Central banking destroys currencies

SLUSK

I shall argue that central banking does not combat inflation. It creates it. I should not even have to say this as it is self evident. Since the creation of the Fed the US dollar has lost more than 90% of its value. Same trends are everywhere.

Here is a chart of gold prices since 1900.
http://www.research.gold.org/prices/annual/

If you want to combat inflation you should put an end to central banking and take away all authority from the government to create money.

Time Magazine

SLUSK wrote: »

I shall argue that central banking does not combat inflation. It creates it. I should not even have to say this as it is self evident. Since the creation of the Fed the US dollar has lost more than 90% of its value. Same trends are everywhere.

The Fed was created in 1913, and since then the dollar has lost value (at the grand rate of 0.7% a year). 1913 was also the year of the Dublin Lockout. Who's to say it wasn't the unions, eh?

My point is that you haven't argued that central banking does not combat inflation. You simply said that inflation has happened (slowly) since the Fed was founded. Where's your proof that this was caused by the Fed? Where's your proof that inflation would not have been higher, were it not for the Fed?

Here is a chart of gold prices since 1900.
http://www.research.gold.org/prices/annual/

That shows that the government control of gold suppressed the market price for decades. What's your point?

If you want to combat inflation you should put an end to central banking and take away all authority from the government to create money.

Okay, let's allow that, but first admit that your statement requires the assumption that inflation is a bad thing. Now, let's assume that the abolition of central banking could lead to market failures. What would you like then? Would you be willing to accept that perhaps there are thing to consider other than inflation? Or are you assuming that no market failures could possibly occur?

Also, here's one from left-field: honestly, if central banks are so bad, why do you think so many independent economists support their existence?

SLUSK

The destruction of purchasing power is a really bad thing. If you think the destruction of purchasing power is a good thing, why don't you take out about 1% of your money each year and burn it?

If central banks would combat inflation, they would not set interest rates artificially low and pump up the money supply. I personally don't believe in market failures as such since all problems generally are caused by government intervention. Now I cannot prove that this is the case since no free market has ever existed as far as I know.

Don't just look at gold prices, other commodity prices have gone through the roof since then but I'm guessing that just proves that governments suppressed the price of these commodities to...

Time Magazine

Time Magazine wrote: »

1913 was also the year of the Dublin Lockout. Who's to say it wasn't the unions, eh?

Time Magazine wrote: »

Where's your proof that this was caused by the Fed?

Time Magazine wrote: »

Where's your proof that inflation would not have been higher, were it not for the Fed?

Time Magazine wrote: »

That shows that the government control of gold suppressed the market price for decades. What's your point?

Time Magazine wrote: »

Now, let's assume that the abolition of central banking could lead to market failures. What would you like then? Would you be willing to accept that perhaps there are thing to consider other than inflation?

Time Magazine wrote: »

Also, here's one from left-field: honestly, if central banks are so bad, why do you think so many independent economists support their existence?

At your leisure.

SLUSK

Well you are obviously an opponent of free market capitalism.

Flamed Diving

Worst. Thread. Ever.

Akrasia

Flamed Diving wrote: »

Worst. Thread. Ever.

SLUSK wrote: »

Well you are obviously an opponent of free market capitalism.

now

ED 209

Central banking always creates inflation. They increase the money supply and hence inflation. Has any central bank reduced the money supply in the long term?

Look at the rock bottom interest rates across the globe right now. If Central Banks were concerned about inflation interest rates would be at least 4-5 times higher.

They are also a tool to liquidate national debt and are loved by the politicians because they can levy the "inflation tax". Gold standard all the way. Look what happened the Mongols.

Économiste Monétaire

ED 209 wrote: »

Look at the rock bottom interest rates across the globe right now. If Central Banks were concerned about inflation interest rates would be at least 4-5 times higher.

Right... because inflation rates in the EA, US and UK are through the roof right now :rolleyes:.

silverharp

Looking at the US, they would have been better served using the Case Shiller index. It at least measures a broader definition of inflation and would have created a better signal to start raising the administered rates last decade.

Économiste Monétaire

How is a home price index a better approximation of a COLI?

Hasschu

The Gold Standard boxes in gov'ts and does not allow them to stimulate, jump start or slow down economies. Fiat currencies give gov'ts the flexibility to manipulate the economy in a responsible or irresponsible manner. In the present circumstance the Gov't of I. is lucky enough that the Euro is in good hands or we would certainly have a Punt at 40-50% discount to the Euro. The best example of the extremes of fiat currency is Germany where hyperinflation destroyed the middle class in the 1920s' and they then got religion in the 1950s' and have very successfully managed their Deutschmark and subsequently the Euro ever since. You could say about fiat currency what Churchill said about Democracy "It has little merit until you compare it to the alternatives". The bottom line is that it pays to think carefully about whom you vote for.

Flamed Diving

Ah, the Gold Standard argument. Never fails to bob it's head to the surface.

silverharp

Économiste Monétaire wrote: »

How is a home price index a better approximation of a COLI?

if you look at the graph below it would have prompted a quicker response by the Fed from 2002. Any index that ignores house prices, educational costs, property taxes is going to tell you less about the overall inflation picture?


Case-Shiller-CPI (CS-CPI) vs. CPI-U

http://2.bp.blogspot.com/_nSTO-vZpSgc/Slwpr_ost3I/AAAAAAAAGds/96fAxwPHnCo/s1600-h/cpi-case-shiller-2009-06.png

Économiste Monétaire

silverharp wrote: »

if you look at the graph below it would have prompted a quicker response by the Fed from 2002. Any index that ignores house prices, educational costs, property taxes is going to tell you less about the overall inflation picture?


Case-Shiller-CPI (CS-CPI) vs. CPI-U

http://2.bp.blogspot.com/_nSTO-vZpSgc/Slwpr_ost3I/AAAAAAAAGds/96fAxwPHnCo/s1600-h/cpi-case-shiller-2009-06.png

Housing accounts for 42% of the weighting in the CPI-U and 'educational costs' are included as well. Are you complaining about rental equivalence? The weights these groups receive?

silverharp

Économiste Monétaire wrote: »

Housing accounts for 42% of the weighting in the CPI-U and 'educational costs' are included as well. Are you complaining about rental equivalence? The weights these groups receive?

The OER element

Économiste Monétaire

Do you have a link to the construction of the CS-CPI? I'm guessing they just rip out rental equivalence and stick in the C-S national index; any re-weighting in this?

silverharp

Économiste Monétaire wrote: »

Do you have a link to the construction of the CS-CPI? I'm guessing they just rip out rental equivalence and stick in the C-S national index; any re-weighting in this?

you are right , the OER is just under 24% of the index from memory and the CS housing index is substituted for the OER.

cm2000

Inflation isn't a bad thing when controlled, which is the function of a central bank. Thinking that prices are going to rise tomorrow is important as it means people buy things today, which helps to stimulate employment. When the opposite occurs, people hold off spending money in anticipation of lower prices, having the opposite effect on employment, particularly evident today in the housing and retail markets here.

silverharp

cm2000 wrote: »

Inflation isn't a bad thing when controlled, which is the function of a central bank. Thinking that prices are going to rise tomorrow is important as it means people buy things today, which helps to stimulate employment.

is that not a bit simplistic. Are you simply not pulling demand from the future? also the central bank will not be able to control where the inflation is going to show up, consumer goods, commodities, housing, asset prices? and there are too many macro factors which would make any form of inflation targeting impossible.

SLUSK

Flamed Diving wrote: »

Ah, the Gold Standard argument. Never fails to bob it's head to the surface.

Venezuela and Zimbabwe proved to us all that paper money is a good thing.

silverharp

Time Magazine wrote: »

The Fed was created in 1913, and since then the dollar has lost value (at the grand rate of 0.7% a year).

That cant be right? that would imply that prices have only doubled in nominal terms since 1913. surely a 1913 dollar has lost 90 to 95ish% of its value. The other objection would be to the increase in volatiility under the Fed. Anyone who had a bond portfolio in the 1970's was wiped out

Flamed Diving

SLUSK wrote: »

Venezuela and Zimbabwe proved to us all that paper money is a good thing.

And educated people know that exceptions do not prove the rule.