Day 106 - Inflation, Stupidity on the Rise

Status: Thinking. Hi, yes, I'm still here, though I've been busy recently, and overwhelmed at the speed with which the Obama Administration has been moving. Unfortunately, the Stimulus (read "Spending") Bill has been passed. [Read/search the bill here]

Apparently, I like getting into political fights on the internet as well, because recently I got into another one. This one was on the aforementioned bill. The thread's title was "Do you believe the Stimulus bill was really bipartisan? I don't.". This lead to a discussion where I got involved. The following transcript occurred: [Thread Viewable Here]

I (tustin2121) said:

Politics! Gah! I don't want to get involved, but....

No, the bill isn't bipartisan, but the Dems WANT it to be bipartisan so that when it fails, they can blame Republicans. (Note: not "if" it fails, but when, because spending several billion dollars will, if already hasn't, cause major inflation, which is BAD for the economy. If there were tax cuts in there, there won't be when they're done with it. And I know they're gonna try and slip in a few things that Republicans should hate too.)

Person A said:

tustin2121:

Politics! Gah! I don't want to get involved, but....

cause major inflation, which is BAD for the economy. If there were tax cuts in there, there won't be when they're done with it. And I know they're gonna try and slip in a few things that Republicans should hate too.)

Step outside sir.

You *Punches tustin* will not *backhand* talk utter *knees Tustin in the face* crap in economic *crushes Tustin's nose* terms *final punch* again.

As you can see, economic ignorance is something that makes me deeply angry.

I responded:

Excuse me?! Economic Crap?! What makes me economically ignorant? PLEASE point out my flaws instead of simply beating me up! This isn't a counter argument, it's violence (albeit fake violence, but you get the point).

Also, if you're going to quote me, quote my entire statement, thank you. You seemed to have left out a vital part of my argument...

Person B responded:

Indeed he did. He's right though.
tustin2121:

because spending several billion dollars will, if already hasn't, cause major inflation

This is wrong.

I respond:

No it isn't. Listen: money only has a certain value if a) it is backed by something of real value (eg Gold) or b) it is limited in quantity in proportion to all the goods in the market. Money by itself does not have any value; the paper bill has no intrinsic value, and most coins now a days are made of worthless pot-metal.

If there's more money in the system then there is value, then the value per money unit (eg. the dollar) drops (simple division here). When the value per dollar drops, people have to pay more dollars to get the same valued item, which is "rising prices", which is "inflation".

MMO designers and managers know this, because they use the same concept in games that have an economy. If there the value of their currency starts to fall, they'll create "gold sinks", which in the games usually are NPC shop owners and the like. When a player pays for something from the gold sink, the gold is taken from the player and taken out of the economy, which keeps the value of the gold from dropping.

Creating a money sink in real life is much much harder, because only the Federal Reserve, and by extension the Government, has the ability (or rather, the interest) to take money out of the system; everyone else wants and needs to use the money.

Therefore, generating money out of nowhere, like the stimulus bill proposes, will flood the market with representations of value (money) when no real value is being produced, and will cause hyper-inflation. QED.

Person B replies:

tustin2121:

Therefore, generating money out of nowhere, like the stimulus bill proposes, will flood the market with representations of value (money) when no real value is being produced, and will cause hyper-inflation. QED.

Oh, I won't argue about a bill I don't know anything about, but your initial post said:
tustin2121:

because spending several billion dollars will, if already hasn't, cause major inflation

and that is plain wrong. Investments can be the way to counteract inflation. I won't argue your poins on the specific bill, 'cause I can't be bothered to research it. But what you wrote there, was very wrong.

As for
tustin2121:

No it isn't. Listen: money only has a certain value if a) it is backed by something of real value (eg Gold) or b) it is limited in quantity in proportion to all the goods in the market. Money by itself does not have any value; the paper bill has no intrinsic value, and most coins now a days are made of worthless pot-metal.

That is wrong too. The world eceonomy runs on one central things today: optimism. I'm not BS'ing here.

I replied:

How can one statement be wrong and the other right when both are saying the same thing? Are we talking in double speak now? In order to spend the 700+ billion dollars, someone has to generate it first. Simply making the money does nothing if it doesn't get spent into the economy. Therefore, they go hand in hand when it comes to this.

[And] Yes, the economy does run on optimism, or as I like to call it, a promise; the promise was that this dollar has value. We run on this optimism because we scrapped the "backed by gold" in the 20's-30's, and we are now scrapping the "proportional value" with this bill. We are breaking the promise that we wouldn't make more representations of value than there is value by making billions of representations of value without making new value (or making very little of it).

Of course, more is to come, but I do think that people are getting slowly dumber as time goes on. This isn't rocket science, and I sure hope I explained the non-rocket-science to them well enough...

End Log.