Thread: Romney's tax plan

Will Mitt Romney's plan for cutting taxes work? Not if you believe history.
Such experiments were tried in the early 80's to less than stella results, the
anti-keynesian nature of this approach is doomed to failure from the start.

"The massive U.S. tax cuts between 1981 and 1984 provided something approximating a laboratory test of these alternative views. What happened? The private saving rate did not rise. Real interest rates soared. With fiscal stimulus offset by monetary contraction, real GNP growth was approximately unaffected; it grew at about the same rate as it had in the recent past."

Thanks to: Alan S. Blinder Professor of Economics at Princeton University

As best we can tell he doesn't have a tax plan. Which "loop holes" he is getting rid of for example? Perhaps the $70K racing horse deduction?

Well I'm beginning to feel a bit sorry for the guy, so far he seems to be back tracking, he's been getting hammered by Republicans who thinks he's not getting his message across, simply not believed by the undecided's that his figures even add up and laughed at by the Democrats who seem think to his idea of cutting taxes for the rich whilst maintaining the same level of overall tax burden is going ultimately end up being payed for by the poor and middle and is insane for his election chances. Well that's if you believe the polls.

A couple of extracts to show the kind of media coverage his tax plan is actually attracting:

"In a recent interview, Mitt Romney stated that although rich people's tax rates would go down under his administration, their tax burdens would remain the same by eliminating loopholes. When asked to name a single loophole that he would eliminate, he demurred. Instead, he repeated the revenue-neutral idea.

He owes the public a detailed explanation of his plan. Because he is intimately familiar with the two tax returns that he has made public, I recommend that he be asked to release a sample tax return that alters his real return using his proposed rules."

Source: Los Angeles Times

"Mitt Romney is calling for income- tax reform as part of his program to increase U.S. economic growth.

The Republican presidential candidate proposes to reduce all marginal tax rates by 20 percent; repeal the alternative minimum tax; limit the tax rate on dividends and capital gains to 15 percent; eliminate taxes on interest, dividends and capital gains for families whose incomes are less than $200,000; and broaden the tax base by reducing or eliminating various tax preferences. The Romney campaign has asserted that all this can be done in a way that raises the same amount of revenue as under the status quo -- and without increasing the tax burden on people whose incomes are low or moderate."

Source: Bloomberg

Whilst there may be many who think Obama is not living up to the massive wave of expectation that swept him into office if Romney continues to get press coverage like this the election is going to be a walkover.

Romney's going to have to pull some very sparkly rabbits out of a decidedly unpromising hat in the debates.

The latest Pew poll puts Obama comfortably ahead. And that was taken before the videos came out.

Poll gives Obama historic September lead

If Romney's economic plan is going to continue Obama's policy of calling for the federal reserve to manipulate interest rates while creating money out of thin air in order to give it to the white house and congress, then it just does not matter what either of their tax plans are. In fact, the real price being paid by the american people has actually begun shifting away from the classical tax burden due to the federal governments radical shift in how they are now obtaining large and larger portions of their funds.

Originally Posted by gonzales56

federal reserve to manipulate interest rates while creating money out of thin air in order to give it to the white house and congress

Since most of our economies are now and have been driven by keynesian economics for decades we have to abide by the rules Keynes set down for dealing with different situations, we've been having this debate now on several forums, virtually every instance have proved that New Classical Theory has never worked out. The economics Keynes layed out decades ago still stand true today. Tax cutting in of and by itself will only serve to reduce the overall tax revenue thus leaving less money for the government to stimulate the economy. The multiplication factor of an actual economic stimulus injection more than justifies the spending of money in this way as it ultimately provides more jobs and economic growth which could simply not be acheived through tax cutting.

Given the already high debt levels faced by the United States and what has been a real and genuine shortage of liquidity since 2008 the Fed's lastest QE stimulus package of $40 Billion a month is easily justified and if anything probarbly to small, meaning the rate could well yet be increased, when compared to the size of the economy as a whole.

Originally Posted by Chrisgorlitz

Originally Posted by gonzales56

federal reserve to manipulate interest rates while creating money out of thin air in order to give it to the white house and congress

Since most of our economies are now and have been driven by keynesian economics for decades we have to abide by the rules Keynes set down for dealing with different situations, we've been having this debate now on several forums, virtually every instance have proved that New Classical Theory has never worked out. The economics Keynes layed out decades ago still stand true today. Tax cutting in of and by itself will only serve to reduce the overall tax revenue thus leaving less money for the government to stimulate the economy. The multiplication factor of an actual economic stimulus injection more than justifies the spending of money in this way as it ultimately provides more jobs and economic growth which could simply not be acheived through tax cutting.

Given the already high debt levels faced by the United States and what has been a real and genuine shortage of liquidity since 2008 the Fed's lastest QE stimulus package of $40 Billion a month is easily justified and if anything probarbly to small, meaning the rate could well yet be increased, when compared to the size of the economy as a whole.

The 40 billion a month, for now, is for mortgage backed securities, and that is not the only fed program... Other fed programs are pumping funds into markets and directly to the federal government. The Feds "Operation Twist" program has been creating and handing over about $50 billion a month to the US federal government, and this is just one of these types of schemes where the feds feed themself cash created out of thin air.. They also have programs that push money to banks like chase where they use that money to buy and sell stock for the feds.

Anytime someone is pumping trillions of newly created US dollars into markets each year, it drastically effects that country's markets. Make no mistake about it though, all this money, all these US dollars that have been created and are still be created, will hit the "streets" sooner or later.

The fed has also made it very clear that this newest program has no end date, and you can bet it will never see an end until the printing presses are broken. This one program alone will inject half a trillion new dollars into markets, and then ultimately onto the streets, each and every year.

Originally Posted by gonzales56

Anytime someone is pumping trillions of newly created US dollars into markets each year, it drastically effects that country's markets. Make no mistake about it though, all this money, all these US dollars that have been created and are still be created, will hit the "streets" sooner or later.

This is where it's really needed, out there on the streets. If people can start spending again then local business's can get back onto there feet and start to take on staff which will help with employment and GDP. This has been one the real costs of the credit crunch that whilst access to credit disappeared so did actual sales volumes as consumers began to tighten their belts. It this extra money can start to make to the grass roots then we may very well start real signs of recovery sooner rather than later.

Originally Posted by gonzales56

The fed has also made it very clear that this newest program has no end date, and you can bet it will never see an end until the printing presses are broken. This one program alone will inject half a trillion new dollars into markets, and then ultimately onto the streets, each and every year.

Don't worry this won't last forever, right now there is a real need to actual get economies moving again and this is why the stimulus is happening. Eventually when the global economic situation starts to improve all countries will be able to ease off the market intervention programs so there simply won't be the need to keep printing money.

Originally Posted by Chrisgorlitz

Originally Posted by gonzales56

Anytime someone is pumping trillions of newly created US dollars into markets each year, it drastically effects that country's markets. Make no mistake about it though, all this money, all these US dollars that have been created and are still be created, will hit the "streets" sooner or later.

This is where it's really needed, out there on the streets. If people can start spending again then local business's can get back onto there feet and start to take on staff which will help with employment and GDP. This has been one the real costs of the credit crunch that whilst access to credit disappeared so did actual sales volumes as consumers began to tighten their belts. It this extra money can start to make to the grass roots then we may very well start real signs of recovery sooner rather than later.

Originally Posted by gonzales56

The fed has also made it very clear that this newest program has no end date, and you can bet it will never see an end until the printing presses are broken. This one program alone will inject half a trillion new dollars into markets, and then ultimately onto the streets, each and every year.

Don't worry this won't last forever, right now there is a real need to actual get economies moving again and this is why the stimulus is happening. Eventually when the global economic situation starts to improve all countries will be able to ease off the market intervention programs so there simply won't be the need to keep printing money.

,Markets have a way of settling what goods, services and commodities will cost based on the supply of currency, and trying to print/create new money will not solve any economic issues/problems. One can not print their way out of trouble, and who in their right mind believes that creating another bubble by blowing 40 billion dollar a month into a new mortgage balloon will solve any problem? It is mortgaged backed securities, in part, that got the banks, federally owned/ran firms and the global economy into trouble, and now the fed is going to do the same thing?

These trillions and trillions of dollars will not find there way to the streets without the cost of everything rising enough to compensate for the increase in currency held by the general public.

No branch of the fed has ever given up power willingly, and to believe the fed will stop creating and using the half of trillion dollars the board has allowed/approved them to create and use each year under this new program, and make no mistake about it, create and use on anything, without end, is folly IMO.

I don't really share your concerns about the increased money supply's effect on potential rises of inflation, I happen to think this will be affected far more by external infuences such as ability to export and fuel and commodity prices. I also think the increased economic activity it will create through extra jobs and income will stenghten the US economy.

That being said I completely concur with your point about creating another morgage bubble, that would be a disaster.
Do you think there will be any new measures coming down the pipeline to to prevent this?

I think this may help give an idea of the amount of printed money already in circulation. As of the end of 2008, U.S. currency in circulation with the public amounted to $824 billion and 76% of the currency supply was in the form of $100 denomination banknotes, amounting to twenty $100 bills per U.S. citizen. Over the past decade there has been considerable controversy concerning the amount of U.S. currency circulating abroad.

Most recently, Goldberg writing in a New York Federal Reserve publication asserted that “about 65 percent ($580 billion) of all banknotes are in circulation outside of the country. However, these assertions are contradicted by the Federal Reserve Board of Governors Flow of Funds statistics which show that at the end of March 2009, only $313 billion (36.7 percent) of U.S. currency was held abroad. Since 1964, the cumulative seigniorage earnings accruing to the U.S. by virtue of the currency held by foreigners amounted to $167-$185 billion and over the past two decades seigniorage revenues from foreigners have averaged $6-$7 billion dollars per year. But whilst this is useful for informational purposes it should be noted that the actual printed money in circulation is only a fraction of the actual money that exists within the US economy as a whole. It should also be noted that QE introduced by the Fed does not necessarily have to be introduced in the form of printed banknotes.

presidential reality check?
doesn't congress write the tax directives?
can a president change the tax laws by executive order?
or
does it ultimately revert back to congress

(wishing I hadn't chosen civics as my nap class)

Originally Posted by sculptor

presidential reality check?
doesn't congress write the tax directives?
can a president change the tax laws by executice order?
or
does it ultimately revert back to congress

(wishing I hadn't chosen civics as my nap class)

In short no. His powers are limited to what's already in the Constitution, and to what explicitly or implicitly allowed by Congress in their legislation.

The only real exceptions are when immediate action is required--those things for which there isn't time for congress to deliberate--occasionally that broadens into something the president might feels are strongly required but for which congress is refusing to decide, such as the latest decision to grant visas for children of illegal immigrants who grew up in the US.

Originally Posted by Chrisgorlitz

I don't really share your concerns about the increased money supply's effect on potential rises of inflation, I happen to think this will be affected far more by external infuences such as ability to export and fuel and commodity prices. I also think the increased economic activity it will create through extra jobs and income will stenghten the US economy.

That being said I completely concur with your point about creating another morgage bubble, that would be a disaster.
Do you think there will be any new measures coming down the pipeline to to prevent this?

We do disagree concerning inflation.

One also does not strengthen their economy or people by reducing their purchasing power and wealth unless, one considers it a strength to revert back to or convert itself to a poor nation with an overwhelming population of peasants and peasant workers.

Every market today is in a bubble except commodities. Most commodities are actually subsidized by governments while all commodities are pushed to the down side by firms, agencies and governments selling huge amounts of false supplies in order to reduce prices. If a simple law was passed that said "one can only sell commodities they have or are estimated to produce" then the entire worlds economy would collapse due to where inflation is really at today.

The question is never what can governments do, create, manipulate, pass or print in order to "fix" these problems... They have created these problems and they are never going to fix them by altering and manipulating these problems further.

At some point the global economy is going to tank and tank bad and that is because it is a false and manipulated economy based on fiat currency backed by domestic force/forces and military power. There are a slew of things that can and will bring this economy to its knees.. It's just a matter of time.

Originally Posted by Lynx_Fox

Originally Posted by sculptor

presidential reality check?
doesn't congress write the tax directives?
can a president change the tax laws by executice order?
or
does it ultimately revert back to congress

(wishing I hadn't chosen civics as my nap class)

In short no. His powers are limited to what's already in the Constitution, and to what explicitly or implicitly allowed by Congress in their legislation.

The only real exceptions are when immediate action is required--those things for which there isn't time for congress to deliberate--occasionally that broadens into something the president might feels are strongly required but for which congress is refusing to decide, such as the latest decision to grant visas for children of illegal immigrants who grew up in the US.

Would the president's party say for example the Republicans, in congress, just fall into line over the tax plan if Romney gets elected? Or would he still have to go and convince them to support it?

(wild guess du jour)
the republicans will lose the congress in this election
so
if romney wins, he'll have to compromise
some of his tax plan is retro-progressive----eg: no tax on capital gains, interest or dividends for those making less than $200,000 per year.
which seems very progressive
which should be an easy compromise if he wins(which I doubt)
.............
Assuming Obama wins, and the congress goes democratic
we'll see much more stimulus $
all funny money printed well in excess of reason
then inflation
As long as china pegs their currency to the dollar, the inflation won't hurt the lower income part of our population too much. meanwhile the debt shrinks as a proportion of the economy
so a win/win?

Originally Posted by sculptor

As long as china pegs their currency to the dollar, the inflation won't hurt the lower income part of our population too much. meanwhile the debt shrinks as a proportion of the economy
so a win/win?

Good point. I think this could helped as well if the US can pursuade the EU to ditch this osterity idea and start QE programs used for stimulus. Then we might see some decent growth in the global economy.

Fortunately Sculptor, there's isn't a chance in hell of Republican's loosing the house this time around--which is probably the best of worlds. The Tea party wouldn't be able to reach into your bedrooms to regulate what we do with our wee-wees (while claiming they want government off our backs) and the president will be forced to continue on the road towards being one of the more responsible fiscal presidents in American history. The Senate won't matter much as far as the budget fights.

pursuade the EU to ditch this osterity idea and start QE programs used for stimulus. Then we might see some decent growth in the global economy.

Austerity. Pah! I'm sure it's part of this notion that government is just like a household, so you can't borrow or spend to improve things.

What these people overlook is that governments do a lot of things that households can't to increase their income. At home, we can't impose taxes on how the children spend their pocketmoney or what the supermarket does with the money we spend there to increase our household incomes. Governments can.

Governments can have taxes set up so that a few, some, many, most transactions people use government grants or pensions or loans or allowances or bonuses for will attract a little or a lot of tax or excise or other impost. In the US you have the advantage of many states and local governments imposing taxes on wages and transactions so a federal stimulus can become a regional benefit.

And this can give more cascading benefits - where one payment from a central government can finish up being taxed many times as the funds percolate through various purchase transactions and wages. Each one of those giving rise to more government revenues. And all along the way, the spending increases business activity, employment and profits - which also contribute to government revenues in the end.

All you need is to ensure that the government funds go where they are most likely to be spent rather than saved - and that your general culture is not focused on tax avoidance (which seems to be a problem with a couple of the European countries in the direst straits.)

adelady
the rule I read 40 odd years ago at university was 10:1
for every dollar you plug into a local economy 10 are generated as people spend and respend and respend...etc. the same dollar---for food. clothes, appliances, homes and repairs, etc...

Originally Posted by Chrisgorlitz

Originally Posted by gonzales56

federal reserve to manipulate interest rates while creating money out of thin air in order to give it to the white house and congress

Since most of our economies are now and have been driven by keynesian economics for decades we have to abide by the rules Keynes set down for dealing with different situations, we've been having this debate now on several forums, virtually every instance have proved that New Classical Theory has never worked out. The economics Keynes layed out decades ago still stand true today. Tax cutting in of and by itself will only serve to reduce the overall tax revenue thus leaving less money for the government to stimulate the economy. The multiplication factor of an actual economic stimulus injection more than justifies the spending of money in this way as it ultimately provides more jobs and economic growth which could simply not be acheived through tax cutting.

.

The problem here is that Keynesian economics only works when there's no globalization. The whole economy has to do it all at once, or you get only a small fraction of the anticipated effect.

If the "whole economy" means all the countries on Earth, then one country using a Keynesian approach all on its own is going to spend lots and lots of money in order to get a pittance of a change in its prosperity.

Keynes' idea was to artificially increase worker wages so they would buy more stuff, which in turn would provide revenue to perpetuate those wages. It was brilliant and it worked wonderfully post World War 2, when international trade was almost a zero part of the USA's economy.

If we try to use it now, what will happen after we artificially increase the workers' wages, is they'll go buy more stuff, except now instead of providing revenue to perpetuate their higher wages, it instead provides revenue to perpetuate the lower wages being paid workers in China (and elsewhere). The only way the artificially increased worker wages in the USA can be perpetuated is to just keep taking out loan after loan after loan.

It's not quite that simple, but the parts I'm leaving out are being left out because they have no impact on the result. Sure store owners can pay their "McGreeters" more (to borrow Icewendengo's term), because they indirectly benefit from the import trade. But since they're just middle men all their profits derive from the difference between production costs and purchase price. How long does the "purchase price" part last if the purchasers aren't collecting revenue off of the sales?

If the "whole economy" means all the countries on Earth, then one country using a Keynesian approach all on its own is going to spend lots and lots of money in order to get a pittance of a change in its prosperity.

Then you do what Australia did when the GFC hit. You put the money into things that can't go overseas first time round - like wages which are taxed in the hands of the recipients. And remember, when things go pear-shaped, you have quite a lot of shops and businesses who've bought from overseas and are going to sack staff and go broke unless someone buys the stuff. So people being able to buy stuff that's already at the end of the purchase overseas path will also help your local economy.

But our biggest programs were fast-tracking approval for many thousands of school buildings that were waiting for approval in the state school systems and installing insulation in a million domestic roofs. (This second program had problems because the states had inadequate licensing and supervision of the contractors, but not because of the program itself. A couple of states also made a bit of a hash of the school buildings project as well. But that's down to them.) All those wages were taxed when they were paid as well.

I suppose we're better off under such an arrangement because we have a much better wage system than the USA. Our poorly paid workers are paid much better than the equivalent USA people. Regardless, we got through the GFC better than just about anyone.

Originally Posted by kojax

The problem here is that Keynesian economics only works when there's no globalization.

Keynes was somewhat of a visionary he could see decades ago how trade and finance around the world were already connected even back then, it can be said that these connections have grown and turned into what is today known as globalization. It is even more true today that keynesian ideals and principles hold fast. The idea of globalization is something that Keynes not only understood but planned much of his work around. So I can't in anyway see where you got this idea from.

Originally Posted by adelady

If the "whole economy" means all the countries on Earth, then one country using a Keynesian approach all on its own is going to spend lots and lots of money in order to get a pittance of a change in its prosperity.

Then you do what Australia did when the GFC hit. You put the money into things that can't go overseas first time round - like wages which are taxed in the hands of the recipients. And remember, when things go pear-shaped, you have quite a lot of shops and businesses who've bought from overseas and are going to sack staff and go broke unless someone buys the stuff. So people being able to buy stuff that's already at the end of the purchase overseas path will also help your local economy.

I really don't get your logic here. Store owners?

A store owner makes a profit by one and only one possible way: they buy low, and then sell high (or buy and sell at a margin). For that to work, they need a source of low priced goods, and then they need a pool of potential buyers who are able to pay a higher price.

For intents and purposes, mercantile workers must be excluded from the buyer group. Of course they are part of it, but their salaries derive from the margin, and therefore cannot possibly contribute to the margin (or at best they could contribute exactly as much as they take.)

Where does that margin come from then? It comes from non-mercantile workers earning wages and then using those wages to buy fewer goods than they produce. There's no other possible source. Where do the wages come from? They come from sale of whatever those non-mercantile workers are making. Again, no other possible source. (Well ... one other possible source - borrowing.) If the non-mercantile workers aren't making sales, then they can't sustain their wages.

I get so tired of seeing people talk about the mercantile industry like it's part of the solution ... like adding more mercantile jobs is going to do anything whatsoever to help or save our economy. When we know full well that 100% of all mercantile worker wages come out of the margin. It's the margin we need to be sustaining. And the margin is what we're losing. The loss of margin is what causes the economy to fail. That and that alone.

Originally Posted by kojax

Keynes' idea was to artificially increase worker wages so they would buy more stuff, which in turn would provide revenue to perpetuate those wages. It was brilliant and it worked wonderfully post World War 2, when international trade was almost a zero part of the USA's economy.

If we try to use it now, what will happen after we artificially increase the workers' wages, is they'll go buy more stuff, except now instead of providing revenue to perpetuate their higher wages, it instead provides revenue to perpetuate the lower wages being paid workers in China (and elsewhere). The only way the artificially increased worker wages in the USA can be perpetuated is to just keep taking out loan after loan after loan.

Keynes famous General Theory established that government spending could dig an economy out of a slump.

At least that is how his thinking is remembered. In practice his work is very complicated and seldom actually read, and then there is the problem that Keynes was also famous for changing his mind.

American Keynesians, for example, have always focused on the need to maintain consumption rather than investment which is actually what Keynes always favored. In 1944, after a meeting with them in Washington, Keynes commented that he was the only non-Keynesian in the room.

It is also difficult more than 60 years after his death to know what Keynes would have made of our modern globalized economy, although there are parallels with the globalization of the pre-First World War.

Would Keynes have approved of stimulus packages to tackle the immediate global economic crisis? Probably but only as an emergency measure. He would likely have spotted the build up of credit in the system that caused the crisis earlier than most, having observed the same thing in the 1920s. Indeed he warned about it then only to be ignored.

But if you read the General Theory’s index, and few get further than that, you find only six lines of references to boosting consumption through public spending. Keynes favored public investment in capital producing assets. That means building new highways or power plants, not bailing out a bloated banking sector.

His theory of the multiplier explains how focused investment spending has a much wider impact on the economy with people in work spending elsewhere, for example. It also points out that the withdrawal of public spending to balance the books has the reverse effect, and is particularly dangerous in an economic slump. But there is no hint that a general attempt to bail everybody out through managing consumption might work.

However, he would likely favor the US approach of growing an economy out of debt rather than the European solution of osterity and public spending cuts, especially in current circumstances.

This has worked in the past. For example, the post-Second World War British economy carried a 240 per cent of GDP debt that fell to under 100 per cent 20 years later. Some of this was down to inflation but the real burden of the debt was cut by 80 per cent by growth.
These debt levels are not so far off what the US faces today.

Originally Posted by kojax

Originally Posted by Chrisgorlitz

Originally Posted by gonzales56

federal reserve to manipulate interest rates while creating money out of thin air in order to give it to the white house and congress

Since most of our economies are now and have been driven by keynesian economics for decades we have to abide by the rules Keynes set down for dealing with different situations, we've been having this debate now on several forums, virtually every instance have proved that New Classical Theory has never worked out. The economics Keynes layed out decades ago still stand true today. Tax cutting in of and by itself will only serve to reduce the overall tax revenue thus leaving less money for the government to stimulate the economy. The multiplication factor of an actual economic stimulus injection more than justifies the spending of money in this way as it ultimately provides more jobs and economic growth which could simply not be acheived through tax cutting.

.

The problem here is that Keynesian economics only works when there's no globalization. The whole economy has to do it all at once, or you get only a small fraction of the anticipated effect.

If the "whole economy" means all the countries on Earth, then one country using a Keynesian approach all on its own is going to spend lots and lots of money in order to get a pittance of a change in its prosperity.

Keynes' idea was to artificially increase worker wages so they would buy more stuff, which in turn would provide revenue to perpetuate those wages. It was brilliant and it worked wonderfully post World War 2, when international trade was almost a zero part of the USA's economy.

If we try to use it now, what will happen after we artificially increase the workers' wages, is they'll go buy more stuff, except now instead of providing revenue to perpetuate their higher wages, it instead provides revenue to perpetuate the lower wages being paid workers in China (and elsewhere). The only way the artificially increased worker wages in the USA can be perpetuated is to just keep taking out loan after loan after loan.

It's not quite that simple, but the parts I'm leaving out are being left out because they have no impact on the result. Sure store owners can pay their "McGreeters" more (to borrow Icewendengo's term), because they indirectly benefit from the import trade. But since they're just middle men all their profits derive from the difference between production costs and purchase price. How long does the "purchase price" part last if the purchasers aren't collecting revenue off of the sales?

Most fail to realize that most government "spending" today is not about improving ones economy, it is about reducing real wages, reducing the value of ones currency and reducing the purchasing power of its people.

For those that reap the benefits and rewards of buying and selling things, government "spending" of fiat currency, taxes and regulations allow people like me to do exactly what governments do for themselves and their friends, and that is acquire value and wealth right out from under people.

As a business man I love people who rely on government. As a business man there is not a better supplier of goods, services and customers than those who rely on the government to one degree or another.... However, as a person who actually loves his county and cares about people, I have no problem with letting people know that the current economic plan/system which drives government spending, taxes and regulations is very harmful for the nations they live in and for most those nations people.

at the risk of over simplification
(all defference to ockham)
No currency has value beyond that which is assumed by the people who use it.
Not diamonds, nor gold, nor printed paper, none has value in and off itself unless it is used as a comodity.

It is still a barter system
(I'll trade you this ounce of gold for your 1800 pound cow)
(I'll trade you this pile of paper money "valued" at $1800.00 for your 1800# cow)
If the seller no longer wants nor needs the gold or diamonds or "fiat currency" in exchange for what (s)he owns, then the currency has no value for that seller. If the dollar can buy a dodge automobile for 500 of it's like, then it is worth 1/500 of a dodge. If the dollar can buy a toyota for 18,000 of it's like, then the dollar is worth 1/18000 of a toyota.

The value lies not in the currency, but in the convenience which it offers for long distance trading.
Without that convenience, I would not have tools from Japan, Italy, Germany, Canada, etc...etc.... I would not have this computer with component parts from asia and europe and the americas.

So, ultimately, it is up to us to decide wherein we place value. But the "us" ain't just you nor me, but all of "us", and who really understands the will of the mob?

Originally Posted by sculptor

at the risk of over simplification
(all defference to ockham)
No currency has value beyond that which is assumed by the people who use it.
Not diamonds, nor gold, nor printed paper, none has value in and off itself unless it is used as a comodity.

It is still a barter system
(I'll trade you this ounce of gold for your 1800 pound cow)
(I'll trade you this pile of paper money "valued" at $1800.00 for your 1800# cow)
If the seller no longer wants nor needs the gold or diamonds or "fiat currency" in exchange for what (s)he owns, then the currency has no value for that seller. If the dollar can buy a dodge automobile for 500 of it's like, then it is worth 1/500 of a dodge. If the dollar can buy a toyota for 18,000 of it's like, then the dollar is worth 1/18000 of a toyota.

The value lies not in the currency, but in the convenience which it offers for long distance trading.
Without that convenience, I would not have tools from Japan, Italy, Germany, Canada, etc...etc.... I would not have this computer with component parts from asia and europe and the americas.

So, ultimately, it is up to us to decide wherein we place value. But the "us" ain't just you nor me, but all of "us", and who really understands the will of the mob?

Gold, silver and diamonds are nothing like fiat currencies. What you are talking about is just one of the aspect or requirement that money must have and that is its ability to be used as a medium of exchange. A stick of wood or monopoly money can be used as a medium of exchange, this however does not make fiat currency, a stick of wood or monopoly money the same as gold, silver or diamonds.

Money is required, in order to actually be money, to be a store of wealth as well as a medium of exchange. Fiat currencies do not store ones wealth, they reduce ones wealth then they ultimately destroy it. Gold, silver and diamonds are a store of wealth, fiat currencies are not.

When I was a boy my grandfather gave me a 100 dollars in quarters and a 100 dollars in bills, he told me to put both of them up, never touch either one and when I was an old man, find out what each of them was worth and what each of them would buy me. I am nowhere near an old man now but, i know what that 100 dollars in bills would have bought me when I was a kid, I know what it will buy now (I have been robbed and they did it without even coming into my home) and I know what that 100 dollars in quarters is worth and I know what that 100 dollars in quarters will buy me now. I can promise you that fiat currency and gold/silver are nothing alike.

Heck, give your kids a 100 dollars in nickels, a hundred dollars in bills, tell them to not touch either and then find out what they will both be worth and what they will be able to buy with them when they are old men and women.

Heck, give your kids a 100 dollars in nickels, a hundred dollars in bills, tell them to not touch either and then find out what they will both be worth and what they will be able to buy with them when they are old men and women.

I'd be inclined to use this as a teaching moment. Teach compounding interest by saving with a reputable bank versus sitting in a suitcase or other useless receptacle. Or how to invest it in other ways to make best use of it.

Money's just like everything else. You have to take good care of it, maintain it, use it to make more of it. You can buy metal - would you be better off manufacturing something useful and selling for higher value or should you just hang on to it and sell it for scrap prices when it's old, rusty or otherwise damaged?

G

I feared that i oversimplified
allow me to clarify(if I can)

When I wrote:

No currency has value beyond that which is assumed by the people who use it.
Not diamonds, nor gold, nor printed paper, none has value in and of itself unless it is used as a comodity.

What I had in mind was connecting all under the rubric "assumed value"
Gold, for example:
If an ancestor of yours had invested his life's savings in Gold the year Columbus sailed for the americas, you would still be holding that gold at a loss. It's value is/was artificially inflated by the whim du jour, ---People thought it had value as a currency, and inflated it's price, then changed their actions and the price(value) declined-----If the current fear of global financial collapse keeps people anxious about their wealth, and many see Gold as a hedge, and investment, then maybe finally you will be able to sell your ancestors' gold at a profit-maybe...(hell, after 500 years, breakiing even sould seem like a god-send)..
Meanwhile, there is a real value to Gold as a commodity(and the current price is way above that---[I]as is true of diamonds[I] )
You can count on the value as a commodity, and there indeed, we have barter. Counting on the current value is basing your faith on the whim of the mob. Likely better than paper money whose comodity value is akin to news print, but, gold is still currently over-valued(except, of course, relative to it's value in 1492).

once upon a time cowry shells were used as currency
I'm reasonably certain that if we could know all human history, we would find dozens of discarded curriencies.
nothing lasts forever, and some changes real damned fast.

A

if you'd'a bought copper 10 years ago, for every dollar invested, you could have made 4-5 last year(of course, the cost of transportation and storage would eat into your profits), the same with most commodities, oil, etc...
housing, however was a bad investment

all more volatile than currency exchange rates
and if you ain't making more than inflation(and I mean real inflation, not government silly numbers) then you lose.

(while the government was claiming 3% inflation, medical care went up up to 10 times that rate,... over 2 years, a gallon of paint thinner went from $1.50 to $7.40---while the government was claiming under 3% per year)
A box of screws was $25.00 5 years ago, now $100.00

invested in currency based exchanges(stocks, bonds, compounding interest), the money lost value compared to the commodities which I use.......
price and value don't seem to run the same paths. On a good day, currencies are fickle beasts, and there are very few good days.

Originally Posted by adelady

Heck, give your kids a 100 dollars in nickels, a hundred dollars in bills, tell them to not touch either and then find out what they will both be worth and what they will be able to buy with them when they are old men and women.

I'd be inclined to use this as a teaching moment. Teach compounding interest by saving with a reputable bank versus sitting in a suitcase or other useless receptacle. Or how to invest it in other ways to make best use of it.

Money's just like everything else. You have to take good care of it, maintain it, use it to make more of it. You can buy metal - would you be better off manufacturing something useful and selling for higher value or should you just hang on to it and sell it for scrap prices when it's old, rusty or otherwise damaged?

Investments and a store of wealth are two different lessons though adelady (which I am sure you are completely aware of).

Everyone should have some portion of their wealth saved/stored/preserved/locked up in items/things of value. I use gold and silver but to each their own. Regardless of what happens in my investment endeavors I know some of my wealth is safe, it is not going anywhere and my purchasing power on that wealth is protected.

On the investment side, I will not hold dollars or any fiat currency for long. I treat fiat currencies like they are creeping death or the black plague sitting in my account, wallet or hand. I prefer to own goods and sell those goods but again, to each their own.

Originally Posted by sculptor

A

if you'd'a bought copper 10 years ago, for every dollar invested, you could have made 4-5 last year(of course, the cost of transportation and storage would eat into your profits), the same with most commodities, oil, etc...
housing, however was a bad investment

all more volatile than currency exchange rates
and if you ain't making more than inflation(and I mean real inflation, not government silly numbers) then you lose.

(while the government was claiming 3% inflation, medical care went up up to 10 times that rate,... over 2 years, a gallon of paint thinner went from $1.50 to $7.40---while the government was claiming under 3% per year)
A box of screws was $25.00 5 years ago, now $100.00

invested in currency based exchanges(stocks, bonds, compounding interest), the money lost value compared to the commodities which I use.......
price and value don't seem to run the same paths. On a good day, currencies are fickle beasts, and there are very few good days.

Some very good points IMO.

So bankers are full of crap.

An idiot with a piece of copper/a screw/oil/paint thinner (or w.e.) would have done a better job at increasing value then a professor of economy.

Why do we even pay them? Shouldn't we just coop with several generations? I mean, no loans, just save...

Originally Posted by Zwolver

So bankers are full of crap.

An idiot with a piece of copper/a screw/oil/paint thinner (or w.e.) would have done a better job at increasing value then a professor of economy.

Why do we even pay them? Shouldn't we just coop with several generations? I mean, no loans, just save...

As silly as this may sound, coming from a fiscally conservative kind of a guy:
If you think as many do that we will soon pay for the loose fiscal money policies of our government and the federal reserves printing presses with rampant inflation, and,
If you can lock in a low interest rate, and
If you will have means to have your earnings, or net worth run with inflation...
Then, now may be the best of times to go deeply into debt , ---(then invest in something that ain't already run up in price)
Borrow a dollar today when a dollar is worth a cup of coffee, and pay it back in 7 years when a cup of coffee costs 2 dollars, and dollars are twice as easy to come by. (You might even win by buying stocks that will run with inflation)

But
not for me, I'm too damned old to go into debt anymore(it ain't that I fear the debt, it's just that I don't want to have to think about it).

Originally Posted by sculptor

at the risk of over simplification
(all defference to ockham)
No currency has value beyond that which is assumed by the people who use it.
Not diamonds, nor gold, nor printed paper, none has value in and off itself unless it is used as a comodity.

It is still a barter system
(I'll trade you this ounce of gold for your 1800 pound cow)
(I'll trade you this pile of paper money "valued" at $1800.00 for your 1800# cow)
If the seller no longer wants nor needs the gold or diamonds or "fiat currency" in exchange for what (s)he owns, then the currency has no value for that seller. If the dollar can buy a dodge automobile for 500 of it's like, then it is worth 1/500 of a dodge. If the dollar can buy a toyota for 18,000 of it's like, then the dollar is worth 1/18000 of a toyota.

The value lies not in the currency, but in the convenience which it offers for long distance trading.
Without that convenience, I would not have tools from Japan, Italy, Germany, Canada, etc...etc.... I would not have this computer with component parts from asia and europe and the americas.

So, ultimately, it is up to us to decide wherein we place value. But the "us" ain't just you nor me, but all of "us", and who really understands the will of the mob?

That's all true. However by adjusting the quantity of fiat currency, and who holds it, you can shift all the barters around. If currency is over inflating, people will start clinging to gold and real estate because those things don't inflate.

They'll trade away manufactured goods, and stop producing more manufactured goods because those goods appear to be losing value. Gold's value will usually keep pace with the inflation, unless people are projecting future inflation, in which case it will keep pace with their projections (which would cause it to rise faster than inflation.)

Originally Posted by gonzales56

Originally Posted by sculptor

at the risk of over simplification
(all defference to ockham)
No currency has value beyond that which is assumed by the people who use it.
Not diamonds, nor gold, nor printed paper, none has value in and off itself unless it is used as a comodity.

It is still a barter system
(I'll trade you this ounce of gold for your 1800 pound cow)
(I'll trade you this pile of paper money "valued" at $1800.00 for your 1800# cow)
If the seller no longer wants nor needs the gold or diamonds or "fiat currency" in exchange for what (s)he owns, then the currency has no value for that seller. If the dollar can buy a dodge automobile for 500 of it's like, then it is worth 1/500 of a dodge. If the dollar can buy a toyota for 18,000 of it's like, then the dollar is worth 1/18000 of a toyota.

The value lies not in the currency, but in the convenience which it offers for long distance trading.
Without that convenience, I would not have tools from Japan, Italy, Germany, Canada, etc...etc.... I would not have this computer with component parts from asia and europe and the americas.

So, ultimately, it is up to us to decide wherein we place value. But the "us" ain't just you nor me, but all of "us", and who really understands the will of the mob?

Gold, silver and diamonds are nothing like fiat currencies. What you are talking about is just one of the aspect or requirement that money must have and that is its ability to be used as a medium of exchange. A stick of wood or monopoly money can be used as a medium of exchange, this however does not make fiat currency, a stick of wood or monopoly money the same as gold, silver or diamonds.

Money is required, in order to actually be money, to be a store of wealth as well as a medium of exchange. Fiat currencies do not store ones wealth, they reduce ones wealth then they ultimately destroy it. Gold, silver and diamonds are a store of wealth, fiat currencies are not.

Gold, silver, and diamonds are identical in almost every way to fiat currency, except they aren't susceptible to inflation (at least not as easily.)

All three of them have industrial uses as well, so there is some degree of difference between them and money (which is mostly only good for burning or making clothes out of if you don't want to exchange it.) Gold is an incredibly pliable conductor of electricity, easy to make circuits out of. Silver is the best conductor of electricity, and well diamonds make great drill bits.

But when used as jewelry they have no practical value, other than to indicate status or trade for money later on when you're broke. I can't see any difference between that and money.

Originally Posted by adelady

Heck, give your kids a 100 dollars in nickels, a hundred dollars in bills, tell them to not touch either and then find out what they will both be worth and what they will be able to buy with them when they are old men and women.

I'd be inclined to use this as a teaching moment. Teach compounding interest by saving with a reputable bank versus sitting in a suitcase or other useless receptacle. Or how to invest it in other ways to make best use of it.

Money's just like everything else. You have to take good care of it, maintain it, use it to make more of it. You can buy metal - would you be better off manufacturing something useful and selling for higher value or should you just hang on to it and sell it for scrap prices when it's old, rusty or otherwise damaged?

Actually this is the problem right now. What you just said is not currently true.

We're in a state of deflation. By deflating wages (using foreign workers to force domestic workers to accept less pay), we indirectly deflate almost everything in our economy. Sure we can print more money to try and balance it, but it's like Sculptor said: there's no way to get around the fact everything's really barter.


In the Great Depression, money and gold were the same thing. You could bring a USD to the mint, and they would be required to give you its value in gold. At present gold is going under people's mattresses. The value of labor is deflating relative to gold. That's the only deflation that matters.

Now as to what Adelady just said: If I hire a worker at $.05 oz of gold per hour to do 10 hours of work making an iron pipe, and then the relative value of gold and labor drops down to .045 oz of gold per hour, then I'll be forced to set my price as though the labor had only cost me .045 oz/hour to make.

Basically.... until the deflation stops, I have to expect to sell at a loss.

Why would your competitors labor costs for producing an iron bar be less than yours, ok fine if you have a back load of stock to sell that was produced at the previous higher labor costs and all your competitors were making their products now using cheaper labor costs and you were forced to sell at a lower price to compete I could see how you'd be selling at loss but you'd be the only one doing so. It would just mean that you wouldn't be very competitive, which happens all the time under capitalist systems the most competitive make money and those companies that arn't don't make or lose money it just the way things work. The point is that everyone competes in the same market place in the same conditions if other companies are making money and your not then you are doing something wrong or they are doing something right. Generally speaking for most companies if labor costs go down then they can make their final selling prices for products cheaper which usually results in greater sales volume and more profits, not the other way round.

Originally Posted by kojax

Gold, silver, and diamonds are identical in almost every way to fiat currency, except they aren't susceptible to inflation (at least not as easily.)

All three of them have industrial uses as well, so there is some degree of difference between them and money (which is mostly only good for burning or making clothes out of if you don't want to exchange it.) Gold is an incredibly pliable conductor of electricity, easy to make circuits out of. Silver is the best conductor of electricity, and well diamonds make great drill bits.

But when used as jewelry they have no practical value, other than to indicate status or trade for money later on when you're broke. I can't see any difference between that and money.

Again though, money must be a store of wealth in order to be money. Fiat currencies are not a store of wealth. This is a huge and critical difference between fiat currencies and gold/silver/diamonds.

Fiat currencies do not meet the requirement or definition of money. Anything can be used as a medium of exchange... It does not make them the same as gold, silver or diamonds. Fiat currencies are closer to toilet paper than they are to gold and silver. The only differences between toilet paper and fiat currency is the fact that governments put numbers on one of them and call it a medium of exchange and toilet paper will hold its value longer than fiat currencies will.

Originally Posted by Chrisgorlitz

Why would your competitors labor costs for producing an iron bar be less than yours, ok fine if you have a back load of stock to sell that was produced at the previous higher labor costs and all your competitors were making their products now using cheaper labor costs and you were forced to sell at a lower price to compete I could see how you'd be selling at loss but you'd be the only one doing so. It would just mean that you wouldn't be very competitive, which happens all the time under capitalist systems the most competitive make money and those companies that arn't don't make or lose money it just the way things work. The point is that everyone competes in the same market place in the same conditions if other companies are making money and your not then you are doing something wrong or they are doing something right. Generally speaking for most companies if labor costs go down then they can make their final selling prices for products cheaper which usually results in greater sales volume and more profits, not the other way round.

If you and your competitors all had to pay .05 oz gold per hour to make your bars, and are all selling to workers who now make .045 oz gold per hour, then you're right that at least you're not at a competitive disadvantage. Likely you'll sell fewer bars, but you'll still be able to sell most of your stock.

However, the main problem is investors and capital investment. You have to build your iron bar factory before you can start making iron bars. So, you're going to need to take out a loan. If labor was at .05 oz gold per hour when the factory is built, then your investors had to loan you an amount of money that would be sufficient to get the project done at that price.

Later on, if wages fall to .045 oz gold per hour, your factory will now only be worth 90% of what it was worth when you built it. If the factory were the collateral on the loan, then that means the collateral is only worth 90% of the value of the loan it's being used to back up. Why would you pay off the loan then?

Originally Posted by gonzales56

Originally Posted by kojax

Gold, silver, and diamonds are identical in almost every way to fiat currency, except they aren't susceptible to inflation (at least not as easily.)

All three of them have industrial uses as well, so there is some degree of difference between them and money (which is mostly only good for burning or making clothes out of if you don't want to exchange it.) Gold is an incredibly pliable conductor of electricity, easy to make circuits out of. Silver is the best conductor of electricity, and well diamonds make great drill bits.

But when used as jewelry they have no practical value, other than to indicate status or trade for money later on when you're broke. I can't see any difference between that and money.

Again though, money must be a store of wealth in order to be money. Fiat currencies are not a store of wealth. This is a huge and critical difference between fiat currencies and gold/silver/diamonds.

Fiat currencies do not meet the requirement or definition of money. Anything can be used as a medium of exchange... It does not make them the same as gold, silver or diamonds. Fiat currencies are closer to toilet paper than they are to gold and silver. The only differences between toilet paper and fiat currency is the fact that governments put numbers on one of them and call it a medium of exchange and toilet paper will hold its value longer than fiat currencies will.

That would be ideal. I mentioned already that US dollars used to be exchangeable for gold (so effectively they were gold.)

After the Great Depression, economists decided that, since the cause of the Depression was deflation (an increase in the value of Dollars), they could prevent another Depression if they kept the dollar constantly inflating. They failed to grasp that the increase had actually been an increase in the value of gold, not just Dollars, and increases in the value of gold (or other "true" currencies) are what actually cause depressions.

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

Originally Posted by kojax

. ... They failed to grasp that the increase had actually been an increase in the value of gold, not just Dollars, and increases in the value of gold (or other "true" currencies) are what actually cause depressions.

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

IMHO((yeh, right)

It was $100/bbl oil that finally sent the economy into a spin------meanwhile, we had borrowed to "send in the troops", and had little margin left. And,... most likely wasted most of that on bank bail-outs----meanwhile, China was building out her infrastructure and consuming copper and steel, etc. ... at rates that excceeded any other country.

The utopean model would have the governments ease the suffering and bring the economy(ies?) back to a sound footing.
And, just maybe that will happen, but I don't see how without massive inflation. wherein, comodities will move to a higher level(above real value) for awhile, then settle back into their niche.
That kind of shakeout may take the better part of a generation?

.........
as/re, why pay off a $100 loan when you only have $90 worth of value?
It would make -0- business sense---but, some people would do it out of pride("that's my name on that contract")
and one of the teachings I culled from the greeks was---pride goeth before the fall

(I am happy to not be in that predicament)

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

We had wide economic variability in both commodity prices (wide deflation and inflation of 10%+ in a single year) and economic activity (depression in 1880s) even when we were on a gold standard--in fact things became much more stable afterwards. I don't even think at the time anyone was under the illusion getting off gold was a panacea. It also makes little sense to link to industrial precious metals, such as gold.

Originally Posted by kojax

After the Great Depression, economists decided that, since the cause of the Depression was deflation (an increase in the value of Dollars), they could prevent another Depression if they kept the dollar constantly inflating. They failed to grasp that the increase had actually been an increase in the value of gold, not just Dollars, and increases in the value of gold (or other "true" currencies) are what actually cause depressions.

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

What caused the great depression was people trying to take their money out of bank, and the banks did not have it due to their fractional banking schemes. People lost everything.

The price of gold did not rise, it stayed at 20 dollars an oz between WW1 and 1934. The people did not lose faith in gold, they lost faith in their government and the banking system because they create the mother of all bubbles by manipulating paper dollars/notes, not gold...., so they fled to gold in masses. In 1933 this caused the federal government to outlaw the ownership of gold bullion and demanded that all Americans sell their gold to the United States at 20 dollars an oz.. In 1934, after taking/stealing most of the american peoples gold from them by force or threat of force, the federal government then declared that the price of gold was now 35 dollars an oz, that Americans could not own it even though they just took it from them, and that the united states would only sell the gold to banks and foreigners.

It remained illegal for Americans to have, hold or posses gold until the 1970s when the United States told the rest of the world that they too could no longer exchange US dollars in for gold (foreign governments and banks had put a lot of gold into the treasury in exchange for dollars too). Everyone would and now could, even Americans, buy gold from anyone they wanted to in an "open and free" market.

What caused the great depression was the inflation/increase in currency through a fractional banking ponzi scheme. Banks created far more zeros on their balance sheets than what they had in the vault. Fractional banking is the way of crooks and this type of ponzi scheme counts on people, the victims, to not ask for their money back. This time they did and thus the great depression.

It had and has nothing at all to do with gold. If these crooks would not have ran a fractional banking ponzi scheme then the great depression would have never occurred. However, the crooks would and will tell you they could have gotten away with their crimes and schemes if, and only if, the federal government could have printing all the dollars they needed to cover the scheme but, and because, the dollar was backed by gold, redeemable for gold, they could not just print their way out of trouble. This is how and why they blame gold.

Governments and banks do not like to earn money, they prefer to take it and create it, and all of them do both. However, they cannot do this with gold and silver. Gold and silver keeps them honest or exposes them when they are dishonest and crooked. This is why they hate gold and silver as currency or a backing to currency with a passion.

Gold and silver had to go while fractional banking, free easy artificial wealth and inflation/bubbles needed to stay in place and gold and silver needed to be replaced with a government/fed promise to create all the currency banks, companies and governments needed to cover all their schemes and crooked ways.

What caused the great depression was the inflation/increase in currency through a fractional banking ponzi scheme.

If you're really interested in the structural defects that caused the great depression, I strongly recommend John Kenneth Galbraith.

The Great Crash, 1929 - Wikipedia, the free encyclopedia

The book argues that the 1929 stock market crash was precipitated by rampant speculation in the stock market, that the common denominator of all speculative episodes is the belief of participants that they can become rich without work and that the tendency towards recurrent speculative orgy serves no useful purpose, but rather is deeply damaging to an economy.
It was Galbraith's belief that a good knowledge of what happened in 1929 was the best safeguard against its recurrence.

Originally Posted by adelady

What caused the great depression was the inflation/increase in currency through a fractional banking ponzi scheme.

If you're really interested in the structural defects that caused the great depression, I strongly recommend John Kenneth Galbraith.

The Great Crash, 1929 - Wikipedia, the free encyclopedia

The book argues that the 1929 stock market crash was precipitated by rampant speculation in the stock market, that the common denominator of all speculative episodes is the belief of participants that they can become rich without work and that the tendency towards recurrent speculative orgy serves no useful purpose, but rather is deeply damaging to an economy.
It was Galbraith's belief that a good knowledge of what happened in 1929 was the best safeguard against its recurrence.

I fondly appreciate every opinion and point of view but, speculation, rampant, is the reality of the stock market. Speculation is the stock market and the stock market is speculation. The stock market crash/correction in 1929 did not cause the great depression. The 40 billion dollar retraction/losses in 1929 was a bubble that needed to burst. It burst then it started to strengthen towards the upside again before the great depression hit.

Stock markets do this over and over again though. Up, down, up, down....

Originally Posted by sculptor

Originally Posted by kojax

. ... They failed to grasp that the increase had actually been an increase in the value of gold, not just Dollars, and increases in the value of gold (or other "true" currencies) are what actually cause depressions.

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

IMHO((yeh, right)

It was $100/bbl oil that finally sent the economy into a spin------meanwhile, we had borrowed to "send in the troops", and had little margin left. And,... most likely wasted most of that on bank bail-outs----meanwhile, China was building out her infrastructure and consuming copper and steel, etc. ... at rates that excceeded any other country.

The utopean model would have the governments ease the suffering and bring the economy(ies?) back to a sound footing.
And, just maybe that will happen, but I don't see how without massive inflation. wherein, comodities will move to a higher level(above real value) for awhile, then settle back into their niche.
That kind of shakeout may take the better part of a generation?

I guess I'm trying to point out that deflation/inflation relative to gold is the only thing that really matters. Currency just changes meaning if you print too much of it (until it ultimately means nothing.)

Also inflation of the USD is what employers use to lower worker wages. Your wage stays the same as the value of the dollar falls. You're getting paid fewer ounces of gold per hour, but the same amount of dollars per hour.

.........
as/re, why pay off a $100 loan when you only have $90 worth of value?
It would make -0- business sense---but, some people would do it out of pride("that's my name on that contract")
and one of the teachings I culled from the greeks was---pride goeth before the fall

(I am happy to not be in that predicament)

Yeah. That would be better if everyone had pride so they don't default.

However you've also got to consider what a wise borrower would do. A wise borrower realizes that by the time they can complete the factory, the factory will already be worth less than the value of the loan. Accordingly, the wise borrower never takes out the loan in the first place.

However, the wise borrower knows gold is going to appreciate, so they might take out a loan and buy gold with it. Too bad that doesn't lead to any new manufacturing.

Originally Posted by Lynx_Fox

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

We had wide economic variability in both commodity prices (wide deflation and inflation of 10%+ in a single year) and economic activity (depression in 1880s) even when we were on a gold standard--in fact things became much more stable afterwards. I don't even think at the time anyone was under the illusion getting off gold was a panacea. It also makes little sense to link to industrial precious metals, such as gold.

I don't think going back on gold would solve our problems. I just think economists need to recognize that we never left gold. We're still on it.

The economy doesn't really behave any better or worse with an inflatable fiat currency than it did with a gold backed currency, because when investors get skittish, they're still going to accumulate all the gold they can and throw it under their mattress. When dollars were backed by gold they accumulated dollars. Now that they're not, they trade their dollars away and buy the gold. Not a huge difference.

Originally Posted by gonzales56

Originally Posted by kojax

After the Great Depression, economists decided that, since the cause of the Depression was deflation (an increase in the value of Dollars), they could prevent another Depression if they kept the dollar constantly inflating. They failed to grasp that the increase had actually been an increase in the value of gold, not just Dollars, and increases in the value of gold (or other "true" currencies) are what actually cause depressions.

Their simple patch worked for a long time, but it's faltering now, because investors have started to see the trick for what it is/was. The problem of depressions can't be solved that easily.

What caused the great depression was people trying to take their money out of bank, and the banks did not have it due to their fractional banking schemes. People lost everything.

Yeah. That was the pre-cause. Stocks and banknotes and etc were essentially an inflatable fiat currency that was meant to tie back to a real currency somehow, but ultimately proved to be more of a Ponzi scheme like you say.

Whenever people lose confidence in fiat currencies, they go after gold (or other similar currencies). Then the value of gold rises, and viola! We have deflation.

The price of gold did not rise, it stayed at 20 dollars an oz between WW1 and 1934. The people did not lose faith in gold, they lost faith in their government and the banking system because they create the mother of all bubbles by manipulating paper dollars/notes, not gold...., so they fled to gold in masses. In 1933 this caused the federal government to outlaw the ownership of gold bullion and demanded that all Americans sell their gold to the United States at 20 dollars an oz.. In 1934, after taking/stealing most of the american peoples gold from them by force or threat of force, the federal government then declared that the price of gold was now 35 dollars an oz, that Americans could not own it even though they just took it from them, and that the united states would only sell the gold to banks and foreigners.

Deflation is when the value of a currency goes up. The value of gold went up. If people were losing faith in gold, that would cause inflation (since gold and dollars were the same thing.)

So, basically you and I are on the same page about this.

What caused the great depression was the inflation/increase in currency through a fractional banking ponzi scheme. Banks created far more zeros on their balance sheets than what they had in the vault. Fractional banking is the way of crooks and this type of ponzi scheme counts on people, the victims, to not ask for their money back. This time they did and thus the great depression.

Inflation of the fiat currencies. Yes.

Speculation is the stock market and the stock market is speculation. The stock market crash/correction in 1929 did not cause the great depression.

That's a common view. Galbraith argues that it was exactly and entirely stock market speculation that caused the crash.

I can still remember sitting in open-mouthed awe at the nerve of our Economics lecturer stating, unequivocally, that the role of the stock market was to direct funds to profitable enterprises in order for investors to earn dividends from those profits. No mention at all of speculation or short trading or anything else. This was in the early 70s - just as Australia's mining shares, in fact the whole stock market, were reeling from the incredible collapse of a mighty bubble.

Economics still treat these stockmarket lunacies as unpredictable events, when everybody knows that they're an inevitable outcome of lack of appropriate regulation of the market itself. Galbraith makes it very plain. It's also true of lack of regulation of the financial sector regardless of how share markets are managed (or mismanaged).

(I highly recommend it. Not very long. Not technical at all. Just good history and good economics well described.)

Speculation is another kind of inflating currency, really. All the money people hope they'll make becomes trade-able as currency now even though it hasn't actually realized a return yet.

Think about the sub prime mortgage debacle, or cases where debt gets repacked and then sold to a third party who holds their certificates like they were treasury bonds or something. What's really getting sold is future income that doesn't exist yet. And of course, there's no upward limit on how much false hope you can print and pass around as money.

The bankers who printed it much be having a big laugh at seeing so many people fall for it and trade them real wealth for those worthless slips of paper. They can keep doing it too, just have to think up a different name for it next time.

Originally Posted by kojax

Speculation is another kind of inflating currency, really. All the money people hope they'll make becomes trade-able as currency now even though it hasn't actually realized a return yet.

Think about the sub prime mortgage debacle, or cases where debt gets repacked and then sold to a third party who holds their certificates like they were treasury bonds or something. What's really getting sold is future income that doesn't exist yet. And of course, there's no upward limit on how much false hope you can print and pass around as money.

The bankers who printed it much be having a big laugh at seeing so many people fall for it and trade them real wealth for those worthless slips of paper. They can keep doing it too, just have to think up a different name for it next time.

Ironically enough, those are called mortgage backed securities, which as of right now, the fed is creating us dollars out of thin air at a pace of 40 billion a month in order to trade it for these pieces of paper.

40 billion a month.. To put that into perspective....

There are 10 million housing units in the entire state of Texas. The median value of those units are $123,500. The 40 billion a month the fed is spending on mortgaged back securities is equal to the fed buying 323,886 housing units in Texas every month. In less than three years the mortgaged backed securities the fed will have bought will be equal to every housing unit in the entire state of Texas. This means every mansion, every apartment, every condo, every home, etc...

So basically, we're inflating one currency in order to buy another inflating currency.

It makes me chuckle that so many government officials think they're going to be able to increase the rate of home ownership in America. Do they never stop and consider the absurdity of that? If there are a more or less fixed number of homes to own, ...... then how can you increase the number of people who own them? How can there be more owners than there are houses (and more importantly: plots of land on which for the houses to sit)?

How stable, and or recoverable, is the American Economy at the present time? ( October,2012). Would a change of Policy making Party in the Whitehouse be in a real position to recover the American Economy? All the Gold reserves held at fort Knox have at least evaluated, ( at the present time ), so there is some justification to roll the Printing Presses to try and hold the Line. But this paper money from your Poste has not been put to work creating Jobs, real Developement jobs. Proping up house prices is not my idea of running a Countrys Economy. Free market Economies only work when you are getting real value for the trade, infrastructure value, not consumer value. American Economy seems very fragile and brittle from where I sit. The balancing Act between Inflation and Deflaction hasn't really begun as yet, the Economy being in need of pure oxygen. great lungfulls. And a realistic evaluation of where any type of Economic Policy inacted by any Party would be sufficiently thought out and robust to ensure future economic health. The Economic World has Changed. The Time has passed where Speculative Government Policy can be substained. It can't and it will no longer succeed. Aradical approach and reassessment is now required. Just look back and see where the British Economy has been since the Second World War. And where it is now. What I mean here is, struggle, struggle, struggle. And still end up in the shit. No, radical re-birth of a different kind of Economic reality is required in the United States. And any kind of ""paper over the cracks"" will only bring on Pay Back Day. I love America and only Poste because I am worried for its Future. westwind.

Originally Posted by kojax

So basically, we're inflating one currency in order to buy another inflating currency.

It makes me chuckle that so many government officials think they're going to be able to increase the rate of home ownership in America. Do they never stop and consider the absurdity of that? If there are a more or less fixed number of homes to own, ...... then how can you increase the number of people who own them? How can there be more owners than there are houses (and more importantly: plots of land on which for the houses to sit)?

The US builds over a half a million homes a year--the number of homes is not a fixed number.

Originally Posted by Ascended

"The massive U.S. tax cuts between 1981 and 1984 provided something approximating a laboratory test of these alternative views. What happened? The private saving rate did not rise. Real interest rates soared. With fiscal stimulus offset by monetary contraction, real GNP growth was approximately unaffected; it grew at about the same rate as it had in the recent past."

Thanks to: Alan S. Blinder Professor of Economics at Princeton University

Obviously Mitt Romney's tax plan is a mute point other than in some alternative (better) earth. However, the above statement is certainly not how I remember things. Interest rates soared in the eighties? That's completely untrue. Interest rate peaked around 1980 and then went down.



As for GDP:


Am I wrong?

Whilst as an overall percentage of the total tax burden the top 10% were paying 57.2% of total income taxes by 1988 as opposed to the 48% being paid in 1981, but what did that really mean? Well in practice what actually happened was the top rate of tax fell from 70% to 50% and the bottom rate dropped from 14% to 11%. So what this really meant was the very richest were being given massive tax breaks over what they had previously, this in turn cost the American economy from lost revenues and held back economic expansion of which the real effects are still being felt to this day and laid the ground work for a whole new level of taxation policy, and by the time it was really learned just what the long term repercussions could and would indeed go onto be, it was already to late to really alleviate many of the long term effects.



Caveat: In a modern context, and bearing in mind current economic conditions and foreign tax policies it should be noted that even a 50% top tax rates seems extremely high and to be competitive most countries should aim for between 35% - 45% for their top tax rate to be considered sensible.