Quote from: johnyj on October 09, 2011, 07:17:59 PM

Another thought related to saving:

One gold miner found a small piece of gold, he use that piece of gold to exchange for several bag of bread from a farmer, and he eat those bread for one week

After one week, farmer still holds the gold, but there is no bread, since farmer think that he could use that gold to buy same amount of bread Grin

This means: Farmer need some incentive to continously produce the bread, otherwise there will be inflation Cool

So how do you give the farmer the incentive?

Quote from: johnyj on October 08, 2011, 08:49:52 AM

Quote from: omarabid on October 07, 2011, 08:20:45 PM

It might be my opinion and I'm different than others' in this forum, but money is wealth. Real Wealth.

That is exactly most of the people think, not those from economy school. Because this, we can say that wealth is destroyed if there is a rate hike (money destroyed by central bank)

Now I have a better view!

Imagine a simple game:
First year, A sell his house to B for $3 million
Second year, B sell the house to C at $4 million
Third year, C sell to D at 5 million

In this process, the amount of money required for transaction increased so much that bank must provide them bigger and bigger loans, thus lots of money must be created to facilitate the trades, and wealth is created from newly provided loans for this bubble (or bad investment, but you can never tell in forehand, if the price continously rise, then it is a good investment!)

Then, at certain point, most of the people have joined the game and bought a house, there is not enough new buyers join the game to keep the price hype, at the same time, FED has realized this might be a bubble and start to tighten. Then the house price will fall back to 4 million and 3 million. It's this tighten really detroyed the wealth (or money), what we see after 2008 is the consequence of tightening during 2007, but the wealth is already destroyed in 2007

How do you deal with the mess afterwards?

IMO you would need to keep prices as stable as possible. Which would mean offsetting the contraction in Horizontal Money(Credit Money) with an expansion in Vertical money. The expansion in vertical money would offset the unemployment and related suffering caused by the Horizontal Money contraction. If prices are not kept reasonably stable then it is harder for economic participants to plan ahead, which may lead to significant malinvestment. Furthur, whenever the financial system is disproportionally distorted by a subset of economic participants, then prices in the economy will not reflect their actual relative worth. This is what actually causes the malinvestment too begin with.

The sources of such distortion varies depending upon who you ask. Some say there is too much regulation, some say too little. However, given that the financial system is formed on the basis of common ownership, then all participants of the financial system should have an equal say in how price information flows through the financial system. Therefore the value of any regulatory framework upon the financial system should be judged on this basis, that is, how well does it allow participants to equally decide how price information flows through the financial system.