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| Joined: | Mon Nov 21st, 2005 |
| Location: | California USA |
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In short, it is time for every central bank to stop doing anything. It is time for a free market to allocate credit, just as it allocates capital in the equity markets.
Will the rate of interest rise? There is more than one rate of interest. Short-term rates will rise until recession hits. Then they will fall. Long-term rates will fall immediately. Why? Because stable money will produce price deflation. This will lower long-term rates. The inflation premium in long-term loans will disappear. It will eventually go negative.
Negative inflation premium interest?
Price deflation?
In simple terms:
If people are free to cooperate on their own terms, then, productivity increases. This is about as factual as sun shine.
Imagine then a 'body politic' or 'society' or 'economy' as one unit and the one unit increases production from a low rate of production to a higher rate of production. It can be said that the unit becomes richer.
Example:
How rich was the unit known as Europe during the inquisition, the black plague, the dark ages, WWI, and WWII?
How rich were those 'societies' as a whole?
Like a math word problem.
Add up all the riches and divide by the number of people in the society and you get a rich ratio.
Note: All the dead people make everyone look richer but the idea here is to look at PRODUCTIVITY and during those times the most productive product was dead people.
Producing more and more dead people has a economical cost in total productivity.
Example:
6 (billion) people on the planet divided into 6 units of wealth (the total RICHNESS produced – including Ipods and low calorie Cheeseburgers).
6/6 = 1
Enter stage left: Double the rate of production (twice as many Ipods, Cheeseburgers, and every other unit of wealth = richer by two).
12/6 = 2
Enter stage right: Wipe out half the population.
12/3 = 4
See how rich everyone is?
A problem: Who is going to produce 12 units of everything now that all those innocent hard working honest people are dead?
Answer: Wipe out more people to keep up with the lowering rate of production?
Return to the Black Plague?
No.
If the rate of production remains steady, then, the amount of riches (production) remains equal to the number of people.
Again:
6 Billion Units of wealth divided by 6 Billion honest hard working and cooperating individuals.
6/6 = 1
One is a rate of production that moves from producers to consumers and from consumers to producers in an economic cycle that is facilitated by CURRENT economic activity.
The stuff flows. The stuff flows because people communicate their supply needs and wants and suppliers produce those wanted and needed supplies in a cycle of economic activity that MUST employ accurate information OTHERWISE too much of one thing is produced and not enough of something else is produced and hard working innocent honest people starve to death for want and need of accurate currency.
One means ONE.
If anyone increases the supply of money (currency) and there is no increase in the rate of production, then, wealth becomes a POTENTIAL called CREDIT.
Anyone can increase the supply of CURRENCY with a simple piece of paper with three words written on the paper: I Owe You.
If the one increasing the supply of currency produces more wealth, then, the I.O.U. DEFLATES because the measure of wealth catches up to the measure of money (currency).
See this?
6/6 = 1
Someone doubles the supply of currency.
6/6 = 2
Actual wealth remains ONE. Currency increases to TWO. Before the increase in CREDIT the ratio of Wealth to Currency was 1 to 1. After the increasing in CREDIT the ratio of Wealth to Currency is 1 to 2, where, no increase in production is measured by twice as much currency.
What happens to all that currency?
Example:
6 Billion people cooperate and produce 6 Billion units of RICHNESS and 6 Billion units of currency flows through society to measure the amount of RICHNESS accurately.
6/6 = 1
1/1 = 1
Enter stage left: Increase the supply of CREDIT by a factor of 2 = double the money supply (currency).
Before
One unit of wealth divided by one unit of currency equals 1.
1/1 = 1
After
One unit of wealth divided by two units of currency
1/2 = .5
That is PURCHASING POWER going down.
Where once a Dollar can purchase one Cheeseburger it now costs two dollars to purchase a Cheeseburger because PURCHASING POWER reduced by .5 when the money supply doubled.
What happens if the CREDIT goes to innocent poor people who want to work and produce more cheeseburgers?
6 Billion people receive CREDIT and produce 6 more units of WEALTH increasing the total WEALTH to 12 units of WEALTH.
12 / 6 = 2
2 Units of Wealth divided by 2 units of currency equals 1 PURCHASING POWER.
The Cheeseburger costs ONE DOLLAR again.
From
Before
One unit of wealth divided by one unit of currency equals 1.
1/1 = 1
After
One unit of wealth divided by two units of currency
1/2 = .5
To
2/1 = 1
The problem is not “INFLATION”. The problem is a flow of wealth to those who commit crimes and this wealth comes from those who create wealth (making wealth creators less powerful).
The fix is to give CREDIT to those who produce wealth (the only ones who deserve CREDIT for producing wealth).
How do you give CREDIT to those who produce wealth?
Answer: Accurate Currency