Money is a strange creature. Since it is not tied to any physical entity, as it would under a gold standard, say, money can be created by central banks. This is the case in the U.S. with the Federal Reserve Board. It has meaning as a medium of exchange to the extent people are willing to accept it. The whole process is complex and the subject of study in courses on the economics of money and banking. One key policy lever that central banks have is control on the (partial) reserve requirements of banks under their jurisdiction. Also the amount of money created depends on the velocity of money, that is how often it is spent and deposit in banks who can they lend out some fraction of it (subject to the reserve requirements). This leads to the so-called multiplier effect. In toto, monetary policy in influencing the money supply can have dramatic effects on the economy, even long-term. Also, government fiscal policy when it can run deficits can also have multiplier effects. Of course, this all becomes much more complicated in a global economy with independent monetary authorities and independent nation states making fiscal decisions about taxes and spending. See http://en.wikipedia.org/wiki/Money_creation for some background.
On Fri, Sep 10, 2010 at 11:42 AM, ERIC P. CHARLES <[email protected]> wrote: > Vladimyr, Glen, > Agreed! > Even in the cases where there is not forfeit or fight, however, the > situation is not as bad as it seems. First, the notion that this particular > nation will even be "out of debt" seems unlikely, at least unlikely in the > next 50 to 100 years. Second, one of the major reasons for the government to > manage inflation is because inflation devalues debt. So, on top of the other > concerns brought up, it is misleading to say that we are passing the debt > onto our children because, 1) the nation will continuously float debt, which > in some sense means that the current debt will never really be paid off, 2) > by the time my children are paying off parts of the current debt, the > effective value of the debt will be much less. > > The president of Penn State was shocked when a recent survey of entering > freshmen showed that the vast majority expected to become millionaires. To > me, the statistics seemed very realistic... with the added caveat that being > a millionaire might not be very impressive at that point. > > Eric > > > > On Fri, Sep 10, 2010 01:05 PM, *"Vladimyr Ivan Burachynsky" < > [email protected]>* wrote: > > Glen, > I share your misgivings about the current discussions regarding > money, > Before the second world war there was an Austrian or Austro-Hungarian > school > of economics that had substantially different ideas than is currently > in > fashion. My understanding is that Brettton Woods ? agreement ,after the > war, > ended the old school and started the one we now think is > "Normal" > The name that sticks out is Von Mises. I have a copy somewhere but > it was > thicker than my own PhD thesis and never had the courage to crack it > open. > > It is a little late in my life for such a dramatic shift of > intellectual > pursuit.. > > Reading Herodotus I am convinced children > rarely pay off the debts of their > forefathers and would rather emigrate or > fight. Trying to extract ancient > debts from the unwilling is a nasty affair > that costs more than it returns. > > Solon's approach to declare bankruptcy > for Athens is said to have saved the > city and heralded in a new era of > Prosperity. > If money does not last forever then it seems debt is just as > short lived. > > Maybe others have more details or ideas to add to the > discussions. Debt > crisis have been downplayed by historians I suspect > because they did not > fully understand the economics or principles. > > > > Vladimyr Ivan Burachynsky > Ph.D.(Civil Eng.), > M.Sc.(Mech.Eng.), > M.Sc.(Biology) > > 120-1053 Beaverhill > Blvd. > Winnipeg, Manitoba > CANADA R2J 3R2 > (204) 2548321 > Phone/Fax > [email protected] > > > > -----Original > Message----- > From: [email protected] > [mailto:[email protected]] On Behalf > Of glen e. p. ropella > Sent: > September 10, 2010 11:42 AM > To: The Friday Morning Applied Complexity Coffee > Group > Subject: [FRIAM] national debt and zero-sum games > > > I keep > hearing people claim that any debt the US builds/acquires will > have to be > paid (or defaulted on) by "our children and their > children". > This > oversimplification has always _seemed_ fundamentally wrong to me > ... more > wrong than just being an oversimplification. > > It doesn't seem to me like > the economy is a zero-sum game. Money isn't > subject to any conservation > laws that I"m aware of. Granted, there are > economic drivers that are > conserved; but money isn't one of them. So, > what literature do I need to > start reading that will help me a) > understand what is and isn't conserved > about debt and b) clarify this > point to those who insist on making the > oversimplified argument? I'm > not convinced one way or the other; I just > want to find a bit of clarity > around this soundbite. In particular, it > strikes me that on a personal > scale (time and distance), money is mostly > conserved. E.g. I pile up > credit card debt or buy a house and that debt > sticks with me. I either > have to pay it off or default (or die). But is > that true at all > scales? > > I've spent some time looking at generic > books and popular magazine > articles on economics. But they lack the clarity > I need (or perhaps I'm > too thick to understand them). And the sources for > Game Theory I've > seen are too idealistic to get any real traction for an > argument. > > Thanks. > > -- > glen e. p. ropella, 971-222-9095,http://agent-based-modeling.com > > > ============================================================ > FRIAM Applied Complexity Group listserv > Meets Fridays 9a-11:30 at cafe at St. John's College > lectures, archives, unsubscribe, maps at http://www.friam.org > -- George Duncan georgeduncanart.com represented by Artistas de Santa Fe www.artistasdesantafe.com (505) 983-6895 Life must be understood backwards; but... it must be lived forward. Soren Kierkegaard
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