paper money collapse
TRANSCRIPT
Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
Caibin ZhuJim TruongKazuki KiyomiyaLinke JiaYile Ye
For most societies throughout the history, the supply of money was essentially inelastic.
Today, money is nowhere a commodity, and its supply is entirely elastic.
Inelastic Money & Elastic Money
Inelastic vs. ElasticWhy has the world moved from inelastic to elastic
money? Is a system of elastic money superior to one of
inelastic money?
The Fundamentals of Money
Money is the medium of exchange.
Barter Economy
Double coincidence of wants
The Origin of MoneyCertain goods came to be accepted in
exchange
The most fungible good is called “money.”
An immediately useful medium of exchange
Goods that could be used as moneyGold and Silverqualities that were ideal for a medium of exchange: durability, portability, recognizability, divisibility, homogeneity, scarcity.
Goods that could be used as moneyGold and SilverNow people had demand for gold and silver as monetary assets.an additional element of value independent of their use-value------exchange value
The Effects Of Money Injections●Money Injections without Credit Markets●Money Injections via Credit Markets
Money Injections Without Credit Markets
1. Even, Instant, and Transparent Money Injection● affects the price level and nominal prices
● no impact on the production and resource location
● do not promote new economic activity
Money Injections Without Credit Markets
2. Even and Nontransparent Money Injection● Producer interpret the situation correctly no change in consumption and production● Producer misinterpret the situation give up some investments GDP raise temporarily change of resource location and income distribution permanently
Money Injections Without Credit Markets
3. Uneven and nontransparent Money Injection●Promote GDP statistics●Change the resource location●Change the distribution of the economic
ownership ●Beneficiary -- the money creator
Money Injections via Credit Markets●Consumption
-poor countries : focus on need of present consumption -rich countries--focus on investing capital stocks
Money Injections via Credit Markets●Interest Rate
-related to the population’s time preference -poor countries: lower time preference lower interest rate - rich countries: higher time preference higher interest rate
Fallacies about the price level and price level stabilization
● The price level and monetary stability
Price level is not an accurate indicator● A historical perspective on price level stability
Commodity money system was more favorable in the past
● Why would commodity money be unstable?
Incompatible with a market economy
The Policy of Stabilization
“Ceteris Paribus”
3p=2q=4r=1s=0.5t=2.2u=2v=2m
4p=1.5q=4.3r=0.8s=0.7t=2u=2.5v=2.5m
History of paper money: A legacy of failure ●China, America, England, France,
Russia and German●All result in lower purchase power
of money and lead to inflation●Abandoned and returned to
commodity money
Beyond the Cycle: Paper Money Collapse
Fully flexible money introduced in 1971
Banks bigger but riskier
Full nationalization of money and credit
Paper Money and the StatePurchasing power negatively affected
Allowed to run deficits
Over 50% employment for economists
The EndgameCurrent policies useless in recession
Misallocations of capital increasing
Illusions of wealth created
A Return to Commodity Money
Monetary asset… is not simultaneously somebody else’s liability. cannot be created out of thin air by privileged banks to
enhance their profits from exaggerated lending activity.
is not a tool of ongoing economic manipulation and a source of expanding state power.