A couple of points of view on the economic meltdown, with some good news sprinkled in.
First, “When Even Good News Worsens a Panic,” WSJ, and “The Fed Is Out of Ammunition: A discredited dollar is a likely outcome of the current crisis,” also WSJ (h/t Terry H).
Then, “The End of Wall Street’s Boom,” Portfolio, Dec 2008 (h/t thor)
Read and discuss.
I’m interested to hear the give and take from those with a good knowledge of finance and markets — but let’s see if we can’t keep the personal insults and colorful language about orifices to a bare, soft, lotioned-up and perfectly pink minimum.
Ready?
Go!
The American Economy is walking around like an athlete with thick, heavy muddy clay stuck to its shoes. We have categorized too many productive people as deserving of assistance, too many productive people are encumbered with rules regulations and such.
Until we clean our shoes, it will just get worse.
Too bad we didn’t have someone like Lawrence H. White as Secretary of the Treasury during the last eight years.
http://tinyurl.com/56uwwz
I’m trying to get through the required reading so I can say something about all this business but this Monday is my Friday and I feel very lethargic and unfocused. But the muddy shoe metaphor isn’t working for me somehow. I suspect the view on the economy looks different from the perspective of economically retarded California than from some of the remaining parts of the United States what still have some semblance of free enterprise.
I just got off the phone with a highly placed financial manager at Bank of America. “It’s hard to say exactly how fucked you are when you’re this fucked” was his most upbeat credit market commentary.
I’d be happy to comment, but you are pissed at me for making fun of your jeans.
And it’s CU vs. NU week, so I’m only supposed to shoot bile at you.
And you didn’t send me a thank you note.
Of course, that doesn’t really matter.
Just keep up the blogging.
And, should you ever decide you wish to see NU game, or sit in great box seats at the College World Series,
let me know.
I’ve got two for you for this weekend, should you decide to come.
Mike
’m interested to hear the give and take from those with a good knowledge of finance and markets â€â€
Well, shit, I’m out.
Verry long term trend chart from Prof. Ibbotsen of Yale on returns from various assets:
http://screencast.com/t/nSJwaGMOU
It says you want to be in stocks “most of the time”. Gold, over a very long period of time, preserves its value. Which is its value. The question is when to own which.
Sidewise to the topic: I note that Barack (May His Name Be Praised, Halleluja) Obama is getting a little bit of a head start on that two and a half million jobs. At least on the “saved” part.
Regards,
Ric
Two possible outcomes: One is the end of fractional reserve and the end of fiat money, that is, the end to Keynesianism. The other is the end of US sovereignty. and we keep playing this game under an architecture of global “authority”. There are few, if any other options. The question is one of time.
It’s too bad the good Dr. Paul went so far off the reservation on international policy and brought down all that bad juju from, interestingly, the ostensible right, notable recent champions of massive government and spending yourself rich. Because he’s spot-on about the dollar.
Having grown up in what is now Paul’s district (many moons ago), I can tell you that they cannot FIND the reservation.
But for an OB/GYN his economics understanding isn’t that bad.
Yeah, JHo, I saw some House committee thing on C-Span a number of days back. “Ron Paul makes more sense that almost anyone else in that room,” I thought to myself, then I considered the full impact of my opinion and went out for a drink.
Is the Keynes model working David? Because I can’t find where. “Understanding economics” is a canard. The issue is systemic.
I just mean that contra most of the Congressional blowhards, he actually talks some sense. I don’t believe that he is Keynesian. More Hayek and the like.
Oh, and most of that spending and increase in the size of government? Paul did not earn the name “Dr. No” for nothing.
Well see now the dogma of how to get to point B is less important I feel than defining point B as a free enterprise system what harnesses entrepreneurial energies and allocates resources effectively if a bit brutally mayhap and generally can be call a state of affairs with a high degree of liberty. Baracky won’t define point B that way. This is because our new president is something of a socialist cocksucker.
Got it, David. And ‘feets is right, of course: This is precisely the wrong time to install a socialist.
But for all that national soul-cleansing.
Hopefully it won’t be a four year hangover.
What’s weird is that of the true brainiacs that called this thing years ago, a number of them from the left, none extimated $8T and counting. The biggest numbers I ever saw were pushing $2T.
When they say the worst is yet to come, one tends to ponder any number of existential thoughts…
The federal deficit this year is currently expected to be $1.5T when the bailouts thus far are factored in. Just for perspective, this is $5,000 of debt accumulated by every man, woman and child in this country. Under PE Obama’s tax plans, 50% of the people of America will not pay federal income taxes, so a better way to think of the deficit this year is that those of you who have something will have a debit of $10,000 placed on you this year. So, for my wife and two kids, my share of the debt associated with the federal deficit this year will be $40,000. Remember, that’s just for this year. Anyone think the financial crisis will be over when the magic wands stop waving and the pixie dust fairies are released over the next month or two?
And what will I get for this? Well, nothing except more debt as far as I can tell since I pay my taxes, pay my mortgage, and have less total debt than my annual income (including cars, house, etc). I can’t wait to see how much more debt I get to accumulate the next four years. It is going to take more idealism than most people can muster to pay your debts and honor your commitments, given that those who do are going to be punished and made to make whole those who don’t. The incentives being established here are perverse and will lead to the downfall of this country and the usurpation of ever more liberties to fight the ever growing crisis. For our own good, of course.
Much of the blame for the crisis is being placed on the failure of capitalism. This is a clue. Anyone who says this is either a liar or doesn’t understand basic economic theory. Capitalism, more correctly free markets, do not guarantee that there will be no failures, in fact it is predicated on the fact that there will always be failures as better products, methods, services come along. The current crisis is a failure of rent seeking and the unintended consequences of utopian statism. To paraphrase Seyzor Kose, socialism’s greatest victory was in convincing the world that it doesn’t exist here, and hence any fault is always laid at the feet of capitalism.
Sorry Jeff, but all I can think of right now are my orifices and how they are about to be abused. Nice civilization we had. Shame we decided to chuck it all for empathy, self esteem, and political correctness.
We’re fucked, but so is the whole world, so I’m not sure what to do about it. One of the things I’m doing is buying chickens for the back yard. And I speak to you as a New York-city area attorney who used to advise private equity and hedge funds, but whose clients went into hibernation (or liquidation), so I’m at home these days.
As an economy we need to write down trillions of dollars in bad loans, and the government has decided to do that by printing trillions of dollars in new money; so inflation is a pretty sure thing, and deflation a real concern. I would like to be exposed to non-US denominated income, but I’m not sure what income is the “good” bet. China doesn’t have a functioning securities market to invest in (and even if it did, there are political driven risks of collapse there), and I fear Japan and the EU are not in a much better position than we are. The Canadian banks are doing well but their economy is lashed to our Titanic with bonds of steel.
There’s some talk about CDSs in that first article. They’re right that the notional amounts are not terribly useful risk indicators. But the cash flow indicators are. If you’re exposed to Lehman Brothers for $300 million/year in cash flow on debt swaps and they don’t pay, you’re pretty screwed. The bigger problem they create is the effect they have on trust in the market. No one trusts anyone these days because a perfectly healthy bank in some respects could be sent under by a counter party default too big for them to absorb, and then their counter parties are in trouble too. It snowballs.
What I’m hoping is that most of the companies in trouble today are allowed to go bust. Japan is still haunted by zombie corporations that should have gone bust but have been propped up for decades in order to “save jobs.” It’s like the Night of the Living Dead over there, in the corporate world, and no one’s got the guts to shoot them in the head. I hope the US government is made of sterner stuff, but with the Obama-Pelosi-Reid triumvirate I have low hopes. Hence the chickens.
But we should be happy we’re not in China. They’re a poor country, but those fools messed up and trusted us. They invested all their savings in US T-bills to keep their yuan low and build an export-led economy. Well, those T-bills will soon be worth 30% less I’m guessing and so will their export-led economy as we buy less of their stuff. They’ll have to restructure their entire economy around internal production & consumption, just like the US, and that’s going to be hard for them. There’s a real chance they’ll have a nation-wide Tianaman Square moment at some point in the next decade. The USA is fucked, but we’re not that fucked.
Well, look at the bright side. I’m now too old to get drafted and sent off to foreign wars for $128.50 a month.
What’s really bad is that could be the down side, because the paycheck never bounced, and we did get to eat.
They might try to loosen capital requirements for banks which increase their lending volume, and in proportion as they do.
Brock: Thanks for taking the time for that analysis. Also charles austin and others.
Brock, your “Tianaman Square moment” for the Chinese is probably going to be the millions and millions of back country peasants who moved to urban areas to take advantage of a plethora of manufacturing jobs. China was already restructuring it’s manufacturing, closing plants and costing jobs as early as late 2007. Now they will be faced with an enormous and burgeoning unemployment situation with many of these peasants.
I’m sadly predicting that sometime in the next six months there will be a very high profile confrontation in one or more of the major cities that will end with tanks and smoke and death on a massive scale. The irony from a blogging standpoint is the number of trolls who have graced this site over the years talking about how China was going to “own us” in a few years. China is going to have a problem “owning” their workers in the near future, the sort of scenario that makes Communist bureaucrats very nervous and extremely dangerous.
A discredited dollar
Will only make people buy more U.S. goods. That is, as long as We rule the Nuclear Markets – well, that, and also have the Will inborn of Classical Liberalism.
Speaking of China, I don’t recall the exact numbers but I think they have somewhere between 200-300 million men who have no chance to marry because they just aren’t enough women. Historically, this was always led to exactly one thing: wars of conquest and expansion. Wars also help stir up nationalist feelings and distract the populace from the real problems at home.
Not an economic argument, but I’d hate to live in Korea or Taiwan right now.
I hope The One enjoyed his holiday from history.
charles austin: That is a very valid and super scary point.
Brock, don’t bet too much that we won’t have a Tianaman Square moment. I can think of a couple of scenario’s involving gun confiscation, forex.
One of the things I’m doing is buying chickens for the back yard.
Japanese quail and rabbits are good if you have less space or local laws don’t allow chickens. It’s easier to argue that they’re “pets”.
Also, sprouts are easy to grow and provide a cheap source of fresh veggies (something that’s likely to get scarce if everything really does go to shit — especially in areas that have winter).
“What chance does a returning deceased war veteran have for that good paying job, more sugar, and the free mule you’ve been dreaming of? Well, think it over. Then take off your shoes.”
urthshu – How does someone become a returning deceased war veteran? Does not the deceased part preclude the returning part?
John Kerry?
I denounce myself.
Bunnies? So it’s come to that.
Hey, JD – Its from “Shoes for Industry” ;^D
For the quailing world at large.
Bunnies are so lean that diet consisting of such will leach minerals from the human system.
So you may want to invest in salt licks and other similar rocks too.
Learned me that from Survivor man, which I have been watching a lot lately.
Trade in the trophy wife for one that has a strong back and knows how to weave clothes and make soap.
Most women I know can’t even cook.
Bunnies are so lean that diet consisting of such will leach minerals from the human system.
I am having trouble processing this idea. You’ll eat your bunny and you’ll like it mister. Either that or I got eggrolls in the freezer.
OMG Zombies !!!!!!!!
I am setting up to coyote unemployed Seattle liberals across the border to pick avacados (shade grown, organic, fair labor and owned by gender balanced corporations) in Mexico. Trouble is most people in Seattle have never learned to swim.
Happyfeet: I’m sad to have to tell you that my Portuguese grandmother raised rabbits. At eight years old my job was to feed them and I was also allowed to, well, interact and sort of bond with them.
Unfortunately, Vovo also made stew. It was a terrible eight year old realization that still burns my mind’s eye. I also carry the guilt that the stew was really, really good.
I apologize in advance.
I do find it interesting that we’re getting all this talk about Obama being like FDR, though. FDR is a kind of Dem saint, sure, and I guess I can see the desire to see him in the same reflected light, but FDR really isn’t the model he should follow. Maybe part of it, too, is the Dem hysterics that tend toward looking at Bush as if he were Hoover when he’s more like Truman than anybody else.
Which leads me to think O should be more like Eisenhower. It fits a whole damned sight better – post war, 3 recessions, still did big projects. He was more cautious about intervention in the economy but when he acted, it tended to be the right thing to do.
Careful — Lionel Twain is already in that market, and I hear he can play rough.
urthshu – also i heard that Eisenhower did some wicked community organizing over in Europe, Normandy to be precise. He pretty much created as many homeless people as Baracky did, so they have that in common as well.
Time to pick up some Hormel. Spam is flying off the shelves!
Ha. Thing is, O has no background in military affairs, so he could just be too naive to know a bad war from a decent challenge.
Looking at his cabinet choices, I’d say he wants the nation to move on autopilot as much as possible so he can concentrate on the community organizey stuff he knows about. I don’t know if thats supposed to be reassuring.
While the current national debt and FY deficits are disconcerting, they are nothing compared to the unfunded entitlement program expenditures in the not-so-distant years to come…
Instead of worrying about Keynsian stimulus spending and spreading the wealth areound, O! better worry about spending his messianic political capital on fixing those entitlement programs and slashing spending; or else the value of the dollar is going to fall precipitously…
In one sense Rep Paul is right, all of these unfunded entitlements and well meaning redistributionist schemes like CRA, implemented through Fannie/Freddie, have brought us to where we are now. The Republicans hands aren’t dirt free either, but the left is more responsible for these costly programs. Booooooosh! has the trillion dollar Iraq war and the medicare drug plan on his head. But CRA and Fannie/Freddie malpractice is squarely in the Dems corner. And that brings our personal history up to date…
Cut government spending, as well as corporate and capital gains taxes to encourage investment and job creation. Hell, the government agency budgets increase yearly, at a rate greater than inflation; this is plain wrong and can no longer be afforded. And, cut the number of Federal employees, except for the military; 5 million government workers are both too many and generally overpaid…
Get thee some austerity; stop running up debt, before the dollar crashes and we really see what deflation is…
Perhaps, just as only Nixon could go to China, only Obama can cut entitlements, or at least reform them so they make economic sense. Bush tried just relatively minor tweaking to Social Security and got demonized.
–Raise retirement age
–Means testing
–etc…..
FWIW – There is not sn ice cube’s chance in hell that the dirty little quasi-socialist will reform entitlements. Unless by reform you mean let grow at an astounding and imprudent rate.
Trouble is, he won’t have the chance, because he won’t be in charge. He’s never managed so much as a lemonade stand; I would trust the twentysomething night manager at the average urban McDonalds more than I would Barack (May His Holy Name Be Loudly Praised) Obama to keep that gang of prima donnas on the right track. The total self-esteem inside the Beltway is probably what the whole world outside it adds up to, with only Brussels coming close. You can already see that starting to happen. Herding those cats is hard, and O! ain’t up to it.
That’s not even counting foreign affairs. The classic mistake of the ignorant when dealing with violence is to overdo it, to react with a spasm rather than a reasoned, calculating response to some affront, and it’s worse when the individual is expected to lead. We can hope for a result that’s less than disastrous, but I greatly fear…
Regards,
Ric
O needs to put prostitutes in charge of solving the credit crisis. I’ve never met one who would extend credit to anybody, so this ‘bailout’ shit wouldn’t fly, ever.
Oh Hell, Jeff – You should oughta do a post ‘splaining the bailouts from the POV of a ’70s blaxploitation ‘ho.
What is the current total figure for the bailout ?
Don’t know if anyone noticed, but the Japanese and Asians are asking for bonds issued in Yen. Beginning of the end for the dollar as the benchmark fiat currency.
JD – I think its over a trillion now, but they’re talking about going up to 7+ trillion
Social Security will still be in the black when Obama leaves office in January of 2017.
BJ … that’s very sad. I know your pain. Once there was a little calf named Hildegard is how that story starts. But my favorite meat that never happened really was iguana. Very lean supposedly. I don’t know if it was leachy or not but it sounded tasty. Like it could make nifty fajitas. I never had any but I was ready. It might make a comeback you never know.
Urthshu – 7 trillion? That was a joke, right?
Meya – By recent experience, I assume you were referring to Baracky.
“Meya – By recent experience, I assume you were referring to Baracky.”
Thats very interesting. Tell me more about your assumption.
We had keynesianism back during the gold standard.
FDR suspended gold payments and banned private ownership of gold in 1933.
Keynes published his major work in 1936.
While, in theory, the U.S. was “on the gold standard” until Nixon abandoned it altogether in 1971, in practice U.S fiat currency and Keynesian economics are almost exactly contemporary.
Yes but recent experience will be counsel enough against that.
Yes, much the same way that the horrors of WWI prevented WWII.
You’ve been taking history lessons from Dave, haven’t you?
Ric, my logical mind follows you. My somewhat desperate hope is what I was trying to express. Grasping at straws, I guess.
I’m not sure we could go back to a gold currency standard. Is there enough gold to do it?
SBP: Dead on, Amigo.
BJ,
I relate to that story re: the bunnies, ‘cept mine involved ducks. I could i.d. the buggers to my siblings at the dinner table by their size and shape (after being cooked). Funny, we always had left overs.
HF; iguanas?
>>Yes but recent experience will be counsel enough against that
Very much in doubt, given O’s Paw-kee-stawn pronouncements, coupled with his naive intentions to chop down on missile defense and related tech.
In fact, one could add the proviso that pell-mell drawing down of military strength is just as bad as a spasm of violence vs. reasoned response.
I’m not sure I’d favor gold anyway. Too much of the world’s reserves are controlled by Russia.
Now, if we really wanted a universal hard currency, we could go with semiconductor grade silicon; high intrinsic value, but not monopolized by any one country.
Its cost is directly proportional to the cost of energy, too. Want more money for your country? Build nuclear power plants (or some other economical energy source).
>>I’m not sure we could go back to a gold currency standard. Is there enough gold to do it?
I would argue ‘no’ and add that it wouldn’t be desirable to do so.
Currently, we’re on fiat, so the value is at least theoretically related to productive capacity in aggregate, and that is an expandable pie, so the economy is also. But to place on gold standard, you’re pegging the available dollars to the efforts of miners and a limited resource which must be held in reserve despite any industrial uses it could be put to.
The collapse of the oil price and with it oil producing economies may spare the world what otherwise could have been violence driven by hubris in regimes such as Iran and Russia. Flush with cash to buy off their peoples, these regimes might have lashed out in a number of directions, whereas saddled with economic troubles we can hope they find their hands tied in ways they hadn’t expected as little as two years ago.
Spies – It is good to see you around again.
Fiat currency most enables fractional reserve, no? And that serves exponential paper-based spending. The best tipoff might be when inflating is the perceived solution to credit lock.
There’s no known endgame here. The system added as much in new debt in a year as it amassed in 200. You tell me.
It doesn’t make any difference whether there’s enough gold or not, John. (There isn’t. Not by two orders of magnitude.)
Spies is mixing together three things that are related but are not the same: fractional reserve banking, which was invented by the Medici and perfected by the Jews of the European diaspora, centuries ago; Keynesian economics, which is a theory of how Governments should respond to economic events; and fiat currency, which is an attempt by Government to make money appear from nowhere by piggybacking on the fractional reserve system. The specific recommendations of Keynesian economics can’t be implemented without fractional reserve banking, but the latter can exist (and did, for a long time) without the former.
And in fact nobody has ever implemented Keynesian economics. What normally goes by that name is deficit spending. Keynes’s specification is that the Government should operate in the black during booms, which would restrain the overenthusiasm that leads to bubbles, and only spend in deficit when times were bad and the stimulus was needed. Politicians, always on the lookout for money, leaped on deficit spending and grabbed it with all four extremities, and cited Keynes as the excuse. It’s a lie, because the necessary other half of Keynes’s recommendations has never been followed, and probably never will; using the word to describe what modern Western Governments do as a matter of course is an insult to the name. His descendants should sue.
Fractional reserve banking is here to stay. When Alonso de Medici opened his pawn shop there were maybe half a billion humans on the planet, probably fewer. Nowadays there are six and a half billion of us, all (on the average) eating better than the average Renaissance Italian. How is that? — well, go back to the Libertarian “unconstrained trade.” A has X but wants Y; B has Y but wants X. They trade, and each is happier — richer — than before, and so is the society in which they are embedded. Fractional reserve banking allows that increase in perceived wealth to be systematized so that the rest of society can benefit. Whatever comes of the present situation, fractional reserve banking will be part of the eventual result — a big part.
Fiat currency, as I say, piggybacks on fractional reserve banking. In the original and simplest system, the bank issues notes — originally to a named person, like a check: “Pay to Enso della Veronica, ten ducats”, and later to “bearer”. Dear Enso didn’t have ten ducats, and neither did the bank — but Enso could go buy something that cost ten ducats (a small house, e.g.) and the seller would accept the properly countersigned note, confident that the Medicis would make it good. Governments noted that the notes, either countersigned or made out to “bearer”, got re-used. Sellers didn’t immediately turn them in to the bank, instead using them to buy something whose seller used them to buy something… They, the Governments/Princes, immediately made the same (false) connection SBP does: Hey, that’s the same as debased coinage, except you don’t have to have the real coins to start with! The rest is, as they say, political science.
Regards,
Ric
Oh, now that’s nice…
After reading all three, This song is what comes to mind.
Interesting read, Ric.
Spies is mixing together three things that are related but are not the same:
Hold on, now. I didn’t say anything about fractional reserve banking per se.
Trouble is, he won’t have the chance, because he won’t be in charge. He’s never managed so much as a lemonade stand…
Limbaugh had a good line today about why O is appointing nothing but Clintonistas, something like it’s not like you meet a lot of Cabinet level people organizing communities.
No, you didn’t, but the tone and content of your comment indicates that, like most people, you have a hard time seeing the difference between bank notes (a fundamental component of fractional reserve banking) and fiat currency. In your defense, in the ideal case the difference is minor — if the “bank” is the Prince’s treasury, and the treasury contains valuta, there isn’t any practical difference. The existential difference is profound, as can be observed as soon as the fiat-money system starts being abused.
Regards,
Ric
for reals, Cepik… apparently the iguana farming is sort of a salvadoran industry… it’s expensive here … this article is from 2004 though. This article makes it sound like it’s not something you could do domestically. Iguana farming. But no reason you couldn’t give it a go anyway I guess. Then again, nothing wrong with chickens and bunnies and japanese quail thingers or eggrolls.
Guinea pigs. Eaten in S. America in some places.
I bet they grill well.
Guinea pigs are the future.
Happyfeet – I have not had solid food in 3 days. I am withering away.
ITYM capybara. They’re essentially guinea pigs the size of dogs, so…
Capybaras are rodents, the world’s largest.
Hey, those stupid nutrias that the gov’t pays bounties for shooting–they could be food. Kill it and grill it.
ou have a hard time seeing the difference between bank notes (a fundamental component of fractional reserve banking) and fiat currency.
You may have inferred that from my “tone”, but I assure you that I do know the difference between them.
Kill it and grill it – most excellent phrase.
You can pretend you’re cleansing JD. Other Guy does this and got NG to do it. She lasted 3 days. He goes for like three weeks. Then he basically gets sort of not-thin again in short order. It’s just how he’s built. I think it’s sort of borderline retarded personally. Also I think it leads to a rather unhealthy fixation on your bowels. Him and NG would discuss this aspect. I wanted to say nonono we do not discuss this but I didn’t cause this is just part of living in Los Angeles.
I like Wolfgang Munchau’s article.
Originally from the UK’s Financial Times.
I tried something like that, once. When it was time for the high colonic, I figured there had to be a better way.
Just switch to beer and cigarettes for about 3 weeks, JD. Won’t ‘cleanse’ you, but boy will you feel the same shitty way they do
Tonite is a painfully dull evening.
You know what’s a cool time-killer? Here. The original one they made the awful remake of and slapped Stephen King’s name on. I think he actually did write it but it was shortly after getting bonked in the head by a car and it showed. The original is brilliant and goes on for like five hours or so but get the Sequel too and it picks up right exactly where the first one ends and bam there’s another five hours. That makes ten hours plus you get to say you watched a Danish or whatever miniseries, which sounds very sophisticated. This was before everyone knew Lars Von Trier was a sublime tool.
If you’re bored though for sure don’t click on the Wolfgang Munchau link for sure. Just looking out for you. Sorry Mr. Dare but I think something was lost in translation. That was a snooze.
Apologies, Spies. It’s one of my hot buttons. There are few non-Socialists I like less than gold bugs.
Regards,
Ric
Sorry you didn’t like it HF.
It was just the “two-tailed risk” and the potential time-bomb cliche and type-one type-two error business that threw me. Also I think there’s a point at which a lot of this becomes financial macroeconomic porn. Stuff what is valuable will still have value. That puts something of a floor under this whole business if you ask me.
I’m simple though.
I should just say I’m sorry I shouldn’t have dumped on your link like that.
I’m sorry I shouldn’t have dumped on your link like that.
‘feets, you’re right, though. “Financial macroeconomic porn” is about right, in the modern, defanged sense of “porn”. It’ll keep up, though, as long as people keep stuffing fifties into their g-strings.
Regards,
Ric
Currently, we’re on fiat, so the value is at least theoretically related to productive capacity in aggregate, and that is an expandable pie, so the economy is also.
As mentioned above, the current failures are not a failure of capitalism, or even of financial markets. They are a failure of the finance industry. At it’s root it is a failure of the producers of financial instruments to add value. The products they created were made to look like valuable goods, and were traded as such, but in reality they have proven to be gilded manure. The markets are not broken, merely waking up to the unpleasant fact that they are overstocked with entire warehouses full of polished turds, and responding as would be expected.
The solution is the same as that for the Big Three, those who created these products must face the music along with anyone foolish enough to have bought them. They must be allowed to fail and if government is to intervene the only useful intervention would be to stimulate production of other things, things of real value so that the great pie of productivity can be expanded to more closely approximate the money supply. Lower taxes, real energy production, and massive deregulation would certainly be a good start.
If ever there was a time for think locally I’d say now is the time to get in gear with that. Like I have any idea what a trillion is anyway.
JD!
Happyfeet – I have not had solid food in 3 days. I am withering away.
Fresh fruit, my good man. Easiest to digest, it will give you energy, and none of the fat content that you can’t deal with right now. Soon, when you start getting your bile up, try some plain Italian or French craft breads. You’ll be back in cheeseburger land in no time.
A trillion is those flowers with 3 petals that you shouldn’t feed to turtles. No, the other ones. Them’s are those.
You’re right ThomasD but this is somehow related to global warming I think. The disease where there’s an attainable perfect if we just tweak the policies more better. Less is more. oh. Mr. jackson is right. My favorite new smoothie is yams (you have to boil them then refrigerate them) … use about I dunno 6 or 7 ounces cause you don’t want it too thick … a roma tomato and a can of sliced pineapple (in juice) and top the blender with green tea. Really nice colour and nutritiony and tasty.
ThomasD, you’re right, with one caveat.
The deep motivation behind all this crap was to find ways to amass wealth in such a way that the IRS couldn’t define it as “income”. As long as the prevailing philosophy is “I see monney, gimme sommme, it’s not faaaaaaaaaaaaaaaaaaaaaaaaair, the financial wizards will keep coming up with scams like this.
Regards,
Ric
I don’t know why I just spelled color like that. I just learned recently my turtles are supposed to like peas, urthshu. I think buttons taught me that. I miss buttons.
On a practical level, I’ve been moving assets into tangible goods and leaving debt in fixed interest loans.
I expect large-scale inflation within two years.
And yeah, I’m stocking up on canned food. I also have a year’s supply of tobacco (soon to be two years) and a couple of years worth of beer-making ingredients.
Alcohol and tobacco are always the first whipping boy for tax-hungry bureaucrats.
Also I’m going to order about 3X my normal amount of garden seeds. I bought a pressure cooker, too.
I’m gonna end up feeling like an idiot for squandering all that money on retiring my student loan I think.
Could be, ‘feets. You might have been able to pay it off with monopoly money in a few years.
On the other hand, it’s off your back, so there’s that.
um. What’s the pressure cooker for exactly? I want to quit smoking cause those taxes on it feel like I’m being part of the problem, but I really like that roll your own machine thinger too.
Canning veggies from the garden. I usually wind up giving the extra stuff away, but I want to be ready in case I need to save it for myself.
I can’t remember who said they froze habanero peppers but I thought I might try that on the balcony just for solidarity with Darleen. I love the image of her brandishing her Burpee seed catalog at the dirty socialists.
oh. You are way ahead of the game, Spies. So far none of this has that cheesey make planters out of wine bottles with your Ronco glass slicer thingamajig feel to it. Or does it? Ric?
Anyone remember the 70s? I was there for some of it and YouTube has lots of stuff.
Actually I can’t find any youtube that really captures it. Grizzly Adams and back to nature and making planters out of wine bottles is all I got really.
aaaaieeeeeee! let’s just say I watched (most of) that at a bad point in my mental health history. I kinda like other Lars von Trier things I’ve seen, but I can’t bring myself to watch that one again.
My mom used to do the macrame thing.
We had the glass cutter and the rock tumbler when we were kids.
Not only the liquid diet for 3 days, but I also have not had a cigarette since 10:53 AM on Saturday.
I recommend RGE Monitor by Dr. Nouriel Roubini from the Stern School of Business at NYU (dubbed “Dr. Doom” by the NYT) – especially his prescient “12 Steps to Systemic Financial Meltdown” from a couple of years ago. Also “GEAB 2020,” a European think-tank which (although sometimes as hit-or-miss on specifics as Debkafile) has gotten the overall systemic global economic meltdown pretty much right since ’06 and which forsees a default by the U.S. on it’s debt obligations by mid 2009. As I see it, the perfect storm is coalescing on many different fronts, both secular and spiritual. But my training is in New Testament Greek, systematic theology and biblical eschatology. So, you know, pass the Bible, guns and butter and valium…
Garden seeds and SPAM and ammunition and whatnot may be useful for a Great Depression style deflation, but what about Zimbabwe style inflation? Okay, maybe not that bad, but I’m thinking if five years there’s a good chance the US dollar is going to have the buying power of the Peso, or perhaps even the yen. How does a family protect themselves and their modest savings from that kind of inflation?
JD: can you get your wife to bring you some nicotine gum? That helps a lot, if you’re allowed to have it.
Ric,
No arguments from me You hit on a key reason why tax cuts are desireable – for the structural benefits. People get so hung up on the Laffer curve and the revenue side that they forget that lower taxes also have the added benefit of reducing the costs and drag associated with tax avoidance shenanigans.
Speaking personally for the forseable future capital gains rates mean nothing to me, yet this is one of the places we need to start aggressively reducing the tax burden so as to stimulate real productivity.
I also have not had a cigarette since 10:53 AM on Saturday.
Sounds like a good start to me.
Not only the liquid diet for 3 days, but I also have not had a cigarette since 10:53 AM on Saturday.
Damn dude. I wish I could give you one of my MYOs I’m enjoying right now: a hand-blended stick of D&R high quality Virginian flue cured and Balkan Turkish. Wait a minute. Where are you?
Yes! Macrame. And the rock tumbler we did just once when I was little with rocks we probably shouldn’t have taken from national parks and stuff and I think it ran for weeks and weeks which isn’t very green looking back but we didn’t make any interesting jewelry or anything like on the box. oh. Metal detectors is another one.
Spies – not allowed. already checked.
BMoe – By the time I get home, I will have 5 days,cold turkey. And the hardest part will have been with the aid of good meds. I figure if I start Chantix, I just might be able to finally quit.
you should ask if you can start chantix right away. I think it has to sort of settle in before it does its chantixy magic. That’s how Zyban was anyway, which helped me quit for almost a year once until I moved in with a smoker.
Which is why we are F****d with Obama and company.
Oh, well there is always extreme recipes, always lots of the base ingredients around.
I dunno. All those drugs may help with the nicotine dependency, but after five days you’re over the nicotine. Nicotine withdrawal only lasts for about 72-96 hours. After that it’s just battling the habit and desire to smoke, which will go away whether you smoke another cigarette or not.
The disclaimer at the bottom is kind of the funniest part I think geoff.
peter, knowing that and knowing that are two entirely different things.
I also want to get a mini-mill while the Chinese are still selling shit to us.
I have a milling attachment for my lathe, but it’s a little bit limiting.
Also need to get more O1 drill rod and flat stock on hand.
Feets; re: the iguanas, it reminds me of the emu/boer goat/ostrich craze from the early ’90s. Oh yeah, I remember “the inside the eggshell egg scrambler” and that cheesy visor with the a.m. radio in it from Ronco.
Spies, do you ever read Backwoods Home magazine? Jackie Clay talks about canning, pressure cooking, dehydrating, the works. I have been reading that mag for years.
JD; how much longer on the liquid diet? when are they moving you to rice and toast? Have they discussed any transitional meds and diets until your liver kicks in? Did the docs discuss what level it will kick in and if you have o change any eating habits?
Haven’t seen that one, Cepik, but it sounds interesting!
The mini-mill looks useful. I’m always drawn to that for real electrician type equipment at Fry’s what lets you measure ohms and ergs and warks and pletzers and such and there are many dials and I wish I had the first clue about what you do with those things.
And it fits into a financial meltdown thread as they are recommended for only one type creature to eat.
“vulture”
Lots of those all over this crisis.
oh. the inside the eggshell scrambler sounds too cool. Somewhere maybe target I bought one of those poach eggs in your microwave thing and I used it for awhile to make eggwhite thingers what fit perfectly inside sliced bagels. I was working out a lot then. You knew it was ready when it exploded. There was a lot of cleanup involved.
oh. microwave *things* … vulture-wise geoff it’s the carbon market people what are circling and circling most egregiously I think. Baracky wants a $700 billion dollar blank check out of the deal but that’s not vulturey it’s just rape I think.
I’m sorry Mr. Locke, but I respectfully disagree.
And since I don’t type very fast, I’ll let the Mises Economic Blog do my talking.
“Under the Gold Standard, or any other metallic standard, the value of money is not really derived from gold. The fact is, that the necessity of redeeming the money they issue in gold, places upon the issuers a discipline which forces them to control the quantity of money in an appropriate manner; I think it is quite as legitimate to say that under a gold standard it is the demand of gold for monetary purposes which determines that value of gold, as the common belief that the value which gold has in other uses determines the value of money. The gold standard is the only method we have yet found to place a discipline on government, and government will behave reasonably only if it is forced to do so.”
Now the above quote is a general point, but there are several things that can be argued.
It’ll take me a couple of days, but I can put together a technical analysis if you would like. {I’m old, and type slowly.}
Respectfully,
Mike
All this talk of canning and gardening and making do is making me nostalgic for my late teen early 20’s years with the one stop gettin’ by and makin’ do catalog.
Mr. Feet,
peter, knowing that and knowing that are two entirely different things.
Right on =8^/
Spies!
What are you going to do with all that shit?
OMG, I’ve never seen these mini mills. Could I make a revolver with one?!?!?!
And by the way, every time I try and add an url to a comment using the regular a href link, the comment won’t post. Geoff, how did you do that?
peter, you could, but you would probably want to have a lathe as well.
Lathe = makes round things.
Mill = makes not-round things.
You can make not-round things on a lathe and round things on a mill, but it’s better to have both.
Hell, it’s short enough. Happyfeet, this is for you:
http://www.youtube.com/watch?v=OeV_S6-3kQM
Oh, and by “you could” I mean “you could, in theory, if you were willing to violate numerous firearms laws”.
I think there’s some exemption dealie you can get for home-built guns, but I’ve never really looked into it.
Probably varies a lot by state, too, I’d imagine.
The problem isn’t new. 1836, I think.
What is new is that the Federal Government has the capacity to generate absolutely staggering quantites of money and the will to do so (We have the keys to the printing press and we aren’t afraid to use them. –Ben Bernanke). Add to it a politician’s desire to be seen doing “something” and we have the spate of bailouts and stimulus packages.
Better to let bad businesses fail and allow the strongest to gather in the assets of the weak and failing.
It’s not the credit crunch that’s going to kill us. It’ll be the massive inflation created by ginning up those presses. A bit more apprehension of their use would be a good thing.
After that it’s just a lack of character. (I quit 20 years ago.)
mood rings. That’s a lot a good metaphor for what Baracky and his media are already trying to do 2012-wise I think. They get to make the little card what tells you what the colors mean. Thems that make up that little card have a lot of power. Jeff gets that like nobody else.
Hmm. If I remember right the gold standard was a feature of Victorianism, too Mr. Ratso. Maybe it’s more the 1870s what are making a comeback.
Firefox and this.
>>After that it’s just a lack of character. (I quit 20 years ago.)
Here’s where we’re supposed to pipe up with you’re just a power-trippy, hyper-judgemental, NAZIfascistintolerantjerkyman
Which would work, if we weren’t smokers in Lib-land.
So instead we’ll smoke outside and pay for your bailouts.
You’re welcome. Liberty!!! koffkoff
Back when I was in Jr. High shop as an after school project with my instructor I made a smoothbore matchlock pistol. That was before the Kennedy assassination and the 1968 gun control madness though.
That may be…
But I don’t smoke anymore.
SGT York, I think, is going to argue that we don’t need a 1 to 1 quantity of gold to go back to a gold standard, and he’s right, but we would need more than the 1/100th of the US economy in value (assuming $900/oz) that we actually have. That’d be some massive fractional reserving.
Dilaudid nakes you want to not go to sleep, because it feels so good.
That’s interesting, Yves Smith at the Naked Capitalism blog references that Wolfgang Munchau article in FT as well:
“Third, as Wolfgang Munchau said today in the Financial Times and others have pointed out earlier, the Fed seems worried solely about deflation, and not about a possible US currency crisis. This is a shocking oversight. The Fed (and many others) keep drawing analogies between the US in the Great Depression and its situation now. That is flawed and dangerous.”
Thanks Mitch. (private email)
Go to sleep, JD!
Sgt. York – Are you saying that all that money out there is actually fake money and not based on double entry bookepping or something? Last year Ron Paul supporters and Mises school fans were circulating a rather funny video entitled “Money is Debt”, which implied that occurrence. How does money get issued that is not backed by anything sir? Can you give me the accounting entries? Deposits by member banks at the Fed are currently $500 billion in excess of liquidity requirements, according to many reports. Are those fake deposits?
Ric explained this very well above. I look forward to tiyr explainarion of our Italian car company money to compare and contrast.
“I think there’s some exemption dealie you can get for home-built guns, but I’ve never really looked into it.â€Â
You can make any firearm as long as it complies with the NFA, it’s semiautomatic,bolt action, or single shot, and its for your own use only. You can’t sell it.
Parts kits for AKs, Ar15s,FALs, etc. were once plentiful. That’s gonna change under the new administration.
Interesting to learn, Rusty.
Making a revolver would be quite challenging, I think, at least without lots of practice and skill-building.
A smoothbore single-shot like geoffb mentioned would definitely be feasible.
When Ron Paul is taking about the economy, it’s the truth baby. But none of this matters. The Pogues are coming baby!
All money is “fiat”. The only difference is who said “Fiat lucre!”
Why is gold valuable? Because people want it.
Why do people want gold? Because it’s valuable.
There isn’t any way out of that tight little circle, despite whole forests being clear-cut for the paper to print books that claim there is. “Value” is a product of human perception; absent people and their desires and opinions all there is is rocks, some perhaps softer than others. If people want it, it’s valuable, even if it doesn’t actually exist; if people don’t want it, it isn’t valuable, no matter how smooth and heavy and glitteryyellowgleaming.
Bubbles and panics and crises of confidence are part of an economic system. The Roman Empire ran on them — when the legions came home after conquering a new place it generated a bubble of prosperity; when that died out and the panic set in, there were lots of broke people anxious to join the legions and go conquer somebody else. Breathe in, breathe out…
The troubles we’re having aren’t because of fractional reserve banking or fiat money or not enough gold. We’re having problems because the People In Charge are incompetent, arrogant assholes who couldn’t find their asses with both hands and somebody else to interpret the GPS, and who are using the situation as an excuse to aggrandize themselves and enrich their cronies. If they either go away or figure it out, it’ll right itself. If not, it’ll get worse. End of story.
Regards,
Ric
the People In Charge are incompetent, arrogant assholes who couldn’t find their asses with both hands and somebody else to interpret the GPS, and who are using the situation as an excuse to aggrandize themselves and enrich their cronies.
Preach. A market which can move freely, can move stupidly. A market which can move stupidly will encounter periodic disasters as perception (value) catches up with reality.
Each generation has its lessons to learn.
I’m sorry, Ric, but #163 paints with false dichotomy. We are in this because of the corruption at the top, but we’re in this really because of the simple fact that you can game fiat money — declared into existence — and you cannot gold. Or even rocks.
This is the point the anti goldbuggers perpetually miss: You can print money. You cannot print substance, production, groceries, gas, cows, or any valuable matter. The closed loop you use to tie value to the valuable must at some point include fraud if it is to be complete. Fraud is ant-value and so is government.
Gold is not fiat money because gold is not alchemic. Because gold has as eternal a tradable value as has ever existed, like oil, wood, wheat, and even water, it will likely always have the value of its commodity.
On the other hand, the dollar is entirely alchemic. These days it’s used to leverage vast piles of credit against other units of intrinsic worth called, primarily, import goods. That leverage cannot last and today we see the beginning of the debasement and eventual unhinging of the dollar as global unit of trade.
The dollar is fiat, it is debt, it is a lot of things. But one thing it is not, Ric, is itself more than a unit of trade. It is not a unit of physical value. It is not valuable. Therefore it can be and is being debased into the ground as the direct property of that perceived value substantially declining.
If we don’t produce and if we instead accrue huge debts, then what would you trade this instrument of ours against? Itself?
JHoward, just an aside — I saw Niall Ferguson over the weekend on C-Span Books yakking about his new “The Ascent of Money” and he seemed to be saying that the Incas couldn’t understand what all the fuss was about with regard to the Conquistador’s obsession with gold and silver as neither were used as currency (though they liked the stuff well enough for its use value) by South American natives. So I’m not too sure about your use of eternal vis a vis gold there.
Also, “if we don’t produce” seems an awfully sweeping sort of proposition, in macro-economic terms, to me. When has that condition ever been actual? Never, I think. Could it? I don’t think so. But doesn’t fraud happen? Well, sure. Just not always and everywhere. Can’t.
“As eternal”, Sdferr. That is, a commodity is a commodity as long as it has usable, holdable, tradeable value — w/o humans, as Ric observes, it’s all rocks. Dollars are but instruments to enumerate the value of stuff and at such time as they’re worth more in BTU’s than in trade, then they get burned in bundles.
It seems to me that the US going from wealthiest to greatest debtor in history in the space of about a half century says something’s wrong. If debt’s not important, then why is it on the books? It’s on the books for the same reason the dollar yet has worth: Confidence and the requirement for confidence. And it seems logical to assume that confidence in stuff beats confidence in debt hands-down. About when does the world cash in its American credit? And by what means?
I think the debate about what’s inherently valuable becomes a red herring when it itself fails to account for a currency going into positive feedback. When Schiff — who three years ago predicted a banking collapse due to an artificial banking bubble — calls gold at $2k in 2009, it’s not so much a commentary on gold (and certainly it’s not inherently a commentary on gold as a trade standard, although Greenspan did track rates to the price of gold for some time before losing his way) as it is a commentary on the thing used to enumerate gold.
” but we’re in this really because of the simple fact that you can game fiat money  declared into existence”
J.Howard – I’m sorry, but this is a point that the gold bugs continually get wrong and it is the foundation of their argument. Please walk everyone through in your mind how that money is “declared” into existence. Does auctioning government bonds and then leveraging or deleveraging the proceeds through the financial system constitute “declaring” money into or out of existence?
I’m not buying, daleyrocks. You know better.
I agree, of course, as to the tradeability of gold as a commodity, as some metal to pound on to make chains or circuits, but thought the question was one of its use as a standard for currency (“gold is not fiat money”), and hence another sort of value. Or if not, what is the question then?
JHoward, I’ve seen all of that before. Whether you realize it or not, the entire argument depends on having a concrete referent for the word “intrinsic”, as in “intrinsic value”. You try to talk around it, because you know intellectually it isn’t true, but all your arguments fall down if there’s no such thing — and there isn’t.
Put it this way: as one of perhaps half a googlplex of collateral descendants of Argelos IV, God-Emperor of the Local Group of Galaxies, I am the owner in fee simple of a moon circling a planet of a star in the Lesser Magellanic Cloud. The moon is a construct one thousand kilometers in diameter, consisting of an outer shell one hundred meters thick made of an alloy composed of forty percent gold, thirty-five percent platinum, and twenty-five percent iridium. The interior contains a waxy yellow substance which, if administered to a DNA-based mammal at the rate of one cubic centimeter per year, confers immortality. What is that moon’s value? What am I bid for the quitclaim deed?
Consider the matter of “collectibles”. Three-quarters of a century ago, manufacturers included a cheap glass dish with their product as an inducement for consumers to buy. Today, I could trade a nice piece of “depression glass” (if I had one) for a house. That ugly, pale-pink chunk of melted sand is money, just as much as a dollar bill, or a gram of gold, is.
Marx struggled with that nest of snakes for two whole long, turgid books. Raised on the implicit assumption of “intrinsic value”, but uncomfortably aware that the list of things characterized as having it was wrong and wrongheaded, he tried to find a substitute, and decided on labor as the “base”. Even to him, though, it became obvious that working it out led to contradictions that didn’t exist in Nature, so he added on “utility value” — the value as perceived by people who wanted it (or didn’t). And, in the end, all you have to do to make Marx’s analysis correct is set the “labor value” — the intrinsic value — to zero, with the “utility value” being the value of the thing.
In the end, any monetary system is based on trust. Money is a promise, and no more than that. If the promise is kept — if the money will buy things — the system works, whether the promise is based on “fiat” or something else. Wealth is existential, a product of human perceptions with no concrete referent; money is a symbolic representation of wealth, and by manipulating the symbols, the money, we move wealth from place to place, just as manipulating the symbols of language moves information from place to place. We can and do manipulate language to create ideas and information that didn’t exist before; in the same way, we manipulate money as a symbol to create wealth that didn’t previously exist. When we allow the words, the symbols of language, to be freighted with meanings that don’t represent underlying ideas, the transfer of ideas is corrupted; if money, the symbol of wealth, gains value of its own rather than representing the underlying value, the transfer of wealth is corrupted. What you sneer at as “fiat money” is the Platonic ideal of the concept. Having no value of its own, it represents the underlying value and allows us to trade that.
Regards,
Ric
ric: Masel Tov!
Any agreed upon standard still draws its “intrinsic value” from groups of people agreeing to the value in a free market. By having this overwhelming need to “discipline” the monetary system by tying it’s “value” to one element has an inherent punishment to growth and creates it’s own economic capriciousness.
Ultimately “intrinsic value,” whether gold, currency or Beanie Babies, is determined by some group of people in the market. Sometimes they get it wrong, sometimes they get it catastrophically wrong but that concept will not go away just because the world economies have decided the shiny, yellow stone sets the values and imposes discipline. Good faith and trust backed by sovereign governments have to play some part in the equation if we are to reflect gains in productivity and innovation and grow as a result. I’d rather not wait for the gold to catch up but would hope that those running the money circles will have learned a valuable lesson on betraying the trust.
Ric, I’ve heard all that before too, mostly from you. I’ll restate my claim that the anti-goldbuggers still miss the point (and I’ll resist any claim to knowing that they know they’re being intellectually dishonest):
1. You cannot print a commodity. In your example, you cannot print solid spheres of neutronium with tempting chocolate coatings. Should such worlds have mining value, it is precisely because they can be traded, consumed, etc., but are limited in access and quantity, thereby by their physical properties and rarity themselves producing desire and need. This is so basic as to be mundane.
2. Currency — in our case and as you observe, what began as a promissory note — is not a commodity. It rides as a mere fluctuating unit of trust on a system of interchange of goods and services with which to enumerate such goods and services entirely on the basis of the perception that it has utility with which to do so, not physical, consumable, rare value except as firewood or mattress padding. If whomever makes money mismanages that production, or if the system finds it untrustworthy for whatever reason it may at whatever time it chooses, obviously it falls in value.
But the point is that it, unlike goods and services, is an invention. It is an abstract. It is a construct. It is precisely because of this property that it has utility to the very misfits who have put us in the position we find ourselves occupying.
Probably we’re talking past one another. But I propose that is the fiat currency contrarian who suspects his argument is the less specious…
In other words, Ric, to take up what I understand as your premise, perhaps start with defending money on its physical properties: Immortality elixirs and precious metals have value because they are in fact immortality elixirs and precious metals — they do stuff folks prize. If you could indeed pipeline the universe’s resources to Earth, you’d create a planet of perpetual vacationers.
While you may trade such things with units of abstract promissory instruments, all you can actually do with them themselves is warm the hearth or keep the circuits busy.
Should you find a way to unhinge them from real trade and make them in your garage, you’d simply debase them. You would not alter the real-time usefulness of any of the stuff coming down the pipeline, regardless of where the supply end is located. There’s a difference between what markets trade and why, and what markets use as trade instruments and why.
One thing we all might agree on is government taking an ever larger share of the nation’s wealth and diverting that taking from productive (and non-productive) use in the private markets to government determined use which is relatively less productive of new wealth and thus, cannot, in the long run, be a good (better) use of that wealth. What the people have a hard time seeing are the opportunity losses incurred under these circumstances. It’s a damn shame.
JHoward – I’ll repeat my request from last night on this thread. Please show me the accounting entries for the declaration of money into existence out of thin air. If you believe that promises to pay from theoretically creditworthy enterprises have no value, I can see how you might get to the starting point of a gold bug argument. The problem, as explained by Ric above, is that those promises do have value at the time they are made and people rely on them.
Gold bugs cannot produce the starting point of their fiat currency argument. I liken that to single entry bookeeping. Ric described the fractional reserve system last night. Well, we use double entry bookeeping in this country. Both sides of the entry have value. To use your language of creating money out of thin air would impy that one side of the entry held no value. Describe that entry for me please. Take me to the beginning, not the end.
Which brings us to the insane top-down corruption of free markets by legislators and their policies, Sdferr, and beyond that, blaming those markets themselves for the failures of such manipulations and manipulators. It’s a staggering indictment of the dishonesty of political opportunity and relativism.
JHoward – I have only a few problems with your description here:
“2. Currency  in our case and as you observe, what began as a promissory note  is not a commodity. It rides as a mere fluctuating unit of trust on a system of interchange of goods and services with which to enumerate such goods and services entirely on the basis of the perception that it has utility with which to do so, not physical, consumable, rare value except as firewood or mattress padding. If whomever makes money mismanages that production, or if the system finds it untrustworthy for whatever reason it may at whatever time it chooses, obviously it falls in value.”
Would you call the above and Ric’s description of a promissory note from last night the “declaration of money in existence?”
“That ugly, pale-pink chunk of melted sand is money”
Wrong, it is an asset.
“Money is a promise, and no more than that.”
Wrong again. A check, a draft is a promise. Money completes the promise.
Cripes, I wish I could type faster.
daleyrocks, please show me the inherent payability of US debt, given that it runs perpetually increasing amounts. Think bigger: It’s not that the accounting fails; it’s that this accounting uniquely has no apparent solvent end-point.
This is probably what “gold-bugs” see (and what you mistakenly use to define them). “Printing money into existence” likely refers to units of debt (dollars) created that only units of new debt can pay the interest on. It’s not strict accounting terminology but it may be a very effective, valid demonstration of where this all heads.
In other words, unless it dawns on you that the entire intent is to ride an inherently unpaid, unpayable, expanding debt as long as possible, I can’t help you out. Many confuse instruments with systems; methods with outcomes.
Ric correctly points out, as I recall, that fractional reserve, fiat currency, and Keynesianism are not interchangeable. Likewise, a promise to pay is not the abstract unit in which such a debt may be paid (and certainly not as time passes and that note, if it is as unhinged and abstract as a dollar, responds to constantly shifting value.)
IOW, if the system is closed and sound, how does the Fed make money on inflation, that being a visible, core component of “recovery” making the rounds today?
“if it is as unhinged and abstract as a dollar, responds to constantly shifting value.”
JHoward – A gold or other commodity-backed currency would suffer from the same issues in either a closed or open system. There is no difference. You seem to be fixated on the idea that having a pile of some tangible substance backing a currency cures all ills. I say it doesn’t because the value of that tangible substance fluctuates along with the currency. Sure, people have tried to maintain unrealistic currency pegs over time but they have generally not worked out very well.
I am focused on the rather pejorative statements of the Paulians that with a fiat currency, using the U.S. as an example, money is created out of thin air. Nobody has demonstrated that on this thread. Money is created through the exchange of promises – value given and value received. You merely take issue with the perceived value.
On repaying the U.S. debt – it does not all fall due this year or next year, but thank you for the question.
Rubbish. I’m “fixated” on the “idea” that systems designed for manipulation and corruption are granted just those properties. Having a pile of some tangible substance backing a currency would cure it from such corruption, for what’s worth at this late stage.
Given that you’ve yet again switched this portion of the conversation from how to prevent such wreckage to the gold standard nobody’s seriously advocated in this thread, perhaps you can spell out how to implement sound monetary policy under and behind a fiat currency and with it, restore solvency, trust, and some degree of personal sovereignty as our public servants rig our futures and those of about ten generations of our heirs.
Again, daleyrocks, #180.
NFA only covers firearms. Black powder weapons (no cartridge) are not firearms and are not covered.
Panic of 1819 was alost identical in cause (too many mortgages that could not be paid) in root cause and gold was teh standard then.
Gold can be gamed because credit can and will be extended.
What do you do when the bank is ordered to pay off more gold than he has on hand?
Panic of 1792
Panic of 1819, a U.S. recession with bank failures; culmination of U.S.’s first boom-to-bust cycle
Panic of 1837, a U.S. recession with bank failures, followed by a 5-year depression
Panic of 1847
Panic of 1857, a U.S. recession with bank failures
Panic of 1866
Panic of 1873, a U.S. recession with bank failures, followed by a 4-year depression
Panic of 1884
Panic of 1890
Panic of 1893, a U.S. recession with bank failures
Panic of 1907, a U.S. economic recession with bank failures
Great Depression, the worst systemic banking crisis of the 20th century
Secondary banking crisis of 1973–1975
Savings and loan crisis of the 1980s and 1990s
Gold standard means going back to a 10 to 20 year bust cycle.
JHoward, in some ways you and I are definitely on the same page; in others we’re poles apart.
I very much like daleyrocks’s formulation: What’s the starting point? You propose that it be “commodities”, real tangible things that can be felt and touched. What I’m pointing out is that the value of commodities is just as much a product of human perception as any other “value”; it’s just as much turtles all the way down (hi, happyfeet!) to do it that way as any other.
The Newtonian or Universal Gravitation formula is: there is no basis of value. Credit and debt are created simultaneously, and cancel one another out — nothing has been created or destroyed. I have a bank account (sadly, not a very big one.) To me, that is a credit; to the bank it’s a debt which must be paid. I also have a mortgage (sadly, a fairly large one.) To me, that’s a debt; to the bank it’s a credit. The net value of the world is zero, which is what would be true with or without human beings. Build on that, and you’ve got something.
You, like a lot of people down the ages, are searching for some method, some basis of economics, that can’t be gamed and therefore can’t be abused by Congresscritteroids. Sorry. Such does not exist, and if there is a way forward it is to recognize that and accommodate some more realistic formula.
Regards,
Ric
Ric,
What grinds my gears is that in the face of eight hundred billion dollar days, “conservatives” haven’t yet grasped that the current system is shot through with holes, corruption, and opportunism. I mean, let’s put this into perspective:
Simply on the vague basis that messy booms and busts occur (see SSG Ratso, apparently) we’re either tacitly or actively promoting (1) the Wilsonian/FDR-era/Obamite/reoccurring anti-market wisdom that (2) a private Fed and centralized banking system — those being already (3) anti-Jeffersonian — perched upon what if you and I did it would be (4) counterfeiting and thereby producing a debt the likes of which has never been seen, much less contemplated, save being actually paid, and which delivers (5) constant bubbles and contractions anyway, while (6) lining pockets with decidedly unrepresentative forms of what will be, in the end, (7) massive new hidden taxes, (8) vast power invested and reinvested in that Fed, (9) calls for centralization and nationalization, and surely eventually, (10) monetary globalization, all the while (11) risking the entire global financial system and (12) rejiggering entire national powers, is somehow not only beneficial, but is preferred as a right-leaning set of monetary principles. While we dick around trying to determine where origins lie or if double entry accounting fits definitions.
It’s not the hindsight, Ric, and therefore it’s not about whether a gold or a milk or a fiberglas bass boat standard should have existed as a panacea for all monetary problems and eventualities since 1776. It’s about our best guess at a system that as thoroughly as possible protects the sovereignty of the individual, that being the purpose, I think, of this particular form of government and civilization.
Whomever said that controlling the money controlled the power, which is to say the politics in this age of budding American Socialism, is about to be proved right in the starkest way possible I think.
It’s ironic that taking that risk for a few decades of relative, ginned-up prosperity and an illusion of bank security — as we almost noiselessly glide past seven or eight trillion new 2008 debt dollars on our way to a total tab of some sixty and seventy trillion in all national debts and promises — just in order to prepay what could be a very, very serious rearrangement of world power, is now defended as healthy conservatism because it once served the corporate engine. Surely there were alternatives because now it serves the collectivists.
There’s great risk inherent to civilization and nobody’d trust a monetary system mandated by a national dictator. But we couldn’t have done better than this? Really? After the rise of fiat American currency so followed such a dark origin?
(Ron Paul!)
Gold standard means going back to a 10 to 20 year bust cycle.
The only caveat I have is that we’re on one regardless, and this is Ric’s point. Breathe in, Breathe out. Bust prepares for boom prepares for bust prepares for boom et cetera ad infinitum.
The truth is, value is relative. You’ve experienced this phenomenon every time you tried to dump your spinach at dinner as a child, and you were told that there were starving children in some benighted spot in the world who would kill for it. What was table scraps to you is life and death for someone else. The water I piss is cleaner than what some people ever see in a lifetime (before I piss in it, of course).
Does this make me value the table scraps or my toilet water any more? Of course not! Because I don’t need the extra food, I have plenty. Because I have no better use for the water than pissing in it (and trying to keep my cat out of it). Now, if my water/grocery bills were to skyrocket, I would change my behavior tout de suite. And the ethical issues of plenty v. poverty is outside the scope of this discussion. But no force on earth other than the scarcity of water can compel me to value my toilet water more than I do.
Yet I need water to survive. It has “intrinsic” value.
I do not think that word means what you think it means.
Had we observed the simple instructions not to debase coin and the advice not to engage in central banking we’d probably not be having this conversation.
JHoward, I share your frustration. My point, to the extent I have one, is that seeking Salvation in “hard money” is futile and probably counterproductive. Roman Emperors were perfectly capable of debasing the currency two millenia before the invention of the printing press and a millenium before uniform struck coins came along, Cyrus complained about boom-bust cycles, and the Chinese were trying to cope with inflation while Western Europeans were still trying to use stone axes. There may or may not be a solution, but if there is, commodities (including gold) and intrinsic value won’t figure into it.
Andrew, sorry, it’s you who’s a little confused about definitions. “Intrinsic value” means it would still have “value” even if there were no living beings on the planet. If it depends on the needs, desires, whims, or other perceptions of human beings it ain’t “intrinsic”.
Regards,
Ric
“My point, to the extent I have one, is that seeking Salvation in “hard money†is futile and probably counterproductive.”
I agree. Such money is only considered “hard” as long as people perceive it as “hard”, which is the point Paulians continue to overlook in their cries to eliminate fiat money.
JHoward – I believe my comments on this thread have been consistent in asking for arguments against fiat money. So far nothing worthwhile has appeared. Your concerns over the ability to repay U.S. debts is apparently not shared by the world at large given our ability to sell new U.S. Treasury securities. Can Zimbabwe do the same thing? Is their promise to pay as good as that of the U.S.?
Nevertheless, in a nod to your curious need to have our currency backed by some form of collateral, I suggest a modest proposal. We should announce to the world that the large flock of rare free range snipe roaming among the tanks at the Armor Museum at Ft. Knox will henceforth backstop the U.S. dollar. This proposal has several advantages. I am unaware of similar snipe populations anywhere else in the world, giving the flock a scarcity value and preventing the boom/bust cycle that sometimes prevailed with the discovery of large gold deposits in prior periods. The flock, if properly managed, can be fruitful and multiply, along with the economy. In downturns, the flock can be culled and provide tasty meals.
I see the above as certainly preferable to a currency backed by an inanimate mineral.
Yeah, that’s fun alrite.
Come back in, say, nine months and see how much of that holds water — probably dollar devaluation has yet to hit your burg while in mine goods had gone up by over twenty percent in a year and that from a country who’d die if it lost our commerce. I know because I write the checks.
But, I hear the DOW just recorded a handful of days at +500 (while posting another handful at -500) so happy days, eh? But seriously, that’s probably the turmoil before the front passes and we’re left with torrents of rain and grey skies.
At any rate, sincerity from you I gave up months ago.
Me, I do my best. You’re as free to dissect rather than deflect as you’ve always been and never, uh, capitalized on — as a monetary amateur I should be an easy debate. So start by explaining how your preferred system stands into perpetuity when its supported by almost inconceivable debt and mounting nonstop trade deficits, both of which and more are enabled — nay caused — by said system’s unit of trade. Have a bit of vision, my boy.
JHoward – No need to get snippy. The only bobbing and weaving going on is yours when you can’t defend Paulian monetary theory. You hit on creating money out of thin air, gaming the system, inability repay endless debt, trade deficits, etc., etc. My points were simple and straightforward by comparison yet you were either unable or unwilling to address them as usual. It gives me little faith in the solidity of Paulian economic theory, but I didn’t have much anyway.
Simple questions, no answers, yet again.
Well, except for the obvious dishonesty, that’s right on, daleyrocks. Because I’m all about defending Paulian econ — whatever that is by some definition you repeatedly project into it in order to swing it around — and you’re all about clear terms and solutions, aren’t you. While trusting your public servants with your careful handling.
Spare me that characteristic noise. It’s insincere; it bespeaks that dishonesty. You
wouldn’t knowwon’t admit points that go to the trajectory of the issue, while refusing to be honest on your own, such as they are.Yeah, simple questions and yet again, no scope of vision.
JHoward –
“Well, except for the obvious dishonesty” – Please point this out instead of just claiming it.
“Because I’m all about defending Paulian econ” – Your first comment on the thread linked his Congressional testimony.
“it bespeaks that dishonesty” – Second time you used the word, again with no examples.
“while refusing to be honest” – Will the third time provide examples, no such luck.
You are tunning on empty JHoward, as usual.
In some countries, the government unbanned chewing gums in order to help smokers quit smoking. It somehow works. Maybe you would like to add this on your list to help quit smoking. :D