Could use some help here.

[Virgil0211]

Some guy named edschaffer on this video (http://www.youtube.com/watch?v=VoxDyC7y7PM) left this comment.

@Virgil - "And I can't believe people like you stand for increased regulation of the economy when that's exactly what's caused the dollar to lose all but a hundredth of its value and tanked our current economy."




Your wrong - This tanked our economy:

watch?v=0Y9A0C45KZI

Lack of regulation in the $63 Trillion credit default swap market tanked our economy. Not regulation. Lack thereof. AIG, Citi shouldn't have sold this unregulated "insurance".

[yt]0Y9A0C45KZI[/yt]


Could someone who understands this better give me an explanation of it? I'm a little busy at the moment. Finals week coming up and all that.

[Virgil0211]

He's given me another reply.

You got it half right. The easy credit of the Fed caused the housing bubble. But if this crisis was just about mortgages you would've seen no where near the carnage we saw. That's my point.

Inflated money supply has nothing to do with it. In the crisis the dollar actually gained in value. I have a vid I uploaded on this that dollar's recent decline really has to do with demand and not rising supply.

Anybody mind helping me with a rebuttal?

[Travis Retriever]

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Did he forget about the CRA, Fannie and Freddie Mac, and the federal regulations that forced banks to give loans to riskier applicants?

[Virgil0211]

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Did he forget about the CRA, Fannie and Freddie Mac, and the federal regulations that forced banks to give loans to riskier applicants?

I'm mainly focusing on the dollar "gaining value" in the crisis.

[Travis Retriever]

I think he's confusing short term fluctuations with long term patterns.
With a federal budget deficit in the trillions of dollars, I don't think we have to deal with deflation any time soon.
Stagflation on the other hand...
Also, did he forget about the price of gold (inversely related to the value of the dollar) nearly trippled in the past decade or so?
Meaning the value of the dollar over the long run been reduced by about 2/3?

[Virgil0211]

The latest reply:

"@Virgil - OK, I'll challenge you on the gold front. I think gold is the currency of fear, and it's going to crash. Folks like Peter Schiff will say it's going to $5000/oz but I think he's wrong

First I point you here (correct spaces and dots):

businessinsider..com/if-your-gold-bunker-is-burning-save-this-chart-2009-10

2nd:

cnbc..com/id/33632775

It's going to crash and when it does I think my point will be proven."

[Travis Retriever]

If I can find the time, I'll look through Shane's Economics videos for Gold prices adjusted for inflation.
He gave sources showing that they've been very steady.
I suspect the chart might be using the CPI in which case it doesn't deserve to even be on the internet.

[Travis Retriever]

I wonder how he explains the stability of our monetary system when we were on a gold standard compared to today's fiat system?
He could make the usual arguments, but when you look at that period, if you take into account fractional reserve banking (banks still on state charters as you said) and the fact that it was a multi-metal standard instead of a pure gold standard, things went nicely.
Hell, things back then were still more stable than they were today, period, in terms of inflation and the money supply.

I also would like to note that, because spending (or demand) decreases during a recession (as it's SUPPOSED TO according to Shanedk's video on "what should be done about the economy") while supply (investment/production, etc) increases, if you look at it from a supply/demand point of view.  If that's what he's saying happened, of course it did!  It's SUPPOSED TO HAPPEN!
It was stopped from happening all the way though.  Had we let the recession run its course, things would be ok now.

In a comment Shane said:  "Actually, it (gold prices) have been VERY consistent. Compare it to the price of consumer items. It's been a LOT more consistent than the dollar has!"

OK, found the thread I was looking for.  I'll post the whole thing as to give you the proper context.

tmbeetlebrox:  "A) citiation would be great.
I can see where the gold standard folks are coming from and I can see how inflation may be controlled if we did go back to a gold standard.

It bothers me a little that you seem to be on the "free market" train but want to fix the price of a commodity since that is the only way to make the gold standard work since it would otherwise be open to rapent demand fluxuations. Also you could possible cripple the electronics industry since gold is widely used there."

shanedk:  "The gold standard is NOT fixing the price of a commodity. It's USING the price of a commodity as the basis for trade. BIG difference. The value of the commodity--like the value of the dollar--can rise and fall; the only difference is that with the commodity, there are market mechanisms in place to help it seek equilibrium."

tmbeetlebrox:  "Could have fooled me... Lets just base the dollar off of a barrel of oil. Gold is a widely used commodity that may be less volitile than others but that would mean that the value of the dollar would be be affected by large swings in supply and demand. Why not pick something even less volatile? You don't realize the effect to multiple industies is if you suddenly connected the dollar value to gold. Gold was money now it is a metal. Industrial usage is catching up with monetary usage."

shanedk:  "Except that gold doesn't experience large swings in supply and demand. Its biggest swing is due to inflation, which would be eliminated.

And gold is STILL being used as money. It's the second most-used reserve currency in the world."

tmbeetlebrox:  "Ah, but it can. A new use or new alternative can still cause a large swing. What if a suitable cheaper alternative were found around 10-12% of gold demand would evaporate. Demand is also generated by use of gold as an investment, which makes the issue even more complex than it appears. Perhaps you should address some of the downsides as well? Are there any examples of countries currently using the gold standard? Are they doing well in the globalized economy? It's not a one sided issue."

shanedk:  "Again, gold's demand for its use is vastly overshadowed by its demand as a reserve currency, even in today's world when few if any currencies are backed by gold. That's ALWAYS been its primary value.

Besides, new use will spur digging of more gold; an alternative will increase gold capital. Again, this is the market's way of balancing these things out."

tmbeetlebrox:  "I think you've missed the point, you can talk all you want but where is the proof. The economy is not the same as it was. If it works so great why do we no longer use it? Besides we have good evidence that the 'free market' can't keep the price of gold in check. gold prices have tripled in the last decade but the dollar has experienced a 66% devaluation. You say the price of gold is stable but for inflation and this JUST NOT TRUE."

shanedk:  "'Besides we have good evidence that the 'free market' can't keep the price of gold in check.'

Then cite the evidence.

'gold prices have tripled in the last decade'

Not when indexed for inflation they haven't."

tmbeetlebrox:  "That's not true the price of gold has is ~3x what it was in 1988 but the dollar has only devaluated about 40% only a 66% devaluation would show that gold is only affected by inflation. Besides we see the price of gold spike in large amount through out history including in 1979 and see it dip to 10% of what it is today in the 1960. Even if you take into account inflation gold is very obviously vulnerable to VERY LARGE price flux. Where are you getting your data?"

shanedk: "According to WHAT inflation metric???

Gold was $437/oz in '88. According to the Inflation Calculator at WestEgg, that comes to 785.49 in 2008 dollars! That is VERY much in line with what gold did!

For a second opinion, I used the BLS calculator and got $796.77.

You're just WRONG!!!"

I would also like to note that when the dollar is devalued, people tend to be more likely to trade their fiat money for gold (e.g. Ron Paul, Peter Schiff, etc) that causes the demand of gold to go up, which might have an effect as well.
I haven't asked Shane, but I suspect when he talks about "what gold did" he means supply vs. demand of gold.

[MrBogosity]

I meant gold prices in comparison with inflation. If you take gold's '88 value and convert it to 2008 dollars (the last year those inflation calculators have), you get something around the upper-$700s or $800. And that's about where gold prices were in 2008.

[Virgil0211]

Well, got into a debate with another one. At least this guy seems to have some familiarity with economics.

supermurder67
If you are the fool that thumb downed my comments well piss off. Non regulated markers are chaotic and prone to an eventual failure, due to an oversupply of products. Aggregate Demand does not equal Aggregate Supply, so people lose their jobs, then their is a recession. Regulated Economics do not produce wealth at the rapid rate capitalism does, but are less prone to recession for example in 08' China had economic growth of 8.8%, while the rest of the world is facing a downturn.

Virgil0211
Actually, that's because of the easy money and protection of the banks, which leads to excessive and unnecessary investment. After the money circulates and begins to lose value, consumption drops. This is the recession, and its the cause of our current predicament.

And no, I'm not the "fool" who downthumbed your comment. Way to behave towards people who disagree with you. I'm sure you'll convince millions.

supermurder67
Ok.... Anyhow back on track, the investment manipulation is more of a conservative thing. Keynesian Economics is more about manipulating consumption than investment. Also I was referring to recession in general, not stock market crashes. Consumption dropping doesn't have to be paired with inflation as you said. When consumption drops like you said, there is too much supply. So manipulating income,and spending increases consumption, until the economy reaches full employment, continues spending

Virgil0211
Increasing the money supply to encourage employment is a Keynesian idea, is it not?

And the intent of the recent lowering of the interest rates was to direct investment into the housing market to increase home-ownership. Intent != consequences, unless you're Kant.

If the drop in consumption is due to something other than inflation, even more reason to leave it alone. Either you print it or it comes from somewhere else. Look up "broken window" fallacy.

supermurder67

Housing doesn't increase employment??? Confusion? You do not have to print the money, you can manipulate the demand. Research Crisis Theory, also one more thing how does the economy bring itself to full employment.

Virgil0211
If the housing is a result of manipulation of the money supply, then the increase in employment is only temporary. Eventually, the market readjusts as a result of inflation.

The primary way you manipulate the demand is through government spending, which would involve either taking the money from some other part of the economy or borrowing it from another country. If the former, the net gains would be minimal as it would simply be moved around. If the latter, it would increase the national debt


(I realize I didn't answer his last question, but I guess he decided to let it go.)

supermurder67
Before you continue, you do understand how the spending multiplier works right. If you stop the excessive spending when the economy reaches full employment, there will be no inflation. Here you can use contractionionary fiscal policy (decrease spending, and increase taxes) or increase aggregate supply and then the inflation will drop as well.

Virgil0211

To answer your question, yes. However, to spend this money, the government must take it from someplace else. This will have a harmful effect on producers/consumers who would either have spent the money on something else or invested it in either a trust or a bank. In addition, because the government isn't spending based on a pre-existing demand, it perverts market demand in such a way that removing the spending would have a detrimental effect towards whatever industries the gov spent its money on.

Also, inflation isn't just due to spending. It also has to do with the quantity of money circulating in the market. If you arbitrarily increase the amount of money in the market, you will inflate the currency.

[MrBogosity]

If you are the fool that thumb downed my comments well piss off. Non regulated markers are chaotic and prone to an eventual failure, due to an oversupply of products. Aggregate Demand does not equal Aggregate Supply, so people lose their jobs, then their is a recession.

Obviously another Keynesian denying Say's Law.

[Virgil0211]

And the saga continues...


supermurder67
You are understanding of inflation assumes that prices are completely flexible. For example, now that were are in a recession there was a 3.8% decrease in inflation in the last quarter of 2008. So if we assume prices are sticky, then increasing demand only increases GDP. Search Aggregate supply models, there is one for classical, Keynesian, and then there is one that puts them both together. The one that puts them both together says that price level will start to increase when the economy is at full employment.


Virgil0211
Ever heard of Say's law?

Even if that were true, the only way the government could generate a net increase in demand is either through printing the money, which leads to inflation, or lending, which would just hurt us later when we had to pay it back. Otherwise, it's just moving around existing capital.




supermurder67
Yes. Supply Creates its own demand. I am glad there is someone like me who sits on you tube all day, it makes me feel less useless. (Just messing with you) Kaynes says "if there is a demand, it will be supplied." He flipped it upside down. Did you look at the models I told you too. Your reference to inflation only works assuming prices are completely flexible.

[MrBogosity]

He apparently doesn't even know what it means for prices to be "sticky."

[Virgil0211]

He apparently doesn't even know what it means for prices to be "sticky."

So, what exactly is he trying to say? Increasing the money supply only leads to inflation if prices are flexible, but they're not?

[MrBogosity]

It's Keynesian garbage; they think the demand curve is actually what drives supply. This is exactly why Obama's trying to encourage consumption during a recession, which is exactly the wrong thing to do.