Loki047

iTrader: (6)

Trito, whats being built in France is going to run for 1/100th of a second and never generate power. Its experimental and cool, but completely useless for at least the next 30 years.

msydnor

iTrader: (3)

I think it's election year politics and won't do ****...you want to help the economy, get control of government spending....basics, stop spending more money than you have!

Zabac

iTrader: (39)

basically the governments is a direct represntation of the average american consumer

Savington

iTrader: (31)

Richest 1% paid 35% of the nation's individual income tax in 2004.

Loki047

iTrader: (6)

Good information, didnt answer my question. Nor was it put it perspective. What was the top 1% collective income?

Zabac

iTrader: (39)

1 faffillion dollars :fm:

Joe Perez

iTrader: (8)

A bit of light thread hijacking, for which I apologize in advance.

Jason, I read the story of Fabian the Banker (Earth +5%) some time ago, and it raised two interesting points which have challenged my thinking for some time. I want to say first that in general I agree with your views as regards the regulation of economies and trade from a macroeconomic standpoint, however there are certain paradoxes that I find difficult to resolve, and I’d like to hear the opinions of others as regards these conundrums. I ask that you grant me some leeway here, as to an extent I need to play the devil’s advocate.


First off, the story of Fabian assumes that the economy is (or at least should be) a zero sum game, a closed loop essentially, where the money supply is a constant, or is at the very least unrelated to the actual wealth of the community.

In keeping with the microeconomic theme of the story, let us suppose that I maintain a sheep ranch on a large parcel of land on the outskirts of Fabian’s community, at a point in time when the banking system has already been established. I assume that the banking system (or some close analogue) exists because I personally find it inconvenient to carry sheep around in my wallet.

One day while digging a grave near the pond behind my house, I discover a thick, black, oily substance under the soil. I hire my neighbor Brian the well-digger to drill a hole in my field, and discover that there is a large quantity of this substance under my land. I extract some of it, and discover by trial and error that on the stove inside the house I can easily reduce it into a number of liquids of various viscosities, some of which make an excellent substitute for the tallow that we’ve been lubricating our wagon axles with, and others can be easily burned to produce heat.

Across town, Jason, a friend of mine who lives in the mountains discovers that there are large quantities of a grey metallic substance buried in the hills behind his home. He digs up some of this ore and discovers that when heated, purified, and mixed in the right proportions it forms a strong yet easily machineable metal that he calls Steel. Collectively, we formulate a plan to use Jason’s steel to build engines which can produce kinetic energy by burning my fuel in a closed space. We strap a few of these engines onto some old carriage chassis, and invent the automobile. We build several more of these automobiles and offer them to the community, along with the necessary liquids to make them operate.

Ben, the farmer who lives out in the plains, gets word of our invention and takes it one step further. He figures that by fitting oversized studded wheels onto one of our improved carriages and fashioning Jason’s steel into a wide, pointed spade that he could use this contraption to till the soil on his farm, vastly reducing his workload. In fact, his productivity is so greatly improved that Ben finds himself able to cultivate ten times the amount of land that he was previously able to, and thereby increase tenfold the amount of food that he is able to produce and offer to the community.

What has happened here? Collectively, Ben, Jason, Brian and myself have created value. Out of quite literally nothing but the ground beneath our feet we have discovered, invented, and produced numerous things that have added to the total prosperity of the community. They have made our village “worth more” because we now have better transportation, more food, heat in the winter and light in the darkness. Is it wrong in this situation for the money supply to represent all this newfound material wealth?



Second- What is it that makes Gold so darn special, anyway?

Gold is far too soft to make plowheads and crankshafts out of- steel is much better suited for this purpose. Gold is adequate for use in bullets and irrigation pipe, however it has a very high melting temperature and the blacksmith far prefers lead for these applications since it is easier to smelt. Gold is a very good conductor of heat, but it’s quite heavy and tends to place a great deal of stress on CPU sockets when used as a heat-sink. Aluminum is a compromise, but much preferable overall for this task given the reduced risk of damage to the assembly. Gold is an excellent conductor of electricity, however its tensile strength and solderability are quite poor- copper is much preferred for making wires out of. There are three applications where Gold is really quite useful- as an anticorrosive plating (over tin or copper) on electrical interconnects, as an amalgam in dental fillings, and for deposition in a very thin layer over objects which are to be observed inside a scanning electron microscope. Collectively, these applications consume a miniscule proportion of the world’s supply of Gold.

So what, I ask, makes Gold so special? Well, basically the fact that a bunch of desert-dwellers found some lying around a couple of thousand years before the birth of Christ and decided that it looked pretty. A few millennia later a bunch of Europeans traipsed through northern Africa, also decided that it looked pretty, and (after a period of bloodshed) took it with them. When these Europeans stumbled across the Americas some time after that, they discovered that the folks who lived here thought it looked pretty as well, and started trading it, for food and clothing at first, and later in exchange for not murdering everyone and desecrating their corpses.

That’s pretty much it. Gold is valuable for no other reason than because we as the civilized nations of Earth have all agreed that it is valuable. We’ve all basically subscribed to a sort of collective hallucination that this yellowish metal which exists naturally in huge surplus relative to its actual usefulness has some intrinsic and indefinable property about it which makes it far more valuable than, say, Iridium- which is far rarer and at the same time far more useful.

Let me repeat this, so nobody misses my point: Gold has no real value. Its usefulness as a currency hinges upon the fact that a number of people collectively agree that it is a convenient, universal substitute for goods and services which do have real value. Gold is more convenient to carry around in one’s purse than a pallet full of grain, and it is much more easily subdivided into smaller units than is a cow.

In other words, Gold is fiat money! The real value of Gold is no different at all than the real value of a paper note- less in fact if you consider that the paper note can be burned to keep warm, or used to wipe one’s **** in the forest- Gold has no such practical attributes. The key idea here is that both Gold and paper notes have value only because a large number of people collectively agree that they have value. If the entire population of Europe were to wake up one day and realize that this Gold thing they’ve been banking on has got about as much practical value as boron in the grand scheme of things, then the global economy would collapse. No different than a bank note, really. Or even a dollar bill.

Gold isn’t even a stable commodity. The rate of gold mining has tended historically not to track the rate of economic development, on either a global or national scale. While it has the theoretical advantage of not lending itself to deficit spending, it is hardly a practical means for standardizing an economy. Rapid increases in the supply of Gold (such as the relatively recent California gold rush) tend to diminish the value of Gold and produce inflation. Likewise, a sharp decrease in the rate of global Gold production would have a paralyzing effect on the economies of the world, essentially implying that since the Gold supply has ceased to grow, that by definition the overall creation of value and wealth must also cease.


Discuss.

cjernigan

iTrader: (13)

Can i use that as an essay for one of my classes?

kyle242gt

In the absence of a cash infusion, in a closed economy zero-sum game, each dollar would be worth more. They'd have to be - no other means of exchange. How does the money actually gets in circulation, assuming there's no central government? Would you invent JoeBux to pay your auto builders, oil refiners, and steelmakers?

Loki047

iTrader: (6)

As long as everyone agreed on its value.

**** i have 60 JoeBux in the market right now. Each JoeBux = 1 billion USD

Joe Perez

iTrader: (8)

JoeBux. I like it. "My name is Joe, and I approve of this currency."

kyle242gt, it's an open-ended question really, although I assume that there is indeed a "central government" in the community (as is stated directly in Earth +5%), even if it's nothing more than Fabian and several of his cousins. To contemplate such concepts as centralized banking and the money supply without acknowledging the role of a central government is like creating the recipe for ham & eggs in a world without pigs- it can't actually work in practice.

One option would be to leave the money supply alone. In a fiat-money system with a fixed money supply, we'll assume that $100 worth of notes are in circulation. As productivity increases, the purchasing power of the dollar increases. Instead of 1lb of grain, each dollar now buys 5lbs of grain. So did the value of the dollar increase, or did the grain market collapse? And what happens when the population doubles as a result of improved nutrition? There are now fewer dollars per person in the villiage. Did we all get a little poorer? I honestly don't know. But deflation doesnt "just happen."

What happens when our village (which we'll call Oceania) decides to go to war against the neighboring villiage of Eurasia? Obviously the government of Oceania is going to need to purchase grain from Ben, improved carriages from Jason, and fuel from me. So we all ramp up production to meet the demand. The government levies a war tax on the population, who use their dollars to pay the tax. The government then spends those dollars to pay the three of us for our supplies. But with a fixed money supply, there comes a point (very rapidly) when the war effort has consumed all $100 of the available dollars, and the entire economy gridlocks. After all, the three of us can't really buy candles and shoes fast enough to get that money back into the community at the rate it's coming in, and we're sure as heck not going to start giving it away for free.

One solution would be for the government to turn the crank on the printing press a few times to create additional money to pay Ben, Jason and myself. One could argue that this dilutes the money supply and devalues the currency, but does it really? The three of us are probably just going to sit on the extra cash for a while, spending it at a relatively slow pace. During this time, it's likely that overall productivity in the community will contiue increasing, and by spending our money in this fashion, we're having quite a stabilizing effect on the currency, aren't we? We spend our additional dollars at a rate roughly equal to the rate at which new material wealth is being created, and the value of the dollar remains stable. One dollar still buys one bag of grain, because even though there are more dollars, there's more grain as well. Granted, Ben, Jason and I became "rich" during this process, but is this a problem?

I don't know the answers. And that's really the point of my argument, to illustrate that the economy is a complex organism, with lots of variables and booby-traps. There isn't a single good answer. While I think Ron Paul is a pretty decent guy and I really like his ideas about abolishing damn near everything, his Hard Money policy is pure fantasy. I honestly can't figure out whether he genuinely believes in the concept or if he just realizes that it's an easily buzzworded idea which appeals to the simplistic ideals of Mr. & Mrs. J. Random Voter. Heck, forget about a Gold standard, I've got an idea that'll revolutionize commerce and completely eliminate America's use of fossil fuels at the same time- declare unrefined petroleum to be the monetary standard! No worse than cocoa beans... People need to get over the idea that Gold is the answer to everything.


My take on the matter: Those who claim that "In the end, the banks will own everything" are actually pretty close to the mark. The banks would own everything, were it not for one factor: inflation. So long as the money supply continues to increase at a rate sufficient to cover the interest on the loans that put the original money out there in the first place, the system will continue to operate normally.

Is inflation a problem? Well, it certainly was in Germany right up until the introduction of the Rentenmark (a fiat note) after the German government ran the printing presses night and day to produce enough Papiermarks to pay off its creditor nations at the end of WWI, thus causing the complete and total collapse of its own economy. That was an example of asshat monetary policy, but when the only alternative is foreign occupation, well, Gold wouldn't have helped either...

But that sort of catastrophe doesn't need to happen. The important thing is for the issuing bank to create money at a rate which roughly parallels the rate of the creation of value within the economy. When this balance is struck, the system achieves equilibrium.


Cjernigan, feel free to plagerize. I request a one-time payment of 5 JoeBux for unlimited reproduction rights.

Savington

iTrader: (31)

Top 1% earned 17% of the Adjusted Gross Income.

kyle242gt

In a zero-sum economy, with a fixed monetary supply, no need for a central anything. Gets to be like gambling, except no house percentage. Only way to achieve wealth is by taking it from someone else. No point to this really, but I liked the ham-n-eggs bit, and figured it deserved a response.

To the extent that new currency is introduced at the rate value is added, the government needs to print more money. Fed prints it, banks borrow it at .5%, loan it to your manufacturing concern for 5%, is that how it works? College Econ was a fair number of years ago, so work with me.
:gay:So then, the thesis question: Is Bush's proposal, and Fed policy, roughly in line with the rate of value addition? No, because we're in a slump, value eroding. Is the stimulus package enough to cause significant dilution of the dollar?

Joe Perez

iTrader: (8)

Since the above scenario represented direct government spending rather than an indirect adjustment of the money supply, it's much simpler. The government would simply print the appropriate amount of money and then spend it by purchasing goods from the various businesses which produce the supplies that it requires to conduct the war. My manufacturing concern doesn't need a loan, since we're the seller, not the buyer. Ultimately we will get around to spending the money which was given to us, which would result in a dilution of the currency were the other industries around us to stop producing new value.

In peacetime, then yes, your example stands. The Federal Bank would observe that the money supply was too small relative to the value currently in existence, and it would print enough money to cover the spread. That money would be loaned to the member banks at one rate of interest. Then, Charles, a local carpenter, would borrow money from the member banks and give it to Jason in exchange for one of his new Improved Carriages.

Over time, Charles would repay the money to the bank, ultimately giving the bank more money than he originally obtained. This is sustainable because during this time the bank has also made loans to Bob and Alice, both of whom have contracted Charles to construct homes for them. Thus, Charles is able to repay the bank using the money that the bank loaned to Bob and Alice. And on and on the cycle goes.

As the population grows and new products are created, the demand for money will eventually increase once more. The Fed will introduce additional money into the system to allow more people to buy more things. And so long as the Fed exercises good judgment in choosing to print only the amount of money necessary to sustain the banking system and permit for increases in the real value of the community, the system will continue to function.

Thesis defense: That question, to me, suggests overly short-term thinking. Bush's policy is irrelevant, because a few years from now there'll be a different yokel in the White House, enacting a different policy. That too will be irrelevant, because a few years after that it'll be yet a third.

<science content>
When designing a phase-locked loop circuit, it is necessary to make a compromise where the matter of accuracy vs. stability is concerned. A circuit with a very long response time will tend to be very stable, yet it will not quickly adjust itself to rapid changes in the signal it is tracking. A circuit with a very fast response time, on the other hand, may be so twitchy that it will oscillate, or at the very least produce an output so unstable as to be useless.
</science content>

The American economy is pretty big. As a result, its response time is quite slow. I honestly don't believe that, short of starting WWIII, any single politician is capable of “breaking” the economy, nor is any politician capable of “fixing” it. Were congress to eliminate the term limits on the presidency, or establish a hereditary monarchy, then it would be much easier for one person to steer the economy more directly. Even at that, a certain extension of the powers of the executive branch would be necessary, as the president would need the ability to force the hand of the federal reserve, the power to enact unlimited veto against congress, and enough charisma to directly influence the actions of major corporations and the private banking system.

The only real problem that we actually seem to have at the moment is that investors (a much more complex part of the economy) are by and large a bunch of fickle ********. I just checked my portfolio a few minutes ago, and I have lost slightly over $3,000 in the time since I rolled out of bed this morning. Obviously this number bears more than a passing resemblance to fiction since that money doesn't actually exist, but it scares people to think about and it makes for good “teases” (the sentence or two that the talking head on TV says right before the commercial, to entice you to keep watching.)

Why was this money “lost”? Because a large group of people feel that the short-term earnings potential of the various businesses that I chose to invest in is not quite so good as was believed some time ago. This is not due to a failing on the part of those businesses, but rather a belief that their customers are not as likely to spend money as they might otherwise be. By announcing that the government will reduce the tax burden on consumers, they hope to restore faith in the businesses by making it appear more likely that consumers will spend money after all.

Personally, I hope “they” are right.

From a broader perspective however it's not quite so important to me what happens in the next month, or the next six months. So long as the actual value of the businesses in which I am invested has not significantly decreased, it is probable that at some point in the future the attitudes of both consumers and investors will change, and a large group of people will come to believe that because consumers seem more likely to spend money, and that that businesses' short-term earnings potential is “good.”

That's the thing... How do you define value? When you say “we're in a slump, value eroding” what does that mean exactly? Machinery is not vanishing off of factory floors, warehouses full of inventory are not burning down, so how is value eroding? It isn't really. The problem is that peoples perception of value is eroding.

Speaking of value, I really need to stop writing these dissertations and get some actual work done...

JasonC SBB

Here's a quickie answer.. i will read the long text later.

Do not confuse money and wealth. Money is a means of exchange.

You can have a fiat money system that is NOT DEBT BASED.

You don't have to assume a zero sum game to see the Compound Interest Paradox. If the money supply creation is greater than the growth of the economy, you get INFLATION. Inflation steals from the middle class. Inflation confers a subsidy to those who first receive the newly created money because they get to spend it BEFORE the inflation the money creates, percolates through the economy.

Milton Friedman has proposed a system wherein the fiat money creation is targeted to exactly EQUAL the growth in the economy. This would target 0 inflation. The amount created every quarter would be econometrics based. NO discretionary power anywhere by government, no discretionary power by a bunch of old farts with political connections.

Friedman's proposal is that this money is spent by government on infrastructure, and is NOT DEBT BASED. In other words it does NOT NEED to be repaid, zero, none, no interest payments, no principal payments. It gets spent into the economy, again for the end result that the expansion of the money supply matches the expansion of the economy so that you have 0 inflation.

IN CONTRAST, the money created today by the Federal Reserve, which they created out of NOTHING, needs to be repaid, and, needs to be repaid WITH INTEREST. It is this INTEREST PAYMENT that needs to be repaid FROM THE EXISTING MONEY SUPPLY that creates the Compbound Interest Paradox, ensuring that the only way to prevent a shrinkage of the money supply is to have CONTINUAL DEBT CREATION. This not only creates inflation which steals from us, but it also means that it is very easy to cause a shrinkage of the money supply, resulting in a recession, WHENEVER debt repayment exceeds debt creation. This happens whenever the Fed raises interest rates "in order to control inflation".

Pls watch the 47 minute cartoon "Money as Debt", it explains Friedman's proposal:

http://video.google.com/videoplay?do...74362583451279

TonyV

iTrader: (17)

Now I'm not anywhere near on par as Joe & K & others, but I think there's a BIG part of the puzzle missing here..

One of the biggest reasons for the economy being how it is, is the housing market. The fraud, inflated values, the taxes, foreclosures, insurances, variable rate loans being due, etc etc etc etc .... WHICH has caused alot (maybe not all) of issues....Huge ripple effect of course..

And this move will do absolutely nothing for almost all the homeowner's that are in trouble. It wont help anyone refi their ARM, it wont fix their credit, it wont pay their taxes/ins(at least not in most places), it wont even cover the deposit on the apaprtment they are gonna try to move into once they get foreclosed on...
And I agree with most of the comments on here about the way most americans spend their money. For a long time, I've been saying that the people are just like the government, living beyond their means...or check by check...This country runs on credit, debt, interest, etc etc etc...

Just my 2cents, subscribing tho!

JasonC SBB

Anything not clear?

JasonC SBB

tvaz,

Every decade, the Fed lowers interest rates. This results in cheap loans and "malinvestments". Investments where businesses or individuals wouldn't normally invest if loans weren't so cheap to begin with. A bubble inflates. And every decade, the media trumpets a "HOT new investment area". The corporations first in it make money hand over fist. Then, this bubble pops. Then the Fed raises interest rates. This shrinks the money supply and causes a recession. Then, "to prevent the economy from collapsing", these corporations are bailed out with taxpayer money. During boom times, they keep their money, then when they go bust, you and I and JoeBlow bail them out! And of course, the insiders who know how the bailout will unfold, make more money.

In the 80s it was Savings and Loan. In the 90s, the internet bubble. And now, home real estate and subprime mortgages.

Everything else gets blamed EXCEPT THE FED FOR LOWERING INTEREST RATES TOO LOW FOR TOO LONG, which is what inflated the damn bubble in the first place.

In reality because of this debt based fiat money with interest scheme, the only way to keep the economy chugging is to CONTINUALLY WRITE LOANS AT A FASTER RATE THAN THEY ARE REPAID. And the way to do this is to lower interest rates lower than the free market would set it, if the Fed weren't there.

This is the reason why debt is spiralling out of control.

It's an INHERENTLY UNSTABLE SYSTEM. The Fed has handles to either (a)continue inflating the bubble or (b) make it pop, causing a recession.

During a recession, hard assets (homes, businesses), transfer hands from the middle class to the banks. The big banks can of course ride out the bust, and sell the assets during the next boom.

Then of course, the Fed insiders know in advance if the Fed will raise or lower the rates, and can therefore make lots of money either way.

JasonC SBB

Joe,

Regarding your PLL.

The fastest response you can get in the economy is to let the free market operate unfettered. In other words, let the GOVERNMENT STAY OUT. The free market can very quickly adjust to situations because every Tom, Dick, and Harry can make a decision that's best for him. It's like distributed processing. A bureaucrat in Washington can't possibly know what's best for everyone.

Do you guys know what country has one of the highest economic freedom indeces in the world? Hong Kong. They have a 15% flat tax, and very little government regulation in the economy. When Hong Kong was taken over by China in 1997, a lot of people thought they were gonna have a recession because all the manufacturing jobs would move the China. What happened? The jobs moved. Recession? Hardly a blip. What happened to all the people whose jobs moved to China? They just found other jobs...

TonyV

iTrader: (17)

Jay lots of good, intelligent points. And u are right on with the highs and los, being cyclic and all...
However I gotta say this, the housing market crisis while being the current cycle, is a different animal...
While theres alot of things in common w/ the S&L and the .com situations, its a whole other level..The blatant fraud that has been comitted, is in many cases compared to that of organized crime such as mafia.. The investors, the lenders, ect all caught by surprise..and closed down. Y? Prob because like u said everyone has theyre hands out to make money, and no one thinks "what if"....
That would be enough, but there are so many ripple effects because of all this, that are far more widespread than most can/want to believe...Practically everyone has been affected by this issue, whereas I think it was less widespread in the last cycles...

Im in the industry, and have been for 8+yrs, money had never been cheaper, prices had never risen so much or so fast, guidelines for loans had never been so flexible...like u said, things were too "good" for too long...and NO one stopped it. Its one thing for the sales force to go crazy and make bank while they can...but no one up top saw this coming???