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[Sanky Panky]

I missed this earlier. From Wikipedia: "Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist and professor of economics at Washington University in St. Louis. His research attempted to provide an understanding and explanation of the characteristics of financial crises, which he attributed to swings in a potentially fragile financial system. Minsky is sometimes described as a post-Keynesian economist because, in the Keynesian tradition, he supported some government intervention in financial markets, opposed some of the financial deregulation policies popular in the 1980s, stressed the importance of the Federal Reserve as a lender of last resort and argued against the over-accumulation of private debt in the financial markets."

See also: http://neweconomicperspectives.org/2013/02/the-spinning-top-economy.html

Notice it says LENDER of last resort, as in providing reserves for banks that have capital short-term needs. What we have today is the Fed trying to play BUYER of last resort, capturing about 30% of treasuries. He explicitly argued how the system (this was back in 1970s) had been captured by those at the top, and how booms and busts would get bigger and bigger. His government intervention is closer to pure socialism, and had nothing to with fiat currency or on how much money was being printed.

The US government has no need of "rolling that debt over." That is precisely what it means to say that the US "is not dependent on credit markets."

Close to $440 billion are being rolled over between now and November. The US is fully dependent on the credit market, and as a reminder, a rumor of the Fed not backstopping that credit market by a few less billion, caused the biggest spike in yields in recent memory.

 

[ClassyPenguin]

http://pragcap.com/debunking-the-biggest-scam-in-the-history-of-mankind

 

[Reuenthal]

Gold was historically a disaster that had to be abadoned by both Britain and France (and worse for France it was later than Britain) and led to the default of Greece in the early 30s which also abadoned it. It probably lengthened and made worse the great depression especially in the crucial 30s decade. It is interesting to wonder the historical effect of countries like France underperforming bellow their capabilities since after that WW2 followed. It is interesting that also several other countries at the time left the gold standard.

One of the reasons that it is bad is that monetary inflexibility means that you can't handle certain crises which require a reaction beyond the confines of this monetary inflexibility and system that is not under your control.

Politically it is not easy to abadon such systems and it should tell you something when it was done by various countries. The shitty euro I expect to have a similiar fate. Sooner or later practical considerations beat politics, and as hard as admitting that a current system is flawed, the flaws of the system eventually force the involved into abadoning it.

 

[empty vessel]

http://pragcap.com/debunking-the-biggest-scam-in-the-history-of-mankind

The best part: "It’s also interesting to note that the creators of this video are ultimately selling you a product. They’re selling you gold and silver as seen here on their website. And they’re using fear to drive you into that product. But look what they want from you. After countless hours of video trashing fiat money they’re asking that you pay THEM with…US DOLLARS. If this whole thing doesn’t set off a great big red flag for you then I don’t know what to say. Good luck?"

The video is just an advertisement. And it's fascinating because it convinces its viewers to give their worthless fiat money to the video's maker in exchange for gold. In other words, the very person who made this video prefers fiat dollars to the gold he possesses. As well he should, if he has any sense.

 

[Mgoblue201]

It happens because investment in the US economy is contracting, businesses are laying off people, and there is less income in the economy for the government to tax.

Alas, a very timely article from my buds at zerohedge. Any of you can dismiss the source, but the data is irrefutable.

That leads to the obvious question of where he got his data. Estimates for 19th century GDP growth would obviously be imprecise; it's certainly not clear enough to offer an exact figure. Another reason why I doubt it is that there were obvious boom and busts during the 19th century. But even if we take the chart at face value, it still doesn't come close to proving causation. In fact, thirty years after the creation of the Federal Reserve, GDP growth was still in line with growth from the previous 100 years, at least once we emerged from the Great Depression. Therefore, it seems very possible that something else is responsible for this phenomenon...like the fact that the US grew from a small agrarian society to the world's largest economy in the span of a century, fueled by about a tenfold increase in the population. Then again, citing a "source" like zero hedge to prove anything is risible.

 

[Sanky Panky]

http://pragcap.com/debunking-the-biggest-scam-in-the-history-of-mankind

That is a very laughable rebuttal, and is trying so hard to miss the actual points of the video.

I’m being a real stickler for details here, but technically the banking system doesn’t actually create the currency. Banks create loans which create deposits. The deposits can be drawn down to access paper currency, but that paper currency is actually created by the US Treasury who processes orders for it from the Fed system so they can supply it to the US banking system when bank customers need it.

At least he admits that banks create loans, which create deposits. Paper currency is only a small fraction of the global system, and most of the money is bank created deposits. The author here is trying to hard.

It later ignores the point that it is actual inflation created by money printing that robs future generations. This should be common knowledge. Let's throw some quotes out there:

Inflation is taxation without legislation. - Milton Friedman

It is a way to take people's wealth from them without having to openly raise taxes. Inflation is the most universal tax of all. - Thomas Sowell

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. - Alan Greenspan

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. - John Maynard Keynes

Perhaps the writer of that "debunking" should understand the claims of the video better.

That leads to the obvious question of where he got his data. Estimates for 19th century GDP growth would obviously be imprecise; it's certainly not clear enough to offer an exact figure. Another reason why I doubt it is that there were obvious boom and busts during the 19th century. But even if we take the chart at face value, it still doesn't come close to proving causation. In fact, thirty years after the creation of the Federal Reserve, GDP growth was still in line with growth from the previous 100 years, at least once we emerged from the Great Depression. Therefore, it seems very possible that something else is responsible for this phenomenon...like the fact that the US grew from a small agrarian society to the world's largest economy in the span of a century, fueled by about a tenfold increase in the population. Then again, citing a "source" like zero hedge to prove anything is risible.

Do you have anything supporting your claim that calculations of GDP prior to 1900 are imprecise? (or are you looking at an excuse to ignore the data?). The NBER recession index clearly shows that while recessions were prevalent in the 1800's (as in any economic system), they were much less violent than the ones we have under fiat money. This should be obvious. Moreover, those recessions can be directly linked, one by one, to over-extension of credit by banks, without much specie in the form of reserves. Good job at the ad hominem at the end... serves any discussion of empirical data well.

 

[pigeon]

What is it that America produces that people want? I mean seriously, the entire reason our Railroad system and other infrastructure exists is because we had nothing China wanted to buy so we sold them Opium to make money. The dudes who provided America's infrastructure to the Western U.S. did it by selling drugs to the Chinese to pay for it. We can't do that now with our "war on drugs" policy, but we're more than happy to have that war now that we've already profited from invading China with drugs to pay for our own national expansion.

What?

Do you have, uh, a source for the claim that the American railroad expansion was financed with money gained in the Opium Wars? That is not something I had heard before.

It later ignores the point that it is actual inflation created by money printing that robs future generations. This should be common knowledge. Let's throw some quotes out there:

Unfortunately, your claim is unsupported by all of your quotes. It's undeniable that inflation, as a negative to the real interest rate, reduces nominal wealth. But it doesn't then follow that it "robs future generations," because people don't benefit from nominal wealth -- they benefit from real wealth. The fact that inflation serves as a motivator to convert nominal wealth into real wealth quickly is not sufficient to prove that it reduces people's real wealth over time.

 

[Sanky Panky]

Unfortunately, your claim is unsupported by all of your quotes. It's undeniable that inflation, as a negative to the real interest rate, reduces nominal wealth. But it doesn't then follow that it "robs future generations," because people don't benefit from nominal wealth -- they benefit from real wealth. The fact that inflation serves as a motivator to convert nominal wealth into real wealth quickly is not sufficient to prove that it reduces people's real wealth over time.

Read the quotes again. It is the process of reducing purchasing power by increasing prices, that robs future generations, or as every person quoted says, it is a form of invisible tax. Only the pace of expected inflation determines how fast people want to get a hold on real assets, but the end result, no matter how slow, is the same. Ex Chairman Paul Volcker also made the case that even at 2% inflation per year, people lose 50% of their purchasing power in 25 years. I can find his quote, but the sentiment is the same expressed by anybody else that understands.

 

[Cyan]

That's only true if real wages fall.

 

[Sanky Panky]

That's only true if real wages fall.

Which unfortunately they have since 1979. Not by accident of course, but by the same political and financial powers that prescribe the inflation.

 

[Lagspike_exe]

Which unfortunately they have since 1979.

Inflation is not fully correlated with a drop in real wages. Inflation boosts all nominal aggregates, which in the end reflects on wages as well. Monetary distortion is only possible in short term, long term everything comes back to balance, including wages.

 

[Cyan]

Which unfortunately they have since 1979. Not by accident of course, but by the same political and financial powers that prescribe the inflation.

Depends on what you're looking at. Real wages have risen for the highly educated while falling for those who aren't. And they've obviously risen for the wealthy while falling for the poor.

Neither of those are good things, of course, but it does show that to put it down to inflation is overly simplistic.

How did real wages move between 1912 and 1979?

 

[User Name Here]

The powers that be DO NOT want you to know about this... So here is a video they can easily take down if they didn't want you to know.

 

[Sanky Panky]

Inflation is not fully correlated with a drop in real wages. Inflation boosts all nominal aggregates, which in the end reflects on wages as well. Monetary distortion is only possible in short term, long term everything comes back to balance, including wages.

I do in fact believe that we will come back to balance, but nominal growth by the misallocation of money printed since the 1980's, along with bubble bursts that are re-inflated by bail-outs, will ultimately lead to this 30 yr distortion being corrected in a very violent way. The evidence is each subsequent bubble being worst than the last. This current bubble is in sovereign bonds across the globe. A drop in real wages, as experienced in the last 30 years, is a direct result of inflation, and increased income inequality.

 

[pigeon]

Read the quotes again. It is the process of reducing purchasing power by increasing prices, that robs future generations, or as every person quoted says, it is a form of invisible tax.

But it doesn't do that -- that's the point! The fact that you refer to it as an "invisible tax" should actually be a warning sign to you, because there is no common assumption that taxes rob future generations. We have taxes in order to pay for government services that will aid future generations! That's basically the entire justification of government! In much the same way, the regular pace of inflation is intended to drive real investment, which is useful to future generations because it appreciates in productivity over time in a way that nominal investment can't and doesn't.

Nor is it reasonable to say that "reducing purchasing power by increasing prices" robs future generations. A single dollar reduces in purchasing power according to inflation. But people don't produce dollars, they produce streams of income. What is your justification for the claim that wages do not increase with inflation?

edit:

Which unfortunately they have since 1979. Not by accident of course, but by the same political and financial powers that prescribe the inflation.

Hmm.

 

[Mgoblue201]

Do you have anything supporting your claim that calculations of GDP prior to 1900 are imprecise? (or are you looking at an excuse to ignore the data?).

The burden is on you to prove that your data are correct. If you don't have sources, then the precision of the data isn't even a factor.

The NBER recession index clearly shows that while recessions were prevalent in the 1800's (as in any economic system), they were much less violent than the ones we have under fiat money. This should be obvious. Moreover, those recessions can be directly linked, one by one, to over-extension of credit by banks, without much specie in the form of reserves. Good job at the ad hominem at the end... serves any discussion of empirical data well.

The Panic of 1873:

Mirroring the firm's collapse, many other banking firms and industries did the same. This collapse was disastrous for the nation's economy. A startling 89 of the country's 364 railroads crashed into bankruptcy. A total of 18,000 businesses failed in a mere two years. By 1876, unemployment had risen to a frightening 14 percent.

But no, they were much less violent than recessions today.

 

[empty vessel]

If Sanky had actually understood Minsky, he would understand that the 2008 recession was produced by the over-accumulation of private debt. And that that debt existed and grew so large because the government was not "printing" enough money (think Clinton surpluses) and relying too much on private credit ("bank money") to fuel growth. Bad idea. Really bad idea. Unfortunately, we haven't learned any lessons, because austerity is the order of the day and we have the Fed trying desperately to increase bank lending (growing private debt) through ineffectual monetary policy. It's the definition of insanity, really, but I suppose the reliance on private debt instead of public spending to grow the economy keeps elite economic prerogatives (Wall Street) intact.

 

[Sanky Panky]

But it doesn't do that -- that's the point! The fact that you refer to it as an "invisible tax" should actually be a warning sign to you, because there is no common assumption that taxes rob future generations. We have taxes in order to pay for government services that will aid future generations! That's basically the entire justification of government! In much the same way, the regular pace of inflation is intended to drive real investment, which is useful to future generations because it appreciates in productivity over time in a way that nominal investment can't and doesn't.

Take any quote above, say...

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. - John Maynard Keynes

And explain what he meant by that. It would be a great exercise for you.

You only have to look at QE, to understand how this process works. Financial institutions have been bailed out by the government and the Fed, to the tune of more than $4 trillion dollars since 2008. This wealth of course, has gone to the top 1% to cover for their mistakes, while the bottom is left to pay for the interest service of said government debt. The bottom is also left with higher tuition costs (because the loans are guaranteed by the government), higher home prices (from private funds using QE money to buy up the inventory), higher medical costs, and future inflation once the velocity of money ticks up from its historic lows. Again, all you have to do is disect what Keynes and others meant by inflation. It becomes clear.

Nor is it reasonable to say that "reducing purchasing power by increasing prices" robs future generations. A single dollar reduces in purchasing power according to inflation. But people don't produce dollars, they produce streams of income. What is your justification for the claim that wages do not increase with inflation?

As Paul Volcker said, a stable 2% inflation robs people 50% of their purchasing power in 25 years. This is why people can barely afford to go to college, why you HAVE to borrow to buy a home or a car, why medical costs can bankrupt you, etc etc. Before the Fed, you had long-term stability of prices, and you had rising real wages. Since the 1970's, you have a financialization of our economy, with debt assets and stocks becoming an economy onto themselves. This is the wet dream of the international bankers that drafted the Fed (to their benefit), because not only can they suppress real wages and promote borrowing to consume, but they know that the government will be there to bail out the big players.

How did real wages move between 1912 and 1979?

They increased in line with productivity, until neo-liberalism of the 1970s. From there, financialization based on freely printed fiat money became the money-making enterprise. Keynes had this to say about it:

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done... "

The burden is on you to prove that your data are correct. If you don't have sources, then the precision of the data isn't even a factor.

But we do have sources... it's called government statistics.

The Panic of 1873:

Mirroring the firm's collapse, many other banking firms and industries did the same. This collapse was disastrous for the nation's economy. A startling 89 of the country's 364 railroads crashed into bankruptcy. A total of 18,000 businesses failed in a mere two years. By 1876, unemployment had risen to a frightening 14 percent.

But no, they were much less violent than recessions today.

You do understand that the root of this crisis was an over-extension of speculative lending into a pioneering industry right? It had nothing to do with banks adhering to a cautious reserve requirement, but quite the opposite. It proves the point, that when left unchecked, banks will print money recklessly. It's a feature of a free market economy, however with fiat money, big players are not allowed to fail... making each subsequent bubble more leveraged and more intense than the last. Railroads collapsing did not bring the global financial system to its knees, like 2008 did. You just wait for the next one.

If Sanky had actually understood Minsky, he would understand that the 2008 recession was produced by the over-accumulation of private debt. And that that debt existed and grew so large because the government was not "printing" enough money (think Clinton surpluses) and relying too much on private credit ("bank money") to fuel growth. Bad idea. Really bad idea.

That's because the world operates in bank money, not your hypothetical world where governments print all their needed funds without consequences.

Here is what MInsky said:

Without a crisis [because the Fed bails out the big players] and a debt-deflation process to offset beliefs in the success of speculative ventures, both an upward bias to prices and ever-higher financial layering are induced.

The active use of policy instruments following the guidelines from the standard neoclassical model [which Keynes did not argue for] has succeeded in changing the shape of, even though it has not eliminated, the business cycle... we are dealing with a system that is inherently unstable, and the fundamental instability is "upward".

This was back in the 1970's. If only he knew what happened in 2008...

 

[War Peaceman]

Do you have anything supporting your claim that calculations of GDP prior to 1900 are imprecise? (or are you looking at an excuse to ignore the data?). The NBER recession index clearly shows that while recessions were prevalent in the 1800's (as in any economic system), they were much less violent than the ones we have under fiat money. This should be obvious. Moreover, those recessions can be directly linked, one by one, to over-extension of credit by banks, without much specie in the form of reserves. Good job at the ad hominem at the end... serves any discussion of empirical data well.

Crises tended to grow in severity as global trade networks grew in scale and importance. This seems only logical: prior to global trade economies were a largely local affair, then they became national, imperial and then (somewhat)global. Fiat money is not the distinguishing factor in this. Look at some of Julian Hoppit's articles on crises for some 18/19th century perspectives on crises.

 

[Sanky Panky]

Crises tended to grow in severity as global trade networks grew in scale and importance. This seems only logical: prior to global trade economies were a largely local affair, then they became national, imperial and then (somewhat)global. Fiat money is not the distinguishing factor in this. Look at some of Julian Hoppit's articles on crises for some 18/19th century perspectives on crises.

Fiat money is indeed the distingushing factor in the layering of financial instruments, leveraging on debt because it is now securitized, re-hypothecation of financial instruments, etc. The shadow banking system, and the finanzialization of the global economy, are a direct result of fiat money printing. It is what the elite intended. The next goal is to centralize the money printing ability through the IMF. We'll see how the next crisis pans out.

 

[Seeds]

How very nice of them to take my worthless fiat money for gold and silver.

 

[speedline]

All fiat currencies eventually fail, so will the US dollar. What will take it's place is anyone's guess.

 

[Sanky Panky]

All fiat currencies eventually fail, so will the US dollar. What will take it's place is anyone's guess.

The current candidate is the Special Drawing Rights (SDRs) by the IMF. They have been around for a while, but are being pushed by more and more people.

 

[ksan]

Doesn't apply universally for all fiat money systems, therefore the underlying causes for partial failure are most likely not due to the institution itself, but rather in the surrounding institutional sphere.

 

[speedline]

What I find interesting is that while the Fed likes to downplay the importance of gold as a monetary metal, they sure do keep a lot of it stored in the vaults in New York and Fort Knox. They also put a great deal of effort in protecting that useless metal as well.

If your own Government and other governments around the world have a desire to hold gold, why is it that people dismiss it so easily these days?

 

[CornBurrito]

All fiat currencies eventually fail, so will the US dollar. What will take it's place is anyone's guess.

Is eventual failure exclusive to fiat currencies? Care to explain why?

 

[kirblar]

What I find interesting is that while the Fed likes to downplay the importance of gold as a monetary metal, they sure do keep a lot of it stored in the vaults in New York and Fort Knox. They also put a great deal of effort in protecting that useless metal as well.

If your own Government and other governments around the world have a desire to hold gold, why is it that people dismiss it so easily these days?

Because it's still an asset? We stockpile a lot of oil too, and I don't see anyone claiming we should start backing the dollar with it.

If you don't understand that Money is only a means to an end, you don't understand it at all.

 

[Lagspike_exe]

Because it's still an asset? We stockpile a lot of oil too, and I don't see anyone claiming we should start backing the dollar with it.

If you don't understand that Money is only a means to an end, you don't understand it at all.

Actually, you're wrong. Dollar is implicitly backed by oil, since most of Middle Eastern oil countries only except dollars for oil exports. This is one of the pillars of US policy in the ME - to keep oil/dollar convertibility intact, since that's one of the fundamental reasons why USD still is a global reserve currency.

 

[Mgoblue201]

But we do have sources... it's called government statistics.

Until you actually give a source, you're just equivocating, and this discussion isn't worth my time.

You do understand that the root of this crisis was an over-extension of speculative lending into a pioneering industry right? It had nothing to do with banks adhering to a cautious reserve requirement, but quite the opposite. It proves the point, that when left unchecked, banks will print money recklessly. It's a feature of a free market economy, however with fiat money, big players are not allowed to fail... making each subsequent bubble more leveraged and more intense than the last. Railroads collapsing did not bring the global financial system to its knees, like 2008 did. You just wait for the next one.

The crisis in the US was precipitated due to the failure of the Jay Cooke & Company, which caused a larger banking panic. More importantly, the recession of 1873 actually began in Vienna in May of that year and radiated outward to just about every major economy at the time - the US, Great Britain, Russia, France, etc, not just Austria-Hungary. 1873, in other words, was the original global crisis. The recession officially ended in March of 1879, but three more small recessions immediately followed, culminating in the Panic of 1893, which was every bit as bad as 1873. Economist Stanley Lebergott estimated that at its peak in 1894 unemployment rose to over 18 percent; Christina Romer gives a more conservative figure of over 12 percent. Either way, unemployment took nearly a decade to fall back to its pre-recession levels.

Now I did some searching and found this chart from Wikipedia which shows the growth of real GNP per capita between 1869 and 1918.

The chart was derived by taking estimates of GNP data from Robert Gordon and Nathan Balke - two economists who used to estimate pre-war GNP for the National Bureau of Economic Research back in the 70s and 80s - and adjusting it based on population from US census estimates at the time. This data may not be perfect, but it's a lot less illusory than trying to pass unsourced figures off as official government statistics.

It's true, of course, that real output continued to grow throughout the late 19th century, but the social consequences of the cumulative recessions were catastrophic. Here's historian Scott Reynolds Nelson talking about the panic of 1873:

As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.

In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

 

[ClassyPenguin]

QE actually had the effect of lowering inflation. College costs are unrelated to QE. They have been rising before QE and the Recession.

Evaluating Unconventional Monetary Policies ─Why Aren’t They More Effective?f (pdf)

 

[empty vessel]

That's because the world operates in bank money, not your hypothetical world where governments print all their needed funds without consequences.

It operates on both, Sanky. Banks leverage printed money (i.e., reserves) to meet demands for money. The failure of the government to spend adequately (print money) increases the demand for private debt (bank credit). Don't you see that insufficient deficit spending empowers banks and reliance on bank money by creating an inadequate aggregate amount of fiat money?

Here is what MInsky said:

Without a crisis [because the Fed bails out the big players] and a debt-deflation process to offset beliefs in the success of speculative ventures, both an upward bias to prices and ever-higher financial layering are induced.

The active use of policy instruments following the guidelines from the standard neoclassical model [which Keynes did not argue for] has succeeded in changing the shape of, even though it has not eliminated, the business cycle... we are dealing with a system that is inherently unstable, and the fundamental instability is "upward".

This was back in the 1970's. If only he knew what happened in 2008...

I'm curious what you think this means. He is talking about how the accumulation of private debt, which you are defending by maligning the spending of fiat money (even if you don't understand how you are defending it), is unstable. What you seem to be missing is that direct deficit spending is a "debt-deflation" process--Minsky is here referring to private debt deflation, not public debt deflation--because it undercuts the demand to borrow privately. The government's spending is the non-government sector's income. This is an accounting identity. So when the government net spends more, the private sector has a higher income, meaning it has less need for inter-sector borrowing (i.e., private debt accumulation). Likewise, if the government net saves, then the non-government sector necessarily deficit spends (to the government), increasing the demand for private borrowing. Take a look at this graph:

To stave off the Minsky Moment (as we failed to do), it is necessary to keep the blue lines on the positive side of the axis. When it is below the axis, that indicates that the domestic private sector is running deficits, meaning it must take on debt to continue plodding forward. You can plainly see in this graph: (1) that Minsky was correct that the over-accumulation of private debt is unstable; and (2) the relationship between government net spending (printing money) and the private sector's surplus or deficit. Importantly, the trade balance matters here, because it represents fiat dollars (printed money) leaving and entering the country. A huge negative trade balance like we run represents a very large outflow of dollars. That being the case, either the government or the domestic non-government sector has to pick up the slack (every person's spending is another person's income). Would you prefer that it be the government (which has an infinite amount of dollars at its disposal) or the domestic private sector (which has a finite amount of dollars at its disposal the loss of which will increase private credit and instability) who picks up the slack from the negative trade balance?

Finally, returning to a gold standard--which necessarily puts constraints on deficit spending by the government--also necessarily increases the demand for loans and private debt. What I am trying to say in all this is that you appear to want to get to the right place (less private debt), but what you propose to do it would actually accomplish the precise opposite.

Oh, and just so it's clear. Every single line on that chart represents printed money. The talk of "printed money" as if it is something new or unusual needs to stop. A "printed dollar" is a USD.

 

[Piecake]

With all of these graphs and demanded proof and evidence, it reminded me of this study

In the end, truth will out. Won’t it?

Maybe not. Recently, a few political scientists have begun to discover a human tendency deeply discouraging to anyone with faith in the power of information. It’s this: Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger.

This bodes ill for a democracy, because most voters — the people making decisions about how the country runs — aren’t blank slates. They already have beliefs, and a set of facts lodged in their minds. The problem is that sometimes the things they think they know are objectively, provably false. And in the presence of the correct information, such people react very, very differently than the merely uninformed. Instead of changing their minds to reflect the correct information, they can entrench themselves even deeper.

“The general idea is that it’s absolutely threatening to admit you’re wrong,” says political scientist Brendan Nyhan, the lead researcher on the Michigan study. The phenomenon — known as “backfire” — is “a natural defense mechanism to avoid that cognitive dissonance.”

These findings open a long-running argument about the political ignorance of American citizens to broader questions about the interplay between the nature of human intelligence and our democratic ideals. Most of us like to believe that our opinions have been formed over time by careful, rational consideration of facts and ideas, and that the decisions based on those opinions, therefore, have the ring of soundness and intelligence. In reality, we often base our opinions on our beliefs, which can have an uneasy relationship with facts. And rather than facts driving beliefs, our beliefs can dictate the facts we chose to accept. They can cause us to twist facts so they fit better with our preconceived notions. Worst of all, they can lead us to uncritically accept bad information just because it reinforces our beliefs. This reinforcement makes us more confident we’re right, and even less likely to listen to any new information. And then we vote.Continued...

http://www.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_backfire/

I am always tempted to call into NPR and bring up this study when they talk about an informed/uniformed public.

 

[David H Wong]

With all of these graphs and demanded proof and evidence, it reminded me of this study



http://www.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_backfire/

I am always tempted to call into NPR and bring up this study when they talk about an informed/uniformed public.

If you haven't noticed, the goldbug stuff is more religion than economics.

 

[Ether_Snake]

With all of these graphs and demanded proof and evidence, it reminded me of this study



http://www.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_backfire/

I am always tempted to call into NPR and bring up this study when they talk about an informed/uniformed public.

That's only applicable short term, like believing your house is not really on fire. Eventually, you die from smoke inhalation.

 

[cebri.one]

Fiat Currency = Boom + Burst.

It's a never ending cycle, but when monetarism became the predominant theory it got worst.

 

[empty vessel]

Fiat Currency = Boom + Burst.

It's a never ending cycle, but when monetarism became the predominant theory it got worst.

Booms and busts are mostly caused by the capture of government by neoliberals who do not believe in using fiscal policy to regulate the economy. Fiscal policy (spending and taxing) is the economy's steering wheel. The use of fiat currency has nothing to do with it. Indeed, arguably fiat currency goes back thousands of years, because even when you have something like convertible money, it is still the State that is dictating the meaning of money and always has the power to change the "meaning" of money. (See FDR's executive orders in 1933 and the Gold Reserve Act of 1934 changing the meaning of money.) Still, it's useful to distinguish between "pure" fiat money that is (by current law) not convertible into a commodity and fiat money that is convertible. The former is far superior. And it would be made even more superior if the government would change the laws requiring the government to sell bonds in exactly the amount that it deficit spends.

 

[cebri.one]

Booms and busts are mostly caused by the capture of government by neoliberals who do not believe in using fiscal policy to regulate the economy. Fiscal policy (spending and taxing) is the economy's steering wheel. The use of fiat currency has nothing to do with it. Indeed, arguably fiat currency goes back thousands of years, because even when you have something like convertible money, it is still the State that is dictating the meaning of money and always has the power to change the "meaning" of money. (See FDR's executive orders in 1933 and the Gold Reserve Act of 1934 changing the meaning of money.) Still, it's useful to distinguish between "pure" fiat money that is (by current law) not convertible into a commodity and fiat money that is convertible. The former is far superior. And it would be made even more superior if the government would change the laws requiring the government to sell bonds in exactly the amount that it deficit spends.

Yeah, huge mistake on my part i don't know what i was thinking. Fiat money is not the force that drive the economic cycles, but it has allowed easy money creation which is the root of the problem.

I agree on the fact that fiscal policy can be a good tool to prevent bubbles from growing and allow a much healthier economic growth but reality is much different. For example, i'm from Spain, everyone in 2003 knew we were in a huge credit bubble primarily affecting the real state market, the Bank of Spain (our Fed) knew it, the Goverment knew it, but no one did a thing to fix the problem, they just waited until the bubble bursted. Why? Because nobody wanted to end the party.

If in 2004, when the socialist party won the elections, they had given instructions to the bank of spain to put limits on mortages Spain would have inmediatly falled into a reccesion. The new president would had lost all his credit and probably forced to resign. And lets not forget that tax revenue was growing by 10% a year, meaning the goverment had enough funding to do whatever they wanted. So i agree that, in principle, fiscal policy could work but it's not that simple, specially when the financial lobby has total control over goverments.

PD: Sorry but my english is not the best. ;P

 

[Ether_Snake]

Singapore and China have been able to take steps to deflate their housing bubbles without causing recessions. Spain and others don't do anything because their leaders and their buddies profit from the bubbles personally, it's not politics.

And what's better, a recession or 23% unemployment and a burst bubble? They don't do anything because they don't know what to do and want to make money.

 

[kirblar]

Actually, you're wrong. Dollar is implicitly backed by oil, since most of Middle Eastern oil countries only except dollars for oil exports. This is one of the pillars of US policy in the ME - to keep oil/dollar convertibility intact, since that's one of the fundamental reasons why USD still is a global reserve currency.

You can implicitly back it with all sorts of things. We're talking about explicitly backing it.

 

[SteveWinwood]

if anything he was saying was true why would he be getting rid of his gold for the shitty worthless money

why wouldnt he be talking shit on gold trying to make people think its worthless so he can buy it on the cheap

 

[kirblar]

Singapore and China have been able to take steps to deflate their housing bubbles without causing recessions. Spain and others don't do anything because their leaders and their buddies profit from the bubbles personally, it's not politics.

And what's better, a recession or 23% unemployment and a burst bubble? They don't do anything because they don't know what to do and want to make money.

The problem was that Greenspan is/was an ideologue who thought he could just keep his foot on the gas without causing any issues. Right now we're sort of in a mess because he put on the brakes when he needed to.

 

[commedieu]

Booms and busts are mostly caused by the capture of government by neoliberals who do not believe in using fiscal policy to regulate the economy. Fiscal policy (spending and taxing) is the economy's steering wheel. The use of fiat currency has nothing to do with it. Indeed, arguably fiat currency goes back thousands of years, because even when you have something like convertible money, it is still the State that is dictating the meaning of money and always has the power to change the "meaning" of money. (See FDR's executive orders in 1933 and the Gold Reserve Act of 1934 changing the meaning of money.) Still, it's useful to distinguish between "pure" fiat money that is (by current law) not convertible into a commodity and fiat money that is convertible. The former is far superior. And it would be made even more superior if the government would change the laws requiring the government to sell bonds in exactly the amount that it deficit spends.

Is there anything to this video EV? value your opinion.

 

[speedline]

You can implicitly back it with all sorts of things. We're talking about explicitly backing it.

What is it back with then? Good faith? It's a petro-dollar explicitly backed by US military might.

 

[kirblar]

What is it back with then? Good faith? It's a petro-dollar explicitly backed by US military might.

Confidence. Confidence that tomorrow, people will still accept USD as currency. The problem with goldbugs is that they don't understand that every "value" is man-made. Money, assets, etc.- all these values are based on our collective and individual perception of it. Money is debt. It's an intermediary to allow us to side-step the "mutual coincidence of wants/desires" in trading. It itself has no intrinsic value.

We don't want deflation because we want people to invest in things that aren't money in order to keep money circulating.

 

[cebri.one]

Singapore and China have been able to take steps to deflate their housing bubbles without causing recessions. Spain and others don't do anything because their leaders and their buddies profit from the bubbles personally, it's not politics.

And what's better, a recession or 23% unemployment and a burst bubble? They don't do anything because they don't know what to do and want to make money.

What? House prices keep rising in China

http://www.bloomberg.com/news/2013-09-15/no-confidence-in-china-markets-inflates-housing-bubble.html

 

[Ether_Snake]

What? House prices keep rising in China

http://www.bloomberg.com/news/2013-09-15/no-confidence-in-china-markets-inflates-housing-bubble.html

Some house prices keep rising but they have been able to limit the rise more than once. They have stopped recently and prices rose again.

 

[empty vessel]

Is there anything to this video EV? value your opinion.

No, it's just a guy trying to sell gold. He is trying to sell gold because of this:

The price of gold is dropping. The faster he can sell gold, the better off he is.

What is it back with then? Good faith? It's a petro-dollar explicitly backed by US military might.

US Dollars are backed primarily by the US government's power to imprison its citizens when they don't pay taxes in it. This creates a demand for US dollars.

British Pounds are backed primarily by the UK government's power to imprison its citizens when they don't pay taxes in it. This creates a demand for pounds.

Australian Dollars are backed primarily by the Australian government's power to imprison its citizens when they don't pay taxes in it. This creates a demand for Australian dollars.

Etcetera.

 

[speculawyer]

It happens because investment in the US economy is contracting, businesses are laying off people, and there is less income in the economy for the government to tax.

Alas, a very timely article from my buds at zerohedge. Any of you can dismiss the source, but the data is irrefutable.

,

This is ridiculous.

Do you really think you can make such a simple comparison between those periods of time and assign all the difference to a single entity? Really?

As if brand new virgin country in the 1800s where they are giving out land for free is the same as the 1900s with world wars? There are zillion different things that make those two periods of time very different and thus not directly comparable.

 

[cebri.one]

Some house prices keep rising but they have been able to limit the rise more than once. They have stopped recently and prices rose again.

Yeah but the problem will come when the prices start falling. When that happens you will start to see chinese banks filing for bankruptcy.

China is investing their savings in US Debt, Real State and Public Infrastructure, good luck with that.

 

[ivysaur12]

With all of these graphs and demanded proof and evidence, it reminded me of this study



http://www.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_backfire/

I am always tempted to call into NPR and bring up this study when they talk about an informed/uniformed public.

I also believe it was, maybe EV, who posted a link in PoliGAF about how the only way to combat misinformation was repetition of fact that would eventually set in.