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Thanks for some good news for a change S.O.! Perhaps another question is that of: what of doomsayers who talk the monetary system and hyperinflation or slow but sure high inflation? What do you think when you hear of "the purchasing power of the U.S. dollar has lost 90% of its value since 1913"? Or is it more of a case of what you buy nowadays for a week's worth of work than what $1 buys in 1900 A.D. versus 2000 A.D. per se?

In some places, it is believed that the debt of a nation as a whole is a more realistic way to compare debt burden to ability to repay. What do you think of this idea? If the citizens of a country are overleveraged, should this have any impact on the national debt?

"On this empirical record, the portents to the USA to be able to get out of this crisis by debt-financed government spending and direct financial sector bailouts–which effectively swap private debt for government debt–are not good. The latest Flow of Funds data records the aggregate US Debt to GDP ratio as 381% of GDP (with the private sector’s share of that being 290%). This is more than twice the level that the Japanese economy started with when it entered its Lost (Two?) Decade(s)."

http://www.debtdeflation.com/blogs/2008/11/29/can-the-usa-debt-spend-its-way-out/

Gil: The amount of labor to buy a loaf of bread (or light a hundred sq. ft. room at night to a given brightness) are examples of valid comparisons. Nordhaus did the lighting analysis going back to cave men, and demonstrated that we've incurred tremendous deflation, esp. since the industrial revolution.

The other way of looking at it (90% drop since 1913) is a good example of single-entry accounting.

Sky: I try to keep government debt separate from private sector debt, for a lot of reasons, one being that they are independent economic entities. One can be overleveraged (or underleveraged) while the other is not.

Regarding opinions on the Fed/Treasury actions: they are a dime a dozen these days. My position: the Fed is trying its best to prevent deflation and depression by ballooning its balance sheet. If that works (and we'd better hope it does), they'd better be ready (after the credit system starts to thaw) to sell their weird mix of assets back to the public quickly and nimbly, as necessary to prevent future inflation. They're taking one problem at a time, and in the right order.

Steve,
What are your thoughts on the $50+ trillion dollars of unfunded entitlements (i.e., social security, medicaid, medicare, etc.) that are not included on the balance sheet and not included in your debt balance? If those numbers are included our national debt is north of $60 trillion. Thanks.

Jimmy:

It's sensationalism. I assume you got that figure from the same place Glenn Beck did: ex-Comptroller General David Walker. As I've explained before: The 53 trillion that's supposedly the result of "accrual accounting" is actually the result of "single-entry accounting" (which became obsolete 500 years ago, by the way).

One of several misleading aspects of the scary "53 trillion" number is that it ignores the government's taxing power, and therefore the future tax revenues that accrue from our economy's growth, as a former Treasury secretary explained in the Financial Report of the US Government, as follows:
"The assets presented on the Balance Sheet are not a comprehensive list of Federal resources. For example, the U.S. Government's most important financial resource, its ability to tax and regulate commerce, cannot be quantified and is not reflected." —page 8, 1998 FRUSG

Ignoring the tax revenue stream in a growing economy is single-entry accounting for headline-grabbing purposes. Keeping the growth rate assumption secret—another tactic of the headline-grabbers—is also deceptive.

Glenn Beck fell for the hype, too, and embarrassed himself for a week on that topic -- and that was *before* the Sept/Oct meltdown. I wrote this article about it:
http://tinyurl.com/65upun

Steve,
Thanks for your response. I'm not an accountant, so I don't fully understand the mechanics of what you're describing.

Are you saying that the entitlements are included in the current $10 trillion debt? If so, what percentage of the $10 trillion is entitlements?

If not, then in a dual entry accounting system, my assumption is that we have an account payable balance of $53 trillion for promises to pay entitlements. What would the off-setting asset be in this scenario? E.g., anticipated taxes on future GDP growth?

If the latter scenario is correct, shouldn't these monies be captured as part of our debt calculation?

Thanks for your time.

Jimmy:

Don't feel like the lone ranger; I can count on one hand the number of people I know who understand how Walker's "present value of unfunded liabilities" is calculated -- and I used to be absent from that count.

The unfunded liabilities are not in the $10 trillion current debt. The $53 trillion is the present value of the next fifty years of entitlements that are not offset by their programs' anticipated future tax receipts. But because future tax receipts are dependent on future GDP growth rates, future tax rates, future size of the working population, future borrowing by the entitlement programs from the general fund, future inflation or deflation, future changes to the entitlement payouts, and other future decisions by legislators in general, the $53 trillion is about as meaningful as the average telephone number in Manhattan.

A much better forecast that would provide a good start to a substantive discussion would be the debt/GDP ratio (or Times Interest Taxed) fifty years from now. A few-second portion of Walker's movie showed it launching up to 240+ percent, but cut away quickly without going into GDP growth assumptions, or any other assumptions for that matter. I think I know why, based on the answer I got from a person at the Heritage Foundation familiar with the models: the annual growth rate for GDP, which drives the growth rate for tax receipts, was probably assumed to be between 2.2-2.8 percent. That's anemic, in my book. And anyone who thinks it's realistic should be peddling program ideas that would improve the growth rate.

What would help a lot would be journalists who are prepared to ask tougher questions when the fear-peddling bookkeepers come to town. But they haven't done anything close to that yet; instead, they've been acting like nothing more than gaping groupies at a rock concert.

why doesn't someone at least ask them for a confidence interval around the $53 trillion? In my experience, bookkeepers have a tough time getting *next month* forecasted accurately, let alone next year or the next *fifty* years. I made a crude attempt a while back, and I think there are at least 540 possible outcomes (as opposed to the single outcome Walker is peddling). Here's the article, which I had almost forgotten about:
http://tinyurl.com/2sztvw

Steve,

Is or could there be such a thing as an optimal interest rate on treasuries? The ten year is something like 2.6 or so lately and I guess that's good for interest payments on new issues. On the other hand very short term maturities are at zero or close to it. I don't think that's good at all.

I don't know where rates should be or why they are so low right now (I've read many different opinions) but if the banks are parking TARP money in treasuries instead of lending it or money is coming out of equities and going into treasuries I can't see that as being a good thing.

Furthermore, if the economy was juiced by lendors selling off debt
through crazy derivatives (thereby having no skin in the game) and that scheme is over, then something has got to give, right? And, with the fed funds rate so low it seems to me that the ammo has run out. That leaves taxes about the only thing left to play with.

What say you?

Bob,

I don't think the low rates on Treasuries are a good sign; I think they are a signal that too many lenders would rather park their money safely than lend it to an entrepreneur who just might fail.

I heard from an insider that the zero percent (and lower) rates on short term Treasuries are due much less to a general flight to safety by the average investor, and much more to a short term (December) rush by the hedge funds to window-dress their balance sheets before they print their year-end reports. "Short-term Treasuries" looks a lot better on the balance sheet than "Uncle Gus's Investment Bank" -- or even "Cash."

My biggest concern with our current situation is whether the Fed & Treasury, after money velocity starts getting back to normal, can unwind their unprecedented stimuli (sell back the assets they bought) with enough dexterity and timeliness to prevent a crippling inflation. That will be the next challenge, and I'm not convinced they have the measures or the skill to pull it off; I'm also not convinced they don't. Just don't know. In any case, that's down the road, and they are (so far) successfully staving off a crippling deflationary spiral. Either extreme has led to the overthrow of governments in the past, and I like (for the most part) the kind of government we have in place, so I'm pulling for them as they tackle those two problems in sequence.

"My biggest concern with our current situation is whether the Fed & Treasury, after money velocity starts getting back to normal, can unwind their unprecedented stimuli (sell back the assets they bought) with enough dexterity and timeliness to prevent a crippling inflation. That will be the next challenge, and I'm not convinced they have the measures or the skill to pull it off; I'm also not convinced they don't. "

Let's see. The private sector ( spurred on by a bubble created by below market interest rates, the Greenspan/Benarke put, bizzare rules, the CRA, and explicit governement backing of Fanny and Freddie) creates a bunch of junk assets.

Then government buys this junk at bubble prices, and you are wondering if somewhere down the line it's going to be able to sell these in a skillful and dexterous way to prevent inflation?

"Just don't know. In any case, that's down the road, and they are (so far) successfully staving off a crippling deflationary spiral."

What? Like the crippling deflationary spiral in hard drive prices and computer memory?

Or are you talking about the crippling deflationary sprials caused by all depressions prior to the Great Depression, where the deflation was resolved in one in a half to two years?

You certainly aren't talking about the kind of crippling deflationary sprirals where the Government stepped in to try to save the day. Like when Hoover injected unprecidented amounts of money into the system, while at the same time starting up massive public works project, price controls and the like. Then where FDR followed the same policies extending what should have resolved itself in two years into a ten year ordeal.

Don't be afraid of the deflation. That's only prices correcting themselves to market values, in response to goverment meddling in the economy. Be afraid of the massive move to state control over the economy. We know what that does. It brings on the U.S.S.R and the Great Depression.

Mr. Steve Conover,

Unfortunately, or fortunately, I understand how government intrusion into the markets distorts price signals.

Your chart is dependent on interest rates, yet your graph is not adjusted to the effects of the government keeping interest rates below market. According to Austrian economics the lowering of interest rates below market will initially have the effect of increasing tax revenue. However that isn't a signal of a healthy economy, but instead a signal of an economy consuming it's capital while experiencing an asset and later commodities bubble.

A interest rate fractional reserve (and leverage driven) inflation like we've just experienced over the last 18 years is bound to make tax revenue go up, and by definition interest rates go down.

What was unusual during this period was the effect of the Reagan/Thatcher revolution that allowed us to export our price inflation on the backs of productivity gains. Gains made mostly by foreign third world countries throwing off the shackles of communism and socialism.

Instead of experiencing the productivity driven price deflation we should of the FED used a bad metric, prices, to decide on the proper interest rate. Thus setting the rate way below market, while trumpeting how little inflation it was causing (while actually underestimating inflation).

The below market interest rates only served to lower US savings and increase US borrowing. This is because an interest rate ceiling is a price ceiling. Like all price ceilings it leads consumers, borrowers in this case, to consume more (borrow more) while causing producers (savers) to produce less (save less).

Similar effects predicted by Austrian economics caused the assets bubbles, the market manias, the large trade deficit, etc.

In particular the credit shortage is the expected outcome of any price ceiling. Price ceilings cause shortages, and Austrian economics teaches how and why those shortages sometimes appear later rather than sooner.

The current economic environment is one that will deteriorate into inflation. With rising inflation the interest rates will rise because it is one of the components of interest rates. If you recall interest rates are composed of 1) Time cost of money 2) Risk reward 3) Price Inflation.

Our current situation is unique compared to prior inflations, and I will not list all the ways but some major ones. a) We are coming into it with a large trade deficit. b) Our manufacturing base is reduced. c) We are a net debtor nation. d) The government is holding it's debt short term. e) There are large foriegn holdings of US cash. f) We are comming off the longest period of monetary inflation in US history. g) The baby boomers are near retirement age. h) We have consumed large quantities of our productive capital.

Now back to those three aspects of interest rates. 1) The time cost of money goes up during hard times, and with lower levels of capital. This is why third world nations have high interest rates. 2) Risk reward when lending to borrowers who are less likely to pay back. As interest rates rise so too will the understanding that we can't pay. Along with all the other unique conditions above it will be clear that we can't do so without monetary inflation. 3) Price inflation will by defintion be going up and will be exacerbated by many of the above factors. Foreign holders of cash trying to dump, the US government trying to pay SS to increasing numbers of old people, and so forth.

Now in that environment the government is not holding most of it's debt in 15 or 30 year notes. Most is now in short term treasuries. As inflation increases no one is going to want to buy them. Interest rates will skyrocket because all three factors that determine interest rates will be going up simultaneously. However the government will have to refinance at the new higher rates.

As that happens the Ponzi scheme will be revealed, and the dollar will go into the toilet.

Are you aware why the Zimbabwe dollar has an price inflation rate of 230,000,000 percent? You might think that the government printed up 2,300,000 times the money but in that you'd be mistaken.

The price inflation although triggered by monetary inflation is not solely determined by it. Prices are determined by the ratio of goods to money. Zimbabawe had both monetary increases and productivity decreases. There was also less goods for the money to chase. With a tenth to one hundredth the goods even with stable money prices would go up.

But it's worse yet. Foreign holders of Zimbabwe dollars, and there weren't many, dumped them.

Plus a certain amount of goods are consumed by producers, like farmers themselves. The money can only chase goods actually put up for sale. So if farmers consume one twentieth their goods and production reduces by ten fold then that in effect drops "for sale" production from 19 to 1. A nearly twenty fold decrease.

The monetary inflation itself interferes with productivity, causing misallocation of resources, further driving down the number of goods produced.

On top of that the government in such an environment is tempted to intervene in bad ways. Such as public work projects, price controls, subsidies, regulation, all of which drive down productivity.

One example, being that Zimbabwe put price controls on and force shop keepers to sell their goods way below market. Well, people crowded the shops on opening day, flooded in, and essentially looted the shops, handing over worthless currency for real goods. What do you think the shops are going to do? Well certainly not stay open for business, and nor will the original producers of the goods, if local. Meanwhile foreign producers will not sell for worthless Zimbabwe dollars.

Your graph captures none of these many effects, of unsound monetary policy.

Brian,

Austrian thinking regarding the real economy is excellent. Hayek's paper ("The Use of Knowledge in Society") should be required reading for everyone. Austrian monetary theory, however, is not my cup of tea. I am with the 99% of people who define inflation in terms of price level -- not with the Austrians, who define it as any increase in the money supply whatsoever (which, by the way, is virtually impossible to measure -- and if you disagree, show me where we can quantify the aggregate total of lines of credit, which, when exercised, become new money instantly).

My graph is better than the debt/GDP ratio widely used to compare nations' debt levels, because it incorporates not just the effect of the debt level, but also the effect of market-determined interest rates on the outstanding Treasury securities.

It still leaves out one important factor, though: inflation/deflation, which should also be controlled. It is highly undesirable for the govt to inflate its way into easier servicing of its debt, and highly undesirable to deflate its way into more difficult servicing. If you can think of an index that incorporates inflation/deflation, debt level, and market-determined interest rates into a single number, I'm all ears, and ready to take notes.

Because you subscribe to Austrian monetary theory, I presume you buy their assertion that "money velocity" is meaningless bunk -- in which case I have some follow-up questions for you regarding the current shift to money hoarding that is slowing down the entire world's economic activity.

I have a few other questions, too. Most of them flow from the odd perspective (odd to me, anyway) that "inflation" is doomsday, but deflation is nothing to worry about or waste time discussing. Odd because both are examples of unstable money; inflation favors borrowers and punishes creditors; deflation does the opposite.

I favor money of predictably stable value; desiring that while ignoring deflation seems to be a very odd approach, but perhaps you can persuade me that it is in fact a really good idea(?).

"Austrian monetary theory, however, is not my cup of tea."
Have you actually read and understood it?

"I am with the 99% of people who define inflation in terms of price level -- not with the Austrians, who define it as any increase in the money supply whatsoever (which, by the way, is virtually impossible to measure -- and if you disagree, show me where we can quantify the aggregate total of lines of credit, which, when exercised, become new money instantly)"

Austrians don't define "inflation" as "any increase in the money supply whatsoever." Austrians distinguish between monetary inflation, and price inflation, whereas 99% of people confuse the two.

The difficulties of measuring aggregates is actually point Austrians use in criticizing other economic schools.

"My graph is better than the debt/GDP ratio widely used to compare nations' debt levels, because it incorporates not just the effect of the debt level, but also the effect of market-determined interest rates on the outstanding Treasury securities. "

But with government intervention interest rates are not "determined by the market". The government has tools it can use to move interest rates quite a bit away from market prices.

Of course eventually the market will assert control. In the meantime your graph will be effected by the artifical interest rates, making things look rosier than they are.

"It still leaves out one important factor, though: inflation/deflation, which should also be controlled."

Which type of inflation, monetary or price? I see no need to "control" something the market would take care of itself if left alone by the government.

"If you can think of an index that incorporates inflation/deflation, debt level, and market-determined interest rates into a single number, I'm all ears, and ready to take notes."

Not something an Austrian would care about or even think is possible.

"Because you subscribe to Austrian monetary theory, I presume you buy their assertion that "money velocity" is meaningless bunk"

Because it is meaningless bunk.

You can read why.

"I have some follow-up questions for you regarding the current shift to money hoarding that is slowing down the entire world's economic activity."

Your observation that there is a "... shift to money hoarding that is slowing down ..." already has bad economic theory implicitly built into it. It's like saying, we observe the pencil bends as we place it in the glass of water. In fact the pencil does not bend.

You assume that people being more careful with their money is a cause and not a symptom.

In fact, what we are experencing is a fractional reserve monetary deflation, which was caused by a fractional reserve monetary inflation. People are just discovering the fraud inherent in the system and trying to protect themselves.

"I have a few other questions, too. Most of them flow from the odd perspective (odd to me, anyway) that "inflation" is doomsday, but deflation is nothing to worry about or waste time discussing."

I guess it would be puzzling if you don't distinguish between different kinds of inflation and deflation, or understand their causes, and effects.

In general Austrians welcome price changes brought about by the market because prices are a signaling mechanism. So there is nothing inherently bad about price deflation or inflation.

It's the non-market causes of inflation/deflation that may be bad. For instance, if a counterfeiter moved into town causing monetary inflation then that would be a bad kind of inflation. Everyone at first would think they were getting rich, until the fraud was exposed.

"Odd because both are examples of unstable money; inflation favors borrowers and punishes creditors; deflation does the opposite."

But this is wrong. There are many types and causes of inflation/deflation. Not all are
signs of "unstable money".

"I favor money of predictably stable value"

It's a mistake to think of money as having an intrinsic value. Trying to stablize that "value" is a further mistake.

In a free market the exchange rate of money against other goods varies, and that is a good thing just like any other price change.

Do you get upset over the varying "value" of wheat?

If people decide they have an increased need for money then the value of money will go up, all other things being equal. There are many reasons why they might decide to do so. There are plenty of good reasons to do so right now. On what grounds do you argue against this market decision?

"... desiring that while ignoring deflation seems to be a very odd approach ..."

Austrians don't desire a stable "value" for money.

"... but perhaps you can persuade me that it is in fact a really good idea(?)."

I'm not motivated to persuade you of something I don't believe in.

"... (which, by the way, is virtually impossible to measure -- and if you disagree, show me where we can quantify the aggregate total of lines of credit, which, when exercised, become new money instantly)"

Which makes me curious about what you believe. You seem to believe in "money velocity". Given that the money velocity is something that cannot be directly measured, but instead is based on a formula.

That formula is MV=PQ; that is, the aggregate stock of money (M) times the “velocity of circulation”
of money (V) must equal the “price level” (P) times the quantity of real output (Q).

But you are claiming that M is "is virtually impossible to measure."

Note too that P really is impossible to calculate since it really is a ill defined term. How exactly do you calculate the current price level?

It's impossible to calculate a "change in price level" also. Usually it's attempted by using a basket of goods but there are a whole bunch of unresolvable problems. Which basket of goods, and in what quantities? Do we calculate on the margin or do we need to take demand and supply curves into effect? Do we have to consider substitute goods? Do we need to consider productivity increases? What about product improvements?

Further problems are discovered if you consider what the unit of quantity of Q is? How do you measure the "quantity of real output" independent of money? Is it measured in pounds, inches, quarts?

Let's make it simple. Suppose Robinson Crusoe trades the one gold coin he has for a coconut that Friday owns.

Does the quantity of real output, Q, only include the coconut or also the banana he could have bought from Friday instead? What about other things produced, yet not traded, like internally developed software, or in this case a pole for knocking coconuts out of the trees.

Does M only include the coin or does it include the seashell that Friday traded with Crusoe for a crab the day before? (They might be using shells as money too). If so then what valuation to use between shells and gold on any particular day?

What's the price level in this situation. Is it an ounce of gold per coconut? Sounds right, at least for one item, but wait, does that mean all price levels are measured in gold/coconut? What about when a banana and a crab is traded? There is apparently no unit of measure for P.

Finally, what is the velocity in this transaction? Is it how fast Crusoe hands over the coin? Apparently not. Supposely with lots of transactions you can aggregate this value, velocity, yet it's hard to identify in any one transaction. Is the velocity measured in ounces of gold per coconut? Seems to be in this situation since the transaction is instantaneous.

But wait. People who believe in V want it to be based on time. Perhaps if Crusoe has two crab and then Friday trades his newly acquired coin for the crabs that will make a difference? Now we can measure the time that expired between transactions, as "ounces of gold per coconuts per hour."

But wait. That only works Friday bought back his coconut.

One could claim that the velocity of the money is how many times the gold coin was used to trade for something but then why the heck do we need to know the quantity of goods to determine velocity?

Why on earth would that velocity have anything to do with the prices of all goods in production? Just because Friday waited an hour vs. a day for the second trade we are suppose to believe that effects how much gold will buy Friday's coconut knocking pole?

Meanwhile how does that fact help me know why two crabs, and not three? Did the "velocity" or the number of trades really have any effect on why Friday likes two crabs more than a shiny coin, or why he couldn't get Crusoe to give him three?

In fact, there is nothing in that formula that explains prices at all. Why the actors chose to do what they did has nothing to do with "velocity". People don't choose to pay more or less for things based on how often a money is traded.

Friday may have been really hard up for crabs that day and traded the coin for a single crab.


Brian,

You said: "Austrians don't define 'inflation' as "any increase in the money supply whatsoever."

Well, at least two of the Austrian school do. Ludwig von Mises is one of them, and Gary North, author of _Mises on Money_ ( http://tinyurl.com/52xl7m ), is another. Two examples:
---------
(1) "Inflationism is that monetary policy that seeks to increase the quantity of money."
—Ludwig von Mises, Theory of Money and Credit, Part Two: The Value of Money, page 251.
---------
(2) Recent email exchange between Gary North and me:

Me: "Do you define "inflation" as an increase in the monetary base, or as an increase in the general price level?"

Gary North: "Money supply."
---------

You also said: "Austrians don't desire a stable 'value' for money."

Then I guess I misunderstand why Mises chose the title he did for Part Two of his book, _The Theory of Money and Credit_. The title he chose was "The Value of Money"; in it, he explained at length how the fallacious monetary policy of inflationism (deflationism) decreases (increases) the value of money.

"You said: 'Austrians don't define 'inflation' as 'any increase in the money supply whatsoever.'"

Yes, I did. Some Austrians, like Rothbard, don't count growth in specie as 'inflation' although arguably it increases the money supply.

Rothbard in particular considers growth in money supply over and above growth in specie to be monetary inflation.

What is important is that they distinguish between the different kinds of inflation and don't confuse bad attributes of one kind as effects of a different kind. Fractional reserve monetary inflation, monetary inflation caused by debasement, fiat inflation, and price inflation.

They also recognize that large influxes of specie can have similar effects as monetary inflation but only temporarily. They are for the market sorting that out.

Austrians understand that monetary inflation leads to general price inflation. One is the effect of the other.

Austrians would certainly prefer that people use the term "inflation" to mean "monetary inflation" because that puts the blame squarely on the shoulders of those who cause price inflation, the government and/or fractional reserve bankers, depending on the monetary system.

Ask Gary North if a) He thinks gold was money. b) If mining new gold would cause and increase in the money supply? c) Would he define that as "inflation"?

Or more simply ask him if gold mining is "inflation".

It's likely that he will say no.

Likewise there are other avenues to increasing the money supply within a country, for instance trade. Austrians would not consider and increase in money supply due to trade to be a case of "inflation". You can ask North that question also.

"Then I guess I misunderstand why Mises chose the title he did for Part Two of his book, _The Theory of Money and Credit_. The title he chose was "The Value of Money"; in it, he explained at length how the fallacious monetary policy of inflationism (deflationism) decreases (increases) the value of money."

Just goes to show that it's hard to understand one economic framework from the perspective of another. You need to read the entire theory and not just the titles or partial chapters.

The second paragraph of the start of that section reads: "This must not be understood to imply that subjective value is of less importance in the theory of money than elsewhere. The subjective estimates of individuals are the basis of the economic valuation of money just as of that of other goods."

He goes on to explain that money has subjective value that depends on the utility that people place on it.

If you'd read the theory you would find that one of the subjective values of money is as a "store of value". Peoples need for a store of value varies, as does their need for other properties of money. With this variation of subjective valuation the value of money will also vary, like any other exchange rate.

The Austrian position is that this variation must be allowed to occur because it sends price signals through the economic system to other actors.

Think of an economy as a special kind of distributed super computer system where each person receives and sends signals via prices. Realize that prices vary geographically, and over time. Similar to Einstein’s "gravitational mollusk", goods move in response to these price gradients through this super computer.

Each processor (person) has local information that would be too expensive to transmit without informational compression via prices.

Even if the information could be transmitted no individual processor (human) or group of processors (organization) even if artificially enhanced could directly deal with the localized information (individual desires, talents, knowledge, skills, assets, etc.)

When you stick your fingers in the very organic operation of this super computer by trying to "stabilize" you are in fact inhibiting it's proper operation. The result of such interference by mere humans is certain to result in a reduction in the satisfaction of individuals subjective goals.

When money gains or loses value naturally then it is sending information through the economic system and that is not information that should be suppressed from flowing through the system.

Note that these increases and decreases in the exchange value of money is not uniform throughout the economic system. Part of the information stored by the system is in these variations. The "waves" are themselves information carriers, be they standing waves or ones that are moving.

The person who "hoards money" sends the signal that they wish to consume less now and more later, or that they expect hard times. The person who "dishoards" sends the signal that he wants to consume more now, or that he expects things to get easier.

The saver, the lender, the borrower, etc. all send signals of their personal knowledge. People may save money from one location and move it to lend in another because they believe that investment in that area is more in line with their goals.

These all can and do affect the objective exchange value of money.

Austrians are not of the mind that they want to suppress these signals.

The kind of monetary changes they are against do suppress these signals and also send false signals.

The Fed printing up and spending several trillion dollars sends the false signal that more goods were produced in Washington and that other individuals should shift their behavior in order to take advantage of these new goods. In fact, nothing of value was actually produced. The signal will cause people to spend when the

Brian and Steve,

Please continue this discussion...

Thank you.

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