One who intends to leave others better off for his having existed.

5/31/15

If a nation prints more money, like cutting a 16 inch pizza into 16 slices instead of 8, is each slice worth less?

Nations are not ruined by one act of violence
but quite often, gradually, and almost imperceptibly
by the depreciation of their currency through excessive quantity

Nicolas Copernicus
Discovered Earth was not the center of the Universe

If Nathaniel Rothschild accumulated gold
essential for supporting an army upon Napoleon’s return
in anticipation of an extensive military conflict
and rapidly increasing government borrowing
and profitably exchanged relatively high priced gold
for lower cost debt
in anticipation of sovereign debt stability
upon Napoleon’s defeat at Waterloo in 1815
could current circumstances reflect something like the same thing
only opposite?

Now in modern markets
it is striking that exactly the reverse…applies

Governments all over the world
are about to flood the bond markets with paper
to finance their bank bailouts and economic stimulus plans
and the final bill could amount to more than $6 trillion

…governments are about to need to raise the funds
to fight another Napoleon

This massive new supply of bonds
[could]depress the price of existing bonds

…governments all over the world
have embarked on massive money creation

Peter Cooper
Seeking Alpha
(Hat tip for the Rothchild metaphor)

If Germany’s central bank suspended the right
to redeem gold backed Reichsmarks during World War I
and 170 Reichsmarks bought an ounce of gold in January 1919
why did an ounce of gold cost 87,000,000,000,000 Reichsmarks
in November 1923?

What if the pizza shrinks 
while the number of slices rise?

3 comments:

Michael Dornbush said...

Excellent Point! I have long held that a unit of currency is an equity share claim on the wealth of a nation, just as a traded stock is a claim on the net assets of a company. Following this very consistent analogy, the current dilution of shareholder (read: citizens’) equity exhibited by current governments’ seniorage (electronic “printing” of money), would be tantamount to erosion of investor claims.

Within the past year, one billion dollars went from being a phenomenal sum of money, to a relatively neglibible amount, now that the word ‘trillion’ trills so ubiquitiously from our lips.

Weimareiner Reichmarks anyone?

charlie jr said...

the critical variable is: what if the rate at which money changes hands slows down or speeds up? this is called velocity. velocity is determined by social mood. we have the highest m3 in mythology and property can be purchased for a large discount using 2007 as default. 50% less in some markets but the money supply is larger. Deflation comes first in a credit/debt based model. Central planners can lower rates and increase the money supply, but they cannot induce the herd to assume risk or spend. If you ask the top 1% of salespeople what makes people buy, they will tell you "because the purchaser believes it will make them happy." If people aren't happy, no money changes hands, regardless of the supply of goods or the supply of money.

Abner Doon said...

Check out M1 Money Multiplier

http://research.stlouisfed.org/fred2/series/MULT