Monday, December 23, 2013

Krugman Teaches Us Some Monetary History (Dali Would Be Proud)

Writes Paul Krugman:
Talk to gold bugs and they’ll tell you that paper money comes from governments, which can’t be trusted not to debase their currencies. The odd thing, however, is that for all the talk of currency debasement, such debasement is getting very hard to find.
According to the Bureau of Labor Statistics, the decline in the value of the dollar has been so great that in now costs $23.54 to buy what would have cost only $1.00 in 1913, the year the Federal Reserve was launched.

22 comments:

  1. Not as hard as the deflation he predicted!!!

    ReplyDelete
  2. That's a common misconception. The monetary value of the US Dollar has fallen since 1913 but the thing is, the US system is a debt based system and most people can't grasp that. You can't use the face value of a dollar to gauge its performance, it's just irrelevant because of how the monetary system is designed. Doing so does make someone look like a gold bug hack. You have to factor in the effect of interest and then the so called devaluation all the 1:500 FxPro margin traders keep complaining about just disappear and you realize that the dollar has been a remarkable store of value.

    ReplyDelete
    Replies
    1. You are over-complicating it. If I put $1 under my mattress 100 years ago it has far less purchasing power today.

      Delete
    2. You don
      t shop at the grocery store or for a house do you? Are you completely stupid?

      Where do they get these idiots from?

      Delete
    3. So what your saying is if you disregard the value of the dollar, the value of the dollar is consistent.

      Delete
    4. Why?

      Your post is full of non sequitur. If you want to claim that something is a common misconception, you need to connect the dots.

      Perhaps the reason that "most people can't grasp" what you are saying is that your post is illogical and does not make any sense.

      Delete
    5. Obviously they are trying to discourage you from storing a dollar under your mattress. The real rate of interest since 1913 on treasuries has been greater than zero so you could have safely lent that money to the govt and outpaced inflation.

      Delete
    6. OK, but the Subway sandwich is still more expensive than it was last year and year before that, and my pay is not increasing with it. That's reality. I don't know what "design" is supposed to make the dollar more valuable than what it is, or for that matter, what reality this "design" is to take place, but it's starting to suck out here.

      Delete
    7. Crimson, you are parroting Busigin; problem is, this is nonsense for several reasons, not the least of which is that gold (or any other asset), when lent, would also have earned interest.

      http://bionicmosquito.blogspot.com/2013/11/joe-weisenthal-and-matt-busigin-got.html

      Delete
    8. @ Wags : if you're doing something economically stupid you're getting punished for it, that seems entirely normal for me.

      @ Mike : where have I said or implied that there is no inflation ?!? You seem to have a fundamental inability to process basic concepts.

      @ Anonymous : what I have saying is that if you disregard the front value of a dollar and consider it as an IOU, which is what it is, the value of debt hasn't changed much in 100 years. Innocent people don't get how the monetary system works and we're doing everything we can to hide from them because it gives some people huge easy profits.

      @ Quaero Quero : There is no argument in your post so there is no way to establish a dialogue with you. Not that I particularly cared about your opinion or anything.

      @ Jerry Wolfgang : Exactly ! 1 smart guy out of 7 gets it, and we're already above average in detecting economic bullshit. The system is subtle, most people just don't get it, which in turn give a fraction of the population who understand maths huge power over the illiterate ones which translate in out of control inequality. We need more people like you.

      @ Anonymous 2 : Yes, wages are being compressed by a variety of factors intentionally and your spending power is getting destroyed. That's more of a consequence of the increasing social power of rentiers (capitalists for some) and a sociopolitical system designed to transfer your wealth and earnings to cunning little bastards.

      @ bionic mosquito : I wasn't aware of the existence of Busigin and I was mostly parroting Cullen Roche/The Pragmatic Capitalist. As you're correctly pointing out, any other asset would have also earned interest. The important detail is that the basic american dollar is a free IOU which doesn't earn interest and shouldn't be invested in for 100 years or serve as a basic of comparison over such a length of time. And if you avoid that stupid investing mistake and get some good old american bond, the insane 99+% devaluation just disappear and everything looks good. But it doesn't shock/scare people so fear sellers don't mention it at the risk of looking incredibly amateurish.

      Delete
    9. @ Crimson Arbitrager:

      The article notes that, according to the BLS, the "value of the dollar" has greatly declined since 1913. In your post of 9:09 AM, you claim that this fact is a "common misconception". You then state that the "monetary value of the dollar" has indeed fallen since 1913. However, you do not define the distinction between the "value of the dollar" and the "monetary value of the dollar". Given the fact that the dollar is a "monetary" unit and the fact that the article is clearly referring to the purchasing power of the dollar as it relates to the CPI, the "value of the dollar" that the article describes is clearly the "monetary value of the dollar".

      In effect, you are saying that the idea that the "monetary value of the dollar" has declined is a misconception, even though you admit that the "monetary value of the dollar" has indeed declined.

      As illogical as this is, you then state that it doesn't really matter because the US has a "debt based system" which "most people can't grasp", without stating why or providing any support.

      You then introduce the term "performance" with respect to the dollar, also without defining it.

      You follow all of this non sequitur and illogic with a reference to the effect of interest, which you claim somehow makes everything all better, again without stating why or how.

      My post of 10:24 AM simply asked "why" and pointed out that your post made no sense as written, which is obviously the true.

      Based upon your responses of 3:16 PM, I can somewhat surmise a portion of what you may have been trying to say. However, in that post you once again introduce new terms without defining them or connecting them to the terms that you used in your previous post. Additionally, you make more claims without providing any support.

      Putting aside all of the illogic, the kernel of the matter seems to rest upon one of the points made by the bionic mosquito. You are trying to mix apples and oranges. The dollar is a monetary unit. A US government bond is a debit instrument, denominated in dollars. It is not a dollar itself. It is a different asset.

      It makes no sense to claim that it is a "common misconception" that the value of the dollar has greatly declined because one could have sold dollars and purchased items other than dollars and those other items could later be sold and turned back into a greater quantity of dollars. What you are preaching is nothing other than economic sophistry.

      Delete
  3. Yeah, just found out that a Subway foot long is around $8.50. Usually, increases take on about few cents there and few cents here, but this skyrocketed about $3 within a year and half time. Plus, I noticed the inverted product inflation, where the product, itself, is smaller packaging.

    ReplyDelete
    Replies
    1. The footlong is $5.00

      http://www.subway.com/Menu/MenuCategoryItems.aspx?CC=USA&LC=ENG&MenuId=53&MenuTypeId=1

      Delete
    2. Caught red handed.

      Delete
  4. He's right. It is difficult to find evidence of debasement if you're an idiot. And Krugman, well...

    ReplyDelete
  5. @ Jerry Wolfgang

    That doesn't justify debasing another person's property. What about the people who don't want lend to the state or take any risk- savers? The wage earner?

    ReplyDelete
  6. They should give out a Nobel Prize for "Government Shill-ery". After winning a couple years straight, Krugman could have it named after himself. Of course, he'd be competing with Buffett, Gore, etc. so winning each year would not be a complete given.

    -Gitz

    ReplyDelete
    Replies
    1. Of course they are government shills and defend the system : they benefit hugely from it and can feel superior by saying that other people just aren't smart enough. It's good for their ego and their wallet, why wouldn't they do it ? Krugman has a lot of completely dishonest or even frankly sociopathic views and we should always remind ourselves that he is a fiery defendant of global pump&dump schemes. But concerning the US dollar, he is right.

      Delete
  7. I don't get how anyone can argue that the dollar has been debased coniderably. There is more of them out there than ever and to argue that you can invest your dollar debt iou units to protect purchasing power is to sdmit that the currency is in fact being debased.

    ReplyDelete
  8. Jerry Wolfgang is obviously a penname for Paul Krugman. It's pretty obvious that the Crimson Arbitrager must be from Harvard (who else would use crimson?) so it looks like Greg Mankiw has joined us here on the EPJ now.
    Welcome! We look forward to more Keynesian claptrap!

    ReplyDelete