The Worthlessness of Our Money

[Rule3]

Fear not! a second stimulus check will be coming to further boost the economy.






[ame]https://www.youtube.com/watch?v=wTP2RUD_cL0[/ame]

 

[peter-paul]

The economist Stephanie Kelton, with a real life example, of why government printing presses running off seemingly limitless paper dollars in fact works very well for our economy:



"Mr. Mosler had a beautiful beachfront property and all the luxuries of life anyone could hope to enjoy. He also had a family that included two teenagers, who resisted doing household chores. Mr. Mosler wanted the yard mowed, the beds made, the dishes done, the cars washed and so on. To encourage them to help out, he promised to compensate them by paying for their labor with his business cards. Nothing much got done.



"Why would we work for your business cards? They're not worth anything!" they told him. So Mr. Mosler changed tactics. Instead of offering to compensate them for volunteering to pitch in around the house, he demanded a payment of 30 of his business cards, each month, with some chores worth more than others. Failure to pay would result in a loss of privileges: no more TV, use of the swimming pool or shopping trips to the mall.



Mr. Mosler had essentially imposed a tax that could be paid only with his own monogrammed paper. And he was prepared to enforce it. Now the cards were worth something. Before long, the kids were scurrying around, tidying up their bedrooms, the kitchen and the yard — working to maintain the lifestyle they wanted.



This, broadly speaking, is how our monetary system works. It is true that the dollars in your pocket are, in a physical sense, just pieces of paper. It's the state's ability to make and enforce its tax laws that sustains a demand for them, which in turn makes those dollars valuable. It's also how the British Empire and others before it were able to effectively rule: conquer, erase the legitimacy of a given people's original currency, impose British currency on the colonized, then watch how the entire local economy begins to revolve around British currency, interests and power. Taxes exist for many reasons, but they exist mainly to give value to a state's otherwise worthless tokens."



Learn To Love Trillion-Dollar Deficits

Opinion | M.M.T. Shows the Trillion-Dollar U.S. Deficits Are OK - The New York Times



I have a hard time wrapping my head around the argument, but it is thought provoking. It's worth reading the entire article. Maybe her book, too. Kelton has just published, The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy, on this.

I read that book! One thing the authors failed to take into account is that their model only works if the Dollar remains the world's Reserve currency. Right now, foreign nations prop up a significant portion of our debt (and help to subsidize our standard of living).

The position as world reserve is a very privileged one, but one that we may not always rely on.

Of the dollar is removed as world reserve, then you will see a massive flood of dollars onto the world market, as people try to cash in their holdings for something of better relative value.

This will be the needle that "pops the bubble".

The whole thing is based on faith. Now, how well is the US managing its image as a stable economic standard bearer? I would argue that its not doing a good job.

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[Onomea]

I read that book!

The whole thing is based on faith...

Kudos to you for reading the book! I have always found "the dismal science" sobriquet apt, so most likely will not.

I disagree with "the whole thing is based on faith," though. Like the father of a household, the feds have the power to force you to pay taxes. They'll confiscate your property and throw you in jail if you don't.

 

[rwsmith]

'Faith' equals.......

Kudos to you for reading the book! I have always found "the dismal science" sobriquet apt, so most likely will not.

I disagree with "the whole thing is based on faith," though. Like the father of a household, the feds have the power to force you to pay taxes. They'll confiscate your property and throw you in jail if you don't.

Faith equals 'smoke and mirrors'. It only SOUNDS nicer.

I just notice that a lot of prices of important items are really high.

 

[ladder13]

I read her bio, no thanks.

 

[redlevel]

"A national debt if it is not excessive will be to us a national blessing;"
A. Hamilton

 

[gregintenn]

The economist Stephanie Kelton, with a real life example, of why government printing presses running off seemingly limitless paper dollars in fact works very well for our economy:

"Mr. Mosler had a beautiful beachfront property and all the luxuries of life anyone could hope to enjoy. He also had a family that included two teenagers, who resisted doing household chores. Mr. Mosler wanted the yard mowed, the beds made, the dishes done, the cars washed and so on. To encourage them to help out, he promised to compensate them by paying for their labor with his business cards. Nothing much got done.

"Why would we work for your business cards? They're not worth anything!" they told him. So Mr. Mosler changed tactics. Instead of offering to compensate them for volunteering to pitch in around the house, he demanded a payment of 30 of his business cards, each month, with some chores worth more than others. Failure to pay would result in a loss of privileges: no more TV, use of the swimming pool or shopping trips to the mall.

Mr. Mosler had essentially imposed a tax that could be paid only with his own monogrammed paper. And he was prepared to enforce it. Now the cards were worth something. Before long, the kids were scurrying around, tidying up their bedrooms, the kitchen and the yard — working to maintain the lifestyle they wanted.

This, broadly speaking, is how our monetary system works. It is true that the dollars in your pocket are, in a physical sense, just pieces of paper. It's the state's ability to make and enforce its tax laws that sustains a demand for them, which in turn makes those dollars valuable. It's also how the British Empire and others before it were able to effectively rule: conquer, erase the legitimacy of a given people's original currency, impose British currency on the colonized, then watch how the entire local economy begins to revolve around British currency, interests and power. Taxes exist for many reasons, but they exist mainly to give value to a state's otherwise worthless tokens."

Learn To Love Trillion-Dollar Deficits
Opinion | M.M.T. Shows the Trillion-Dollar U.S. Deficits Are OK - The New York Times

I have a hard time wrapping my head around the argument, but it is thought provoking. It's worth reading the entire article. Maybe her book, too. Kelton has just published, The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy, on this.

Interesting theory I had not considered. Thank you for sharing.

 

[Absalom]

I read that book! One thing the authors failed to take into account is that their model only works if the Dollar remains the world's Reserve currency. Right now, foreign nations prop up a significant portion of our debt (and help to subsidize our standard of living).
.....

That doesn't matter much.

The World Bank actually recognizes 8 world reserve currencies, the dollar just happening to be the biggest. And that's what it will remain, the only two serious runner-ups having serious issues. The euro has too many issues with political stability, and the renminbi isn't freely convertible.

And those foreign nations don't "prop up our debt", they park their money in our securities despite low to non-existent returns because they know that the US is still by far the most stable and secure place to put money. So people who actually know about money don't seem to share this sense of threatening calamity.

Also, there are plenty of stable currencies in the world that aren't anywhere near reserve status.

All this doomsday stuff about the worthlessness of money would have more credibility if I hadn't heard variations of it for the last 40 years or more, mostly originating with folks who want to sell you gold or other assets at inflated prices, or who want to sell books on how to escape the coming financial apocalypse.

In the real world, the Fed manages the money supply quite well; inflation has been low, and anecdotal observations to the contrary don't mean much. Of course investing in certain assets can and usually will be more profitable than holding money in cash, IF you know what you're doing, but that's always been the case.

 

[Onomea]

Here's more on the US dollar's prospects, the argument here being decline is inevitable and collapse "unimaginable":



Dollar Decline or Dollar Collapse: Definition, Causes, Effects

One thing I notice with the chart above is that China plus Hong Kong's holdings exceed Japan's.

 

[Camster]

So will all of the disenfranchised be using their worthless paper for buying guns or buying groceries? I think groceries and essentials. The market for guns decreases exponentially as the price goes up. Factor in shipping and transfer costs, both of which can easily increase, and it can take more than a few years for them to go into the green.
At age 67, I've never been wealthier than I am now, but after owning dozens of guns, I'm now content with just a very few.
I'm not disagreeing with the idea of inflation, nor the idea that some tangibles like real estate can be subjected to all sorts of tax increases, but using it an overlay to justify an investment in a hobby passion, one where there is a different interest between guys of our age and those 30 years younger, isn't a sure bet either.

 

[dockmurgw]

I read her bio, no thanks.

bernies economic advisor...what could possibly go wrong?

 

[Mrnurse]

I gave up on this subject 30+ years ago when Congress was to pass a balanced budget amendment in 1988 and the 72 hours before it was to pass BOTH parties pulled the amendment. 23T 331/3T 78 (Long play)T 12345609898989 Gonk dollars its all smoke and mirrors folks...truth be known we were Broke in 1965 up when Silver was removed from coinage. Enjoy the ride folks. Its 1919 Germany or 2020 Most African Nation money exchange, all worthless.

 

[Mrnurse]

The World Bank actually recognizes 8 world reserve currencies, the dollar just happening to be the biggest. And that's what it will remain, the only two serious runner-ups having serious issues. The euro has too many issues with political stability, and the renminbi isn't freely convertible.
Thats a Joke...World Bank...IMF Please ... 8 world currencies Hows that Euro going, Or the Pound Sterling..hehehehe its all Fiat Money sir.

 

[peter-paul]

Agreed, a lot of people use this line of thought to sell other people things. I am not one of them.

But I do feel that your faith in the Fed's capable management of the printing press is misplaced.

A lot of people have proclaimed a calamity over the years. However, the difference is that now, we are approaching Greece levels of debt to GDP ratios.

As a student of history, which I am sure you are too, I do not have faith in the thought that the dollar will always be stable because the Fed is capable and the US is peaceful.

I fundamentally don't have faith in the Fed's ability to "manage inflation". They have buggered up their ability to raise rates. What is left for them to do?

We all know the answer, print more money.

People act in their own interests. Having worked in government for two decades (yes, anecdotal), I have seen the level to which government policies do not serve the public's interest.

Couple government power with an entity that you cannot audit or censure, in my experience, leads to outcomes which are not in the public's interest.

Again, my $.02

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[Onomea]

...truth be known we were Broke in 1965 up when Silver was removed from coinage. Enjoy the ride folks. Its 1919 Germany or 2020 Most African Nation money exchange, all worthless.

Please send all of your worthless money to me.

I'm with Mr. Sear!

 

[The Norseman]

Go get Bent.

This was an interesting rant …
Part of which I agree with and another part that I simply can't
buy into. Sorry!

I have lived my entire life with a "no debt" philosophy. I never
bought a car or truck unless I had the cash to pay for it. Making
payments, which includes interest costs, on a depreciating
asset just doesn't make sense.

I sent my kids to college and paid all their costs specifically so
they wouldn't leave college with $250K in school loans. No sir,
not for me.

My house is paid for. My vehicles are all paid for. My personal
property is all paid for and at the end of the day, the only
expenses I have are the "monthly" bills (Utilities, etc.) that I
can't avoid.

I think the OP may have enjoyed a few too many cups of coffee

Thank you DougAZ!

I am in the same situation as you. I've worked very hard. I
made sure my Kids were successful. I live very comfortability.

When I see people smoking, joking, with the latest Cell Phone,
$150/month Cable TV, $60K vehicles, and then say they can't
live on $600 a week Unemployment money; they can go get Bent,
don't deserve it, and get no sympathy from me.

Your damn right I'll take your Worthless money, the whole world
does. The Only difference, I have "Chosen Wisely".

 

[ladder13]

Taxing people to prosperity?

 

[Onomea]

On taxing people to prosperity: Finland Is a Capitalist Paradise
Opinion | Finland Is a Capitalist Paradise - The New York Times

I think it healthy to consider points of view with which one disagrees. I also think the ability to change our opinions, over time, based on new information, is a good thing.

My thinking on a variety of topics continues to evolve. I think that is true of our society as a whole. E.g, the consumption of tomatoes or the virtues of giving women the vote, to take examples from the not-to-recent past so as to avoid upsetting anyone.

I think this evolution is a good thing.

 

[Absalom]

As a student of history, which I am sure you are too, I do not have faith in the thought that the dollar will always be stable because the Fed is capable and the US is peaceful.

I fundamentally don't have faith in the Fed's ability to "manage inflation". They have buggered up their ability to raise rates. What is left for them to do?

We all know the answer, print more money.

All one needs for a stable currency is for the money supply to be managed in such a way that it matches the level of economic activity it has to support.

If the Fed is creating too much money relative to economic activity, prices rise at an increasing rate and inflation results. It currently isn't, so the Fed isn't "printing" too much money.

Instead, with the virus-induced crisis, we have the "trying to push a string" problem, which in a way is the opposite: the Fed can't make people run with the money and borrow, invest, and spend.

 

[Joe Kent]

To all the above posters, thanks for a very interesting and thoughtful thread! All my very best my Friends, Joe.