01
Jul
2014
Sneak-Peek Murphy Mises Academy Lectures on Free Trade
I was traveling and had to miss a lecture on free trade for the last Mises Academy class I taught, so I pre-recorded them. (Yes, as George Carlin would complain, this means I recorded them before I recorded them.) Now that the class has been closed for a bit, I thought it would be OK to show you guys the lectures so you will have the common sense to sign up for my next Academy course:
I understand your point that we get the stuff and they (Chinese or Japanese or whoever) get the green pieces of paper. You say that is a swell deal for us, but that raises the question of why do our trading partners settle for the green pieces of paper?
Seems to me that they must value these green pieces of paper for their use in buying other things, like for example, oil and raw materials, or other stuff from other countries, or am I missing something here?
Don’t the green pieces of paper we send to China eventually enter world commerce and compete with the green pieces of paper still left in the hands of US households?
I would like to see a video talk in which you explain the after-effects of this long-term imbalanced stuff/green paper trade relationship.
Thanks for considering my question,
Mark
Excellent questions.
You say that is a swell deal for us, but that raises the question of why do our trading partners settle for the green pieces of paper?
The reason is because we’ve tricked them into thinking that more paper equals more wealth, and since we print that paper, it’s easy for us to keep tricking them.
Don’t the green pieces of paper we send to China eventually enter world commerce and compete with the green pieces of paper still left in the hands of US households?
Yes, and it causes price inflation.
I would like to see a video talk in which you explain the after-effects of this long-term imbalanced stuff/green paper trade relationship.
Peter Schiff, toward the end of the following videos, touches on this issue:
Why the Meltdown Should Have Surprised No One | Peter Schiff
[www]http://www.youtube.com/watch?v=EgMclXX5msc
“What About Money Causes Economic Crises?” with Peter Schiff – Ron Paul Money Lecture Series, Pt 3/3
[www]http://www.youtube.com/watch?v=npJ0CUT8d_Y
Bad answers.
“The reason is because we’ve tricked them into thinking that more paper equals more wealth, and since we print that paper, it’s easy for us to keep tricking them.”
We’ve tricked them? Do you not know anything about China’s economic policies?
“Yes, and it causes price inflation.”
Velocity of money isn’t the lifetime flow of a dollar. Velocity is a component of the price of goods, but you are just way off with that statement.
Velocity is a component of the price of goods …
Yes, and no.
The more money in the system, the less each unit is worth, and so it will be parted with more readily.
When newer users of printed money unload it onto others (“buy” stuff), they are competing with users of older money for the same goods, which bids up their prices in terms of the funny-money.
Absent the funny-money, prices in commodity-money would send the “component of the price of goods” signals of which you speak.
The funny-money distorts those signals.
I didn’t say velocity was the only component.
And it’s not even velocity, per se.
Velocity is a function of the pursuit of the satisfaction of felt uneasiness.
If everyone is satisfied, the economy is doing fine and there’s no need for velocity.
Velocity for its own sake isn’t helpful.
They are not buying anything now, they are just piling up dollars (they are holding over a trillion). If they did/when they do try to buy stuff with it, the value of the dollar will drop and they won’t buy nearly as much stuff as they had exported to the US for Americans to enjoy. I guess that’s what makes it a sweet deal for the US – while it lasts.
They can’t hold treasuries and dollars in reserves at the same time. It is one or the other. When China buys our debt, their dollar balance goes down (specifically in a bank’s reserves) and someone else’s reserve balance goes up. The Chinese have treasuries instead. Instead of giving that dollar up for stuff, they gave it up for a future claim on $ + interest.
I am not saying that “nothing” will happen if they decide to allow everything to mature. I am just pointing out that dollars are not vanishing from the economy as many think.
Instead of giving that dollar up for stuff, they gave it up for a future claim on $ + interest.
It’s worth noting that the “future claim on $ + interest” depends on the ability of the American government to get away with taxing Americans, or printing the money.
The first method of repayment is theft from Americans by the American government on behalf of Treasury Bond holders.
The second is the American government giving T-Bond redeemers artificial purchasing power, thereby enabling the holders to steal from holders of older money.
When the world was on gold standard, accumulating more meant to people to increase one’s wealth. In a way it was correct but not completely. It’s actually the productivity that determines the wealth in the long run. People don’t accept a currency for goods only because they believe it will make them wealthier. They in essence accept it because they believe the other people will also accept it for exchange. It’s the collective acceptance of the medium of exchange (in this case USD) by the world that allows this to happen. GBP was the previous reserve currency that rapidly lost that status after WWII. As a percentage of the world’s foreign exchange reserves GBP was around 50%. Within the next 50 years it declined to about 5%.
When these green pieces of paper are send to China they do enter world commerce and causing monetary inflation. Keep in mind though as the USD isn’t in the USA itself the inflationary pressures due to monetary expansion are lower domestically, allowing the Americans as a whole to borrow at lower costs. This lower cost of borrowing slowly encourages a country to borrow more, and leads to over indebtedness and an eventual decline. UK when through this and now USA is going through this stage.
Keep in mind though as the USD isn’t in the USA itself the inflationary pressures due to monetary expansion are lower domestically, allowing the Americans as a whole to borrow at lower costs. This lower cost of borrowing slowly encourages a country to borrow more, and leads to over indebtedness and an eventual decline.
That was awesome.
Awesome, but untrue.
It’s called exporting our inflation.
This practice of printing money is what’s *actually* responsible for the crashes you end up blaming on American corporate greed.
Businesses can profit as fast as they want without being unwitting participants in a system-wide crash, so long as they do it in terms of commodity-money.
Don’t take my replies as endorsements for statist economics. I feel I am equally obligated to correct those that generally side with me.
Ok.
“Awesome, but untrue.”
How so? Please elaborate.
So Dr. Murphy, what will the new class be about? When? Do you accept suggestions from the public? 🙂