patrick.net

Every commodity which could be used to back a currency will become an inflation risk because it gains "fiat" value because it backs the currency. Even a worthless commodity would no longer be worthless but a tool of arbitrage and reserve power.

There is no "non-fiat" currency, except for pure, direct commodity barter within small, non-interdependent economic microcosms.

Nope. The geopolitical ramifications of Iranian nukes are not based on the idea that they will nuke oil supplies.

they will nuke themselves? they will nuke US bases in iraq? they will nuke israel for invading palestine and portions of syria? hmm... they are a flighty lot, admittedly... theocracies - one nation under allah - terrible idea...

I was wondering if all the "spambot" references were just metaphorical. Obviously not.

"There is no “non-fiat” currency, except for pure, direct commodity barter within small, non-interdependent economic microcosms."

Which would run into availability and transactional cost issues of their own, especially for larger contracts.

DS,

"they will nuke themselves? they will nuke US bases in iraq? they will nuke israel for invading palestine and portions of syria?"

Oye. That might be just a wee bit OT for a BA RE blog.

(last post for the night)

Garth,

Sadly, no. SpamBots have been around a while and some are frighteningly sophisticated. What I have been metaphorically referring to is TrollBots.

I know of two (maybe only one by now) companies in the area that are working on very sophisticated artificial intelligence/natural language processor systems which are intended to "guide the message" in public blogs. There are already some incredibly sophisticated systems that read every blog and determine sentiment for products, politics, opinion-leaders, and such. The next logical step is to affect the message; something like stealth advertising.

It is my opinion that once this stuff is perfected (probably still a ways off), the great era of blogs as an alternative, uncontrolled media will see its sunset. The first to go will be commercial interests in big-ticket consumer products (probably things like automotive reviews, etc.) and political debate. Imagine a forum like this where you literally cannot tell the legitimate contributions and debates from the engineered debates.

i think the iranians are idiots, anyhow... sure, develop nuclear capability in your spare time, or switch petrocurrencies from the USD to the euro on the oil bourse, but don't do both at the same time... that's just inviting trouble...

I know of two (maybe only one by now) companies in the area that are working on very sophisticated artificial intelligence/natural language processor systems which are intended to “guide the message” in public blogs.

ah, the invisible hand of the market at work again to 'sell more stuff'... i think i'm in love...

anyway, you can control for it by requiring user registrations, or re-typing those funny little distorted codes to ascertain it's a human...

Well, good night DS.

If you see Jake Gyllenhaal or Heath Ledger on the beach, tell them to call me. :P

Kevin,

Meet Mr. Inflation and Ms. Deflation, watch them do funny things that $400,000 number.

yep, i've got to go out now anyhow to find a few more properties to redevelop, rehab or flip... then run a course at $5,000 a head to tell everyone how i did it...

heath ledger sold his bronte beach property to move to NYC recently, something to do with paparazzi, zoom lenses and night vision... i'm devastated...

nativeboy,

What do you suggest, we feed these specuvestors SOMA?

DS,

Learn from the Donald. Use other people's money to buy stuff, then put your name in the building and claim to the press that you own it. Then serially marry women and dump them before the pre-nup expires.

and do a lot with playboy magaine, miss america and other lecherous pursuits... :)

ah, the art of the deal, the art of the deal... i'm in love with markets all over again...

SQT please delete the troll post way above "waitingandwondering" same ole bullshit.

Tanks.

"You have no idea what the future value of a commodity backed currency will be either..."

Yes, but barring another Spanish conquest of a new world you know that the total quantity of gold will be constrained. The point is that having your currency backed by something other than colored inks, fancy paper and the full faith of a chronically inflationary government would hamper said government from eroding your wealth as easily as pushing a button on a printing press.

"Inflation occurs because things like “petrodollars” when based on a commodity-backed currency cause inflation based upon fluctuations in the other side of the equation"

Let's not confuse price inflation with monetary inflation. The term "inflation" once simply meant an increase in the monetary base (e.g. more money in circulation). Today it is often also used to describe an increase in prices (price inflation), which is actually a consequence of monetary inflation. Fluctuations in prices caused by supply and demand (of resouces for example) are normal and desired. These fluctuations are the market's natural response and remedy to scarcity or oversupply. Monetary inflation, made possible by today's fiat currencies, is not desirable. It often results in misallocation of resources that lead to asset bubbles like the one we have now.

"Contractual IOUs for what? Are you proposing a barter system?" - astrid

No, Randy brought up IOUs to make a point. I propose a currency that cannot depreciate 90% within the course of a lifetime as the US dollar has done. Randy points out that all monies are fiat so perhaps "non-fiat" is not an accurate definition, but I propose anything that will prevent or hinder that kind of devaluation of your savings.

Economic models in MMOGs and VWs - now that's very interesting.

"...liquidity problems if the promised commodity suddenly shoots up in price" - astrid

You mean like when the bank prints more bank certificates than what it actually holds in gold, for example? Yes, big liqudity problems like the ones leading up to the Great Depression happen. That event was an example of monetary inflation even in the presence of the gold standard. And when the bubble popped the government, determined to maintain price levels, stepped in and enforced minimum price levels thereby causing what would have been a painful but short period of adjustment to mushroom into the prolonged great depression.

But they learned their lesson - they eventually eliminated the gold standard so that the next time they got in trouble for trying to steal your money, they could get out of it gracefully and get away with it.

"There is no “non-fiat” currency, except for pure, direct commodity barter within small, non-interdependent economic microcosms."

Semantics aside then, I'll just say that a currency backed by a commodity like gold (call it what you like) is a much better alternative to what we have today.

Different Sean Says:

Let’s keep separate issues separate:
US likes IRANIAN OIL
US does not like IRAN

Sounds good, but why don't you make that into a Haiku,
in the spirit of the prior thread?

Here's let's try to zazz it up a bit:

Let's keep separate
issues separate: US
likes RANIAN OIL...

I had to drop the "I" in IRANIAN in the last stanza, along the last line "US does not like IRAN." But hey, fashion, form and style over content is the Haiku way!

hmm, dunno, I didn't write that one, just quoted it... the US actually doesn't buy oil from Iran, but does some 'swaps' with Caspian Sea oil...

DS,

anyway, you can control for it by requiring user registrations, or re-typing those funny little distorted codes to ascertain it’s a human…

Registrations are almost completely ineffective at stopping 'bots. Remember that the 'bots can collude, so they can create a database of registrations and cycle through them in a hard-to-detect manner. SpamBots already do this.

The distorted little numbers are Turing Numbers (or sometimes called other things). This is pretty good for now. There are two big problems with Turing Numbers. 1) Many people cannot read them. If they aren't black and white, they can affect color blind people. If they are two "distorted" people with certain cognitive disorders (even minor ones) will have trouble. I bet that most everyone here has run into at least one Turing Numbers Test which they had to really try hard to read. This leads to 2) people hate them. Putting Turing Numbers on a registration/validation page dramatically reduces the participation rate. Blogger has a Turing Test and I read somewhere that, when activated, it can cut a blog's (legitimate) traffic by over 60%.

Finally, Turing Tests are easy to beat. It's just a computing power and technique problem. A computer recognizing letters and numbers that people can also recognize is a *much* easier problem than recognizing faces, which is already widely deployed. I suspect some enterprising type will create a functional Turing Number reader soon enough; I'd love to do it if I had the time or motivation because it's a neat problem to solve with a real social benefit -- help people who can't read the damned numbers. The SpamBot guys will probably just rip that off soon after.

btw, this is the theoretical problem with "automating" Turing Tests. Any test sufficient enough to filter out non-humans will also filter out lots of real-humans. This problem increases as computers become more powerful, techniques get better, and people get dumber.

-two "distorted"
+too distorted

"The next (enormous) source of gold, platinum, nickel and other juicy stuff is in the asteroid belt " - Bork

That might be very likely. And if mining gold on an asteroid belt were to become easier and cheaper than flipping the On switch on the proverbial printing press, you may even have a valid argument against a gold standard for currency. :-).

frank,

Fair enough on calling me for semantics. I remain unmoved by anti-fiat currency arguments, nonetheless. Even the minor commodity fluctuations would create massive volatility and arbitrage in the modern capital system. Liquidity would be manipulable less transparently than it is in the current system.

Inflation is inflation mathematically. Price inflation, monetary inflation, it all reduces to the quantity of money theory. Whether we use gold bars, worthless green dead presidents, or warm fuzzies for currency it must abide by QTM. I rather fancy keeping the printing press contained to one source, one which we can measure expected inflation against in a reasonably accurate manner. This is the main problem we see in MMOGs and VWs, no central control of "inflation-producing production".

Registrations are almost completely ineffective at stopping ‘bots. Remember that the ‘bots can collude, so they can create a database of registrations and cycle through them in a hard-to-detect manner. SpamBots already do this. Finally, Turing Tests are easy to beat.

so [gasp] we're beaten then... the machines have [choke] won... the... market... has won... the advertisers [sob] have tracked us down, wherever we may hide...

first it was spam, then it was blogbots, then the machines came for us in our own homes, mindlessly programmed with capitalist algorithms, unaware of what they were even doing, just carrying out the design of the market - making us buy things we didn't even want or need, until our wallets were empty... them more robots came to repossess the goods we had just bought... the only things left was the big plasma screen on the wall with ... Big Brother Dubya's face on it, telling us in soothing tones that everything was alright, that Big Dubya loved us...

if housing stayed high, there would be upwards pressure on salaries and wages to compensate. the petit bourgeoisie who are not employees can simply put up their asking prices, whatever it is they're selling, to compensate... all this in turn would cause inflation in the economy, where housing was the cause and the first inflationary component, followed by everything else

if housing collapsed, then there would be less likelihood of (as much) inflation, i don't tihnk prices would go up, because they wouldn't need to.

the end.

Registrations are almost completely ineffective at stopping ‘bots. Remember that the ‘bots can collude, so they can create a database of registrations and cycle through them in a hard-to-detect manner. SpamBots already do this. Finally, Turing Tests are easy to beat.

HARM should write a novel, or perhaps a screenplay on this, and make a colossal fortune. I see a sort of Will Smith in 'I, Robot' scenario, combined with a sort of 'Attack of the Clones' idea, combined with '1984' combined with 'The Truman Show' combined with 'Valley of the Dolls' combined with 'Desperate Housewives' combined with... - where robots in the near future exploit people to keep 1, maybe 2, (human) capitalists at the top happy, by being forced to consume stuff against their will... housing, plasma tvs, etc... all programmed with the capitalist dream instead of whatever it was Asimov's robots were programmed with - and it's all to fund ...MINING THE ASTEROIDS... for more metals to make more whitegoods with... then the robots will invent a hyperdrive and colonise the stars with the capitalist message of consumption, to bring back riches from other solar systems to keep the system going... and they won't even have true consciousness - not like us, the clever sheeple who invented them...

hang on, i think there was an episode of Dr Who that did all that...

Randy,

Government manipulation of liquidity is what we want to avoid. Gold has been used as money for centuries because it's value is deemed relatively stable. Governments cannot make gold out of thin air. In that sense there is no equivalent of a printing press for gold - zero sources of that type of inflationary manipulation and no need to measure it.

Monetary inflation is vastly different than price inflation, even though the former manifests itself as the later. Debasement of money by the government can in no way be confused with the effect of the free market on prices due to supply and demand of goods. Monetary inflation results from an increase in the supply of the currency itself.

I'm curious as to exactly where/how inflation enters the picture in your MMOGs and VWs.

frank, randy,

what's the point backing currency production with a single mineral commodity of no particular use? it's just like backing a currency with another currency...

you're virtually saying that no country has the right to print a currency as a form of value exchange for labour unless it is sitting on a mountain of gold. the act of buying in gold to that country if it is gold-poor to keep someone else happy is only going to hurt the productivity of that country, which may have, for instance, lots of silicon and expertise to turn it into valuable computer chips, on the other hand...

when the US dropped the gold standard entirely in the 70s, the argument was that it preferred to value its economy in terms of its people, and its products and productivity, i.e. high technology, creativity, ingenuity, labour, etc. Everyone else followed suit fairly soon afterward. I have heard critiques of this, saying the US was facing a credit crisis, so it elected to abandon gold because it served the purpose of bailing the country out of the crisis. Using the USD as the petrocurrency has in turn allowed even greater transgressions. I don't know which version of the story is more likely to be correct. are you saying that this allows unlimited printing of money in all countries who abandon the gold standard? further, if you abandon gold, is there another way of valuing a currency with a yardstick to prevent too much of it being printed? are there natural checks and balances in the system of international monetary exchange?

and, most importantly, what's an MMOG and a VW?

DS,

You have got to read this

http://fafblog.blogspot.com/2006/04/slipperiest-slope-as-you-all-know.html

Here's a choice quote:

"Oh sure, today you may think it's harmless for gays and lesbians to get married, but take away the precious protection of state-sponsored homophobia and tomorrow you'll have men marrying machines...not only will this destroy the sanctity of marriage, it will destroy Western civilization itself, as our superintelligent sex computers rise up against their human masters to make bottoms of us all!"

frank,

The gold standard was abandoned for a reason. It makes it impossible for the government to ease a bad social situation (great depression public works) without creating deflation. And deflation sucks, people hoard money and refuse to invest.

Given how volatile our oil producers are, do you want to give them that much power? Ditto for other energy sources, controlled by a small number of (rather corrupt) corporations and nations.

I'll go with an easy to supervise printing press that is at least nominally controlled by the American people.

Nor is a gold standard uninflatable. The ancient European soverigns used to start debasing their coinage everytime they needed cash for something. Like it or not, control of any money supply lies in national governments and should lie there. A commodities based currency system isn't going to change that. Any private sector bartering system will run into structural and transactional problems very quickly, and be very expensive and inefficient for its users.

frank,

Seniorage is quite possible with gold-backed currency. As astrid points out, the very term and concept of seniorage was perfected many centuries ago, back when the very coins themselves were intrinsically valuable. Liquidity is controlled in such a system simply by manipulating the reserves. Introducing velocity to the equation, which is a very important factor in modern capital markets, only compounds the problem.

Further, you have none -- and I mean 0 -- monetary control in a pure commodity currency system. In such a system all currencies must be fixed by triangular arbitrage. That is the USD is tied to gold at xGLD/1USD and the EUR is tied at xGLD/1EUR, then they are by nature fixed against each other. This means that no coutry has any monetary power because they have forfeited such control to servicing the peg. This is basic IS-LM model stuff. Floating gold standard currencies, more like we had at the end of the BW agreement, are really just fiat systems where exchange rates are periodically reset instead of free floating.

You are describing microeconomic price function, not inflation. Inflation is measured at parity, meaning that the price function is adjusted for purchasing power. If a candy bar costs me $1.50 and cost my dad $1.00 20 years ago, but ceteris paribus we both have the same purchasing power (I make 50% more than my dad), then there has been 0 inflation. If my candy bar costs $1.75, and should have cost $1.50 because of the above, but maybe there is a candy-bar shortage, there is still 0 inflation, just a pricing function at work.

You can substitute or elasticize in response to price function increases. You can do nothing about inflation.

1 haha will buy 4 houses after a 15 year housing bust

DS,

MMOG = massively multiplayer online game
VW = virtual world. These are "games" but often without a specific goal, more open-ended virtual realities.

Examples of MMOGs are the hyper popular World of Warcraft, or previously EverQuest. Lineage is a huge MMOG in Asia. Examples of VWs are The Sims Onine or Second Life.

frank,

These "games" have enormous economies, both internal economies and "secondary" economies. A game such as WoW has an economy within the game as created by the game designers. It is based on "gold", or as we call it "virtual currency". There is a phenomenon called RMT (real money trade), which started as people in these games started selling stuff like gold, houses, magic flaming swords, etc. to each other on Ebay for real money. This is the RMT market or Secondary Market.

The RMT market is almost $1bn worldwide today, and expected to grow to $7bn by 2009. It is enormous, and creates a huge profit opportunity. Because of this "farmers" popped up. Entrepreneurs who would play these games purely to accumulate gold and items to sell for profit. Then came sophisticated farming operations -- mainly in China where cost of labor is low and internet infrastructure is good, and a gaming culture exists. These operations will produce more currency as fast as they can, usually selling through middle-men operators (the supply chain is a bit complicated, but think of it as a frontier, wild west economy with few governing laws and no taxation).

The problem is that in these games there exists almost no monetary or fiscal controls, so the game designers see their games' economies forfeiting all power to the productivity of the inflation-driving "farmers". Worse, since the middle-men operators have exclusive information regarding future price direction, they operationally arbitrage the system to the cost of the game-world community, hurting both people who buy and sell stuff as well as those who don't (people who just play the games as designed).

Worse yet, there is really no production constraint other than time and operational efficiency, both of which are overcome by scale and sophistication. So, you see an experimental example of a worst-case situation where a commodity-based monetary system (often intended to be a barter system) yields to basic capitalist forces to the demise of the entire community. The reaction by game publisher has been largely legal in nature, but has also been completely ineffective. The real answer is to engineer a real, functional economy where the internal "primary" economy has monetary, fiscal and production constraint (microeconomic) levers.

SQT,

I would like the threadmaster privileges. On the other hand, if anyone has concerns about letting a relative stranger in on the privileges, I totally understand.

My primary concern was with my embarrassing mis-typings and wanted a way to correct them. If wordpress doesn't differentiate between my posts and other people's, I think it might be better (from the collective's prospective) for you to bear with my poor proofreading skillz for a bit long. :)

astrid,

download the google toolbar. it will correct spelling errors in forms like this textbox you type in.

Ha Ha,

That is one huge house. Is that in Chicago?

State and local governments will crumble. Lowered and missed property taxes will do the trick:

JONATHAN LANSNER
Register columnist
jlansner@ocregister.com

"It was the most worrisome number I've recently seen about Orange County's housing market.

"In January, I told you that a decade has passed since this many of us missed paying a December installment of property taxes.

'So with tax installment No. 2 due Monday - have you paid yet? - I checked with the county's tax collector, John Moorlach, to see if we've made progress.

"I've long wondered when the Fed's two-year campaign to cool the economy would click. Raising short-term interest rates was going to eventually smack homebuyers with adjustable-rate mortgages in the wallet. That's a large group in this town.

"The county tax collector's data from January boosted my hunch. Last week, Moorlach's staff was kind enough to whip up an interim report for me.

"The fresh data show that the early trend wasn't any statistical fluke, as we continue to be annoyingly late on our property taxes:

•Through the start of April, 24,701 first-installment bills were still late – 16 percent more than the same time a year ago. The tax collector only sent out 2 percent more bills this year.

•Those late bills were for $38million in total taxes, up 37 percent from a year ago. That handily exceeds the 11 percent expansion in overall property taxes due to soaring home prices.

"Since the last tally in January, Orange Countians managed to pay $50 million worth of their tardy first-installment bills. (That doesn't include the 10 percent late fee - or the 18 percent annual interest penalties that start accruing July 1!)

"Still, the county's short 2 percent of the $1.9 billion due - from 3 percent of all taxpayers. The typical tardy payer owes a decidedly below-average bill of $1,560.

"I wasn't surprised. So many people are stretching (to buy a home). It seems intuitive that some people are having a tougher time," Moorlach says. He calls payment results for this upcoming bill "the real test."

"Other markers of homeowner financial woes are creeping up, too.

"In the first two months of the year, mortgage makers served 700 Orange County borrowers with formal default notices - the first step toward foreclosure. That's up 31 percent vs. 2005."

Those are the far burbs. Probably a solid hour on the Metra (their Caltrain, only way better), almost 1.5 hours from Crystal Lake. When i lived there Crystal Lake was where people moved to die. So you're looking at 3hours commute by rail per day (to downtown), or 3-4 by car on the Northwest Tollway then the Kennedy Expwy. No thank you.

You could really only live in St. Charles if you worked in the West of Northwest suburbs, not downtown Chicago. That is unless you don't mind getting up at 5:00am and returning home about 8:00pm on a short day.

*West OR Northwest suburbs

"The gold standard was abandoned for a reason. It makes it impossible for the government to ease a bad social situation" - astrid

Astrid, it is government intervention that causes bad social situations (the Great Depression in point). The last thing we want is more government intervention. The government can't possibly predict or fully control the free market and when it tries we get misallocation of resources that lead to things like asset bubbles. If the government had been hands off, those problems wouldn't exist in the first place. In other words, the free market can take care of itself better than any single governing entity.

"I’ll go with an easy to supervise printing press that is at least nominally controlled by the American people." -astrid

The only problem printing money solves is the problem for the government of separating you from your wealth. For the "American people" it has never solved anything nor will it ever.

"The ancient European soverigns used to start debasing their coinage" -astrid

Yes, they did that by producing new coinage with less gold and more of another less valuable metal. But gold itself was not debased and people quickly came to know the difference between these less valuable coins and those with more gold and treated them as such. The King's attempt to steal required the circulation and acceptance of these new coins as equivalent to the old ones. This didn't always succeed or succeed for too long.

"... you have none — and I mean 0 — monetary control in a pure commodity currency system" - Randy H.

Yes, it would be more difficult to swindle the masses in that situation, wouldn't it? I'd prefer to leave control of the free market to the market. That's why we call it a "free" market, no?

"That is the USD is tied to gold at xGLD/1USD and the EUR is tied at xGLD/1EUR, then they are by nature fixed against each other" - Randy H

Imagine that! Going anywhere in the world and not have to do that currency exchange math in your head everytime you pay for something :-). Gold is the same anywhere in the world. That's why it was used as a global medium of exchange in the first place.

"This means that no coutry has any monetary power" - Randy H.

I'm beginning to get the impression that you believe monetary power is a good thing :-). Perhaps for the few who have that power and their close friends. You're not related to Greenspan, are you?

"You are describing microeconomic price function, not inflation. Inflation is measured at parity, meaning that the price function is adjusted for purchasing power" - Randy H

There's a little piece of the puzzle that you're missing. If the new money where introduced in such as way as to immediately be available to everyone, immediately affect all price levels for all products, immediately have the affect of increasing everyone's income proportionately, then yes, monetary inflation would be a zero sum game. But this is not the real world. If I magically doubled your savings account balance by printing new money and depositing it there, you would be the sole beneficiary of that new money at the expense of everyone else in the system. I haven't added anything of value to the system, I only transfered a percentage of the total purchasing power of money to you from everyone else. This is how monetary inflation adversely affects everyone but a select privileged few.

HELIBEN WILL SHOW NO MERCY FOR HOUSING

In a speech to the Economic Club of New York this week, he said he would not let a faltering housing market deter him from the necessary action to wring inflation out of the system.

In other words, no mercy now, and no bail-out later, regardless of warnings.