed.

Or so they thought.
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To use an example of how they then attack the market from my country, politicians regulate the market to such an extent that the market can not operate effectively, best example is employment. Politicians argue against free market because they claim it does not provide jobs for enough people, at the same time they regulate every aspect of a business that just managing one employee is a full time job in itself keeping up with the regulation in addition to enacting employer taxes that taxes an employer for hiring an employee even if the company does not have any revenue, minimum wage laws and all kinds of different gender, race etc policies. When the market then can't function optimally under this form of corperatism/socialism the politicians say "See, we said the market was bad and doesn't work! The answer to this problem is more regulation, stimulus and public sector jobs, because the superiority of the market is just a right wing myth".

No doubt.

And this same argument is made about public goods in general.

I completely agree with what you say here and would apply the same analysis to money and banking, as well as the provision of roads, defense and law and order.

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So there are many aspects of economic freedom, but I think that free currencies is not sustainable politically in a democracy.

To your point, about its sustainability, even if competition in money worked economically, there would still be the bankers looking to cartelize and monopolize the production of money, in order to squeeze out these small upstarts and grab market share, not to mention to inflate credit while receiving implicit bailout protections.

Politics as an interest group phenomenon strikes me as a more cogent reason to doubt the sustainability of such a program.

Which suggests to me that democracy and the political process generally is holding society back.
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And I can sacrafice monetary freedom for a predictable central bank with only stability as its goal if it means that other sectors of the market will be left free.

Well, I think that sounds like a rational choice what about the incompatibility with price stability and dynamic change?

Why not favor a growth of credit rule?

Mountainshield

I don't fully understand the importance of needing 100% accurate interest rates, I understand it is good long term for real growth as jobs and true capital, but I don't understand it everything with regards to the business cycle, I need to watch some more lectures on it or read some more articles.

Hmm yes I see you are right that my assumption about banking corruption is more based on government interference than the real practical application of free banking with regards to US monetary history.

I agree with the other statements you make and especially about democratic political process holing us back. I think we all agree that representative government is the best, but the notions that all laws are not timeless and should be changed whenever if the society needs it is destructive. It truly destroys predictability about the future because it can change every 4 years with new regime.

If the constitution would set forth a total free market framework with predetermined necessary regulations that were timeless and protected by the judicial branch of government then I agree free currency would be sustainable politically and allow society to prosper without the business cycles, inflation crisis or deflation crisis.

QuoteWell, I think that sounds like a rational choice what about the incompatibility with price stability and dynamic change?

Why not favor a growth of credit rule?

In the system we have today I think we just have to live with that incompatibility, we could work continuously to dismantle the federal reserve and do it gradually so that the ideal situation could be possible in the future when people can see for themselves that it works and not be scared off by leftist propaganda.

Please explain the growth of credit rule when you have the time, maybe create a new thread as we have gone quite off topic  :smile:

TowardLiberty

#19
Quote from: Mountainshield on April 30, 2013, 06:50:08 AM
I don't fully understand the importance of needing 100% accurate interest rates, I understand it is good long term for real growth as jobs and true capital, but I don't understand it everything with regards to the business cycle, I need to watch some more lectures on it or read some more articles.

Well, I definitely encourage you to do that!

If I were to attempt a quick explanation I would point to the fact that the various stages of production, from raw materials extraction to capital investment, to intermediate and semi-finished goods, all the way to the final product of a finished consumer good, requires coordination in some fashion.

For example, it would not make sense for an early stage of production to expand if there is not demand for these goods in the later stages, or not sufficient demand.

The interest rate cannot signal what the particular demands of consumers will be for finished goods and services. That is up to entrepreneurial judgment.

The interest rate itself is not necessarily what is driving entrepreneurial decision making.

Rather, it is the prices for inputs and the expected price for their outputs, that drives production decisions. So an entrepreneur will add up the cost of capital, raw materials, labor, rent, etc and then estimate what he thinks the price of his good will sell for, once it is produced. If there is a spread or margin between these "relative" prices then we have profit, or perhaps loss!

Interest rates play a role in this by being the rate of discount that is used to calculate factor prices. The price of capital will change with the rate of interest, for the capitalized value of a capital good is nothing but the expected future streams of income discounted by a rate of interest.

A lower rate of interest creates a smaller discount on those future streams and the capital value of the asset increases. Entrepreneurs very well may act just on this information, if they are naive.

And the opposite is true. A higher rate of interest is a larger discount on those future streams of income, which reduces the capitalized value of an asset, discouraging its production.

So we see that interest rates play a big role in economic decision making through their role as a discounting mechanism on future streams of income. They affect the price paid today for capital and if these changes are temporary and policy driven, rather than long term and market based, then entrepreneurs are apt to invest in ways that will prove to be wasteful and these investments will have to be unwound, potentially leading to a recession.

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Hmm yes I see you are right that my assumption about banking corruption is more based on government interference than the real practical application of free banking with regards to US monetary history.

I am actually reading a book about this very issue and the same story played out in Hellenistic Greece. A 10 year banking holiday was granted to three privileged banks. They inflated and broke their contractual promises to hold 100% reserves, and the result was a boom and bust cycle. Ultimately our privileged banks went bankrupt.

Money, Bank Credit and Economic Cycle by Jesus Huerta De Soto is an excellent book on the mechanics of money and banking.
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I agree with the other statements you make and especially about democratic political process holing us back. I think we all agree that representative government is the best, but the notions that all laws are not timeless and should be changed whenever if the society needs it is destructive. It truly destroys predictability about the future because it can change every 4 years with new regime.

Cant argue with that.

Not only is predictability lost but the essence of the law is lost too. I am referring back to Bastiat's argument about the "rule of law" being different than the mere "rule by men."

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If the constitution would set forth a total free market framework with predetermined necessary regulations that were timeless and protected by the judicial branch of government then I agree free currency would be sustainable politically and allow society to prosper without the business cycles, inflation crisis or deflation crisis.

That would be nice.

Something along the lines of, "only gold and silver shall be legal tender." Though this clause is in the US constitution. But like the rest of that document, it is roundly ignored and largely irrelevant.

The Roman's had it figured out. They made it illegal to appropriate the deposits of another without keeping an equal amount of money available at all times. This equal amount of money was known as the "tantundem," under Roman law.

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In the system we have today I think we just have to live with that incompatibility, we could work continuously to dismantle the federal reserve and do it gradually so that the ideal situation could be possible in the future when people can see for themselves that it works and not be scared off by leftist propaganda.

It seems that we do have to live with it.

But the governments of the world are actively working to destroy the value of their respective currencies and most people seem to be aware of this.

I would suggest it is forgone conclusion that some new monetary arrangement will be necessary in the next 10-20 years- a second Bretton Woods. This gives us some time to spread the word about the benefits of freedom and the costs of intervention.

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Please explain the growth of credit rule when you have the time, maybe create a new thread as we have gone quite off topic  :smile:

Well I will be brief!

The idea behind Friedman's K-percent rule is that the FED would increase the money supply based some predetermined target for specific price level or rate of inflation.

A growth of credit rule would not target a price level or a rate of inflation, it would target a particular "supply" of credit in the system.

The suggestion being that the growth of credit has effects for risk taking and economic cyclicality.

I personally do not support any monetary rules and would rather focus on applying more strident legal standards to banking.