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Guest Post: How The Destruction Of The Dollar Threatens The Global Economy

Tyler Durden's picture




 

The following book excerpt is adapted from Chapter One of Money: How The Destruction of the Dollar Threatens The Global Economy – and What We Can Do About It, by Steve Forbes and Elizabeth Ames

The failure to understand money is shared by all nations and transcends politics and parties. The destructive monetary expansion undertaken during the Democratic administration of Barack Obama by then Federal Reserve chairman Ben Bernanke began in a Republican administration under Bernanke’s predecessor, Alan Greenspan. Republican Richard Nixon’s historic ending of the gold standard was a response to forces set in motion by the weak dollar policy of Democrat Lyndon Johnson.

For more than 40 years, one policy mistake has followed the next.  Each one has made things worse. The most glaring recent example is the early 2000s, when the Fed’s loose money policies led to the momentous worldwide panic and global recession that began in 2008. The remedy for that disaster? Quantitative easing—the large monetary expansion in history.

One of the reasons that QE has been such a failure was a distortionary bond-buying strategy that was part of QE known as “Operation Twist.” The Fed traditionally expands the monetary base by buying short-term Treasuries from financial institutions.  Banks then turn around and make short-term loans to those businesses that are the economy’s main job creators. But QE’s Operation Twist focused on buying long-term Treasuries and mortgage-backed securities. This meant that instead of going to the entrepreneurial job creators, loans went primarily to large corporations and to the government itself.

Supporters insisted that Operation Twist’s lowering of long-term rates would stimulate the economy by encouraging people to buy homes and make business investments. In reality this credit allocating is cronyism, an all-too-frequent consequence of fiat money.  Fed-created inflation results in underserved windfalls to some while others struggle.

Unstable Money:  Odorless and Colorless

Unstable money is a little bit like carbon monoxide:  it’s odorless and colorless.  Most people don’t realize the damage it’s doing until it’s very nearly too late.  A fundamental principle is that when money is weakened, people seek to preserve their wealth by investing in commodities and hard assets. Prices of things like housing, food, and fuel start to rise, and we are often slow to realize what’s happening. For example, few connected the housing bubble of the mid-2000s with the Fed’s weak dollar.  All they knew was that loans were cheap. Many rushed to buy homes in a housing market in which it seemed prices could only go up. When the Fed finally raised rates, the market collapsed.

The weak dollar was not the only factor, but there would have been no bubble without the Fed’s flooding of the subprime mortgage market with cheap dollars.  Yet to this day the housing meltdown and the events that followed are misconstrued as the products of regulatory failure and of greed. Or they are blamed on affordable housing laws and the role of government-created mortgage enterprises Fannie Mae and Freddie Mac. The latter two factors definitely played a role.  Yet the push for affordable housing existed in the 1990s, and we didn’t get such a housing mania. Why did it happen in the 2000s and not in the previous decade?

The answer is that the 1990s was not a period of loose money. The housing bubble inflated after Alan Greenspan lowered interest rates to stimulate the economy after the 2001 – 2002 recession. Greenspan kept rates too low for too long. The bursting of the subprime bubble put in motion a collapse of dominoes that started with the U.S. financial sector and European banks and led to the sovereign debt crisis in Europe, the Greek bankruptcy crisis, and the banking disasters in Iceland and Cyprus.

Other Problems Caused by the Weak Dollar

Many may not realize it, but the weakening of the dollar is at the heart of many other problems today:

High Food and Fuel Prices

As with the subprime bubble, the oil price rises of the mid-2000s (as well as the 1970s) were widely blamed on greed.  Yet here, too, no one bothers to ask why oil companies suddenly became greedier starting in the 2000s.  Oil prices averaged a little over $21 a barrel from the mid-1980s until the early part of the last decade when there was a stronger dollar, compared with around $95 a barrel these days.  Rising commodity prices spurred by the declining dollar have also driven up the cost of food. Many shoppers have noticed that the prices of beef and chicken have reached record highs. This is especially devastating to developing countries where food takes up a greater portion of people’s incomes.  Since the Fed and other central banks began their monetary expansion in the mid-2000s, high food prices wrongly blamed on climate shocks and rising demand have caused riots in countries from Haiti to Bangladesh to Egypt.

Declining Mobility, Great Inequality, and the Destruction of Personal Wealth

The destruction of the dollar is a key reason that two incomes are now necessary for a middle-class family that lived on one income in the 1950s and 1960s. To see why, one need only look at the numbers from the U.S. Bureau of Labor Statistics. What a dollar could buy in 1971 costs $5.78 in 2014.  In other words, you need almost six times more money today than you did 40 years ago to buy the equivalent goods and services. Say you had a 2014 dollar and traveled back in time to 1971. That dollar would be worth, according to the CPI calculator, a mere 17 cents. What has this meant for salaries?  According to statistics from the U.S. Census Bureau, a man in his thirties or forties who earned $54,163 in 1972 today earns around $45,224 in inflation adjusted dollars –a 17% cut in pay. Women have entered the workforce in much larger numbers since then, and women’s incomes have made up the difference for families. As Mark Gimein of Bloomberg.com points out, “The bottom line is that as two-income families have replaced single-earner ones, the median family has barely moved forward. And the single-earner family has fallen behind.”

Increased Volatility and Currency Crises

The 2014 currency turmoil in emerging countries is just the latest in a succession of needless crises that have occurred over the past several decades as a consequence of unstable money. Today’s huge and often-violent global markets, in which a nation’s currency can come under attack, did not exist before the dollar was taken off the gold standard. They are a direct response to the risks created by floating exchange rates. The crises for most of the Bretton Woods era were mild and infrequent. It was the refusal of the United States to abide by the restrictions of the system that brought it down.

The weak dollar has also been the cause of banking crises that have been blamed on the U.S. system of fractional reserve banking. Traditionally, banks have made their money by lending out deposits while keeping reserves to cover normal withdrawals and loan losses.  The rule of thumb is that banks have $1 of reserves for every $10 of deposits.  In the past, fractional reserve banking has been criticized for making these institutions unnecessarily fragile and jeopardizing the entire economy. Indeed, history is replete with examples of banks that made bad loans and went bust.  Historically, the real problems have been bad banking regulations.  In the post-Bretton Woods era, however, the cause has most often been unstable money. Misdirected lending is characteristic of the asset bubbles that result when prices are distorted by inflation. This has been true of past booms in oil, housing, agriculture, and other traditional havens for weak money.

The Weak Recovery

This bears repeating:  the Federal Reserve’s quantitative easing, the biggest monetary stimulus ever, has produced the weakest recovery from a major downturn in American history.  QE’s Operation Twist has not been the only constraint on loans to small and new businesses.  Regulators have also compounded the problem by pressuring banks to reduce lending to riskier customers, which by definition are smaller enterprises.

In 2014 the Wall Street Journal reported that this credit drought had caused many small businesses, from restaurants to nail salons, to turn in desperation to nonbank lenders—from short-term capital firms to hedge funds—that provide loans at breathtakingly high rates of interest. Interest rates for short-term loans can exceed 50%.  Little wonder there are still so many empty storefronts during this period of supposed recovery.  Monetary instability encourages a vicious cycle of stagnation: the damage it causes is usually blamed on financial sector greed. The scapegoating and finger-pointing bring regulatory constraints that strangle growth and capital creation.  That has long been the case in countries with chronic monetary instability, such as Argentina.  Increased regulation is now hobbling capital creation in the United States as well as in Europe, where there is growing regulatory emphasis on preventing “systemic risk.”  Regulators, the Wall Street Journal noted, “are increasingly telling banks which lines of business they can operate in and cautioning them to steer clear of certain areas or face potential supervisory or enforcement action.”

In Europe, this disturbing trend toward “macroprudential regulation” is turning central banks into financial regulators with sweeping arbitrary powers. The problem is that entrepreneurial success stories like Apple, Google, and Home Depot—fast-growing companies that provide the lion’s share of growth and job creation—all began as “risky” investments. Not surprisingly, we’re now seeing growing public discomfort with this increasing control by central banks. A 2013 Rasmussen poll found that an astounding 74% of American adults are in favor of auditing the Federal Reserve, and a substantial number think the chairman of the Fed has too much power.

Slower Long-Term Growth and Higher Unemployment

Even taking into account the economic boom during the relatively stable money years of the mid-1980s to late 1990s, overall the U.S. economy has grown more slowly during the last 40 years than in previous decades. From the end of World War II to the late 1960s, when the U.S. dollar had a fixed standard of value, the economy grew at an average annual rate of nearly 4%.  Since that time it has grown at an average rate of around 3%.  Forbes.com contributor Louis Woodhill explains that this 1% drop means a lot. Had the economy continued to grow at pre-1971 levels, gross domestic product (GDP) in the late 2000s would have been 56% higher than it actually was.  What does that mean?  Woodhill writes: “Our economy would have been more than three times as big as China’s, rather than just over twice as large. And, at the same level of spending, the federal government would have run a $0.5 trillion budget surplus, instead of a $1.3 trillion deficit.”  And what if the United States had never had a stable dollar? If America had grown for all of its history at the lowest post-Bretton Woods rate, its economy would be about one-quarter of the size of China’s.  The United States would have ended up much smaller, less affluent, and less powerful.

Unemployment has also been higher as a consequence of the declining dollar. During the World War II gold standard era, from 1947 to 1970, unemployment averaged less than 5%. Even with the economy’s ups and downs, it never rose above 7%.  Since Nixon gave us the fiat dollar it has averaged over 6%:  it averaged 8.5% in 1975, almost 10% in 1982, and around 8% since 2008. The rate would have been higher had millions not left the workforce. The rest of the world has also suffered from slower growth, in addition to higher inflation, since the end of the Bretton Woods system. After the 1970s, world economic growth has been a full percentage point lower; inflation, 1.5% higher.

Larger Government with Higher Debt

By enabling endless monetary expansion, the post-Bretton Woods system of fiat money has helped propel the unchecked growth of government. In 1971 the total U.S. federal debt stood at $436 billion.  Today it is more than $17 trillion. It’s no coincidence that the federal debt has doubled since 2008, the same year that the Fed started implementing QE.

The Keynesian and monetarist bureaucrats who today set the monetary policies of the Fed and other central banks are like pre-Copernican astronomers who subscribed to the notion that the sun revolved around the earth. They are convinced that government can successfully direct the economy by raising and lowering the value of money. Yet, over and over again, history, and recent events, has shown that they are wrong.

What they don’t understand is that money does not “create” economic activity. Money is simply a tool that measures value, like a ruler measures length and a clock measures time. Just as changing the number of inches in a foot will not increase the building of houses or anything else, lowering the value of money will not create more wealth. The only way we will ever get a real recovery is through a return to trustworthy, sound money.  And the best way to achieve that is with a gold standard:  a dollar linked to gold.

 

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Fri, 08/08/2014 - 21:03 | 5068462 Duffy Duck
Duffy Duck's picture

Shit - Nixon’s historic ending of the gold standard was a response to being asked where the fucking gold was.

Fri, 08/08/2014 - 21:17 | 5068504 Yen Cross
Yen Cross's picture

Ft. Knox is the largest tungsten repository on Earth.

Fri, 08/08/2014 - 21:25 | 5068516 Publicus
Publicus's picture

Money creates economic activity when you print money to create jobs. (Eg: the Asian Miracle)

Money destroys economic activity when you print money and give it to the rich. (Eg: Fed's QE)

Fri, 08/08/2014 - 21:33 | 5068546 Yen Cross
Yen Cross's picture

  printing moneys destroys future earnings through devaluation in a finite resource ecosystem.

  Our chlidren will pay for our excesses, unless one of (2) situations occur.  #1 War, or #2 a collaborative global reset...

 The SDR will NEVER happen folks.( not in our lifetimes) The banksters and .govs need "black budgets. We've seen the apex of currency centralization.

 Won't happen period! I trade currency for a living. 5% of currency traders make money. I make money.

  SDR will NOT happen, and is a pipe dream for idiots that don't understand monetary flows.

Sat, 08/09/2014 - 00:37 | 5068656 gatorboat
gatorboat's picture

"Gold is money.  Everything else is credit."  -- JP Morgan

Non-redeemable paper currency isn't money, it's credit.  SDR is just another non-redeemable paper currency issued by another quasi central bank (the IMF).   Ok, maybe it won't be physical paper currency, just digital, but it's the same thing.  

Banks can issue an infinite amount of credit created out of thin air. There's no limit, even in fractional reserve, because the reserve is also credit created out of thin air.

We don't have money today, we have credit.  Bank notes are credit, not money.  Federal Reserve Notes are bank notes, which is credit, not money. 

JP Morgan said so himself.  Perhaps the greatest banker of all time.  He knew the difference between money and credit.

SDR is IMF bank notes, same thing, even in purely digital form, it's still just credit.

These non-redeemable paper currency credit games will end if a significant player on the world scene comes out with a redeemable currency.  That's all I have to say.

Sat, 08/09/2014 - 12:47 | 5070026 Duffy Duck
Duffy Duck's picture

The US government could issue its own fiat currency.  A United States Note would be printed, but unlike the FRN, would not be a loan, at interest, at creation.  It wouldn't be *loaned* into existence, simply printed by the government.

 

Naturally, much else would have to change down the line, more than will happen in our lifetime excepting violent revolution to end the absurd FRS.  But while all fiat, mathematically, has a finite life, it could work much better if the issuing power was taken from the private banks and restored to the federal government. 

I differ from many here in that while I believe gold-backing has its benefits, the problem is who hoards the gold, who stores it - the gold standard is not likely to be the cure-all people seem to think it is.

I think the fundamental problem, and its just my opinion, is who has the issuing power, not the species or token of exchange.

If private banks are issuing the public currency as a loan at interest - "the economy" will always be in chains at their feet.

 

Fri, 08/08/2014 - 22:49 | 5068777 TeethVillage88s
TeethVillage88s's picture

Yen Cross;

Just a question for consideration, I know this is simplistic.

If the Population increases and the Money Supply does not... is there enough money for everyone. So, Shrinking Money Supply while Labor Force Supply Increases. This might be Deflationary, create austerity type conditions, reduce the velocity of money, and decrease economic activity.

Supposedly, this proves that money supply should maintain a ration to the population or household or labor force.

Sat, 08/09/2014 - 08:44 | 5069394 Bossman1967
Bossman1967's picture

Another simple question is money is just a tool to buy things you want and pay people a wage for work.why not just give everyone a bail out make them spend it and stimulate the economy the right way instead of giving it to the rich the people that deserve it ,the worker will make a capitalistic system thrive. And reinstitute a no work no eat policy if your able and I FEEL 90 percent plus are able to do something no free rides and this is coming from a businessman

Sat, 08/09/2014 - 09:46 | 5069505 TheAntiGov
TheAntiGov's picture

Too many of anything, reduces its value.

Sat, 08/09/2014 - 11:11 | 5069702 NidStyles
NidStyles's picture

In the history of money; a country where money is a higher valued asset, there has been nothing but prosperity for the largest percentage of the population. When the currency is diluted, only those with first access prosper.

Sat, 08/09/2014 - 04:33 | 5069229 barre-de-rire
barre-de-rire's picture

ur childs will pay with what, monkey peanuts ?

 

1984 scheme, no physical money but point/credit. you exchange points for physical goods.

worker got 3000clothings pts/year, a pyjama cost 600, so wilson sleeps naked. as simple as that.

 

best way to bottom linearize humanity of poor workers is  money supressing, replacing with such system. from this point, elite support system by giving basic needs to workers for  an amount of work, and rich can take & use whatever  they want without even be scare of any hypothetical loosing in a market, because there is no more market.

 

 

 

 

 

 

Sat, 08/09/2014 - 10:08 | 5069548 sleigher
sleigher's picture

You had me at black budgets.

Fri, 08/08/2014 - 21:57 | 5068624 TeethVillage88s
TeethVillage88s's picture

I agree with these point. Also I don't think any one solution is going to fix both the Government & the Economy. It is a system of systems. Many Systems need many reforms. That is why a crisis probably will lead to the next small one issue fix. Which will fail. we need reformers. And the people that are making money now & have good businesses will understand that Reforms are going to hurt them from the beginning.

Repost since fits the article topic:

If Liberals Take all the Tools off the Table in terms of Capital Controls, Tariffs, Off Shore Tax havens, Capital Flight, Stagnant Capital, Economic Leakage, Tax Loopholes, Tax Policy, Fancy Pants Derivatives,... then maybe we need to Lynch the Economists, Bankers, and Politicians that put us here, kick out the Neoliberals

Simplify & Standardize:
- GAAP Accounting Rules
- Standardized Financial Instruments that a 13 year old could understand
- Individual Income Taxes
- Corporate Income Taxes

Note: ALL those "No Value Added" Employees in Bookkeeping, Accounting, Taxes, Financial Planning, Tax Lobbying, tax Law, Finance Law... they could be free to add to our Great USA in a meaningful way that adds to GDP.

Problem: How to unwind $700 Trillion in Derivatives. Solution is phased plan to break up TBTF Banks.

Fri, 08/08/2014 - 22:12 | 5068674 gatorboat
gatorboat's picture

Of course none of your proposed solutions will be implemented.   TPTB have their highly profitable ponzi scheme and they're not about to give it up.

Fri, 08/08/2014 - 23:01 | 5068807 TeethVillage88s
TeethVillage88s's picture

Yes, and I left a bunch of unaddressed issues sitting there.

It is like there is a bunch of levels in life, in employment, in government, in business... and we just aren't on the inside. That might be tolerable except that the Federal Government Gives away subsidies, contracts, privatizes government functions by awarding huge federal contracts, gives away tax breaks, reduces enforcement of normal environmental & safety standards (think BP Oil Spill),... and this is all without considering the Federal Reserve... and not considering that the Burning Issues of the Day are ignored by Congress, Completely & Utterly.

Oh there is an American-European Network, and you ain't in it.

Sat, 08/09/2014 - 09:04 | 5069427 Winston Churchill
Winston Churchill's picture

Easy to get get rid off if you actually wanted to.

Concentrate them all in a non recourse sudsiduarys and then fold

those subsid.all at once.

It would wipe out banker bonuses, so it will never happen

Sat, 08/09/2014 - 12:23 | 5069951 TeethVillage88s
TeethVillage88s's picture

Thanks for the idea. Bankers make bonuses on new business right. So if we destroyed derivatives through a non recourse subsidiary what the hell do they care personally. But there maybe be other kinds of push back or blow back. Holders of the Derivatives want something back as they are considered assets. Take Paul Singer.

Fri, 08/08/2014 - 22:26 | 5068714 FreeMktFisherMN
FreeMktFisherMN's picture

Nope. Printing period is disastrous. Mal investment and rising prices and numbed from economic realities all ensue. Money facilitates trade but a limited supply is not a hindrance. Gold is divisible and more productivity means less gold needed to buy stuff. Not that complicated.

Fri, 08/08/2014 - 22:55 | 5068795 Bemused Observer
Bemused Observer's picture

Yes, and you know if you follow that logic, then gold ultimately leads us to no currency. Which I think is the point. Who is to say that the current way is the only way? There are ways of organizing economies that we haven't even considered yet, because we are shackled to our currencies.
Using gold allows us to see how increasingly irrelevant the whole idea of currency is, by shrinking over time to insignificance in an economy that is really growing. At some point, it will be more trouble than it is worth to use a middleman (at least for most everyday transactions), and we would be able to just abandon it and be on to something more effective, using gold currency only for the largest of transactions.
And maybe that is the whole point. Maybe big banks and international corporations shouldn't be conducting business in the same currency that we average folks use to survive on. And maybe they should be forced into using a currency that imposes its own discipline, apart from central bankers.

Fri, 08/08/2014 - 23:10 | 5068823 FreeMktFisherMN
FreeMktFisherMN's picture

Obviously transactions predicated on gold as the money don't need to have physical gold exchanged between the two people explicitly. Things like Paypal would still exist, and there would be institutions of sound repute and integrity that house gold for you and you draw on those funds, and the ones that speculate and take on risk and do fraud get rooted out by market forces instead of the FDIC, which is an abdication of responsibiltiy of people and leads to huge conflagrations.

Money has to have integrity to store value, and the difficulty of mining gold and its luster, durability, fungibility, divisibility, etc. make it the choice throughout history. Without that solid yardstick (and the yardstick moves a bit only as productivity increases as the money gets stronger, as opposed to yardstick moving via forex and all the shenanigans in COMEX, etc. or by fiat pricing something as x dollars/ounce instead of letting it fluctuate in a true market) putting real economic value on things  gets so distorted and it leads to malinvestment as paper is not real capital. Gold is not capital in the sense that it is not buildings and structures, but it represents a sound claim on those resources for investment, and allows people to not have to use barter to exchange.

People can use what they want in a truly free society. Gold I know would win, though. I have no problem with digital currencies trying to compete, but gold still will win. 

Fri, 08/08/2014 - 23:36 | 5068873 Bemused Observer
Bemused Observer's picture

You make a good point. There would be many different ways of conducting business, and it would involve agreement between the participants as to what they'd use for the particular transaction they were engaged in.

Of course, that would make it impossible to conduct the 'skim' on all our income, and the fees from all our transactions.

I think we have to separate the economy of the everyday folks from the economy that is agonizing over multi-trillion dollar debts and quadrillion dollar derivatives, and blowing so-called values through the roof. Which just makes everything more expensive for us, since we all use the same 'currency'.
And think of it...if this was the case in 2008, it would have been impossible to use the taxpayers to fund the bailouts. You would have had to convince them to actually hand over gold, since that would be what was needed for those big guys. If we were using say, silver coinage, or even our extra zucchini, for everyday purchases, they'd have to get our silver and garden vegetables first, then exchange it for gold in order to do their business.

Isn't there some saying about gold being the currency of kings, silver being for the middle class, copper for the poor, and debt is the currency of slaves? Maybe there's something to that...it does seem to acknowledge a difference in the economies and currency needs of those different classes.

Sat, 08/09/2014 - 23:00 | 5071752 TeethVillage88s
TeethVillage88s's picture

Bemused Observer

You made an important point about non-electronic transactions and private trades or barters for goods and services.

Hard to Over-estimate the importance of this or the utility of this in a "Big Brother" society.

You have interesting ideas.

Fri, 08/08/2014 - 23:50 | 5068901 TeethVillage88s
TeethVillage88s's picture

FreeMktFisherMN;

Hey, I might collect some gold to hedge, but not to use as currency.

Feel me here? You can stock pile a bit in your teeth or jewelry, but you have no currency in gold.

How many poor or middle Class have gold to use for currency?

Answer: Gold Bugs suggest total reset, but most of us without gold will face poverty and no power at all upon gold conversion. Not saying there is no value in Gold Standard, I would say Precious Metals Index or Stock Pile to Represent Currency is much better way.

IF US can spend $5 Trillion on War OR $10 Trillion on DOD Budget for last 12 Years... then why not secure National Stock Pile for Precious Metals??????????????

YESSSSSS

Sat, 08/09/2014 - 00:45 | 5068986 FreeMktFisherMN
FreeMktFisherMN's picture

I'm an an-cap so anything to do with the state I want no part, as I don't want statism to exist.

When I say 'gold' I mean silver, platinum, palladium, too. Gold is indeed so valuable per ounce that it is for big ticket items probably more so whereas silver is exchanged more.

I don't want a gold standard, as far as a politician decreeing what the fixed statist endorsed value is. I want a free market for currency, too, and gold will always win if there is no statist entity. History shows how gold is always looked at as a store of value.

Over time gold/oil ratio and things like that hold steady if not gold getting stronger, so gold is the way to store value for later consumption or investment.

Sat, 08/09/2014 - 23:23 | 5071812 TeethVillage88s
TeethVillage88s's picture

FreeMktFisherMN;

Well how to deal with the US Fiat sitting at Rest, In accounts, Being Horded, Inflated by the Fed, and Inflated by Federal Budgets. I have posted some ideas for 4 years or so. Here is a couple.

A) Exile the Big Executives OR Big Bankers that have committed Fraud or Looted our Capitalist Corporate Assets
B) Quarantine Shadow Bankers or those that Rehypothicate to the tune of 40:1 in derivatives or Rehypothicate Assets or Naked Short to get rich OR Drive US Businesses into the Dirt
C) Convert US Dollars in Off shore Accounts or US Accounts into "Pacific Dodo Dollars- PDD" which doesn't exist and for which there is no coin or currency and set the value to 20 to 1 PDD to USD. Badda Bing Badda Boom.

Sat, 08/09/2014 - 00:46 | 5068987 FreeMktFisherMN
FreeMktFisherMN's picture

I'm an an-cap so anything to do with the state I want no part, as I don't want statism to exist.

When I say 'gold' I mean silver, platinum, palladium, too. Gold is indeed so valuable per ounce that it is for big ticket items probably more so whereas silver is exchanged more.

I don't want a gold standard, as far as a politician decreeing what the fixed statist endorsed value is. I want a free market for currency, too, and gold will always win if there is no statist entity. History shows how gold is always looked at as a store of value.

Over time gold/oil ratio and things like that hold steady if not gold getting stronger, so gold is the way to store value for later consumption or investment.

Sat, 08/09/2014 - 13:01 | 5070060 Duffy Duck
Duffy Duck's picture

prices/costs should tend to go down, but apparenty the cost of a "growing economy"  is expanded M and rising prices and diluted {if I may} purchasing power.... so, and I'm asking, doesn't limited money supply arrest the economic development that could otherwise happen in our fiat/frac reserve universe?

Another thing - economists are not "economical".  To be economical would involve avoiding waste, which means things like ensuring longevity.  But it is manifestly not in the corporate interest to, say, make a car that lasts 20 years, or a computer built to be more easily upgraded/modular...  it's more efficient to cure a disease say, but its more profitable to treat it and have a lifelong purchaser of medicine.

 

I'm not delivering some anti-capitalist screed, I'm just kicking the tires.  There's fraud, and there's waste, or friction/drag in any ultimately physical system.  To what extent, if any {again, just asking, not arguing a position as such} do you think the profit motive might work against being "economical", saving time/energy/resources, and hence, counter-productive.  Again, I'm not saying "profits are per se bad" - I'm asking if the profit motive is sometimes myopic, or overall wasteful, and costs future or futher productivity...

 

I don't think we ever need to throw out baby with bath-water, but not only am I bothered by the Gates and Buffetts having more than they could ever spend while children in Africa starve in some "ethical" sense - I also think it is incredibly wasteful and harmful to the overall system - a monetary clot.  Waxing more philosophical, I also think that humans, as a resource, go untapped when they are in conditions of no education, near starvation, etc.  I'm not suggesting government redistribution or anything of the sort - but the idea of the 0.01% having so much as hundreds of millions lack reliable clean drinking water....

 

Well, some things are more important than money, and a criticism of libertarian thinking I hear from friends and family is that libertarians seem to think nothing is.  I don't necessarily think so, but I haven't had a good answer for them other than to suggest private actors could be working to fix the problem rather than merely lobbying government to rob Peter to pay Pablo.

 

Fri, 08/08/2014 - 23:25 | 5068819 TeethVillage88s
TeethVillage88s's picture

Publicus;

Could be your statements are too simple for government use or for analysis. In theory I am with you on Asian Miracle.

- Fractional Reserve Banking Ratio is like 10:1 lending, so like 9 dollars is created magically
- Federal Government Budget expansion is like North of 10% under Obama, without the Economic GDP Growth to justify it, currently velocity of money is close to 1% depending on how you measure
- Federal Reserve Money Creation, we don't really get to audit them, we don't know how much might have been lent out or given away...
- Banking Reserves would tend to decrease money supply if increased, but is a Safety Factor or Reserve Level needed to make sure the system works... shrinking the reserves can increase the supply of banking funds at increased risk.

Fed Money Data updated from Jan 2014

M1 Money Stock, 2014-06-16: $2.83 Trillions of Dollars (Exponential Growth, but doesn't include Dollars overseas)
M2 Money Stock, 2014-06-16: $11.32 Trillions of Dollars
MZM Money Stock, 2014-06-16: $12.54 Trillions of Dollars (Money with zero Maturity)

http://research.stlouisfed.org/fred2/series/M1
http://research.stlouisfed.org/fred2/series/M2
http://research.stlouisfed.org/fred2/series/MZM

Looks like 1981 was the Money Velocity high, note manufacturing plunged 1979.

http://research.stlouisfed.org/fred2/series/M1V (Top was 2007 Q4 at 10.7, now down to 6.3)
http://research.stlouisfed.org/fred2/series/M2V (Top was 1997 Q3 at 2.2, now down to 1.5)
http://research.stlouisfed.org/fred2/series/MZMV (Top was 1981 Q1 at 3.5, now down to 1.4)
http://research.stlouisfed.org/fred2/series/Mult (Top was January 1987 at 3.1, now down to .7)

http://research.stlouisfed.org/fred2/series/MANEMP (Employees: Manufacturing 12.1 M Persons)

M1V M1 Velocity of M1 (6.305 Ratio)
M2V M2 Velocity of M2 (1.540 Ratio)
MZMV MZM Velocity of MZM (1.386 Ratio)
MULT M1 M1 Money Multiplier (0.705 Ratio)

Federal Debt: Total Public Debt
2014:Q1: 17,601,227 Millions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, GFDEBTN, Updated: 2014-05-29
http://research.stlouisfed.org/fred2/series/GFDEBTN

Sat, 08/09/2014 - 08:45 | 5069389 Mesquite
Mesquite's picture

Publicus

+1000

You said it for me..

I've actually observed this truism over the decades..

$ directed to 'Capitol Projects' puts people to work, upon completion..

And many skilled trades and labour to work during the construction..

Then those paychecks filter into the economy..

The more recent paradign (cronyism) just places $ into hidden offshore private accounts,

benefitting the elite.. And the general population's situation goes downhill, which places

more burden upon gov't coffers...

This isn't theory.. It's the reality over the last half century plus that I've been looking at it

and living it...

Sat, 08/09/2014 - 09:32 | 5069469 Publicus
Publicus's picture

It's simple really, print money to increase/fund jobs, and self sufficiency. Look at how Japan is printing money to build solar panels... They just need to cancel their debt and print money out of nothing again and all will be well. 

 

Too many people? Print money to fund research jobs. There is no need for debt, nor tax for anyone. Fund goverment activity by printing money.

Those money printed eventually all ends up at the hands of the rich, so just cancel those money periodically and you can maintain balance.

Sat, 08/09/2014 - 23:16 | 5071793 TeethVillage88s
TeethVillage88s's picture

Here is an Idea:

Repost:

In an Ideal world, if a Reformer was US President & had Reformers in Congress to support him.

Couldn't we identify the Wealthy Fiat Horders, Big Shot Executives & Former Executives...

Then Convert their Currency Accounts in a New Currency Called the "Pacific Doddo - PDD"... with no actual cash or coins unless they mint them themselves. And we would set PDD to 20 to one US Dollar.

This would take a lot of the Excess US Dollars out of Circulation.

Sat, 08/09/2014 - 09:26 | 5069463 ejmoosa
ejmoosa's picture

Bullshit.  When they print it, they effectively take money out of the hands of others and spend it.  It's stealing.

 

My assets are mine.  Not yours or some government's.  And if I do not see a reason or motivation to invest or spend it at any particular time, that is my choice.

 

If you want to create economic activities, eliminate the rules, regulations, taxes and other barriers that reduce profitability.  

 

It's that simple.  Economies expand when there are profits to be made.  Profit growth is the key factor to expansion.

Sat, 08/09/2014 - 09:30 | 5069473 Publicus
Publicus's picture

Nah, print moeny to fund salaries. Then cancel the excess money that is pooled at the hands of the rich periodically.

Sat, 08/09/2014 - 09:29 | 5069474 Publicus
Publicus's picture

Nah, print moeny to fund salaries. Then cancel the excess money that is pooled at the hands of the rich periodically.

Sat, 08/09/2014 - 22:47 | 5071716 TeethVillage88s
TeethVillage88s's picture

Plus one for your avatar.

I assume you would not want to live in China and you remember rivers on fire in the USA and GE Polution in (Hudson or Chesapeake River that Pete Seger helped clean up).

"...If you want to create economic activities, eliminate the rules, regulations, taxes and other barriers that reduce profitability..."

Corporations need limits as well as Governments. Self Evident, Right?

Simplify, Streamline, Standardize = Accounting, Financial Instruments, Articles of Incorporation, Limits on Government, Limits on Money's Influence, Limits on Conflict of Interest, Limits on Gift Giving to Politicians & Government Workers to the bare bones $1 dollar per....

Repost:

If Liberals Take all the Tools off the Table in terms of Capital Controls, Tariffs, Off Shore Tax havens, Capital Flight, Stagnant Capital, Economic Leakage, Tax Loopholes, Tax Policy, Fancy Pants Derivatives,... then maybe we need to Lynch the Economists, Bankers, and Politicians that put us here, kick out the Neoliberals

Simplify & Standardize:
- GAAP Accounting Rules
- Standardized Financial Instruments that a 13 year old could understand
- Individual Income Taxes
- Corporate Income Taxes

Just thing all those "No Value Added" employees in Bookkeeping, Accounting, Taxes, Financial Planning, Tax Lobbying, tax Law, Finance Law... they could be free to add to our Great USA in a meaningful way that adds to GDP.

Fri, 08/08/2014 - 22:48 | 5068778 stant
stant's picture

It's the largest building needed pressure washed and weedeated last time I was by there. It's guarded to keep folks thinking there's something still there

Sat, 08/09/2014 - 00:27 | 5068962 gatorboat
gatorboat's picture

Ft Knox is the largest EMPTY repository on earth.

Sat, 08/09/2014 - 00:48 | 5068990 Kirk2NCC1701
Kirk2NCC1701's picture

Ah, that'd explain why Warren Buffet has "cornered the Tungsten market", and why he calls gold "an ancient relic":

He thought he was buying Precious Metal, but got Precious little gold in them bars.

Sat, 08/09/2014 - 08:48 | 5069399 snodgrass
snodgrass's picture

After Clinton stole the gold in Ft. Knox and gave it to the Rockefellers, he left nerve gas in there instead.

Fri, 08/08/2014 - 21:44 | 5068586 F0ster
F0ster's picture

FreeGold is the answer...

Citation FOFOA

Fri, 08/08/2014 - 23:40 | 5068882 juangrande
juangrande's picture

Who said the "policy mistakes" were mistakes?

Sun, 08/10/2014 - 01:14 | 5071982 good man
good man's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://goo.gl/bhiamE

Fri, 08/08/2014 - 21:08 | 5068465 LetThemEatRand
LetThemEatRand's picture

He's right, but the global economy is run by bankers and oligarchs.  Like a guy named Forbes.  They sold the physical gold owned by the people to themselves at depressed prices, funded by taxpayer dollars used to short paper markets.  When the shit hits the fan, they will own this fucking place once and for all.  And to put an exclamation point on it, they will probably outlaw private gold ownership for all but central banks.  And guys with last names like Forbes.

Fri, 08/08/2014 - 21:51 | 5068614 COSMOS
COSMOS's picture

Thats ok, i have been stocking up on bullets to take their gold when the time comes.

Fri, 08/08/2014 - 21:52 | 5068620 LetThemEatRand
LetThemEatRand's picture

That's what it is going to come to, sadly.  Seriously. 

Fri, 08/08/2014 - 22:04 | 5068654 TeethVillage88s
TeethVillage88s's picture

Some of their Foreign Buddies will own the place too.

They will keep preaching about Privatization after the crash as well.

http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm ($26 Trillion Foreign Owned Assets in the USA, no more than $14 Trillion are US Treasuries, Bonds & Equities, so could be $12 -$14 Trillion in Foreign Owned Real Estate)
http://www.treasury.gov/ticdata/Publish/shla2013r.pdf

And with DHS all Cowboyed up, they can enforce UN, UNESCO, CAFTA-DR, TAP, TPP, or Foreign Claims easily. Hello Toll Roads, Toll Bridges,...

Fri, 08/08/2014 - 22:21 | 5068702 LetThemEatRand
LetThemEatRand's picture

The globalists who own the place don't recognize borders, except as needed to create division amongst us.

Sat, 08/09/2014 - 03:31 | 5069191 BobPaulson
BobPaulson's picture

Armed insurrection gets harder and harder as the oligarchs stockpile technology to suppress the masses. A rifle doesn't do much to a drone.

Sat, 08/09/2014 - 09:07 | 5069433 Hobbleknee
Hobbleknee's picture

And yet the most powerful military on earth can't defeat cave dwellers armed with rifles in turd-world countries.

Sat, 08/09/2014 - 10:26 | 5069579 sleigher
sleigher's picture

I'd say it depends on who is holding the rifle.

Sat, 08/09/2014 - 10:40 | 5069616 DanDaley
DanDaley's picture

Freedom's just another word for nothin' left to lose...(tra la tra la)

Kris Kristofferson

Fri, 08/08/2014 - 21:57 | 5068631 lasvegaspersona
lasvegaspersona's picture

LTER

Gold has a way of finding the place where it is best treated, mine will.

In 1933 Roosevelt did not have to go door to door to get gold. He just had the banks send in theirs. Now, no one has any gold (except a few crazies on ZH) so the government won't bother. If they want or need it, it will be far, far easier to just buy it with fiat dollars. That doesn't cost them anything and saves the effort of digging up backyards all over the country.

Fri, 08/08/2014 - 22:11 | 5068673 LetThemEatRand
LetThemEatRand's picture

I understand your point.  No one will go door to door.  The bankers will just pay a few K street lawyers to write a law making it illegal to buy or sell.  Yes, there will be a black market.

Fri, 08/08/2014 - 21:11 | 5068480 q99x2
q99x2's picture

If a recovery means I'm going to have to work  for a living then you can stick your recovery up you ass.

Fri, 08/08/2014 - 21:16 | 5068497 Yen Cross
Yen Cross's picture

 You say destruction, and I say liberation!

Fri, 08/08/2014 - 21:31 | 5068549 cornflakesdisease
cornflakesdisease's picture

The dollar will collapse as soon as they run out of zeros.

 

Brought to you by Dollar, Inc.  Collapsing since 1913.

Fri, 08/08/2014 - 21:41 | 5068577 Atomizer
Atomizer's picture

Off subject. If you plan on using your phone to post on Zerohedge. Follow my lead.

Never open a Google link. 

Keep your browser to one task 

Always press preview to review 

Press save. 

Strangely, during the past two months, I have to walk to the other side of house to post. Just happened 3 times tonight. I'm not connected to my router. If I go 40 feet to the right, my post goes thru.  

Mind-boggling. Thank goodness Champion is sleeping. Love that Dog. He will be looking for attention in the morning. Mrs. Atomizer doesn't like animals. I had to lose my Boxers as a trade off. 

That's why I love champion. My Maggie was a territorial bitch on 4 legs. Miss that dog. 

Sat, 08/09/2014 - 10:13 | 5069558 explosivo
explosivo's picture

Is there a zerohedge app?

Sat, 08/09/2014 - 00:13 | 5068604 lasvegaspersona
lasvegaspersona's picture

Dear Steve and Elizabeth,

There is another way to look at what has happened. 

When Nixon closed the dollar to overseas redemption of gold it created a problem. That was solved for a while by the dollars ability to monopolized oil transactions. After a while the European nations formed a new currency that could provide the world with a medium of exchanged when the purely fiat dollar dies of it's debt burden. They supported the dollar by buying treasuries until China took over in 2002. Since China quit in 2011 there has been NO ONE to keep buying increasing US government debt.

We are at the point that hyperinflation starts unless we again see the kindness of strangers who will again provide the US with goods that we only have to pay for with paper.

That is not going to happen so it is good bye dollar.

The next reserve asset will be gold, like it always has been but the ECB has a new way of using gold in the monetary system. They just keep it on the balance sheet, marked to market. They will use it for currency defense. They will allow the market to judge the value of the Euro by deciding the value of gold purchased with Euros. They do not intend to push the Euro as a store of value (what do you think they did NIRP for?)

Soon the dollar will be gone and the US will have to have a new currency, no doubt styled like the Euro, I suspect China is increasing it's gold supply to do the same thing.

The problem, the guys who developed the Euro figured out, is allowing the thing you use as a medium of exchange to also become a store of value. Bad things always happen to such currencies. But that is a whole other story.

Fri, 08/08/2014 - 21:58 | 5068635 Reaper
Reaper's picture

You can only divide up what's produced. The government's mistake is that it doesn't give to the producers of what's wanted; it gives to its cronies who want a free ride. Sloth, manipulation and speculation are rewarded, while production is taxed and the savings of producers devalued.

Fri, 08/08/2014 - 22:28 | 5068728 Atomizer
Atomizer's picture

Stop it, you're making to much sense. Shall I have Champion take off your legs to expain the motive in fucking up the United States of America? Boxers are the best dogs to profile crurpt faggots. You should of seen her barking at a oil change. Dogs have a way to profile lying cunts. That's we use them for drug trafficking. 

Sat, 08/09/2014 - 09:11 | 5069439 Hobbleknee
Hobbleknee's picture

The government can't "give" anything because it produces nothing. It can only redistribute what it has stolen from the producers.

Fri, 08/08/2014 - 23:22 | 5068720 gatorboat
gatorboat's picture

No, US dollar's demise won't threaten the global economy.  Economies don't run on currency.  They run on production.  Production of products and services that have market value, aka wealth creation.

Currency is merely a way to exchange wealth among people in an economy.   The currency can be a weak currency or strong currency, it doesn't matter.  If the currency is weak, wealth producers simply require more of it (higher price).   If the currency is strong, wealth producers simply require less of it (lower price).

A good example is Vietnam dong.  Maybe the weakest currency of all (21,000 to $1).   But the Vietnam economy continues right on.  Wealth producers in Vietnam simply charge enourmous amounts of dong for their products and services.  If their product has a market value of $10 they simply charge 210,000 dong for it.  

And there's plenty of dong around, 3,500 TRILLION dong in circulation.  Yes, 3.5 QUADrillion.   Now that's hyperinflation folks.  And the Vietnam economy rocks right along no problem.

As the US dollar loses more value, wealth producers compensate by requiring more of it (raising prices).  Simple as that.

The losers in that scenario are those who cannot raise their prices, like employees for example.  They can't raise their salary or wage.

And that's why employee real earnings have been falling last 30 years or so.  They can't raise their salary or wage to compensate for the dollar losing value.

It's even worse now with the US economy in the toilet and extremely high unemployment/underemployment and more competition for available jobs allowing employers to reduce salaries and wages, causing real earnings to fall further behind.

Fri, 08/08/2014 - 22:29 | 5068735 Caviar Emptor
Caviar Emptor's picture

They won't stop printing until:
The police state is fully implemented
They fully control the supply of energy and food
The elite live in a walled forbidden city of gold
The rest are all on welfare and free drugs
Not being sterilized at birth is a privilege

Fri, 08/08/2014 - 22:49 | 5068776 Anusocracy
Anusocracy's picture

All of which is made possible by the idiots who want government.

Fri, 08/08/2014 - 22:52 | 5068784 Atomizer
Atomizer's picture

Great point, 

As the US dollar loses more value, wealth producers compensate by requiring more of it (raising prices).  Simple as that.

Question, at what point does raising prices goes tits up? Again, I'm a person that doesn't give a shit. It will not effect me. However, I care about civilization. Upcoming debt slaves. 

At what point do you believe prices will stall the keynesian economic model index? 

Being sincere. Welcome your reply.

Sat, 08/09/2014 - 01:03 | 5068874 gatorboat
gatorboat's picture

Raising prices has no upper limit.  Consider the Vietnam dong example I gave.  210,000 dong price for something with $10 market value.

People over in Vietnam don't think it's unusual, they're used to living in hyperinflation.  

We think it's unusual because we're used to having a strong currency, the world reserve currency.

But yes that 210,000 thing will come to America I believe.  Not to that extent probably, but hyperinflation will come to America and $1,000 for a gallon of gas will happen I believe.   At that time $1,000 will be worth what $4 is now.

This has nothing to do with any "keynesian economic model index".   Economic models are bullshit fantasies over-paid economists dream up.  They have no bearing on the real world.

"Gold (and silver) is money.  Everything else is credit."  -- JP Morgan

That's real world.  That one statement from JP Morgan tells you more than all the keynesian bullshit of the last 80 years.

"No, I don't think gold is money."  -- Ben Bernanke

See, just another over-paid keynesian BS economist.

Sat, 08/09/2014 - 06:46 | 5069306 caShOnlY
caShOnlY's picture

People over in Vietnam don't think it's unusual, they're used to living in hyperinflation.

its not hyperinfation as hyperinflation is currency destruction.  They may have high inflation but it is not hyper. 

The dollar "APPEARED" to be a store of wealth as long as the dollar maintained strength.  It almost mimicked gold in realty and for a time (although selling gold into that strength helped greatly) as everyone wanted dollars globally and stuffing your CB with USTs was considered wealthy.  It is now losing its luster as a store of wealth as the normal buying of US debt wanes by most who amass it through trade.  Look at the petrodollar and the "petrodollar recycle":  They got the arabs to first buy expensive military arms off the US and then anything else the US could make.  They then got the arabs to place the rest of the surplus dollars from oil sales into USTs. 

We have reached the end of the road on this charade as low interest rates and money printing PROVES the USD is NOT a store of wealth. There is no reason to buy USTs anymore!  Look back at Volker's high interest rate days and how that strengthened the dollar considerably, think they can pull that off again? YOU GET ONE SHOT, THAT'S IT.  The coach is turning back into the FIAT pumpkin that it is.   The 99% are about to receive a giant red, white and blue DONG right in their ass soon enough.   The producers and energy sellers will logically determine the new currency they will accept. 

The only option is FORCE: Russia is enemy number 1 as going after China would only hasten the USD demise as UST would be dumped.  Put the hit on Russia and a victory forces the others to pay for protection through USD usage.  Use NATO as the US whore that it is.

Sat, 08/09/2014 - 11:18 | 5069726 Vooter
Vooter's picture

How are you going to put the hit on Russia when they have an energy gun to Europe's head? Unless you're actually thinking about somehow physically invading Russia and stealing their natural resources...LOL...

Thu, 08/21/2014 - 13:54 | 5125809 MeelionDollerBogus
MeelionDollerBogus's picture

wait, WAIT I got it! Let's do that... in January.
Winning!

Sat, 08/09/2014 - 11:01 | 5069675 DanDaley
DanDaley's picture

"No, I don't think gold is money."  -- Ben Bernanke

 

Perhaps he doesn't think gold is money, because he knows gold is money. Remember, these people are addicted to mendacity, prevarication, and obfuscation.  10 to 1 if you were to search his house, you would find gold.

Thu, 08/14/2014 - 06:21 | 5091274 WANLAG
WANLAG's picture

I agree. When u buy a remote patch of land, physical gold or silver or eggs, will be accepted as money. In war times all those items are traded and things happen. The fed scum are incompetents in a rigged system. Look up the interview with Peter Joseph on youtube London Real Channel

Peace!

Fri, 08/08/2014 - 23:47 | 5068893 AdvancingTime
AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...

Fri, 08/08/2014 - 23:15 | 5068816 Radical Marijuana
Radical Marijuana's picture

I already stated my views in comments upon this interview with Forbes article:

http://www.zerohedge.com/news/2014-08-06/gold-and-what-high-priests-funny-money-dont-want-you-know

Gold And What The High Priests Of Funny Money Don't Want You To Know

While a lot of Forbes' analysis is sound, his "solutions" are silly and superficial in so many ways that I will not bother to list them all again, except to repeat the most important point, particularly in response to the last paragraph:

MONEY IS MEASUREMENT BACKED BY MURDER.

Fri, 08/08/2014 - 23:44 | 5068889 AdvancingTime
AdvancingTime's picture

Money has become so cheap to borrow that many people are now arguing that you must take it even if you don't know what to do with it. It is hard to imagine how much this is distorting the economy, markets, and reality in general. A total disconnect between life on main street and the financial world is occurring and it is putting the economy in a very dangerous place.

It is often hard to determine what is true, but a report on Bloomberg that 32 Trillion dollars in funds were held in offshore accounts around the world made me shutter. How safe is this money, and what exactly is it doing? Can you say Cyprus? More on this subject in the article below.

http://brucewilds.blogspot.com/2013/05/cheap-money-more-and-more-and-mor...

Sat, 08/09/2014 - 00:03 | 5068923 tickhound
tickhound's picture

See bitchez I see that headline to the article as saying "So Protect Dollar Hegemony" - by Steve Forbes

5 years ago dollar hegemony wasn't even in jeopardy as far as the mainstream twats were concerned.

Now they want to give you solutions...OR ELSE something you're supposed to love is threatened.

Crap.

Sat, 08/09/2014 - 02:14 | 5069117 Lordflin
Lordflin's picture

Given the extent to which a handful of people have become unbelievably rich and powerful, to continue to suggest these folks did not understand what they were doing is absurdly ridiculous.

Sat, 08/09/2014 - 10:51 | 5069645 ozzzo
ozzzo's picture

Obama? Is that you?

Sat, 08/09/2014 - 02:20 | 5069126 Seychelles
Seychelles's picture

I still think if the dollar's reserve status is seriously threatened by other currencies or hybrids (which is silly because whoever controls the reserve currency will abuse the privilege, probably much more than the Fed) we will flex our considerable military muscle to maintain our hegemony.

Sat, 08/09/2014 - 07:53 | 5069349 smacker
smacker's picture

Have you missed that that is exactly what has been going on for N years already??

Sat, 08/09/2014 - 09:06 | 5069431 oudinot
oudinot's picture

What 'military muscle'?

America hasn't won a war since WW2.

Thu, 08/21/2014 - 13:47 | 5125783 MeelionDollerBogus
MeelionDollerBogus's picture

Depends. If the goal of battles/wars is to extract resources with minimal resistance, militarily or politically, then victories have been small-scale & frequent for moving oil, cocaine, weapons, many times since WWII ended.

Generals may look poorly upon a group of battles or even an official "war" for the results as per soldiers & territory taken but corporations running governments will look at extracted resources, shipped weapons & profits+bonuses collected and be very happy.

Sat, 08/09/2014 - 02:20 | 5069127 Seychelles
Seychelles's picture

I still think if the dollar's reserve status is seriously threatened by other currencies or hybrids (which is silly because whoever controls the reserve currency will abuse the privilege, probably much more than the Fed) we will flex our considerable military muscle to maintain our hegemony.

Sat, 08/09/2014 - 11:13 | 5069715 Vooter
Vooter's picture

Well, I guess we'll see how "considerable" it is, won't we?

Sat, 08/09/2014 - 04:19 | 5069221 Raoul_Luke
Raoul_Luke's picture

The reason our monetary policy has been a series of "mistakes" is because the correct decision at every juncture would have created pressure on the political class.  After LBJ's disastrous attempt to spend on both "guns and butter" blew a fiscal gasket, Nixon's foolish decision was an attempt to maintain the idiotic fiction that we could continue in that endeavor, rather than endure the political pain of recession and putting the brakes on the welfare state.  It's been all downhill ever since (with scant exceptions).  It has been a constant smokescreen to cover the inevitable path to national bankruptcy.

Sat, 08/09/2014 - 04:45 | 5069234 barre-de-rire
barre-de-rire's picture

this is totally pointless & irrelevant to look back in the past to get any  graph or data & tryin any comparaison with present,  everyone forgot that economy is not a science, you cannot apply scheme, every daily element /event change the behavior of the whole system, you cannot rely on  past observations to make predictions, even if you have decades of similar exemples, they are never accurate enought to make valid laws.

 

what can/will happen, will, by nature, tend to happen if our behavior follows the past behavior to merge maximum similarities, it is a reflex of humans to repeat past stuff to keep things going on the rail. even if the rail is goin to hell, but every rail has its own particularities.

 

main paradox is technologies over time accelerate trains speed, & while in the past slow trains couldn't be jumped off because of medias and civilization speed, actual trains are insanly fast, we can jump off anytime but nobody want the responsability to stop the train.  even worse, some think that  going faster than problem can bypass it, like wall of sound  past mach 1.

 

mad world.

Sat, 08/09/2014 - 07:10 | 5069325 Tigg47
Tigg47's picture

Inflate your debt away, problem solved.

Sat, 08/09/2014 - 11:10 | 5069398 OC Sure
OC Sure's picture

" What they don’t understand is that money does not "create" economic activity. Money is simply a tool that measures value, like a ruler measures length and a clock measures time. Just as changing the number of inches in a foot will not increase the building of houses or anything else, lowering the value of money will not create more wealth. The only way we will ever get a real recovery is through a return to trustworthy, sound money. And the best way to achieve that is with a gold standard: a dollar linked to gold."

The authors' argumentation is almost there. However, like almost all opponents of tyranny and especially the Austrian school of economics the author accepts tyranny's incorrect definition of money and therefore cannot move the needle against tyranny with this same line of incorrect reasoning that has been going on every since von Mises stated in Human Action that "Money is the universally used medium of exchange, nothing else." (Human Action; Yale University Press, 1966, Third revised edition, page 208.)

A better, more cogent, implacable, uncontested argument against paper currency is made here: http://ocsure.blogspot.com It is here that the needle gets off of cruise control and redline's full throttle. Why the logic here is easier to understand is because currency is clearly defined in no uncertain terms that it must be either money or counterfeit. A is A.

I agree with the authors' (and the Austrian school's) premises and conclusions but the mysticism needs to be removed and control of the argument taken away from tyranny and regained by its opponents.

I agree that it is false that money creates economic activity but lets point out that the exact opposite is true. Economic activity creates money (SINCE PRODUCTIVE WORK CREATES MONEY THEN IT IS WRONG TO SAY THAT MONEY IS PRINTED AND YOU SERVE TYRANNY BY SAYING SO!). But what is economic activity and how does "value" come into being? Economic activity is productive work. The creation of value requires productive work. The introduction of money then is to measure how much those involved in the exchange value the productive work as represented by the product of the productive work which meets the demands of the two parties involved in the exchange. To be clear, we are not yet referring to the value of the medium itself but instead the value of both sides of the exchange which the mediator mediates.

To say that government lowers and raises the value of money is to obfuscate terms. How does it do this? And now, is the author referring to the value on both sides of the exchange or of the mediator itself? What the von Mises quote above implies and what the author is avoiding to say is that the only way government can "lower value" is to falsify "value." That is to say, it must be counterfeiting. For just as money can mediate an exchange so too can counterfeit, and therefore what the author is not saying is that:

Counterfeit is not money. Therefore, stealing can not be banking.

A is A. It is Aristotle's identification that money necessarily represents an exchange of productive work for productive work that can lead-foot, turbo-boost, the Austrian's off of cruise control.

Forget everything you just read and approach the subject as a child might for the first time:

Take a jar of 1000 white marbles and call them money.Take a jar of 1000 black marbles and call them counterfeit. Pour 500 white marbles into a much larger bowl and then add 500 black marbles into the same bowl. Put your hands in there, mix it up. What do you have? Money? Counterfeit? Lets say it is a mixture of the two and call it currency. Add more white marbles and there is more money in the currency. Add more black marbles and there is more counterfeit in the currency. By not precisely defining what money is and what counterfeit is, then opponents of tyranny are looking into the bowl that is a mixture of money and counterfeit and saying that it is all money. Opponents of tyranny cannot get off of cruise control because they have a blind-spot in their reasoning which inhibits them from identifying the black marbles. Instead they agree with tyranny that all the marbles are white. At http://ocsure.blogspot.com the blindspot is once and for all removed and heart of tyranny's lies are eviscerated.

Sun, 08/10/2014 - 09:32 | 5072372 AdvancingTime
AdvancingTime's picture

I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.

 It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it  leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....

Sun, 08/10/2014 - 10:08 | 5072426 OC Sure
OC Sure's picture

Open this link and scroll down to The United States:

http://data.worldbank.org/indicator/BN.TRF.CURR.CD

 

This is the primary reason why reported prices are not rising off the charts. To avoid having to make bigger charts, the US has to give its currency away.

Sun, 08/10/2014 - 00:40 | 5071919 honestann
honestann's picture

The economy cannot ever recover until home process crash (back to reasonable levels).  This should be easy to understand, yet the endless media refrain that "higher home prices is good for the economy" fools almost everyone.

But think about this for a moment.  What does "high home prices" mean?  Simple.  It means that most of the money people earn in their career will be consumed by mortgage payments, property taxes and repayment of auto and college loans.  This leaves very little for everything else.  But that "everything else" IS the economy (the vast majority of the economy).

In contrast, what if homes were cheap?  The answer is obviously "the opposite".  People would buy their homes for cash (after saving several years, and perhaps with some parently assistance), then have NO morgage payments.  And given how much more money is available every month in this situation, almost everyone would save and buy cars and college with cash, not interest-carrying debt.

The only people who benefit from high home prices are banksters and home builders.  High home prices trash the economy.  Low home prices supports a healthy economy.

Thu, 08/14/2014 - 05:15 | 5091228 WANLAG
WANLAG's picture

Second paragraph, last sentence: Instead of "...large expansion..." it should read "...largEST expansion of money in history."

Peace!

Wan

Thu, 08/21/2014 - 13:42 | 5125755 MeelionDollerBogus
MeelionDollerBogus's picture

War is peace

Debt is Wealth

Love is Hate

Depreciating assets are investments!

WE ALL WIN!

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