Wednesday, January 18, 2012

The value of money

Pity the poor statists. They got their global crisis, but by the time it arrived they had squandered all the public trust. Yeah, we know it’s broken, but we sure as hell don’t entrust the solution to the people who broke it.

Big Government a Bigger Threat to Us than Big Business
Recent Gallup polls show a fall to barely 41 percent in the number of Americans who see their county as divided into “haves” and “have-nots.” Some 64 percent of Americans -- and 48 percent of Democrats -- see “big government” as a greater threat to the country than “big business,” a number near record levels. (Clive Crook – A Crisis of Leadership)
It's a pretty good article Clive Crook has written, but he stumbles in a few places, such as when he questions  free markets (why do people like him never question government interventions?)
Orthodox economics, according to recent reports, says markets are always right. Really? (Clive Crook – A Crisis of Leadership)
Yes, really. The market was right when house prices crashed. Free money stoked rampant speculation and irrational exuberance, and the walls came tumbling down. The markets are "right" in the same cruel way that the grocery store cash register says the groceries you bought add up top $210 when you only have $200 in your pocket.

It's no different with money and its market price.  The only thing keeping the dollar from crashing is that the Euro is even worse.  We are the least dirty shirt.

Theft by Government is Still Theft
Since the abandonment of Bretton Woods, the dollar has lost 77% of its value against the GDP deflator and 97% of its value relative to gold. In October 2011, real wages for ordinary workers were 6.7% lower than they had been 39 years before. This is all the cumulative effect of 1% lower growth rates for decades.
How can we reverse course? A modern version of a link to gold for the dollar is known as the “price rule.” That means the Fed is to be guided in its monetary policies by the market prices of a basket of price sensitive commodities, such as gold, oil, silver, copper, and other precious metals and minerals. When those prices start to rise, that signals inflation, and time for the Fed to slow down the money expansion. When those prices start to fall, that signals deflation and recession, and time for the Fed to step up money expansion.
The Fed would then be guided by markets, rather than by progressive bureaucrats who think they know it all and should rule over the rest of us in their wisdom (see, e.g., disastrous inflation/recession cycles of the 1970s). That would have the added advantage of enabling the Fed to dismiss most of its troublemaking staff, which could mostly be replaced by a few interns monitoring market prices. (The Monetary Foundations of Economic Prosperity)
The US Government is devaluing our savings and purchasing power while food and energy costs have risen around 10% over the past 18 months.  That's why you're feeling poorer despite the lollipops and sunshine being peddled by the Obama hallelujah choir in the press.  Government theft is eating us alive.  


dmarks said...

Government is the biggest business of all. And unlike Microsoft, Exxon, IBM, ATT, etc, government is unaccountable, and it can and will shoot you for not doing business with it.

Ducky's here said...

No sir, we never had no recessions, deflation, depressions or currency issues when we were on the gold standard. Which is apparently what you're advocating.

For your nightstand:
The Great Transformation-Karl Polanyi

Brilliant discussion of the gold standard and why it was a critical cause of the problems of the first half of the century.

True believer. Always chasing that Austrian utopia.

Always On Watch said...

The crash of the housing market has brought down the economic house of cards.

Was the housing market a manipulated driver of the economy? After all, the idea that so many single family homes should exist in the first place is pretty much a post-WW2 phenomenon and, over the course of history, a blip on the screen.

Energy costs and health care costs are the next economic drivers that will drive our economy even further into the ground.

Also, aging Baby Boomers, a huge force in driving the economy, have pared back for various reasons. The demographic picture is very ugly as the tax base is shrinking, shrinking, shrinking.

I read yesterday that college loan debt in the United States now exceeds credit card debt. Is that a scary statistic, or what?

Always On Watch said...

In economic terms, the entire global economy is in uncharted territory. No matter which "solutions" are employed, the pain is going to be great -- much greater than even the most diehard of pessimists can imagine.

I think that it's very likely that the days of so many living in single family homes is over for the foreseeable future.

Furthermore, the government bureaucracy is going to demand much higher taxes just to keep itself alive and in the ivory towers.

Ducky's here said...

Was the housing bubble caused by trying to maximize home ownership or excess capital looking for a place to do mischief after the tech market crash?

The meme that it was money loaned to people who "couldn't afford to pay" ignores the question of where the money came from.

Then there was Greenspan admitting he was wrong about markets being self correcting.

Silverfiddle said...

The markets cannot self-correct when monetarist-manipulators prevent it from doing so with their central planning. Indeed, the system is set up to tame the market forces. How's that working out?

Keep dreamin' those marxist dreams, Ducky. We all know how well centrally planned communism worked out...

dmarks said...

Ducky said: "The meme that it was money loaned to people who "couldn't afford to pay" ignores the question of where the money came from."

The real problem was loaning money to undeserving people, which essentially was a gift. A gift backed by a government agency, by Uncle Sam.

dmarks said...

Silver said: "Keep dreamin' those marxist dreams, Ducky. We all know how well centrally planned communism worked out..."

Seems like people would learn that whenever the ideas of Marx are applied to the real world, hundreds of thousands (at a minimum) die each time.

You'd think after the 10th or 20th time they'd give up and realize Karl Karx was an ignorant ill-intentioned racist who did a very poor job at describing economic realities and recommends the worst things possible.

Anonymous said...

Well, historically, major recessions and depressions don't just happen magically. Of course there's a business cycle, as 8% growth can't be maintained forever. The depression in 1936(?) was caused when Jackson killed the BUS.

The Great Depression was a result of speculation and poor financial practices. This recession? Pretty much the same thing.

But we suffered depressions and recessions while still on the gold standard largely due to poor interventions on behalf of the government.

Wanting to go back on the gold standard is not about avoiding recessions and depressions, but more about having a more stable currency and getting control of inflation.

dmarks said...

Jack said: "The Great Depression was a result of speculation and poor financial practices. This recession? Pretty much the same thing."

Restrictions on free trade (Smoot-Hawley) kicked the depression down the stairs, and made sure it would be deep and long.

Thankfully, opposition to free-and-fair trade is rather small at this point.

(((Thought Criminal))) said...


Ducky's the sort of American exceptionalist that believes America can make communism work because we're bad ass like that.


It's a rare day, because (after slamming Ducky a sentence ago) I have to partially agree with him. The greatest flaw of the gold standard is that deepens recessions and lengthens depressions. That's Economics 101, something Ron Paul never pulled out of a pregnant chick.

To spit out the distasteful feeling of being in agreement with Ducky, I would point out the "prosperous" period of America's centrally planned economy gold standard days involved typewriter factories making guns for our boys over there and food and gasoline being rationed.

Silverfiddle said...

Beamish: I am not a hardcore goldbug, and the man in the article is not advocating that either.

He is essentially advocating for a "pegged" system that we had prior to Nixon completely destroying it, opening us up to rampant tinkering.

We need something to keep the money manipulators' grimy mitts off of our money.

Z said...

How many times did Bush and CHeney try to warn about the bubble? I think it's five, in public, anyway.
But, who could listen...?

Ya, I've got a video of Daniel Mudd promising the Black Caucus (new senator Obama in the crowd on the stage) that EVERYBODY WILL HAVE A HOME, and he'd SEE to it (looking at the group like a deer in the headlights, which he probably was)......the dumbest thing ever. And now those poor who they thought (supposedly) they were helping, are the first ones OUT of their homes. sad

(((Thought Criminal))) said...


In an economic climate where people are stealing bridges to get by can you imagine what would happen if the dollar were pegged to gold again?

Silverfiddle said...

Money is not wealth. It is a measurement and store of wealth.

Think of this: If they doubled the money supply tomorrow, the dollar would devalued by 50%. Prices would double.

So far so good. Nothing has been created or destroyed.

The problem comes in because all salaries will not double, giving those who exchange their work for dollars a 50% pay cut.

The next problem is for those who hold their wealth in dollars. Their savings is now cut in half.

That is the essential problem with money manipulations like Quantitative Easing.

Corollary problems include people who get the new money first and thereby benefit the most from it before the market adjusts and devalues those dollars.

(((Thought Criminal))) said...

You've got it, Silverfiddle. All in a nutshell.

Ducky's here said...

Uncle Sam backed Countrywide and Ameriquest, dmarks?

The government forced Lehman to leverage bad paper at 60 - 1?

Pardon me if I put it indelicately and inform you you're full of shit. I honestly don't like to be vulgar but you consistently repeat every rabies radio talking point like a freaking parrot.

It's like Silverfiddle's graphic for this post, all Dems as if the Republican ass clowns had nothing to do with our problem going back to Saint Ronnie Raygun.

True believers get us nowhere.
What they get us is Romney/Obama. Thanks.

Silverfiddle said...

Ducky: OK, I concede. There are plenty of republicans who willingly volunteer for overlord duties in the progressive long march. You got me.

Unfortunately, I couldn't fit them in the picture. Maybe you could create your own picture?

Jersey McJones said...

This is just silliness. There isn't enough gold in the world to back our currency today. Never. Gonna. Happen.


Silverfiddle said...

Jersey: Thank you for shooting off your mouth without reading what I wrote.

Jersey McJones said...
This comment has been removed by the author.
Jersey McJones said...

No, Silver, I read the whole thing, comments and all, and found a bottom line in your argument that seemed obviously flawed.

I found other things too, in case your curious. For instance, when you look at today's gold prices, and then decry the value of any currency compared to that ridiculous bubble, you may as well be complaining that your beach side resort is too close to the ocean!

And then that ridiculous assertion that the government caused the mortgage bubble by forcing or bribing banks to make loans is the single most naive thing I've ever heard. Really? You really believe that? You really believe the government is forcing these speculative bubbles? You really don't believe that it's the other way around - that the banks are bribing our elected officials to turn a blind eye to private finance detrimental to the health of the state?


Get real.


Finntann said...

The problem is that when it became politically inexpediant to raise taxes, government started printing money to pay its bills. Each dollar printed with nothing behind it devalues all the other dollars out in circulation. The result, the dollar you earn today is the equivalent of 79 cents in 2001.

Lets say you are 65 and retiring this year having started working in 1967 and having saved the first dollar you earned. Today, that dollar has the purchasing power that 15 cents had the year you earned it.

If you had purchased $1 worth of gold in 1967 it would be worth $47.48 today.

The point isn't that we need to return to the gold standard, the point is the value of our currency needs to be pegged to something other than the whims of politicians or their appointees who will manipulate it to further their own ends.


Silverfiddle said...

I do agree with you that gold is in a bubble right now, but the dollar is also way down against other economic indicators.

As for your grossly ignorant comments reflecting your childlike confidence that Big Daddy Government can do no wrong, read Paul Volker's comments in the New York Times and learn something instead of just shooting off your mouth for a change:

“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech.

“The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”

So take it up with the former Fed chairman respected by both dems and repubs. I'm sure he'll hang on your every word as you dispense advice to him over brandy and cigars in his NY high rise office.

Anonymous said...

The Wisdom of the Ages is distilled in this poem by Kipling. EIther you see it, or you don't, but I assure it's there. - FT

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

~ Rudyard Kipling

Submitted by FreeThinke

jez said...

So what are we aiming for, zero inflation??

Silverfiddle said...

Jez: I think it would be nice to see one's savings of a lifetime not turned to dust in old age. As it is, we're driven to the stock market.

People love to point out how we still had crashes and panics back when we had the gold standard.

More properly stated: Monetarism, despite the promises, has not prevented crashes, panics, unemployment and inflation.

jez said...

As it is, we're driven to the stock market.

arguably a good thing, spare money is put to work in viable enterprise.

People love to point out how we still had crashes and panics back when we had the gold standard.

arguably they were deeper and more frequent back then.

Silverfiddle said...

No Jez, it is not necessarily a good thing that people have to risk their money just to tread water.

Money in banks also goes out as loan for economic activity.

And you last statement is wrong, at least if it pertains to America. Out panics were short before the Federal Reserve Act.

Great Depression? Hello? That was the longest downturn in our history!

Carter's malaise lasted years and the geniuses guiding Obama policy appear just as stupid as Bush's.

Anonymous said...

Yes, SilverFiddle. Good response to Jez's allegations. The Gods of the Copybook Headings -- like The Ten Commandments -- are NEVER wrong, yet humanity continues to try to prove otherwise ALWAYS to its detriment.

"The lesson we learn from History is that we learn NOTHING from History."

Each generation seems to have to learn how to invent the wheel all over again.

~ FreeThinke

Grung_e_Gene said...

Hmmm, I object to the Ayman al-Zawahiri wearing the Obama symbol. That's rather disingenuous Silverfiddle.

But, since every right-winger knows Obama loves terrorists, I guess it fits you'd put that graphic up there.

jez said...

No Jez, it is not necessarily a good thing that people have to risk their money just to tread water.

Money in banks also goes out as loan for economic activity.

I wasn't differentiating between savings accounts and playing the stock market because they are approximately the same thing. Would you object to be compelled to deposit your money with a bank, in order to tread water?

Great Depression? Hello? That was the longest downturn in our history!
But I said deeper not longer. Yes, shocks were short but history shows that prices are unstable in a zero inflation world.

Silverfiddle said...

Thanks for noticing Gene! My photochop skills are crappy and it took me awhile to get that on just right...

Jez: What says prices are always supposed to be stable? A market is made up of thousands of signals and factors. These come together to make some prices go down and others up. That's a market.

My point about banks and stock markets is that the combination of taxes and inflation erode peoples' savings. You actually lose money right now if you put it in a bank. This forces people into the arms of Wall Street. Here in America, there is a big difference between the two.

Are you familiar with the term "liquidity trap?" That's just a fancy word for the dead end of state-sponsored monetarism.

republicanmother said...

It's a question of who owns who. Many of us are coming to the realization that the banks own and manipulate the government and not the other way around.

The Great Depression was a deliberate contraction of the NY money supply and was noted as such by Milton Freidman.

In my studies of the Wilson era, I found government officials consulting with arms dealers before planning moves. I found the JP Morgan bankers using the State Dept as their personal secretary. Just look at the current number of Goldman people all in the Treasury Dept. They are so intertwined, that we have a de facto fascist state.