million dollars which simply “appeared” in their living rooms how long would it take prices to skyrocket? I have read reports that the average American family has about $5,000 in cash (or it’s equivalent) in savings. Thus this would be an approximate 200 fold increase in the money supply. Would prices increase 200 fold and if so how long would it take (I’m thinking that the slave like labor in China and elsewhere would help to deflate prices). If the answer is that prices would increase, but not by 200 fold (lets say they only increased 50 fold due to cheap imports) wouldn’t printing lots of money and then distributing wholesale make sense?
This is how I would combat the oil cartel without using violence. Were I President (or better yet Supreme Ruler of the Western World), I would attempt to get countries like Russia, Mexico, and Venezuala to drop out of OPEC, or failing that to break (more than is already done in OPEC) the production guidelines. Here’s how I would attempt to implement such a policy:
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First of all I would make the profits of oil companies (BP, Exxon ect) that purchased oil from these newly formed non OPEC nations tax free. Thus, these nations would get an advantage in selling their oil to the United States.
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I would offer Putin extra generous grain deals (and free Monsanto, genetically modified hybrids). I might also agree to limit criticism of his heavy handed internal tactics. Furthermore, I would offer to make them our primary trading partner once the United States becomes a Hydrogen based economy (we will still probably end up importing H in the end).
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Mexico is easier. I would give Fox, the immigration/ workers guest program that he seeks. I would also offer to give GRANTS allowing Mexico to further exploit the oil that it already has.
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With Venezuala, I would offer them the same NAFTA like deal we have with Canada and Mexico. That plus around ten billion in incentive grants would probably do the trick (I would normally say send in the CIA to assasinate everyone who didn’t see it our way, but I’m trying to go the non vilolent route here)
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I would offer to make Kuwait, and the UAE the dominant powers in the region by strengthening their military, and guarenteeing their security.
All we would need to do is to get a few nations to abandon the OPEC production guidelines and the rest would almost have to follow out of economic necessity. Why would Saudi Arabia hold down production when other nations were making their reduced production almost moot? It would make more sense for them to “crank up” production thereby maximizing revenues.
Oh and just for the heck of it I would offer Russia around two hundred billion for Siberia. After all they sold Alaska so who knows? Then again once our enviromental regulations took effect in that area, it’s oil production would drastically fall in favor of national parks! If all else failed I would annex Antartica and start drilling down there… now I back to the violence.
Don’t you need two separate threads for your posts here? Preferably in a different forum?
I agree with part of point 2 of the second OP post.
In the future will still be importing “H”
these are questions that I’ve pondered in some cases for years in private with no outlet for discussion and sometimes I get a little excited.
You don’t say.
[sub]Hah, this is my opportunity to try to apply what I learned in last term’s economics classes - although there might be an expert around here pretty soon able to correct me if I put something wrong[/sub]
If everything but money supply remains unchanged, prices will indeed multiply by 200 if the total money supply itself is multiplied by 200. The equation of exchange states that
PQ = MV
where M is the money supply, V the velocity of circulating money (i.e. the number of times every dollar changes hands in a given period of time - if every dollar remains yours just one day, because you spend it the day after you got it, V is 1/day or 365/year), P the nominal price of goods and services and Q the quantity of ggods and services exchanged. This is true by definition: If the only good traded in an economy is apples, and there are 100 of them produced and sold within a month, and every apple costs six Klingon darseks, and total money supply is 300 darseks, every darsek has to change hands twice a month on the average, so you have
6 * 100 = 300 * 2
If in your economy with magically increased money supply money velocity and total production remain constant, P has to increase 200-fold (witrh constant Q) so the 200-fold increase on the other side of the equation is balanced.
Or think about it that way: The situation after the magical materialization of money is as if there had been a currency reform, with the “Old Dollar” having been abolished and replaced with a new currency, the “New Dollar” (whose bills happen look exactly the same as Old Dollar bills). If the “rate of exchange” is 200 New Dollars for one Old Dollar, prices will adapt according to this rate and multiply by 200.
And they will adapt pretty fast: Guess you’ve been working for a wage of $7 per hour. After the Magic Snip, you’ll be a millionnaire! Would a millionnaire be willing to work for that pay? No. To get the millionnaire to work, you have to give incentives, by offering higher wages or else he’d refuse to do anything.
It doesn’t seem apparently obvious that increasing the money supply 200 fold will do nothing to affect V.
Also, another thing to take into consideration is that it will greatly decrease the gap between rich and poor. Consider a person with $1000 and one with $1,000,000. The rich person is 1000 times richer than the poor person. If you give both $1,000,000, the rich person will only be roughly 2 times richer than the poor person. This would mean that relative prices in commodity goods would go way up and relative prices in luxury goods would plummet.
Instead, I think that third world nations (and second world) would adapt to meet our newly increased buying power (albeit at higher prices, but not anywhere close to matching our increased money supply). However, I also think that currency devaluation would be a strong factor that would also increase the cost of foreign goods. However, keep in mind that not everyone would “roll out” their new found bucks instantly. Some would be so “perplexed” that they would hesitate to tell anyone, let alone spend the money. Some would invest the money in home labs so they could build working models of their “fart collectors” or perhaps a hydrogen engine. Others might start businesses. Of course many would by perishible consumer products.
Let’s take a slightly different scenario. Let’s say my advanced AI/robotics scenario played out and our productivity as a nation was increased exponentially. Thus, our GDP went from an indexed 100 to a hypothetical 2000 a twenty fold increase. Unfortunately, since the technology was concentrated into a few companies that held the patents, and those that actually use them in manufacturing ect. the money was highly concentrated. Let’s say to avoid social unrest that these noveau rich decide to distribute vast amounts of money (but no mor than 20X original GDP) to the public, would inflation still prevail? I say no because productivity would have also increased from the AI/robotics.
FWIW, Mexico and Russia aren’t members of OPEC. They routinely don’t limit their production to OPEC levels, because this means they sell more oil and make more money. However Mexico and Russia aren’t enough by themselves to keep the prices from rising. The whole world market is a spot market. Don’t forget that we produce oil, too, and by going to the oil-barrel store, I can’t just simply say, “ooh, gimme that Alaska oil; it’s $5/barrel cheaper!” (in all likelihood, if such a store existed it could be more expensive; remember the Texas oil bust in the early 80’s?)
Just a nitpick, but every United States Federal Reserve note has a unique serial number, and records are kept of which numbers have been printed. (Remember the old crime drama cliche of the crooks asking for “non-consecutive bills”?) So these magic bills would have to have either fictitious or duplicated numbers, making the notes counterfeits. The result would be the immediate invalidation of all US paper currency, and their replacement by a new design.
appear both on the “master registry” and ones that matched on the new bills. Furthermore, he would have to “modify” everyones memory who mattered such that they didn’t question the validity of the money (although they could still be perplexed as to its manner of distribution.
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If money appeared in everyone’s bank accounts by magic (or by an AI hacker
) spending and prices would rise pretty quickly, I would imagine. The alternative is empty shelves in the shops. -
Yes, the currency would depreciate: currency speculators are pretty quick responders.
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Presumably, some share of that windfall would be saved: that is, it wouldn’t be spent immediately on goods or services. That may be a large share.
a) Some of the savings would go towards foreign currency, reinforcing the currency depreciation in 2).
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MV = PY ==Nominal GDP. Higher inflation tends to increase velocity, as spenders hold on to money for shorter periods of time. (Note though, that one would expect much of the new-found cash to be exchanged for other forms of money (e.g. savings accounts) as well as other assets (e.g. stocks, land, precious metals, whatever).
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The Fed would presumably respond with higher interest rates. This would also tend to repress the money supply (and increase velocity).
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Presumably, output would grow, given the rapid increase in demand.