Bernanke: Fed could act if economy weakens

Are you saying that the U.S. might junk the dollar and come up with a totally new currency, say "the Eagle"? And then set the value of the Eagle to be less than the value of what the dollar was? Or, what are you saying?

 

When has the nation with the world reserve currency changed its currency?

Far as I know, the last and only time was when the USA went off the gold standard.

And since we and the world are on a fiat money electronic exchange system, what would be the purpose of making the change? It would be simpler to call in all cash money and go 100% electronic instead of our present 98% electronic money system.

 

You haven't said anything. You're spouting off generalities: "New money", "anything is possible", "very serious".

So if anything is possible do you think the U.S. will dump the dollar and go to dried-pressed maple leafs for currency?

 

Perhaps the U.S. will go on the old Dutch Tulip standard. :laugh:

 

And how does that happen?
Through inflation.

Inflation (proper) is the increase in the money supply. It is short for monetary inflation.

Price inflation is an increase in prices, which can be a result of (monetary) inflation.

It is time people rid themselves of the Keynesian (and even monetarist) economic definitions.

 

No, it happens when foreign banks and/or governments decide that an American dollar is now worth less than it was yesterday in that country's currency.

True and true. But what do people care about, talk about, and track? Price inflation. Price inflation can also be caused (and more frequently caused) by a scarcity of goods.

And let me guess...go back to the gold standard?

 

It is true that there is an interdependency of the federal government with the Fed. The problem is that we need to get rid of the Fed. Period.

There is NO economic need for any person, or group of persons, to be able to create units of money from nothing. There is no economic need for anyone to have the power to control the supply of money. Ever.

The Keynesian thinks that moderate price inflation is necessary to keep people spending so that the economy keeps improving. The problem is that central manipulation of consumer spending habits through monetary policy causes bubbles. There is no need for anyone to control the money supply. The money supply should remain relatively stable, and the supply of goods and services should be allowed to grow or shrink freely and let their prices fluctuate according to supply and demand.

The monetarist thinks that price stability is necessary to keep an economy stable and that both price inflation and price deflation can cause slippery slopes. The problem is that the supply of goods and services can never be consistent relative to each other; therefore, price stability is never possible across all goods and services. Price stability is not necessary to keep an economy stable. Money as a medium of exchange is a good subject to supply and demand just as any other good. The supply of this medium should be allowed to remain stable as it is a way to measure the price of goods and services relative to each other, and they should be allowed to fluctuate according to supply and demand. There is still no need for any central authority over the supply of money.

 

And how does this really work in practice?
No one can wave a proverbial magic wand and generate wealth out of thin air. The value of any currency is dictated by its use in an economy, not by decree from a government. When the Fed declares that it will devalue the dollar, it does so by creating more units, thus diluting the value of one unit to the whole. The market itself determines the quality of the unit relative to goods and services (its purchasing power). When the Fed makes the initial announcement, speculation can cause temporary fluctuations in prices. These fluctuations are not new wealth, but rather a transfer of wealth.

A government can debase and devalue a currency, or it can attempt to destroy units, thus increasing the value of one unit to the whole supply; however, it can never directly determine the actual purchasing power of a given unit in actual goods and services (without harming an economy). Attempts at price controls to do this cause rationing and supply shortages.

The problem is that too many people confuse cause and effect. Scarcity of goods can result from natural disasters, but it often happens indirectly from monetary policy and government regulations.
People need to understand that there simply is no need for any authority over the supply of money, and especially that there is no economic need to expand the money supply for stability and progress.

Not a classical gold standard (which was still controlled by the government). The easiest solution is to repeal the legal tender laws and the sales taxes imposed on precious metals. Simply allow metals to circulate as money and compete with Federal Reserve Notes. This would supply the checks needed on the Fed to hold back inflation.

 

There is no magic in electronic dollars over paper dollars other than that it more efficient (in some contexts) for transfer. Even with electronic dollars, the laws of supply and demand regulate 100% the value of a dollar relative to goods and services. Electronic currency has the same rules when inflation and deflation. Electronic currency does not create new wealth, it can only contribute to the efficiency of exchange whereby the market can invest in refactoring scarce resources into goods and services.

There are providers of electronic gold, as well. I use some of that too. If the supply of electronic gold remains stable, it is a good medium of exchange. If the supplier of electronic gold (or other denomination) is allowed to cheat and create more units backed by nothing, the result is not a creation of wealth; it is a transfer of wealth from the other unit holders to the counterfeiter. The counterfeiter now has a greater portion of the monetary pie to consume real wealth (goods and services), and the others have less.