Perspectives on the global economic meltdown- (Nov 28 2010)

[Ambar]

My credit card company charges me 12%, my well-off friends have an interest rate of around 8-9%, sure i can default but that means messing up my credit history and ensuring that i wont get any form of credit for a long long time.

Sovereign defaults are pretty much the same. Its easy for folks to say why dont they just default, but the implications of such defaults are dire as its not just the ability to finance their future deficits that goes away, but also the credit on your imports (food,medicines and especially energy) either shrinks or just vanishes ensuring a total collapse of the system. Sure, they can quit euro,go back to printing drachma and ensure a high inflation, trouble is who'll hold drachma denominated debt ? They can peg the drachma to Euro, but then they'll also have the additional headache of maintaining confidence in drachma through convertibility which'll definitely lead to more forex disappearing from their shores.

Hence the best way forward atleast under the current circumstances is to ask creditors to take a haircut, Greece to ask its people to get off their a55 and work hard like the rest of the world.You cannot have 25 days off for Christmas and ensure a productive economy!

[Neshant]

Chill, bud. I've been following the guy's work since '06. I know what I'm talking about. Keen's no regular (read, establishment) economist besides.

Then he must have made a ton of money shorting the market if he saw the crash? I don't know enough about Keen but almost 90% of the economists who claimed they foresaw the 2008 crash are bullsh&tting. They saw it alright - in the rear view mirror.

But, however, yet...gramaphone record kya jaane adrak ka swad....ciao, cheers n good luck with your next rant (which, surprise surprise, is the same as the last one). How kewl is that?

Well don't just stand there. Enlighten me with this great KEENsian visions of how we can rob Peter to pay Paul.

[vic]

I dont think any crash is coming. There will just be 10 year long peroid of stagflation. Things would become ok when the "real income" of developed economies is halved and real income of China is doubled. Therefore the living standards of developed economies have to fall by around 2 to 5 times.

[Neshant]

4. Full reserve banking is not practical. If the bank is just going to sit on my money, I might as well put it under the mattress. I put the money in the bank because I want to put the money to work.

Full reserve banking is the only type of banking that makes any sense. Money counterfeiting subtracts value from the productive people in society. People put it in the bank to safe guard (or so they think) the fruits of their labor. Fractional reserve banking can best be described as a Bernie Madoff ponzi scheme with a printing press.

If you want to put your capital to work, start a business, make an investment in a company.. etc and reap 100% of the profit or loss. Don’t gamble with OTHER people’s money or offload losses onto their backs and tell them its good for them because its not. That aside, interest paid on deposits linked to a bogus rate of inflation is not putting anything to work. Its subtracting from real work.

5. Full reserve is also likely to lead to deflationary spirals.

There’s no such thing as a spiral. Prices correct to a point where the free market supports it. It clears out bad debt and sticks creditors who made bad bets with the losses and savers with the gains and sets the stage for economic growth. Aside from that, there’s nothing wrong when things get more affordable for the productive who have deferred their consumption through savings.

6. Gold standard will not solve any problems, the 1929 Great Depression happened on the Gold Standard.

Wild credit creation in the 20s was the reason for the Great Depression. The fastest economic growth in America’s history in the late 1800s to the early 1900s occurred on the gold standard. The roman empire was wrecked as it moved towards a fiat standard as it debased its currency.

7. Fiat currency per se is not a problem. The problem (in the US) comes from the fact that the banskters own the Fed and then jerk around the money supply, creating boom-bust cycles which they can milk. The solution is to nationalize the Fed, and then transparently regulate money supply to strictly keep inflation at a predetermined low value (say 1%).

Aside from this silly notion of “promoting inflation” and the disasterous role of clueless “wise men” micro-managing the economy (or at least pretending to), I agree with your idea of getting rid of the Federal Reserve. But what should replace it is not government which is already bought & paid for by the useless middleman industry (banking & financing).

In my opinion, the best system is one of competing local currencies with few/no rules. It transfers the power (and responsibility) of money to those who EARN it letting them select the medium of storing their wealth and exchanging it. It shifts the power of money away from those who didn’t earn it but instead seek to perpetuate a counterfeiting monopoly.

In short, the market should choose the money. It would have to exist along side gold as gold periodically does an accounting of everything.

[Hari Seldon]

Then he must have made a ton of money shorting the market if he saw the crash? I don't know enough about Keen but almost 90% of the economists who claimed they foresaw the 2008 crash are bullsh&tting. They saw it alright - in the rear view mirror.

Maybe he did. Why's he obliged to let you or me know? Besides, seeing something coming is not == timing it perfectly. Last I heard Hyman Minsky himself didn't exactly die rich.

Well don't just stand there. Enlighten me with this great KEENsian visions of how we can rob Peter to pay Paul.

Now I'm supposed to enlighten you? lighten yourself, buddy. Nobody's here to educate other people but IMHO, to learn what one can in a spirit of non-arrogant non-all-knowing non-jerkishness.

Anyways, why don't ya hear it from the hosrse's mouth, eh? Here's the link:
http://socialdemocracy21stcentury.blogs ... dtalk.html

Worthwhile 20 minutes, IMHO. And no, I won't break that down into soundbytes for other people's lightenment.

Best,

Hari.

[Pranav]

Full reserve banking is the only type of banking that makes any sense. Money counterfeiting subtracts value from the productive people in society. People put it in the bank to safe guard (or so they think) the fruits of their labor. Fractional reserve banking can best be described as a Bernie Madoff ponzi scheme with a printing press.

Fractional reserve banking looks like a printing press to folks who only count loans, but don't count the balancing deposits!

If you want to put your capital to work, start a business, make an investment in a company.. etc and reap 100% of the profit or loss. Don’t gamble with OTHER people’s money or offload losses onto their backs and tell them its good for them because its not.

The point is that I want the bank to put MY money to work, instead of just sitting on it.

That aside, interest paid on deposits linked to a bogus rate of inflation is not putting anything to work. Its subtracting from real work.

Interest rates are determined by the market; they depend on the rate of economic growth, amongst other things.

There’s no such thing as a spiral.

Look up deflationary spiral.

Wild credit creation in the 20s was the reason for the Great Depression.

The point is that whatever happened happened on the Gold standard.

Aside from this silly notion of “promoting inflation” and the disasterous role of clueless “wise men” micro-managing the economy (or at least pretending to), I agree with your idea of getting rid of the Federal Reserve.

I didn't say get rid of it. Nationalize it. The Central Bank guarantee any rate of inflation desired. Even negative inflation i.e. deflation. Though there are advantages in a small positive rate. No 'wise men' required, it can be a transparent algorithm, as first suggested by Milton Friedman.

As regards the Gold standard, not only is it completely unscientific and irrational (why should production of xyz mineral in the hands of a few super-rich mine owners determine the money supply), but will also allow recreation of 1929 Great Depression conditions.

[Christopher Sidor]

6. Gold standard will not solve any problems, the 1929 Great Depression happened on the Gold Standard.

Wild credit creation in the 20s was the reason for the Great Depression. The fastest economic growth in America’s history in the late 1800s to the early 1900s occurred on the gold standard. The roman empire was wrecked as it moved towards a fiat standard as it debased its currency.

I am going to expand on what Pranav had said earlier. I will try to keep it as simple as possible.

Let us assume that Country A has gold reserves of about 100 metric tons. It has pegged its currency at say 1 unit is equal to say 500 grams. i.e. 1 Rupee/Pound/Franc/Yen/Dollar/Dinar will be exchanged for say 500 grams of gold. this puts the total amount of currency that can be in circulation = (100000000/500) = 2,00,000 units or 2 lakh rupees/pound/franc/yen/dollar/dinar.
If the country looses gold, due to outflows, then the only way to maintain significant reserves of gold would be to raise interest rates. Even if the economy were slowing down or stalling or stagnating, then also the central bank would have to raise rates. Raising interest rates would hurt industry and commerce in a slowing economy. This is what happened partially after 1929 in many countries. If we had been on gold standard in 2008, then unemployment would have been in double digits and world-trade would have decreased massively.

On its own Gold does not grow. If we put a ton of gold in a vault somewhere in this planet today and take it out after say 1 year, it will still remain one ton. It will not grow.

Further there is not enough gold that has been mined in this world or will be mined in the future to sustain the level of trade and commerce that goes on in this planet. Gold standard is a means to keep everyone poor. Only the elite will profit from it. Not industrious people. Only people who have accessed to gold ore.

The Gold standard is a friend in good economic times and a terrible foe in bad economic times.

[johneeG]

I am going to expand on what Pranav had said earlier. I will try to keep it as simple as possible.

Let us assume that Country A has gold reserves of about 100 metric tons. It has pegged its currency at say 1 unit is equal to say 500 grams. i.e. 1 Rupee/Pound/Franc/Yen/Dollar/Dinar will be exchanged for say 500 grams of gold. this puts the total amount of currency that can be in circulation = (100000000/500) = 2,00,000 units or 2 lakh rupees/pound/franc/yen/dollar/dinar.
If the country looses gold, due to outflows, then the only way to maintain significant reserves of gold would be to raise interest rates. Even if the economy were slowing down or stalling or stagnating, then also the central bank would have to raise rates. Raising interest rates would hurt industry and commerce in a slowing economy. This is what happened partially after 1929 in many countries. If we had been on gold standard in 2008, then unemployment would have been in double digits and world-trade would have decreased massively.

On its own Gold does not grow. If we put a ton of gold in a vault somewhere in this planet today and take it out after say 1 year, it will still remain one ton. It will not grow.

Further there is not enough gold that has been mined in this world or will be mined in the future to sustain the level of trade and commerce that goes on in this planet. Gold standard is a means to keep everyone poor. Only the elite will profit from it. Not industrious people. Only people who have accessed to gold ore.

The Gold standard is a friend in good economic times and a terrible foe in bad economic times.

Pardon the noobish/dumbish queries: what if gold and silver(or some such commodity) is used as standard? Gold is less quantity, then why not support it with silver( or such commodity)? Also, if mine owners control the gold(or some such commodity), then banks control printed currency, whats the difference? Atleast, gold or silver cant be created as and when one wants it unlike printed currency.

[Neshant]

Maybe he did. Why's he obliged to let you or me know? Besides, seeing something coming is not == timing it perfectly.

How about timing it roughly at least? Otherwise what is the point of the predictions. I too can predict the world will end some day.

Now I'm supposed to enlighten you? lighten yourself, buddy. Nobody's here to educate

You (or was it Keen) claimed to know what you were talking about. Yet when I ask "how is robbing Peter to pay Paul a good idea", you are stumped. The more I look at it, the more I find that most of what is passed off as economic theory today looks like a lot of nonsense.

[Neshant]

Fractional reserve banking looks like a printing press to folks who only count loans, but don't count the balancing deposits!

I'm afraid you've been taken in by the farce of savings backing the fractional reserve system.

The reality is nothing backs the fractional reserve system other than faith & obscurity and robbery of the productive. Deposits appear out of thin air when the banks park money (itself conjured out of "loans" from the Federal Reserve) back with the Federal Reserve through bond purchases at a higher interest rate than the borrowing rate. Its nothing more than fancy paper footwork to disguise banks getting money aka "deposts" for free with the saver being the loser.

Mostly this is directed at big banks that setup the Federal Reserve as the entire reason the Federal Reserve was setup was to perpetuate their monopoly at all costs.

The point is that I want the bank to put MY money to work, instead of just sitting on it.

The original purpose of a bank is to store the fruits of labor, not to grow anything. Theft through inflation of the worthless paper money system was devised to force people to deposit the fruits of their labor with the useless middleman industry. Maybe you are referring to it from that context.

You surely cannot be ethical in asking for growth of your money while demanding that potential losses be offloaded onto some other sucker via FDIC should the bank go under.

Interest rates are determined by the market; they depend on the rate of economic growth, amongst other things.

If its determined by the market why is a guy like Bernanke fiddling around with it?

Look up deflationary spiral.

Deflationary spiral is keynesian textbook nonsense put forward by the useless middleman industry to justify printing of money - a robbery scheme which they have set themselves up to benefit from. The free market does not need any guidance on how to set prices. That aside, intuitive sense will tell you that its silly to say that higher prices (aka lowering purchasing power) is good for anyone. If it makes no sense on a personal level, it certainly makes less sense on a national level.

The point is that whatever happened happened on the Gold standard.

Taking things out of context produces no point. The point is also that America's fastest economic growth occured under the gold standard. What is the point? Bernanke has vaporized more wealth than just about anyone in recent memory under the fiat standard. What is the point?

I didn't say get rid of it. Nationalize it. The Central Bank guarantee any rate of inflation desired. Even negative inflation i.e. deflation. Though there are advantages in a small positive rate. No 'wise men' required, it can be a transparent algorithm, as first suggested by Milton Friedman.

Sorry I don't agree with nationalising it. Politicians are corrupt and up for auction. Regulators are packed with ex-employees from companies like Goldman Sachs. Lobbies are crawling all over the place. That is the reason only honest money (gold) can be trusted by anyone doing productive work in the economy.

Now if you are part of the useless middleman industry making a living off expropriating other people's wealth through fiat money and other paper scams & schemes, then of course a return to honest money would be against your interest.

As regards the Gold standard, not only is it completely unscientific and irrational (why should production of xyz mineral in the hands of a few super-rich mine owners determine the money supply), but will also allow recreation of 1929 Great Depression conditions.

There is no such thing as "unscientific" when it comes to money. For 5000 years, almost all civilizations have independantly selected gold as money. One does not need a PhD to know why it has been regarded as having value for that long. About 50,000+ fiat currencies have existed during that time and 99.5% of them ended up as worthless toilet paper. Now calculate the statistical odds that gold is not money. Ah! I've found a scientific proof.

That aside, does it strike you as odd that banking goons from the useless middleman industry are eager to have the masses NOT use gold as money - and to instead use paper money & their fee based paper shuffling "expertise". Ever ask yourself why?

What I advocate however is not that govt enforce a gold standard as forcing people to use a certain kind of money be it fiat, gold or whatever is wrong. Rather I advocate a system of privately issued competing local currencies. That allows the market (aka individual) to choose the money and frees society from the useless middleman industry which seeks to monopolise the issuance & control of money. It would of course exist alongside gold which again the market must be free to choose as money which its currently impeded from doing. Anyway much to say on this topic and not enough time.

I'll post my favourite video soon on the Federal Reserve.

[svinayak]

Very slow growth 2012 then long bear to 2020

Very slow growth 2012 then long bear to 2020
Commentary: Decade of woe for stocks, time to buy bonds

207 Comments Share Email Print By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — “Top advisers see very slow growth in 2012.” That headline is screaming at Americans in “InvestmentNews: The Leading News Source for Financial Advisers” and most trusted.

Get it? Not just “slow growth,” but “very slow growth in 2012.” Another even predicted “very slow, measured growth for two, three years.” Actually it’s far worse. Folks, this is not some worried bull hyping naïve investors, not a Wall Street bank analyst, a Washington politician covering his butt, nor one of Mad Money’s market mavericks.

Global economic outlook
A survey of the economic landscape, and the prospects for growth over the next three to five years. Kelly Evans interviews Glenn Hubbard, Economic Advisor to Mitt Romney, Lawrence H. Summers, former Secretary of the U.S. Treasury, and Zhu Min, Deputy Managing Director International Monetary Fund.

No, this comes from the most respected news source reporting to America’s financial advisers. These are the 100,000 professional Registered Investment Advisers who are advising Americans on managing trillions of retirement assets.

Get it? Main Street America, you should “expect very slow growth” in 2012. That was the response when asked what “scenarios are you painting for your clients?” The panelist at a recent InvestmentNews Round Table then added: “It’s going to be ugly and violent.” Why? Because the politicians “are driving things” and they are “capricious, which leads to volatility.” And clients are “not really happy,” but “they lived through ‘08 and ’09,” so 2012 will be “just a little bump in the road.”

Yes folks, “slow growth” is another very big bump. Let’s put this is context: Wall Street’s a big fat loser. In fact, during the 2000-2010 decade, their stock market casino actually lost (yes, lost) an inflation-adjusted 20%. On a high-risk roller-coaster ride. Remember? In 2000 the DJIA was 11,722, rose and peaked at 14,164 in 2007. And today, after all the volatility, the market’s back where it was in 2000, Wall Street “flat-lined.”

[Neshant]

If the country looses gold, due to outflows, then the only way to maintain significant reserves of gold would be to raise interest rates. Even if the economy were slowing down or stalling or stagnating, then also the central bank would have to raise rates. Raising interest rates would hurt industry and commerce in a slowing economy.

Raising rates is what's *needed*. When rates rise, the free market is signalling that the nation is consuming beyond its capasity to generate wealth. i.e its on the path to becoming a Greece. Its a early warning system that tells the nation it needs to either generate more productive output or cut back on wasteful consumption.

Its NOT a signal to fire up the printing press and start counterfeiting money.

If the free market were allowed to work (without being distorted by central banking fools) and the free market were to set interest rates, the housing bubble would not exist. Savers would never in a million years lend money to dead beats with no income trying to buy a 500K home. Nor would savers want to put their money in a bank which are leveraged up the wazoo on that worthless collateral. Its only because people believe the govt will transfer any potential loss of the bank onto some other sucker via FDIC that people do not care. But they will eventually care when they see these govt promises to be as worthless as the paper fiat money they are vested in.

On its own Gold does not grow. If we put a ton of gold in a vault somewhere in this planet today and take it out after say 1 year, it will still remain one ton. It will not grow.

I don't know what you mean by grow. If you put a pile of worthless paper money in a vault and open it 500 years from now, has it grown?

If anything, it would have lost all its value through the miracle of inflating aka counterfeiting and people discovering they've been duped into exchanging the fruits of their labor for worthless paper (<-- this inevitably happens over & over in history).

Further there is not enough gold that has been mined in this world or will be mined in the future to sustain the level of trade and commerce that goes on in this planet.

That's about as silly as saying there are not enough trees on this planet to stay on the worthless paper money standard. Or not enough electrons in the universe to cater to digital money printing.

Its not quantity but price. You will find no gold for sale in the open market at $20/oz. You will find tons of gold for sale on the open market at $200,000/oz. On average, the net quantity of gold in the world increases at the rate of approx 2% which co-incidentally is the approximate rate of global growth - not that it should matter.

In any case, I'm not advocating a gold standard but the existance of gold alongside locally competing currencies of private issue.

But certainly a gold standard (aka having money that is intrinsically worth something) is a lot better than having intrinsically worthless paper promisory notes which history shows almost always ends up being worth less than toilet paper.

[Pranav]

Fractional reserve banking looks like a printing press to folks who only count loans, but don't count the balancing deposits!

I'm afraid you've been taken in by the farce of savings backing the fractional reserve system.

The reality is nothing backs the fractional reserve system other than faith & obscurity and robbery of the productive.

Neshant, you keep thumping the bible with statements like "the truth is that X is a farce and Y is nonsense and Z is robbery". Along with the bible-thumping are personal remarks (not that I mind, but they are irrelevant). Very often unrelated issues are garbled in a confused mish-mash.

It is very difficult to extract any logic from the mess. But a fruitful discussion may be possible if you are able to avoid these pitfalls. So I suggest you repost, keeping in mind these suggestions.

Also, you can try address issues which you are avoiding, namely why tying the money supply to XYZ mineral mined by the super-rich is somehow "honest money", and how bankers can pull off Great Depressions on the Gold Standard.

Also, you thumped the bible regarding deflationary spirals, I suggest you try to argue the point rationally. Keep in mind that if you have borrowed money to expand your business, a price collapse followed by bankruptcy and a forced sale to the bank is the last thing you want.

[ramana]

NZ re-elects govt. Mandate for fire sale of assets.

Link

* PM John Key's National Party gains 48 percent of vote

* National Party pledges to quickly form new administration

* Can push through policy to sell stakes in state power firms, Air New Zealand

* Financial markets have already priced in no change in government

By Gyles Beckford

WELLINGTON, Nov 27 (Reuters) - New Zealand's re-elected centre-right government claimed a mandate on Sunday to push on with up to $5 billion worth of asset sales and welfare reforms and said it would quickly get down to forming a new administration.

The National Party, led by former foreign exchange dealer John Key, scored 48 percent of the vote, increased its number of seats to 60 from 58 and gained the support of two small parties to guarantee a majority in the 121-seat parliament.

"It's a pretty strong endorsement of where the Government sits, and we're confident we'll be able to build the relationships needed to go ahead with the programme," National's campaign manager Steven Joyce told TVNZ.

National campaigned on promises to consolidate policies of the past three years and work towards economic growth by cutting debt, curbing spending, selling state assets and returning to a budget surplus by 2014/15.

Ray Miller of Auckland University said National had effectively neutralised its biggest weakness -- the unpopular asset sales, slated to raise NZ$5 billion to NZ$7 billion.

"They got the policy out early, they sold it in positive terms and in the end, while it was still a negative, it was one policy among many and not an overriding one," he said.

National plans to sell minority stakes in state-owned power energy companies and further reduce the stake in Air New Zealand . Key has promised local small investors will have preference in share sales, with a 10 percent cap likely on how much any single investor can hold.

WELFARE REFORM, SLOW CARBON TRADE

It also plans to reform welfare by getting people off benefits and back to work, and will slow down the expansion of its carbon trading system to lessen the cost on businesses and households.

Key's strong personal rating, his easy going, affable, unifying style was also a factor behind National's showing, despite continuing worries over the economy.

"I've got a PHD in geology and I still can't get a full-time job," said Sami Alshidi, 52, who has been working as a taxi driver and voted National because he felt it would steer the economy better.

Financial markets had already priced in no change of government and a broad continuation of policies.

"The National Party has a clear mandate to proceed with asset sales to lower fiscal deficits and government debt," said TD Securities head of research Annette Beacher.

"But this election was not on the global radar screens...(and) will likely be completely ignored."

The final tally of seats could yet change when tens of thousands of absentee votes are counted over the next two weeks, although the initial turnout of nearly 74 percent was one of the lowest in more than a century, election officials said.

The main opposition centre-left Labour Party slumped to 27 percent, the lowest share of the vote in its 95-year history, and lost nine seats. The environmentalist Greens upped their share to more than 10 percent and gained four seats.

The re-emergence of the nationalist New Zealand First Party, led by the maverick veteran Winston Peters, from three years in the political wilderness, is expected to add fireworks but not impede National.

"We will make sure of a huge amount of sunlight on New Zealand politics," Peters said. ($1 = 1.3465 New Zealand dollars) (Additional reporting by Ed Davies in Auckland, Mantik Kusjanto.; Editing by)

[Neshant]

It is very difficult to extract any logic from the mess. But a fruitful discussion may be possible if you are able to avoid these pitfalls. So I suggest you repost, keeping in mind these suggestions.

I understand your difficulty having a fruitful discussion. It is hard when one lays out the facts and exposes falsehoods.

I didn't see any answer to my questions in your reply. What's the point about rambling about fruitful discussions when the message is devoid of any content.

How about addressing my message point by point and showing me where I'm wrong. I'll willing to take on all questions. That should be fruitful.

[Christopher Sidor]

I am going to expand on what Pranav had said earlier. I will try to keep it as simple as possible.

Let us assume that Country A has gold reserves of about 100 metric tons. It has pegged its currency at say 1 unit is equal to say 500 grams. i.e. 1 Rupee/Pound/Franc/Yen/Dollar/Dinar will be exchanged for say 500 grams of gold. this puts the total amount of currency that can be in circulation = (100000000/500) = 2,00,000 units or 2 lakh rupees/pound/franc/yen/dollar/dinar.
If the country looses gold, due to outflows, then the only way to maintain significant reserves of gold would be to raise interest rates. Even if the economy were slowing down or stalling or stagnating, then also the central bank would have to raise rates. Raising interest rates would hurt industry and commerce in a slowing economy. This is what happened partially after 1929 in many countries. If we had been on gold standard in 2008, then unemployment would have been in double digits and world-trade would have decreased massively.

On its own Gold does not grow. If we put a ton of gold in a vault somewhere in this planet today and take it out after say 1 year, it will still remain one ton. It will not grow.

Further there is not enough gold that has been mined in this world or will be mined in the future to sustain the level of trade and commerce that goes on in this planet. Gold standard is a means to keep everyone poor. Only the elite will profit from it. Not industrious people. Only people who have accessed to gold ore.

The Gold standard is a friend in good economic times and a terrible foe in bad economic times.

Pardon the noobish/dumbish queries: what if gold and silver(or some such commodity) is used as standard? Gold is less quantity, then why not support it with silver( or such commodity)? Also, if mine owners control the gold(or some such commodity), then banks control printed currency, whats the difference? Atleast, gold or silver cant be created as and when one wants it unlike printed currency.

One of the quirks of the gold standard was the fact that Gold replaced Silver as the reserve currency. Till the 17th and 18th century it was silver which was the standard on which currency were based. Gold ETF's popularity is known, Silver ETF's are practically non-existent. Further having a reserve currency based on commodity has one problem. Countries lacking these commodities will remain poor. Wealth will be measured by what can be extracted from the ground and not from one's own hard work or ingenuity.

The difference is that Central banks control the printing press. And by large they are answerable to the people. Course corrections can happen, like what happened during the new deal era. With case of mine owners they are not questionable by anybody. Rather they may do as they please.

Your sentiments about gold or silver was held by many bankers right upto 1930s. The loss of gold standard was bemoaned by many bankers as the one thing which would have kept the governments and sovereigns in check from unnecessary profligacy.

Gold standard was helpful when we were trying to move from a metal/commodity based currency system to a pure paper based currency system. To instill a sense of confidence for the paper notes being issued, it was necessary to anchor the paper based currency to some precious commodity. First it was silver and then it was gold. But as paper based currency gained acceptance and people began to trust it, this crutch of precious commodity was no longer needed. i.e. the commodity based reserves are a thing of the past. We need to move on.

[Neshant]

The difference is that Central banks control the printing press. And by large they are answerable to the people. Course corrections can happen.

You pass off the above as if it is fact. But it is not.

The one thing we have learnt (or should have learnt) is that a central bank acts primarily in the interest of its share holder. In the US, those are private banks. If that means offloading the massive gambling losses of these private banks onto productive society, that is what is done - and that is what has been done.

Aside from this rather damaging croney capitalism aspect of central banking, the idea that some "wise oracle" sitting up top should be fixing & manipulating prices, fiddling around with interest rates and pretending to know what ails the economy can have disasterous consequences - as we have seen.

As for the monetary system, in my opinion, its best served with no entity having a monopoly over it. With monopoly comes corruption & theft, favouritism & croneyism - and it comes at the expense of productive society.

Here's a riddle : If commodity based money is a thing of the past, how about removing capital gains on gold ?

[Pranav]

It is very difficult to extract any logic from the mess. But a fruitful discussion may be possible if you are able to avoid these pitfalls. So I suggest you repost, keeping in mind these suggestions.

I understand your difficulty having a fruitful discussion. It is hard when one lays out the facts and exposes falsehoods.

I didn't see any answer to my questions in your reply. What's the point about rambling about fruitful discussions when the message is devoid of any content.

How about addressing my message point by point and showing me where I'm wrong. I'll willing to take on all questions. That should be fruitful.

You are not "laying out facts", you are just bible thumping, that too in a garbled way.

Take for example the first paragraph in your first post (http://forums.bharat-rakshak.com/viewto ... 3#p1201093) with which you entered the discussion I was having with Hari -

Full reserve banking is the only type of banking that makes any sense. Money counterfeiting subtracts value from the productive people in society. People put it in the bank to safe guard (or so they think) the fruits of their labor. Fractional reserve banking can best be described as a Bernie Madoff ponzi scheme with a printing press.

You have 4 sentences in that paragraph -

Sentence 1 is bible thumping
Sentence 2 is more bible thumping
Sentence 3 is OK, but does not make any point
Sentence 4 is more rhetoric and bible thumping

Pretty much everything you have written is equally garbled.

I'd suggest you put forward precisely one point at a time, without any rhetoric or personal remarks, or mixing up of different issues. Include a precise statement of what the claim is, in one sentence, and then provide a logically sound argument. If you can do that, I'd be happy to answer.

[ldev]

Fractional reserve banking makes sense when the loans being made under the system are utilized for productive activity. As traditional banking has been disintermediated over the last 20 years and especially since about 1998-99, a greater and greater proportion of "loans" by whatever name they can be called have been invested as assets which seek price appreciation. Just trying asking a bank for a loan for productive activity without a tangible asset backing that loan in a service oriented economy!! This is especially true of western countries in general and the US in particular. As paper money equates to "value/buying power", there has been tremendous price deflation in manufactured goods...just visit the nearest Walmart. However the US banking system in particular is allergic to price deflation in "price appreciating assets", and is backed 100% in that effort by the Fed. The Chinese must be feeling cheated. Here they have converted themselves into the world's factory, only to see prices drop continously!! Under the 1970s inflationary environment, they would by now have by far been the world's largest economy even in dollar terms but they underestimated the West!! Making them do all the donkey work while the West enjoys the fruits of their labour in ever decreasing prices!!

In a gold linked, gold backed or full reserve system, there will be continous price deflation in all asset classes. Is that so bad? Not really, but what it fails to do is to motivate economic producers i.e. how hard will you work to expand output when the only benefit in the long term is a general price deflation....that your money will buy more over a reasonably long period of time. Compare that with the present system, where gratification is immediate and instantaneous. There is a huge element of piskology involved in determing which monetary standard will be successful in what period of human/economic evolution. One can therefore argue that the explosion in consumer goods which one has seen in the last 50 years would not have been possible without the fractional reserve system. However that system in the last 10 years has been converted into a "asset price protection racket".

So what comes next? If bad loans are recognized everywhere and the world is groaning with bad loans, the present system with a few reforms can continue i.e namely to stop propping up asset values and to balance out the current lopsided pendulum in favor of borrowers at the expense of savers.

[Pranav]

There is a huge element of piskology involved in determing which monetary standard will be successful in what period of human/economic evolution.

Money is essentially a token. Whether it is gold or paper, it get its value by social convention.

The things that matter are (a) the total volume of money circulating (b) how new money is introduced into circulation.

[Pranav]

For example, suppose Tom has 10 gold coins, out which he lends 8 to Dick, out which Dick lends 5 to Harry.

Has the money supply increased?

Neshant, this question posted some time back is for you too.

[Neshant]

You are not "laying out facts", you are just bible thumping, that too in a garbled way.was having with Hari -

Full reserve banking is the only type of banking that makes any sense. Money counterfeiting subtracts value from the productive people in society. People put it in the bank to safe guard (or so they think) the fruits of their labor. Fractional reserve banking can best be described as a Bernie Madoff ponzi scheme with a printing press.

Can you point out what isn't fact in the above statement?

You keep rambling on and on about bible thumping when you're the one passing off one ignorant statement after another as fact.

Again, point out what isn't fact in the paragraph above. I'll distill it for you :

1) Is the Federal Reserve not a money counterfeiting operation pretending to act in the interest of the public?
2) Does it not exist to perpetuate the monopoly of its private bank shareholders behind a wall of secrecy at the expense of productive society?
3) If money printing is good, shouldn't we all be doing it? (i.e pirnting $100 on our laser printers). If not why not?
4) Is fractional reserve with the gains going to banking goons & losses going to savers not a fraud?
5) Is the notion of some joker like Bernanke sitting up top pretending to shephard the economy, fiddling around with interest rates (effectively price fixing for his cronies) compatible with free market economics.
6) Does not the useless middleman economy rely on destruction (inflation) of fiat money of the productive economy to perpetuate its existance.
7) From an intuitive sense (nevermind fancy pants jargon), is destroying the value of money a good thing or a bad thing.

Start by answering #3. I'll be most interested in hearing your response to that.

A little less pointless bantering and a more addressing of the issue will get us somewhere.

[Neshant]

For example, suppose Tom has 10 gold coins, out which he lends 8 to Dick, out which Dick lends 5 to Harry.

Has the money supply increased?

Neshant, this question posted some time back is for you too.

A loan implies interest.

Is there interest payable on the loan? If there is, in what form is that interest payment being made.

Before you claim the above represents fractional banking follows similar lines and has limits, be aware that isn't how fractional banking works.

[ldev]

There is a huge element of piskology involved in determing which monetary standard will be successful in what period of human/economic evolution.

Money is essentially a token. Whether it is gold or paper, it get its value by social convention.

The things that matter are (a) the total volume of money circulating (b) how new money is introduced into circulation.

If you have studied Economics you will know that the prerequisites of money are:

1. a medium of exchange

2. a unit of account

3. a store of value

I dont think anybody will argue against the notion that fiat currency has already lost the third essential definition i.e. a store of value. Nobody will keep their savings in the form of currency for a period of 10 years in today's world.

As to your questions regarding total volume of in circulation and how new money is introduced, under the present orthodoxy, all central banks follow virtually the same norms i.e. they monitor interest rates, various indices for measuring inflation and conduct open market operations to introduce or withdraw money into the system. Again under the present orthodoxy,the reason that central banks usually target a low inflation rate as opposed to "no inflation" is to ensure that the economy does not hit a bottleneck for lack of adequate money.

However, the present orthodoxy does not measure the prices of "investment assets" where a significant part of money created today is being channeled. It also does not measure the debt servicing capacity of the economy as a whole to determine whether cashflow is adequate to service the debt that is being built into the system. In fact it does not even measure tertiary assets created by the monetary system such as all forms of derivatives whose settlement makes/can make demands on the monetary base. When the central bank's preoccupation rests with whether the money supply will be adequate in the event of a funding squeeze e.g in Europe when European banks cannot even fund their dollar denominated assets and have to rely on the ECB which in turn is dependent on swap lines with the Fed, you know that something is really wrong. Does it mean that the fiat money standard has to be thrown out? I dont think so. You dont throw out the baby with the bathwater.

[Hari Seldon]

For example, suppose Tom has 10 gold coins, out which he lends 8 to Dick, out which Dick lends 5 to Harry.

Has the money supply increased?

Neshant, this question posted some time back is for you too.

A loan implies interest.

Is there interest payable on the loan? If there is, in what form is that interest payment being made.

+1. Good Qs. Which brings back the whole debate on why creation of debt-based currency by commercial banks under FRB isn't likely to be sustainable to start with.

[Pranav]

For example, suppose Tom has 10 gold coins, out which he lends 8 to Dick, out which Dick lends 5 to Harry.

Has the money supply increased?

A loan implies interest.

Is there interest payable on the loan? If there is, in what form is that interest payment being made.

Before you claim the above represents fractional banking follows similar lines and has limits, be aware that isn't how fractional banking works.

Interest is irrelevant to the question of whether the money supply has increased. We're talking about a possible discontinuous jump in the money supply at the instant Dick hands over 5 gold coins to Harry, out of the 8 he has borrowed from Tom.

But anyway, suppose all the loans are zero interest. Now say whether the money supply has increased.

[Pranav]

Money is essentially a token. Whether it is gold or paper, it get its value by social convention.

The things that matter are (a) the total volume of money circulating (b) how new money is introduced into circulation.

If you have studied Economics you will know that the prerequisites of money are:

1. a medium of exchange

2. a unit of account

3. a store of value

As regards gold, it gets its value in 2 ways -
(1) you can use it for jewelry etc.
(2) you believe others will also consider it to be valuable, so you will be able to exchange it for anything you need at a later date.

The second point relates to "social convention". This is also the reason that paper money has more value than old newspapers.

[Pranav]

3) If money printing is good, shouldn't we all be doing it? (i.e pirnting $100 on our laser printers). If not why not? ....

Start by answering #3.

Simple, whatever is being used as currency has to be restricted in quantity, and the manner in which it is introduced into circulation has to be fair to everybody. No reason why that cannot be done by a publicly owned central bank.

[ramana]

Is the French and German defense of Eurozone really an ongoing war with the Anglo Saxons?

Guys why are you discussing basic economics in this thread? Shouldnt you do that in off topic or elsewhere?

[Pranav]

Guys why are you discussing basic economics in this thread? Shouldnt you do that in off topic or elsewhere?

True, there needs to be a thread for the basics of monetary science. There is plenty of confusion (some of which, IMHO, is deliberately created by shills). I have created a new thread Elements of Monetary Science and copied posts to that thread.

[Christopher Sidor]

The difference is that Central banks control the printing press. And by large they are answerable to the people. Course corrections can happen.

You pass off the above as if it is fact. But it is not.

The one thing we have learnt (or should have learnt) is that a central bank acts primarily in the interest of its share holder. In the US, those are private banks. If that means offloading the massive gambling losses of these private banks onto productive society, that is what is done - and that is what has been done.

Aside from this rather damaging croney capitalism aspect of central banking, the idea that some "wise oracle" sitting up top should be fixing & manipulating prices, fiddling around with interest rates and pretending to know what ails the economy can have disasterous consequences - as we have seen.

As for the monetary system, in my opinion, its best served with no entity having a monopoly over it. With monopoly comes corruption & theft, favouritism & croneyism - and it comes at the expense of productive society.

Here's a riddle : If commodity based money is a thing of the past, how about removing capital gains on gold ?

I meant precious commodity backed currency or paper money. If the owner of the paper money or currency was not happy holding it, he could walk into the bank and get the precious commodity equivalent of the paper money or currency.

Predominantly the central bank arose to serve as a lender of last resort for banks. Not for brokerage firms or the investment banking firms. Yes some central banks has taken asset classes, like mortgage securities, onto its balance sheets. This has been a violation of the traditional tent of a central bank, which used to be to lend only on basis of high quality bonds. But there has been opposition on central banks taking on toxic assets. See the opposition of certain European nations for ECB to take on toxic sovereign assets. This should not have been done. If banks had taken excessive risks and were basically insolvent then should be allowed to go under. But there is a flip side to this. The flip side is Creditanstalt story. This bank went under in 1931 and we had the great depression as a result. So basically we should be wary of what we wish for.

The question is not about monopoly, it is about having confidence in the financial system. Central Banks are meant to maintain and sustain that. Look at the progress that has been made, commerce wise and financially wise, ever since the gold standard was abandoned. Now compare it with when we had the gold standard. Having a standard based on a mineral dug out of earth is truly barbaric in every sense. It is based on perceived scarcity of the mineral/commodity not on some inherent property of the commodity.

[shaardula]

http://www.ted.com/talks/richard_wilkinson.html

a very interesting talk about the effects of income disparity.

a related question. for the common man, what is the effect of the meltdown? corollary, what is effect of a booming economy?

i reiterate, nothing in america is cheaper than anywhere else. not healthcare, not mobility, not education, not food., not housing. so what is this uber efficient, high productivity economy actually achieving?

[Neshant]

Interest is irrelevant to the question of whether the money supply has increased.

If there is no interest, it is not a loan but an act of charity.

There is no increase in the money supply if there are 10 gold coins in the system at all times.

I expect you will try to equate this to fiat money and fractional reserve banking and be dead wrong on it.

[Neshant]

Simple, whatever is being used as currency has to be restricted in quantity, and the manner in which it is introduced into circulation has to be fair to everybody. No reason why that cannot be done by a publicly owned central bank

How do you decide what is "fair to everybody"? Does a check gets mailed to every citizen in equal amounts at the same time? That would be fair to everybody.

Money printing is money counterfeiting. It inflates/devalues money and benefits those who are closest to the printing press at the top of the pyramid - namely banking crooks. Those at the bottom of the pyramid feel the full force of inflation as by the time the money rolls down to them, its lost a portion of its purchasing power.

What's worse is that the hands it passes through at the top are not part of the productive economy. They merely siphoning off the productive energies of those at the bottom via this counterfeiting.

So where does "fair to everybody" come into the equation? Your whole premise has collapsed.

[Neshant]

Guys why are you discussing basic economics in this thread?

The economic turmoil going on has its roots in basic economics - namely the lack of its understanding.

My gut feeling is this is going to end in a drastically lower standard of living for many people by the time it all plays out.

It really calls into question the competence of a lot of so called expert economists, central bankers, financial & investment companies, wealth managers & advisors ...etc. (all of which i call the useless middleman industry) who are running around out there. Personally i think they are all charlatans. On the more extreme end, many are using the art of confusion & obscurity to steal from others through paper shuffling, politician bribing and gaming the system.

A lot of the economic mayhem you see is the starting point of the fradulent economic system coming unglued. Its unfortunate that the ones who are peddling it continue to do so and move their gambling losses onto the backs of the productive.

All of this really needs to be exposed and i'm doing the exposing

[Neshant]

If the owner of the paper money or currency was not happy holding it, he could walk into the bank and get the precious commodity equivalent of the paper money or currency.

I would agree if only CAPITAL GAINS on gold were removed. That is to say if i bought a gold coin today and sold it for a profit tommorrow, why should i have to pay capital gains on it? Its not that the gold coin has increased in value but rather paper money which lost value due to inflating aka counterfeiting. I find this rather incidious process of actively preventing people from protecting the fruits of their labor from confiscation through inflation to be evil. Its enforced under penalty of imprisonment (violence) which is the only way fradulent money can be imposed on the productive. These days, US even has to go around invading oil producing countries to prevent them from switching to a gold backed currency and demanding payment in that unit.

Predominantly the central bank arose to serve as a lender of last resort for banks. Not for brokerage firms or the investment banking firms.

I don't know which central bank you are referring to but the central bank in the US arose to perpetuate the monopoly of certain private banking interests. That is their PRIMARY goal above all else - and that all else includes the people.

This bank went under in 1931 and we had the great depression as a result.

Its not bank going under that causes a depression. Banks go under all the time. Its leverage aka fractional reserve aka counterfeiting upon which the banking is based which caused their collapse. The solution to a counterfeiting problem isn't more counterfeiting.

The question is not about monopoly, it is about having confidence in the financial system.

Confidence surely cannot be based on counterfeiting money or croney capitalism for that matter.

Central Banks are meant to maintain and sustain that. Look at the progress that has been made, commerce wise and financially wise, ever since the gold standard was abandoned. Now compare it with when we had the gold standard.

Fastest economic growth US ever experienced was under the gold standard from late 1800s to early 1900s. As for progress commerce and financial wise, what are you talking about? Even Paul Volker said that the only useful thing he could think of that came out of the financial "industry" was the ATM machine! Is there any multi-trillion dollar industry that has generated so little yet consumes so much?


Volcker: Only Financial Innovation Has Been “ATM Machine”

http://www.ritholtz.com/blog/2009/12/vo ... -machines/

“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”

-Paul Volcker, Former Federal Reserve Chairman

[Pranav]

Interest is irrelevant to the question of whether the money supply has increased.

If there is no interest, it is not a loan but an act of charity.

There is no increase in the money supply if there are 10 gold coins in the system at all times.

I expect you will try to equate this to fiat money and fractional reserve banking and be dead wrong on it.

Reply at http://forums.bharat-rakshak.com/viewto ... 7#p1203507

[Pranav]

Guys why are you discussing basic economics in this thread?

The economic turmoil going on has its roots in basic economics - namely the lack of its understanding. ... All of this really needs to be exposed and i'm doing the exposing

Basic monetary science needs to be discussed but now there is a separate thread for it - http://forums.bharat-rakshak.com/viewto ... f=2&t=6246

[Pranav]

Simple, whatever is being used as currency has to be restricted in quantity, and the manner in which it is introduced into circulation has to be fair to everybody. No reason why that cannot be done by a publicly owned central bank

How do you decide what is "fair to everybody"? Does a check gets mailed to every citizen in equal amounts at the same time? That would be fair to everybody.

Money printing is money counterfeiting. It inflates/devalues money and benefits those who are closest to the printing press at the top of the pyramid - namely banking crooks. Those at the bottom of the pyramid feel the full force of inflation as by the time the money rolls down to them, its lost a portion of its purchasing power.

What's worse is that the hands it passes through at the top are not part of the productive economy. They merely siphoning off the productive energies of those at the bottom via this counterfeiting.

So where does "fair to everybody" come into the equation? Your whole premise has collapsed.

Reply at http://forums.bharat-rakshak.com/viewto ... 4#p1203514

[sumishi]

Gerald Celente’s Gold Account Looted By MF Global Banksters: FTM Daily, Nov. 16, 2011

Anger mounts as MF Global clients see $3 billion still stuck: Yahoo News, Nov. 20, 2011