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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (54006)	2/16/2006 1:22:12 PM
From: gpowell	Read Replies (2) \| Respond to of 110194

Fiat money generally heads to zero over time. Our society has a collective bias towards mild rates of inflation and counter-cyclical policy and our fiat currency reflects this bias. If, on the other hand, we favored a fixed supply of money so that all increases in goods and services resulted in price shifts then our fiat currency would increase in value over time. Thus the fault, Misheldo, if collective action can ever be faulted, is in ourselves, not our currency. In a world of no fractional lending and balanced budgets, purchasing power of a currency, would likely hold. There is no necessary connection between budgets and the value of a currency. Suppose our government always ran a surplus, the Fed could inject money into the system simply by paying for human capital – say by paying the entire cost of any and all education. As for, "purchasing power of a currency, would likely hold..," your insistence on saying that any increase in the money supply is inflation, makes your statement about the purchasing power of money holding ambiguous. Do you mean the purchasing power the monetary unit would have in the face of increases in output, or do you mean constant purchasing power, necessarily implying inflation (your definition) to match increases in output. For the latter, fractional lending would be necessary. It is the discipline of gold that keeps things honest (assuming there is no fractional lending either). Tell that to the Romans!