What does that say about the likelihood that ‘nobody could have anticipated … ‘? And if one Wall Street CEO had this clear an understanding, why not the others?

But perhaps this is because you already take it as given that they all knew.

The only obvious question is why are they targeting inflation? Why are they printing trillions of dollars? Why does a well-functioning economy with absolutely no lack of supply need to have prices increase every year? Has inflation made the law of supply/demand obsolete? Do we really need to print $1 trillion to save zombie banks? Why not print $1 trillion to research cancer.

Surely printing $1 trillion to help basic cancer research will do alot more for the benefit of society than printing $1 trillion and shoveling into banks who have done absolutely nothing for society and have created zero value.

clearly there is evidence of this. people lose their jobs due to increased productivity. if the economy is not expanding this will increase unemployment.

an example is subsistence farming — it is no longer viable in the united states. people who have been able to adapt have been driven off of farms into cities and suburbs to push paper around. people who have not been able to adapt are poorer than they otherwise would be.

However, pointing to the worst examples of government – corruption in Boston and incompetence in Bush II’s administration – does not constitute an argument against all government.

Just like pointing to the worst examples in private business (of which there are many) does not constitute an argument against private industry.

I completely agree with you that “Economic systems do not arise out of a vacuum, they arise out of an evolutionary process where they either adapt to conditions, or are consigned to the dustbin of history.”

It took millennia to realize that the earth is round and rotates around the sun, even with an enormous amount of evidence.
The sooner fractional reserve banking is only history, the better, in my view.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/27/AR2009032702504.html

Is TARP different in some sort of legal way than many other sorts of discretionary spending granted to the executive branch? It seems the size is unprecedented, but the type of discretion is not that far outside a lot of legislation.

Regardless of whether I agree, I certainly understand arguments that it was legislation that should not have been passed. But I’ve yet to see a really convincing argument of unconstitutionality, but would like to see the broader set of arguments.

You seem to suggest that fractional reserve banking accounts for greater economic activity. Causation vs. correlation. Maybe it was sunspots? How about earthquakes and volcanic eruptions?

You suggest that fractional reserve banking was somehow responsible for the rise of the British Empire. What, pray tell, caused its decline? It certainly wasn’t the elimination of fractional reserve banking? Maybe it was the elimination of the faux Gold Standard? Please.

As I said, in my view we have done well, for a large variety of reasons (knowledge, technology, climate, etc. etc.) _in spite_ of our deeply flawed financial system. You obviously disagree.

Printing money in and of itself obviously does not destroy wealth, but as soon as you circulate it, you dilute the value of a given amount of money in the hands of those that obtained it through productive endeavor. The act of involuntarily transferring wealth in that manner creates incentives to chase easy money while reducing the incentives for productive activities. In that way it destroys wealth over time.

I am aware of various definitions of inflation and deflation. If you provided a definition of “monetary deflation”, I missed it, which is why we may be talking past each other on that point.
I will say that I have seen economists refer to a general, sustained, decline in the overall price level as “deflation”. They argue it’s always bad. I argue it’s only bad in our badly designed financial system.

If anyone disputes the inflation notion, as suggest they read thru thousands of years of economic history which proves beyond a shadow of a doubt that inflation is a creation of bankers, not a fact of capitalistic or any other society.

Inflation is only necessary since bankers are basically involved in ponzi finance (ala Minsky’s famous finance distinctions), and forced inflation is the only means they have to refinance debt and accumulate massive wealth. Without inflation, ponzi finance is dead, and with it the $100 million a year salaries of bankers who do nothing constructive for society.

As for 400 years of fractional reserve lending, note that we indeed have plenty of evidence that it leads to greater economic activity than the contrary. The Muslim world, for example, outlawed fractional reserve banking. We all know how well that turned out — the Muslim world went from threatening the very existence of the West, to being a marginalized and semi-colonized backwater of use only for the resources that can be extracted from beneath its sands.

History did not start in 1929, or 1776 for that matter. Fractional reserve banking did not arise in a vacuum, there were multiple competing systems at the time that clever London goldsmiths realized that they could lend out a portion of the gold that people were paying them to store in their vaults and make even more money, and fractional reserve banking is simply the one that proved most effective for leveraging current capital into future income — so much so that a dank dreary little island nation that was the first to develop fractional reserve banking managed to leverage its pitiful few assets into an empire upon which the sun did not set. Economic systems do not arise out of a vacuum, they arise out of an evolutionary process where they either adapt to conditions, or are consigned to the dustbin of history. Undoubtedly there is a better mechanism of economic organization than the currently-existing capitalist system, but thus far it is the worst of all possible economic systems, except for all others that have been tried (yes, I misappropriated Winny *again* :-).

Once again, you are confusing tokens of exchange with actual assets. Money is toilet paper with pictures of dead people on it used to facilitate the exchange of goods and services in an economy, not something that has any inherent value. Money is not wealth. Assets purchased with money are wealth. Printing money does not destroy wealth, because money is not wealth — the assets you purchased with money will increase in price just as much as everything else in the economy.

And once again, you are not differentiating between price inflation and monetary inflation. If you have a stable money supply, stable set of inputs into an economy, and increase the efficiency of the economy (i.e., reduce the per-unit inputs into a gizmo, but produce larger numbers of gizmos due to the increased efficiency of the economy), you can quite indeed have declining prices without having monetary deflation. When I talk about inflation and deflation I am talking about monetary inflation or deflation, not about prices. Prices are a measure of monetary inflation or deflation only if the overall efficiency of the economy has not changed — a statement which we know is not true.

Under the best of circumstances – when it is tightly controlled by regulators – it causes moderate harm. In fact, it may even be sustainable indefinitely when tightly controlled, but the bankers make so much money (by taking it from the rest of us) and have never hesitated to use it to loosen, if not eliminate those controls, eventually plunging us into depression.

The 400 years of history you cite is replete with the abuses I cite. You say it is “the most effective way…”, and yet we have nothing to compare it against. We do, however, have the ability to analyze its perniciousness, as well as observe the destruction it has wrought over the centuries. Like I said, we can do much better by making it illegal to lend money you don’t actually have (ordinarily, and properly, considered fraud, except that it was legalized and formalized long ago.)

One point on your #1 serious note…

You make it sound like this contracting will be fair and equitable to all contractors, and that the process is fairly static, with no waste or corruption. Also, that the work will be done to specification, within budget, and on time.

We all know that this is not real world. The contracting process is riddled with corruption. Kickbacks and graft are common. What prevents this? Certainly not yet more government oversight. Waste or corruption on the job? Government was the entity that was supposed to watch out for this in the first place. Are they really the key to solving the problem? Ask those poor people in Boston who died in the TW Tunnel. We all know how well that Big Dig money was spent.

Larger government control is not the answer.

If anything, there are many more inputs in a computer than there were decades ago, it’s just that they have gotten much cheaper and more powerful, allowing for sharp price/performance improvements. Counting the number of chips means nothing.

It is distinctly possible to get the same sort of effect in many other areas as a result of a combination of increased resource availability and improved utilization of same (within limits, of course.)

If the money stock is stable, this productivity improvement will lead to generally declining prices, which has typically been characterized by pro-bank economists as the dreaded “deflation.” It is only dreaded because of the self-serving design of banks by bankers to allow them to create money from nothing and charge as high an interest rate as they can for it, only to have taxpayers pick up the tab when their bubbles inevitably burst.

I submit that any level of monetary inflation represents the involuntary taking of resources from those that contribute to creating them to those that do nothing in exchange for the money they created out of thin air (the banks.) If you reject that assertion outright, then we’ve reached a dead end in this debate. If you simply argue that the benefits outweigh the costs, then maybe we can get somewhere. Which is it?