Now it looks as though it is you who is engaging in a semantics debate. I don't see any meaningful difference between paper bills and gold, as items in and of themselves. Both are used as economic record-keepers, and neither has much use for any other purpose (though it's true that gold in recent years has had some electronics application, but that certainly wasn't the case in 1932). What makes one a "commodity" and the other not? What would make one subject to deflationary pressures and the other not?
Banks holdings are not the same as banks or governments physically storing money and taking it out of circulation....Sorry, I should have made that distinction clear.
That's quite alright. I just wanted to clear that up before we went any further. So let me go back to what we were talking about before. You said, "The amount in global circulation determines the money supply." So if I understand correctly, that means that the roughly $1.3 trillion that seems to be the money supply ($600 billion in paper plus a little more than that amount in electronic money, if I'm reading your data right) includes money in circulation throughout the world. That would mean that even less than that amount is here in America. If we've been sending $300-400 billion a year overseas, how is it we have any money left at all?
And I'm not convinced that all that money that we're sending overseas is remaining in circulation. If it was, we'd be seeing it coming home, because like I said, dollars would be useless to foreigners unless they use them to buy something back from us.
i:
"Now it looks as though it is you who is engaging in a semantics debate. I don't see any meaningful difference between paper bills and gold, as items in and of themselves. Both are used as economic record-keepers, and neither has much use for any other purpose (though it's true that gold in recent years has had some electronics application, but that certainly wasn't the case in 1932). What makes one a "commodity" and the other not? What would make one subject to deflationary pressures and the other not?"
Deflation is a drop in prices. Commodities have prices; currencies do not. However, if you tie the value of a currency to a commodity (like gold), you have then made it vunerable to the drop in price of that commodity. Their values are tied together, so their values drop together, the interaction between the commodity and currency creating a deflationary spiral. A floating currency is not tied to any commodity prices, so if the commodity prices drop, the currency value still floats, and you get no deflationary spiral.
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V1:
"Banks holdings are not the same as banks or governments physically storing money and taking it out of circulation....Sorry, I should have made that distinction clear."
i:
"That's quite alright. I just wanted to clear that up before we went any further. So let me go back to what we were talking about before. You said, "The amount in global circulation determines the money supply." So if I understand correctly, that means that the roughly $1.3 trillion that seems to be the money supply ($600 billion in paper plus a little more than that amount in electronic money, if I'm reading your data right) includes money in circulation throughout the world. That would mean that even less than that amount is here in America. If we've been sending $300-400 billion a year overseas, how is it we have any money left at all?"
One thing that isn't calculated into the trade deficit is the money repatriated through corporate profits of overseas subsidaries of US corporations, a huge amount. The actual annual net domestic money supply deficit is actually about 15% these days. It really jumped in 1999, and has remained very high since. If your point is that this is made up by the Fed printing money like mad, you are right.
But there is one other factor you must take into account. If the economy expands with the money supply, there is no actual inflation (let me remind you that I'm using the modern common-usage definition of the term 'inflation', the value of the dollar reduced and buying less). If the economy (amount of goods & services produced) expands 10% in one year, and the money supply expands the same 10%, the value of the money remains the same relative to goods and services, as the ratio between the two remains the same. Right now, the economy is expanding at a sluggish 3% due to recession, yet the money supply is expanding at a whopping 15% due to the trade deficit, which is inflationary. During the '90s, when we had booming growth, the money supply increase wasn't a problem. And lately, low prices of goods due to excess inventories & low demand, as well as low wages have been counteracting the money supply inflation somewhat, along with oil prices that have been stagnant in the long term. However, we can't go on like this forever. Things must change eventually.
It is my belief that the reason that our 'leaders' are desperately persuing so-called free trade with China is to open up that huge market to American goods and eliminate this very situation. The same goes for NAFTA, making all of North America, perhaps soon all of the Americas into a large consolodated trading bloc to counter the EU and other trade alliances. Whether that strategy will work remains to be seen.
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i:
"And I'm not convinced that all that money that we're sending overseas is remaining in circulation. If it was, we'd be seeing it coming home, because like I said, dollars would be useless to foreigners unless they use them to buy something back from us."
Foreign business sell goods to us. The money they are paid falls into two categories, overhead and profit. We know what overhead is; wages, raw materials, equipment & building maintenence, insurance, loan repayments, stock dividends, taxes, regulatory fees, etc.; all the things that make up "the cost of doing business. All this money is paid out, and thus goes back into circulation. The remaining fraction, the profits, may be plowed into expansion of the business, new hires, aquring other businesses and whatnot, in which case it also is put back into circulation. Some small amount may be kept as ready funds for emergencies and/or future expansion. These funds are put into corporate bank accounts. The banks then loan out these funds, and the money is back in circulation. So where is that money kept out of circulation ??? I don't see it.
As for foreigners not sending the money back to us, there are ever-increasing amounts of US dollars in circulation throughout the world. There are many third-world pesthole nations where the local currency is almost worthless, and their economies actually runs on dollars and other more stable currencies (euros & yen). This is still true to a large degree even in Russia, where the ruble is stronger than in Soviet times, but not yet anywhere near as strong or accepted worldwide as the dollar. There are many stores with better-quality goods in Russia that will accept only dollars or euros.