The Trucker wrote:
> On Sun, 04 May 2008 15:05:34 +0000, jmh wrote:
>
>
>>On 2008-05-04, The Trucker <mikcob@[EMAIL PROTECTED]
> wrote:
>>
>>>On Sat, 03 May 2008 20:17:31 -0700, orangatang1 wrote:
>>>
>>>
>>>>On 2 May, 22:02, Ron Peterson <r...@[EMAIL PROTECTED]
> wrote:
>>>>
>>>>>On May 2, 1:12 pm, orangata...@[EMAIL PROTECTED]
wrote:
>>>>>
>>>>>
>>>>>>It has long been recognised that deflation is the main cause of
>>>>>>recessions and depressions.
>>>>>
>>>>>What causes deflation? And, how do you know that?
>>>>>
>>>>>--
>>>>> Ron
>>>>
>>>>Inflation is caused by increasing the amount of money in circulation.
>>>>Roughly speaking, if the amount of money in circulation doubles the
>>>>value of money halfs. So, if the fed creates a lot of new money
>>>>inflation increases.
>>>
>>>That is what would happen if the money is injected at the bottom --
wages
>>>or other injections at the consumer level. But if the additional money
>>>does not pass through the hands of the dudes at the bottom, of it is
just
>>>injected at the top like right into the financial markets then it
quickly
>>>settles into the pockets of people who will not spend it. It is simply
>>>dead money.
>>
>>Both the above are gross simplifications but I
>>think the second case is also wrong. Trucker,
>>are you really trying to say that there is not
>>inflationary impact/effect when money is injected
>>via the capital markets?
>
>
> "flation" is a "degree". Not black or white or yes
> or no. Injection of money into the pockets of those
> who have all they need and no need to "invest" will
> cause less INflation (if any at all) than money injected
> into the pockets of those who will spend it. It is the
> spending that bids up the prices that manifest "inflation".
> If there is less additional spending then there is less
> inflation. The major problem with "trickle down" is that
> there is no reason for the holders of money to invest.
> They know that the common people will have no jobs and no
> money and there will be NO inflation. The money held
> by the rich will get more "valuable" and they need not
> add to their pile of money to add to their actual wealth.
>
There is much confusion about the term inflation. Inflation means to
increase the money supply. This may or may not increase prices and wages.
Money is a medium of exchange. The more value produced by an economy,
the more money is needed for exchange. Then there is the question of how
money is introduced and to what sector it is introduced. We can separate
the economy into two sectors that have limited connection with each other.
One side is the labor based goods and services economy including real
capital goods like tools, machines, and buildings. The other side are non
labor produced assets like land, many trading stocks and bonds, and
special
privileges like patents and other monopolies that are tradable. This side
is dominated by what Dr. Michael Hudson calls the FIRE (Finance,
Insurance,
Real Estate) sector.
Money injected into the FIRE sector may not effect wages or prices even
though they inflate the price of fixed assets like land and financial
securities. The assets of the FIRE sector greatly exceed the entire GNP
of
the US.
In our system, money is introduced by investment in the FIRE sector.
Bankers create money and they do it mostly as mortgage loans. Bank
created
money is not the only monetary scheme historically used in the US. For
example, during the Civil War, the Treasury issued money directly into the
goods and services economy by spending Greenbacks into circulation. This
threw the bankers into a panic because they saw that Greenbacks could
eliminate scarcity of money in both the private and public sectors and
thus
eliminate much of the bankers' business. If the government could print
money and spend it into circulation on public works projects, value would
be created along with the money and so there would be no general rise in
wages and prices.
A massive propaganda campaign was launched between 1890 and 1913 to
convince the middle class in America that Greenbacks were evil and had to
be eliminated and that only gold could serve as the basis of money. The
expensive efforts of the bankers were successful and ultimately led to the
Federal Reserve Act. This act solidified the interests of the bankers
into
a powerful, cooperative, money monopoly for the benefit of themselves and
the entire FIRE sector.
Mark Monson
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