Convenience is also a reason to keep money at a bank. You can use a bankcard to make payments; if the bankcard is stolen, the bank will cancel it and reimburse you for unauthorized charges. So credit is an important aspect of a currency, one that bitcoin seems to want to ignore. I think it emphasizes hoarding and deflation, but sharing and inflation has accompanied the great advances in technology in the last century.
Also the obvious point in the interest-rate graph is that 8 of 9 recessions immediately followed a rise in interest rates. Discipline caused the recessions, not too much money.
In the dot-com crash, investors started pulling back because they couldn't keep their loans rolling over at the low interest rates. In the real-estate crash, mortgage rates went up because money was becoming tighter. What if interest rates had not gone up? Let's run a simulation to see if people would have been better off.
I think your approach is like uniformly reporting "negative" on cancer tests, because the incidence of cancer is so low. You can have a very high successful prediction rate (99%, say) by simply saying "no" on every test. But that doesn't help the patients who have cancer. You can boast "I have a great prediction success rate!" but you're not helping anyone.
In the same way, saying categorically that no research is valuable because a lot of it isn't valuable is silly. It's precisely the cases that are "thrown out with the bathwater", which you can't predict with your "universal no" attitude, that can matter most. Mendel's research was ignored for decades, until after he died. What if it had been publicly available (in an easily-accessible way such as we have now with online data storage) and Darwin had had access to it? Why wouldn't we want to make present-day Mendels' research easily available?
I think you're ignoring far more obvious causes for inflation. In the 1970s, it was oil supply shocks. OPEC raised prices not because of economics of supply and demand, but for purely political, or psychological, reasons.
The interest rate profile for the 1960s is similar to that for the 2000s. But inflation consequences were quite different, because there are much more important psychological factors involved.
Rates were being raised years before the "bubble" burst. That's a very strange cause theory you have. What was really happening is that the private sector was creating money out of supposedly risk-free mortgage-backed assets. Then a hiccup occured when UBS announced it was writing off over $10 billion in MBSes, and groupthink took over and the traders started an emotion-based sell-off. Interest rates and the money supply had little to do with it. Psychology and emotional overreaction were the main causes.
Money is created all the time, at an exponential rate, by the private sector. Government can, and the US govt has since the first administration, spend more than it takes in without consequence. The Fed can simply expand its balance sheet to buy govt bonds and return interest to the Treasury as required by law, and keep the loans rolling over forever. Thus the cost of borrowing is zero.
Government spends in the public interest. As Cheney noted, Reagan proved deficits don't matter.
You don't know what research will be read. Maybe it will become valuable after you're dead. It's value to you in the present may be nothing, but to another it might be great. For example, I like to listen to old jazz tunes on youtube that may have one or two other views. But there's value in them, because value is not a popularity contest. In the same way, research that is not valuable to you, or not popular at this time, can have immense value to the future. Example: piles of trash that are invaluable to archaeologists in reconstructing ancient Troy, say.
http://research.stlouisfed.org/fred2/graph/?g=qip shows that the Fed was in disciplinary mode, raising interest rates, before both the dot-com and the real-estate crash. Greenspan's "irrational exuberance" attitude was what killed dot-com, because, I think, he's an old fool who didn't understand the potential of technology to make obsolete his feudal economic models.
Regarding the money supply: http://research.stlouisfed.org/fred2/graph/?g=qir (Taking M2 because, as investopedia says, "economists like to include the more broadly defined definition for M2 when discussing the money supply, because modern economies often involve transfers between different account types. For example, a business may transfer $10,000 from a money market account to its checking account. This transfer would increase M1, which doesn’t include money market funds, while keeping M2 stable, since M2 contains money market accounts.")
Why does the money supply increase at an almost constant, exponential rate, with no devastating inflation?
The central banks didn't provide the liquidity for the most recent bubble, or for the tech bubble. The Fed was increasing interest rates (which killed dot-com). The credit expansion took place in the private sector, not from the Fed. You're model is deeply flawed, based on an ideology that history doesn't support.
Financial "innovations" preceding the most recent crash created what private banks thought of as "risk-free" assets. The banks booked future profits from these riskless, AAA-rated, mortgage-backed securities immediately, and paid huge bonuses on them. The central bank was not at all involved in creating these assets. This was a balance sheet expansion of the private banks.
The Fed served as a backstop for the banks after the crisis, providing needed elasticity at a time when the banks were shrinking the money supply they had expanded, causing problems for billions that were never involved in the banks' innovations.
If inflation is tied to the money supply, why didn't we see hyperinflation when the Fed expanded its balance sheet by a factor of at least 2 in a week? Why didn't we see hyperinflation when the private sector was expanding its balance sheet by much larger than a factor of two in the run-up to the crash?
The answer is that inflation is psychological. Why else is hyperinflation generally ended in a very short period, a day or a week? Money supply has nothing to do with it; it's psychology.
Create the money to fund them. It's in the public interest, the General Welfare. We, and our grandchildren, will be better off if we can check research by having access to the data it used.
Liquidity was not abundant. The inelastic money supply created problems for farmers who built up deposits during the slack season and then wanted to spend them during harvest time. This caused a sort of seasonal run on New York banks, which then called in loans, which affected the stock market, which caused periodic crises. The natural solution that the private sector itself evolved was to create clearinghouses which could create money out of thin air. But the clearinghouses were controlled by private individuals like J. P. Morgan, who might not lend to someone because he didn't like them. So the Fed was created to be more equitable in its distribution of credit, not enforcing personal relationships.
Anyway the point is that elasticity was necessary for the private sector to function, and the gold standard was unable to supply that. So the private banking system itself evolved away from the gold standard.
The gold standard was regularly suspended in times of (regularly occurring) crisis. The private banking system evolved the clearinghouse to try to provide some needed elasticity. Quoting the Lecture 5 Notes from the Economics of Money and Banking, Part 1 MOOC:
Of particular interest is what happens in a financial crisis, when all member banks find themselves short of gold, because of outflows into circulation or abroad. Then there is no chance of solving the problem by arranging for weak banks to borrow temporarily from strong banks. Instead, weak banks borrow from the clearinghouse, which creates additional reserves from thin air simply expanding both sides of the balance sheet.
[Can't post the table because of slashdot's junk character and whitespace filters:(]
In effect, what happens is that intraday deficits and surpluses are not paid but rather put off to another day.
The advantage of a central bank off the gold standard is that much-needed elasticity in times of crises can be created, in a more equitable manner than when a private individual like J. P. Morgan controls the clearinghouse, and expands credit only to his friends.
There are other reasons why the gold standard is impractical, and banks themselves evolved away from it: it's impractical to transfer physical quantities of gold each day to meet intra-bank payments, for example. So banks started giving each other credit, and treating the gold as a virtual reserve anyway. Doing away with the gold standard altogether was a natural step.
A longer exposition of the natural need for elasticity, which the gold standard fails to satisfy, from the Lecture 3 Notes:
Already in 1873 the country experienced the first of a series of financial crises, all of which followed a similar pattern.
In slack times the farm banks would find themselves with excess funds for which they could find no local outlet. They might use them to buy a security (bond) but they had always to keep in mind that they would need the funds come fall. So they tended to deposit the funds in New York where they could earn interest. New York banks would therefore find themselves with excess funds, which they also knew were only seasonal, so they wanted a short term investment. They would buy liquid securities or make short term loans. Of particular interest is the phenomenon of the call loan made to stock market speculators. Thus in slack periods (late winter) we might find something like what Young shows (p. 302), where country banks have excess reserves. He mentions the number 50 million as the withdrawal at harvest time, which note is pretty close to the excess 2% reserves. At harvest time there is a cash drain from the system, and that means a cash drain from New York, which New York seeks to remedy by calling in loans and raising reserves from abroad.
Thus the cash drain spread into the stock market, causing selling by those who were using call loans to finance their speculative positions. And it spread to the international money market, pulling in gold from London. The consequence was a very definite seasonal pattern in interest rates, as the harvest expansion of credit took place on a fixed reserve basis. The result was not only a seasonal interest rate but also periodic financial crises, caused whenever banks had to make cash payments but lacked the cash to do so. Young makes the correct point that the problem was the inelasticity of reserves. If somehow reserves could be reduced in slack times and expanded in tight times, the problem could be solved. How to make reserves elastic? The answer was to make reserves a form of credit.
Why not save their work whether they have the incentive, or not? That way it can be checked by anyone who wants to. It's in the public interest to check research, like Rogoff and Reinhart's:
Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst, have found serious problems with Reinhart and Rogoff's austerity-justifying work.
"figures in a ledger book" is what the financial sector busies itself with. I agree, there's no value added. We'd be better off bypassing the financial sector and simply providing liquidity, from the government or a central bank, when it's needed. The financial sector is mired in all sorts of perverse incentives and moral hazards that cause lots of friction and push prices away from their efficient levels. That's why asset prices bubble and crash, because dealers push them away from their efficient levels.
As for "printing" vs. "creating" money, the difference is: creating a virtual currency means we don't ever have "wheelbarrows full of paper". Simply add another zero to a bank card, if you must; but there is no physical currency necessary.
Inflation is mostly psychological. There is no physical necessity for prices to rise if the money supply increases. It's a psychological choice, and can be dealt with by a) exposing the psychology of the choice to raise prices (even when your production costs have not increased) just because there is more money out there, b) indexing everything to inflation in an automatic, seamless manner so that we can ignore inflation and carry on as if it doesn't exist.
The real focus should be on production capacity, innovation, the advance of knowledge. Economics with its scarcity fetish retards the advance of knowledge by artificially imposing constraints on the money supply. There is a huge demand for liquidity and the financial sector has arisen to meet that demand by creating money out of thin air financial "innovations". When those "innovations" fail, the financial sector is backstopped by central banks, while the consequences of the mistakes are visited upon billions who weren't involved in the mistakes. Instead of repeating that cycle, let the central bank and/or govt simply provide liquidity where its needed, without the intermediary of the financial sector with its ledger books.
General Welfare is mentioned twice, in the Preamble and in Article 1, Section 8.
It isn't printing money, since no physical greenbacks need be involved, just figures in a virtual ledger book. Banks of course use this trick to expand their balance sheets, by issuing loans or otherwise creating assets. UBS for example booked future expected profits right away on AAA mortgage-backed securities, and paid bonuses on those profits. So these type of accounting practices go on all the time in the private sector.
Perhaps by the time someone comes across your data, they will be smart enough (or have an AI that's smart enough) to figure it out. Or they could become architectural relics, providing valuable information to future societies. I think you discount your own research unfairly.
Predictions of rotation speed of stars towards the edges of galaxies do not agree with Keplerian predictions used to predict the orbital speed of planets around our sun. So either gravity doesn't behave the same in the outer parts of galaxies as it behaves around our sun, or (the hypothesis) there is some other mass that we can't see (dark mass). Right now, what we know is that observations don't match predictions based on the math that works for our solar system's planets.
Let the Fed expand its balance sheet to buy govt bonds that allow for academics to publish data, and keep the loans rolling over forever while returning the interest to the Treasury. Making the research and data available is in the General Welfare. Like libraries...
Who knows what's really needed? The market is too short-sighted to be a reliable judge. Mendel's research was not needed, until after his death. The research that went into the internet was thought to be unneeded by AT&T. The library of Alexandria was thought to be unneeded and burned. Kafka wanted all his unpublished manuscripts burned after his death.
If you or I can't afford to help researchers publish their data on the internet, the government can and should.
Put it on the web. Who knows who may find it useful? The value of the research might not reveal itself for some time, but if google or someone has archived it, it might sit there waiting to unveil secrets, like the Pillars of Ashoka.
This is the only post so far that mentions dark matter. Without dark matter, the galaxy spirals should be much less rigid. Did the old galaxies with two arms also reveal the presence of dark matter, so that its presence has been constant throughout the age of the universe? Or do they just ignore dark matter and treat it as a given that stars at the edge of galaxies orbit at the same speed as stars closer in, unlike our solar system with its gravity constraints?
Give the import-exporters and shop keepers a basic income, and let them work on bug bounties if they want to keep busy, or take MOOCs, or volunteer, or...
Leisure time is the goal, technology can help us get there.
Slashdot Mirror
Convenience is also a reason to keep money at a bank. You can use a bankcard to make payments; if the bankcard is stolen, the bank will cancel it and reimburse you for unauthorized charges. So credit is an important aspect of a currency, one that bitcoin seems to want to ignore. I think it emphasizes hoarding and deflation, but sharing and inflation has accompanied the great advances in technology in the last century.
Also the obvious point in the interest-rate graph is that 8 of 9 recessions immediately followed a rise in interest rates. Discipline caused the recessions, not too much money.
In the dot-com crash, investors started pulling back because they couldn't keep their loans rolling over at the low interest rates. In the real-estate crash, mortgage rates went up because money was becoming tighter. What if interest rates had not gone up? Let's run a simulation to see if people would have been better off.
I think your approach is like uniformly reporting "negative" on cancer tests, because the incidence of cancer is so low. You can have a very high successful prediction rate (99%, say) by simply saying "no" on every test. But that doesn't help the patients who have cancer. You can boast "I have a great prediction success rate!" but you're not helping anyone.
In the same way, saying categorically that no research is valuable because a lot of it isn't valuable is silly. It's precisely the cases that are "thrown out with the bathwater", which you can't predict with your "universal no" attitude, that can matter most. Mendel's research was ignored for decades, until after he died. What if it had been publicly available (in an easily-accessible way such as we have now with online data storage) and Darwin had had access to it? Why wouldn't we want to make present-day Mendels' research easily available?
I think you're ignoring far more obvious causes for inflation. In the 1970s, it was oil supply shocks. OPEC raised prices not because of economics of supply and demand, but for purely political, or psychological, reasons.
The interest rate profile for the 1960s is similar to that for the 2000s. But inflation consequences were quite different, because there are much more important psychological factors involved.
Rates were being raised years before the "bubble" burst. That's a very strange cause theory you have. What was really happening is that the private sector was creating money out of supposedly risk-free mortgage-backed assets. Then a hiccup occured when UBS announced it was writing off over $10 billion in MBSes, and groupthink took over and the traders started an emotion-based sell-off. Interest rates and the money supply had little to do with it. Psychology and emotional overreaction were the main causes.
Money is created all the time, at an exponential rate, by the private sector. Government can, and the US govt has since the first administration, spend more than it takes in without consequence. The Fed can simply expand its balance sheet to buy govt bonds and return interest to the Treasury as required by law, and keep the loans rolling over forever. Thus the cost of borrowing is zero.
Government spends in the public interest. As Cheney noted, Reagan proved deficits don't matter.
You don't know what research will be read. Maybe it will become valuable after you're dead. It's value to you in the present may be nothing, but to another it might be great. For example, I like to listen to old jazz tunes on youtube that may have one or two other views. But there's value in them, because value is not a popularity contest. In the same way, research that is not valuable to you, or not popular at this time, can have immense value to the future. Example: piles of trash that are invaluable to archaeologists in reconstructing ancient Troy, say.
Let's look at some data, shall we?
http://research.stlouisfed.org/fred2/graph/?g=qip shows that the Fed was in disciplinary mode, raising interest rates, before both the dot-com and the real-estate crash. Greenspan's "irrational exuberance" attitude was what killed dot-com, because, I think, he's an old fool who didn't understand the potential of technology to make obsolete his feudal economic models.
Regarding velocity of money: http://research.stlouisfed.org/fred2/graph/?g=qiq
If velocity of money leads to inflation, why wasn't there high inflation during the 1960s, 1990s, and 2000s?
Regarding the money supply: http://research.stlouisfed.org/fred2/graph/?g=qir
(Taking M2 because, as investopedia says, "economists like to include the more broadly defined definition for M2 when discussing the money supply, because modern economies often involve transfers between different account types. For example, a business may transfer $10,000 from a money market account to its checking account. This transfer would increase M1, which doesn’t include money market funds, while keeping M2 stable, since M2 contains money market accounts.")
Why does the money supply increase at an almost constant, exponential rate, with no devastating inflation?
The central banks didn't provide the liquidity for the most recent bubble, or for the tech bubble. The Fed was increasing interest rates (which killed dot-com). The credit expansion took place in the private sector, not from the Fed. You're model is deeply flawed, based on an ideology that history doesn't support.
Financial "innovations" preceding the most recent crash created what private banks thought of as "risk-free" assets. The banks booked future profits from these riskless, AAA-rated, mortgage-backed securities immediately, and paid huge bonuses on them. The central bank was not at all involved in creating these assets. This was a balance sheet expansion of the private banks.
The Fed served as a backstop for the banks after the crisis, providing needed elasticity at a time when the banks were shrinking the money supply they had expanded, causing problems for billions that were never involved in the banks' innovations.
If inflation is tied to the money supply, why didn't we see hyperinflation when the Fed expanded its balance sheet by a factor of at least 2 in a week? Why didn't we see hyperinflation when the private sector was expanding its balance sheet by much larger than a factor of two in the run-up to the crash?
The answer is that inflation is psychological. Why else is hyperinflation generally ended in a very short period, a day or a week? Money supply has nothing to do with it; it's psychology.
Create the money to fund them. It's in the public interest, the General Welfare. We, and our grandchildren, will be better off if we can check research by having access to the data it used.
Liquidity was not abundant. The inelastic money supply created problems for farmers who built up deposits during the slack season and then wanted to spend them during harvest time. This caused a sort of seasonal run on New York banks, which then called in loans, which affected the stock market, which caused periodic crises. The natural solution that the private sector itself evolved was to create clearinghouses which could create money out of thin air. But the clearinghouses were controlled by private individuals like J. P. Morgan, who might not lend to someone because he didn't like them. So the Fed was created to be more equitable in its distribution of credit, not enforcing personal relationships.
Anyway the point is that elasticity was necessary for the private sector to function, and the gold standard was unable to supply that. So the private banking system itself evolved away from the gold standard.
What's the problem with deficits, exactly?
The gold standard was regularly suspended in times of (regularly occurring) crisis. The private banking system evolved the clearinghouse to try to provide some needed elasticity. Quoting the Lecture 5 Notes from the Economics of Money and Banking, Part 1 MOOC:
The advantage of a central bank off the gold standard is that much-needed elasticity in times of crises can be created, in a more equitable manner than when a private individual like J. P. Morgan controls the clearinghouse, and expands credit only to his friends.
There are other reasons why the gold standard is impractical, and banks themselves evolved away from it: it's impractical to transfer physical quantities of gold each day to meet intra-bank payments, for example. So banks started giving each other credit, and treating the gold as a virtual reserve anyway. Doing away with the gold standard altogether was a natural step.
A longer exposition of the natural need for elasticity, which the gold standard fails to satisfy, from the Lecture 3 Notes:
Why not save their work whether they have the incentive, or not? That way it can be checked by anyone who wants to. It's in the public interest to check research, like Rogoff and Reinhart's:
"figures in a ledger book" is what the financial sector busies itself with. I agree, there's no value added. We'd be better off bypassing the financial sector and simply providing liquidity, from the government or a central bank, when it's needed. The financial sector is mired in all sorts of perverse incentives and moral hazards that cause lots of friction and push prices away from their efficient levels. That's why asset prices bubble and crash, because dealers push them away from their efficient levels.
As for "printing" vs. "creating" money, the difference is: creating a virtual currency means we don't ever have "wheelbarrows full of paper". Simply add another zero to a bank card, if you must; but there is no physical currency necessary.
Inflation is mostly psychological. There is no physical necessity for prices to rise if the money supply increases. It's a psychological choice, and can be dealt with by a) exposing the psychology of the choice to raise prices (even when your production costs have not increased) just because there is more money out there, b) indexing everything to inflation in an automatic, seamless manner so that we can ignore inflation and carry on as if it doesn't exist.
The real focus should be on production capacity, innovation, the advance of knowledge. Economics with its scarcity fetish retards the advance of knowledge by artificially imposing constraints on the money supply. There is a huge demand for liquidity and the financial sector has arisen to meet that demand by creating money out of thin air financial "innovations". When those "innovations" fail, the financial sector is backstopped by central banks, while the consequences of the mistakes are visited upon billions who weren't involved in the mistakes. Instead of repeating that cycle, let the central bank and/or govt simply provide liquidity where its needed, without the intermediary of the financial sector with its ledger books.
http://archive.org/web/
Yes, that is the working hypothesis.
But at the bottom of the web page I linked, it says:
So that's also a hypothesis (though not currently popular).
General Welfare is mentioned twice, in the Preamble and in Article 1, Section 8.
It isn't printing money, since no physical greenbacks need be involved, just figures in a virtual ledger book. Banks of course use this trick to expand their balance sheets, by issuing loans or otherwise creating assets. UBS for example booked future expected profits right away on AAA mortgage-backed securities, and paid bonuses on those profits. So these type of accounting practices go on all the time in the private sector.
Perhaps by the time someone comes across your data, they will be smart enough (or have an AI that's smart enough) to figure it out. Or they could become architectural relics, providing valuable information to future societies. I think you discount your own research unfairly.
Predictions of rotation speed of stars towards the edges of galaxies do not agree with Keplerian predictions used to predict the orbital speed of planets around our sun. So either gravity doesn't behave the same in the outer parts of galaxies as it behaves around our sun, or (the hypothesis) there is some other mass that we can't see (dark mass). Right now, what we know is that observations don't match predictions based on the math that works for our solar system's planets.
http://www.astronomy.ohio-state.edu/~pogge/Ast162/Unit6/dark.html
Let the Fed expand its balance sheet to buy govt bonds that allow for academics to publish data, and keep the loans rolling over forever while returning the interest to the Treasury. Making the research and data available is in the General Welfare. Like libraries...
Who knows what's really needed? The market is too short-sighted to be a reliable judge. Mendel's research was not needed, until after his death. The research that went into the internet was thought to be unneeded by AT&T. The library of Alexandria was thought to be unneeded and burned. Kafka wanted all his unpublished manuscripts burned after his death.
If you or I can't afford to help researchers publish their data on the internet, the government can and should.
Except the math of planetary orbital speeds doesn't work for the orbital speeds of stars in galaxies.
Do the reviewers have the actual data? Or just the papers?
Put it on the web. Who knows who may find it useful? The value of the research might not reveal itself for some time, but if google or someone has archived it, it might sit there waiting to unveil secrets, like the Pillars of Ashoka.
This is the only post so far that mentions dark matter. Without dark matter, the galaxy spirals should be much less rigid. Did the old galaxies with two arms also reveal the presence of dark matter, so that its presence has been constant throughout the age of the universe? Or do they just ignore dark matter and treat it as a given that stars at the edge of galaxies orbit at the same speed as stars closer in, unlike our solar system with its gravity constraints?
Give the import-exporters and shop keepers a basic income, and let them work on bug bounties if they want to keep busy, or take MOOCs, or volunteer, or ...
Leisure time is the goal, technology can help us get there.
Because we're not subsidizing 3D printers?