Footwedge wrote: Basically, speculators are the ones putting values to greenbacks. That is a scary, scary environment indeed.

Speculators put the value to gold, oil and many other commodities. A commodity backed currency is ultimately not going to function any different than a fiat currency - subject to speculative runs and inflation from demand spikes (of the underlying commodity for production). Thank you for making my point.

The FDIC insures the nominal value of money, not the real value. A person saving in this economy is having their savings eroded in a savings account or CD as the rate of inflation is higher than the return they get through interest. But of course you probably blame the person because they aren't taking enough risk to counteract the government stealing from them through intentional inflation of the money supply.

A person is naturally driven to seek a higher return on their money to provide a better opportunity for their families. An economy that doesn't create bubbles through interest rates being too low or inflates the money supply through reckless printing or adding zeros to a banks acccount electronically, encourages more investment, not less. Investors have a truier picture of the market without government distortion and can make smarter investments with less risk. This current economy being masterminded by the government encourages people to be scared, leading to them to put their money under the mattress - which I agree is not the proper thing to do.

A currency backed by a commodity limits how much a government can create. A smaller money supply makes the currency more valuable and puts it into line with the real wealth of a nation, what we produce, over a fiat system that the government can print an endless supply of fiat notes.

Government created jobs are fake growth because the government has to take resources away from the private sector that then aren't available to grow the economy through private investment. The government can't make a pie bigger, it can only consume pieces of the pie.

My thoughts on various points made throughout this thread that I am not going to hunt down and quote.

1. How did the whole bank mess happen? Well, in my opinion, as quickly as I can: Since Carter was in office, the government has been trying to get more people to own a home. In Fannie Mae and Freddie Mac you have had government backed entities buying mortgages. No government backed company has to worry about losing money, so they operate on politics only. When the government wants people to get mortgages, Fannie and Freddie will buy them. When more people buy houses, property prices go up. When property values went up non stop and at unsustainable rates, banks began selling and trading their instruments secured by these mortgages and properties. The reason they were willing to do this is because they were allowed to get too big.

When the Republican Congress and President Clinton signed Graham-Leach-Billey to allow investment banks combine with traditional banks exasperated the problem, but only the biggest banks got caught up in this mess anyway, mainly because they knew that the government would never let them fail. Small banks weren't hit nearly as hard if at all. You can say deregulation made this problem worse, and from a narrow point of view, it did, but these huge banks should have been broken up long ago. Then they wouldn't have been so anxious to get involved in the risky derivatives game regardless of regulations.

2. On outsourcing. I am far from a protectionist, in fact I am in favor or completely free trade with everyone. I do, though, recognize that there is a problem. We do bring a lot of jobs from overseas, but not as many as we lose. Our trade deficit is over a half trillion dollars. Even though a lot of that is oil, it is still too high. The problem is that we are not competitive here. Wages are artificially high to compete globally. They have to be high though because our inflationary monetary policy has driven up prices. Which brings me to...

3. On monetary policy. Obviously our money supply has to grow to keep up with population growth as well as economic growth. It is my opinion though, that inflating it too much has left us uncompetitive globally. Someone said that deflation is bad for economic growth, which is true to an extent. Of course it is bad for the numbers we use to look at our economy. If the dollar was worth twice what it is, then our GDP could be half of what it is with no change in quality of life. Of course the smaller number looks bad, but it isn't necessarily bad unless you go too far with it. If from the very start we had grown our money only by the change in economic and population growth, then our GDP would be much less than it is, our dollar would be worth much more, wages would be much lower, companies would have no reason to open up overseas, etc.

Also, government involvement in any area of the economy causes prices to skyrocket in those industries (see college tuition, health care costs, etc.) causing the need for politicians to buy votes by helping people afford the things that they can't because the government got involved in the first place.

Since we have inflated the dollar so severely, and the government has it's hand in so much of the economy, as well as the biggest of companies holding virtual monopolies in many industries, our wages have needed to be inflated to keep up with rising prices, and as a result we can't compete with new markets that haven't done the same damage to themselves yet.

Cleveland, part of the reason why we are inflating is our national wealth, our productivitiy, is down in terms of real value over to what it has been decades before. Even if we could significantly increase the value of the dollar and bring our nominal wages down but keep their real value, I'm not sure we could still compete as good as we need to to increase our productivity because of wages being so low in the third world and their environmental standards being almost non existent in some cases. I don't want to be protectionalist but we can't continue to allow all these jobs - and productivity - to leave because it digs the hole deeper.

It's been happening for 90 years though. Maybe it has been worse recently, but it is not happening just because of a loss of productivity. And keep in mind that we don't have to drop wages all the way to what they are in India or Mexico. As long as we are close enough it won't be worth it for companies to move the jobs over there.

That said, it is too far out of whack to fix. No matter how strong the dollar gets and how cheap bread or milk or gas or housing is, no one would accept the wages that would accompany that price deflation.

gut wrote:

Footwedge wrote: Basically, speculators are the ones putting values to greenbacks. That is a scary, scary environment indeed.

Speculators put the value to gold, oil and many other commodities. A commodity backed currency is ultimately not going to function any different than a fiat currency - subject to speculative runs and inflation from demand spikes (of the underlying commodity for production). Thank you for making my point.

Hey no problem gut...I enjoy the discussion....but had to get a TO, baby...if you know what I mean.

I agree that precious metals are also speculative in placing a value to it. But it doesn't change the fact that over the course of history, governments backed their currency with metals. (Going back 2000 years). By not doing so today, there is no limiting paramaters (or very little) in controlling the credit expansion rage.

It also entails debts be paid with a nod and a wink. Back in the 60's, countries used to "settle their debts" by shipping gold to the creditor nations. That to my knowledge, is a thing of the past.

If the US backed it's currency with gold (or silver) today, China would not be sabre rattling about the money that we owe them.

Cleveland Buck wrote: It's been happening for 90 years though. Maybe it has been worse recently, but it is not happening just because of a loss of productivity. And keep in mind that we don't have to drop wages all the way to what they are in India or Mexico. As long as we are close enough it won't be worth it for companies to move the jobs over there.

That said, it is too far out of whack to fix. No matter how strong the dollar gets and how cheap bread or milk or gas or housing is, no one would accept the wages that would accompany that price deflation.

Just food for thought for those that have contributed to this thread....one of the best ever IMHO.

The developed countries....the US, Japan, and the European block all have to incorporate a lump sum 'social net" cost in doing business. We have workman's comp, we have unemployment comp, FICA, Health and Safety, etc. Even minimum wage laws add to the cost of doing business in the developed countries.

Now we are globalized....yet certain countries that don't have any of these "safety net" overhead are the ones that are winning.

German author Gabor Steingart wrote this book...

http://www.amazon.com/War-Wealth-Story-Globalization-Broken/dp/0071545964/ref=sr_1_1?ie=UTF8&s=books&qid=1264046463&sr=1-1

...And he opens up the forum in how to address these issues.

Nobody wants to stifle 3rd World Countries in become players in the overall market. But the playing field can and should be leveled for those countries that have set the standard in working hard and developing wealth.

What I thinks needs to be done may not be the answer. But what I do know, without some major think tanks kicking into high gear, the US will deteriorate to a country status far less than what we deserve.

Equal playing field==Americans continue to prosper. Unequal playing field, we can only lose.

bman618 wrote: The FDIC insures the nominal value of money, not the real value. A person saving in this economy is having their savings eroded in a savings account or CD as the rate of inflation is higher than the return they get through interest. But of course you probably blame the person because they aren't taking enough risk to counteract the government stealing from them through intentional inflation of the money supply.

Yes, it's true now (or is it, I can still get a 1yr cd @1% and what's inflation doing right now?) and has been true in the past. In the long-run, cd's have outpaced inflation.

Footwedge wrote: It also entails debts be paid with a nod and a wink. Back in the 60's, countries used to "settle their debts" by shipping gold to the creditor nations. That to my knowledge, is a thing of the past.

If the US backed it's currency with gold (or silver) today, China would not be sabre rattling about the money that we owe them.

I get the restraint controls, and it's the one aspect of the argument I agree with.

But I don't think in today's economy that it would work the same way, if at all. Paper currency is becoming increasingly obsolete, yet the "money supply" and GDP continues to grow. I believe the economy is too complex for a commodity backed currency, and to the extent this "control" would interfere with completing transactions, then the market already has a way around that - this guy wants to buy 1000yen worth of goods from Japan and this guy in Japan wants to buy $10 worth of US goods and a series of wire transfers later the offsetting transactions are credited, ultimately, to the US and Japan suppliers.

Currency, at its most base purpose, exists to facilitate transactions. A commodity backing provides transparency and a point of reference. But in today's global economy with the internet and goods going all over the place that advantage of a backed currency continues to diminish.

bman618 wrote: The FDIC insures the nominal value of money, not the real value. A person saving in this economy is having their savings eroded in a savings account or CD as the rate of inflation is higher than the return they get through interest. But of course you probably blame the person because they aren't taking enough risk to counteract the government stealing from them through intentional inflation of the money supply.

A person is naturally driven to seek a higher return on their money to provide a better opportunity for their families. An economy that doesn't create bubbles through interest rates being too low or inflates the money supply through reckless printing or adding zeros to a banks acccount electronically, encourages more investment, not less. Investors have a truier picture of the market without government distortion and can make smarter investments with less risk. This current economy being masterminded by the government encourages people to be scared, leading to them to put their money under the mattress - which I agree is not the proper thing to do.

A currency backed by a commodity limits how much a government can create. A smaller money supply makes the currency more valuable and puts it into line with the real wealth of a nation, what we produce, over a fiat system that the government can print an endless supply of fiat notes.

Government created jobs are fake growth because the government has to take resources away from the private sector that then aren't available to grow the economy through private investment. The government can't make a pie bigger, it can only consume pieces of the pie.

Can't argue in that...a pretty good post.

bman618 wrote:Government created jobs are fake growth because the government has to take resources away from the private sector that then aren't available to grow the economy through private investment. The government can't make a pie bigger, it can only consume pieces of the pie.

Precisely. Proponents of Big Government are blind to this fact.

It's at worst a troubling unhealthy parasitical relationship with the private economy and at best a precarious symbiotic one that never grows the pie and rarely adds value.

believer wrote:

bman618 wrote:Government created jobs are fake growth because the government has to take resources away from the private sector that then aren't available to grow the economy through private investment. The government can't make a pie bigger, it can only consume pieces of the pie.

Precisely. Proponents of Big Government are blind to this fact.

It's at worst a troubling unhealthy parasitical relationship with the private economy and at best a precarious symbiotic one that never grows the pie and rarely adds value.

"Big Government" is such a cliche and a big cop-out. Since I am assuming you are referring to the Federal government and not your State, local or City government, which specific Federal departments do you propose to eliminate?

Bigdogg wrote:"Big Government" is such a cliche and a big cop-out. Since I am assuming you are referring to the Federal government and not your State, local or City government, which specific Federal departments do you propose to eliminate?

Let me count the Big Government ways:
[size=x-small]
Administration for Children and Families (ACF)
Administration for Native Americans
Administration on Aging (AoA)
Administration on Developmental Disabilities
Advisory Council on Historic Preservation
African Development Foundation
Agency for Healthcare Research and Quality (AHRQ)
Agency for International Development
Agency for Toxic Substances and Disease Registry
Agricultural Marketing Service
Agricultural Research Service
AMTRAK (National Railroad Passenger Corporation)
Animal and Plant Health Inspection Service
Appalachian Regional Commission
Architect of the Capitol
Architectural and Transportation Barriers Compliance Board (Access Board)\
Arctic Research Commission
Arthritis and Musculoskeletal Interagency Coordinating Committee
Bureau of Indian Affairs (BIA)
Bureau of Reclamation
Bureau of the Census
Center for Nutrition Policy and Promotion
Centers for Disease Control and Prevention (CDC)
Centers for Medicare & Medicaid Services
Commission of Fine Arts
Commission on Civil Rights
Commission on International Religious Freedom
Commission on Security and Cooperation in Europe (Helsinki Commission)
Committee for Purchase from People Who Are Blind or Severely Disabled Committee for the Implementation of Textile Agreements
Department of Education (ED)
Department of Energy (DOE)
Department of Health and Human Services (HHS)
Department of Labor (DOL)
Disability Employment Policy Office
Environmental Protection Agency (EPA)
Equal Employment Opportunity Commission (EEOC)
[/size]

....I can go on but I think you get my point.

believer wrote:

Bigdogg wrote:"Big Government" is such a cliche and a big cop-out. Since I am assuming you are referring to the Federal government and not your State, local or City government, which specific Federal departments do you propose to eliminate?

Let me count the Big Government ways:
[size=x-small]
Administration for Children and Families (ACF)
Administration for Native Americans
Administration on Aging (AoA)
Administration on Developmental Disabilities
Advisory Council on Historic Preservation
African Development Foundation
Agency for Healthcare Research and Quality (AHRQ)
Agency for International Development
Agency for Toxic Substances and Disease Registry
Agricultural Marketing Service
Agricultural Research Service
AMTRAK (National Railroad Passenger Corporation)
Animal and Plant Health Inspection Service
Appalachian Regional Commission
Architect of the Capitol
Architectural and Transportation Barriers Compliance Board (Access Board)\
Arctic Research Commission
Arthritis and Musculoskeletal Interagency Coordinating Committee
Bureau of Indian Affairs (BIA)
Bureau of Reclamation
Bureau of the Census
Center for Nutrition Policy and Promotion
Centers for Disease Control and Prevention (CDC)
Centers for Medicare & Medicaid Services
Commission of Fine Arts
Commission on Civil Rights
Commission on International Religious Freedom
Commission on Security and Cooperation in Europe (Helsinki Commission)
Committee for Purchase from People Who Are Blind or Severely Disabled Committee for the Implementation of Textile Agreements
Department of Education (ED)
Department of Energy (DOE)
Department of Health and Human Services (HHS)
Department of Labor (DOL)
Disability Employment Policy Office
Environmental Protection Agency (EPA)
Equal Employment Opportunity Commission (EEOC)
[/size]

....I can go on but I think you get my point.

There is no money really in those. You need to attack the big 3, that's where the money is at. It also doesn't help that soon we will be paying roughly $500 billion a year in interest that can't be cut because of 30 years of profligate spending and failure to make tough choices.

^^^Fully understood. HOWEVER, we waste billions on redundant, bloated and inefficient programs like these and many more. Eliminating, consolidating and downsizing these departments would certainly help...in addition to looking at the Big 3.

It's pretty simple. We have to get out of Afghanistan and Iraq, and then we can halve our military budget and still be double the next 15 countries combined or something ridiculous like that.

It's impossible to justify our military spending, especially now that terrorism seems a much bigger threat. We've poured money into military to reduce casualties when we have to go to war. The answer there is more carrot, less stick and probably becoming much smarter and efficient with our military spending for R&D.

Then you'll have to raise taxes some. Unavoidable. Keep in mind, however, that collections are largely independent within a very wide band of the tax rates, so as a solution really kind of a red herring. But we could probably squeeze another $100-$200B out without adversely impacting the economy.

Finally, just go with a 10% cut on everything across the board, in particular entitlements. Take politics and the tough decisions out of the equation. I'd bet when given an ultimatum most departments can cut 10% without making any big sacrifices. Then suddenly the budget is balanced with a surplus left over to start paying down the debt.

A 10% cut would be tough to swallow (maybe cut benefits 5% and raise FICA 5%), but not unmanageable (even thinking specifically of SS). However, the longer we put this off then the necessary cut will get higher and become unmanageable and politically completely untenable.

We spent over $2 trillion this year in non-military spending, and they want to put health care on that bill. While a 10% cut ($200 billion) would be better than we can expect, it isn't nearly enough.

Cleveland Buck wrote: We spent over $2 trillion this year in non-military spending, and they want to put health care on that bill. While a 10% cut ($200 billion) would be better than we can expect, it isn't nearly enough.

Well, when you take out the one-time stimulus, the war costs, and then cut military in half, you get very close to a balanced budget at the bottom of the economic cycle:
Call it $2.4trillion in revenues. Let's take a look at the 2009 budget (excl. stimulus) before all the expansion of entitlements:
1) Mandatory spending (excluding interest) = $1.63 trillion (incredibly this number increased $350B this year!)....10% cuts that to $1.47 trillion
2) Non-military spending = $700B (this is $770B this year!)...10% cuts that to $630B.
3) Military spending (excluding the wars)= $515B (incredibly, increasing @$30B but offset by war spending!). Cut that a little more than 40% and we have $300B
4) $168B interest on federal debt

Above total = $2.568trillion. I think you can squeeze out that difference with an increase in taxes. When the economy begins to fully recover, you have higher tax revenues to start paying down the deficit.

Just look at the increases I highlighted....Total of $450B in increases, almost 20%. That is WAYYYYY beyong anything remotely approaching fiscal responsibility. We are hemorrhaging money and you've increased base spending almost 20%!. Simply incredible, every major category is up 5-10% pretty much across the board.

Some good points. Why should we except one penny in increased taxes? The federal government can't reign its spending in. We should not give them one penny more of our hard earned money until they pass balanced budget amendment. They can be trusted no other way.

gut wrote:Above total = $2.568trillion. I think you can squeeze out that difference with an increase in taxes.

When the Porkulus Congress and the Porkulus POTUS cut wasteful government spending, I'll be happy to entertain their reasoning for dipping deeper into my wallet.

gut wrote:When the economy begins to fully recover, you have higher tax revenues to start paying down the deficit.

True but raising taxes first isn't going to spur the economy towards true recovery.

IggyPride00 wrote:

believer wrote:

Bigdogg wrote:"Big Government" is such a cliche and a big cop-out. Since I am assuming you are referring to the Federal government and not your State, local or City government, which specific Federal departments do you propose to eliminate?

Let me count the Big Government ways:
[size=x-small]
Administration for Children and Families (ACF)
Administration for Native Americans
Administration on Aging (AoA)
Administration on Developmental Disabilities
Advisory Council on Historic Preservation
African Development Foundation
Agency for Healthcare Research and Quality (AHRQ)
Agency for International Development
Agency for Toxic Substances and Disease Registry
Agricultural Marketing Service
Agricultural Research Service
AMTRAK (National Railroad Passenger Corporation)
Animal and Plant Health Inspection Service
Appalachian Regional Commission
Architect of the Capitol
Architectural and Transportation Barriers Compliance Board (Access Board)\
Arctic Research Commission
Arthritis and Musculoskeletal Interagency Coordinating Committee
Bureau of Indian Affairs (BIA)
Bureau of Reclamation
Bureau of the Census
Center for Nutrition Policy and Promotion
Centers for Disease Control and Prevention (CDC)
Centers for Medicare & Medicaid Services
Commission of Fine Arts
Commission on Civil Rights
Commission on International Religious Freedom
Commission on Security and Cooperation in Europe (Helsinki Commission)
Committee for Purchase from People Who Are Blind or Severely Disabled Committee for the Implementation of Textile Agreements
Department of Education (ED)
Department of Energy (DOE)
Department of Health and Human Services (HHS)
Department of Labor (DOL)
Disability Employment Policy Office
Environmental Protection Agency (EPA)
Equal Employment Opportunity Commission (EEOC)
[/size]

....I can go on but I think you get my point.

There is no money really in those. You need to attack the big 3, that's where the money is at. It also doesn't help that soon we will be paying roughly $500 billion a year in interest that can't be cut because of 30 years of profligate spending and failure to make tough choices.

You do realize that a no sane politician could even purpose even half of those cuts.

Bigdogg wrote:You do realize that a no sane politician could even purpose even half of those cuts.

Define "sane politician." A courageous, forward-thinking leader would find a way to do what's necessary.

With that said, tell me why we can't - at the very least - consolidate, downsize and eliminate the waste.

Examples: Why do we need both a Bureau of Indian Affairs and an Administration for Native Americans? Why do we need an Agency for Toxic Substances and Disease, a Center for Nutrition Policy and Promotion, an Agency for Healthcare Research and Quality, a Centers for Disease Control and Prevention, a Centers for Medicare & Medicaid Services, and a Department of Health and Human Services?

There are many more examples.

It's absurd, unnecessary and clearly demonstrates a boated, inefficient Big Government that needs some consolidation and downsizing.

gut wrote:

Footwedge wrote: Basically, speculators are the ones putting values to greenbacks. That is a scary, scary environment indeed.

Speculators put the value to gold, oil and many other commodities. A commodity backed currency is ultimately not going to function any different than a fiat currency - subject to speculative runs and inflation from demand spikes (of the underlying commodity for production). Thank you for making my point.

You are correct, speculators do put the value to the commodities that back money. The difference between that and a fiat system is that the government can't create gold or any other commodity out of thin air like they do with paper money. A fiat monetary system COULD work, if run correctly and free of corruption. But that will NEVER happen. It's like communism, good in theory but not practical to real life situations because the politicians can't honestly run it.

With no commodity to back currency (not necessarily gold, but some form of commodity), there's no way to protect your money from inflation. I understand the virtues of a fiat monetary policy, but they are unpractical at best. The only offer short-run solutions, and cause booms and busts when run for the long term (like since the end of Brenton Woods).

Our founders knew we'd get bad politicans. Heck there were some founders who thought others were bad - i.e. Jefferson and Hamilton - and that's why a majority of the founders wanted to give the government very few powers. That's why we are also supposed to be a natural law country.

I see us defaulting on our debt because our politicans lack backbone and too many of our citizens won't give up the left-right bullcrap and not hold these major parties to account. Our citizens also won't see past party to embrace values many Americans still have - leave me the heck alone, quit spending us into the grave, fair trade, etc. If we were honest about repaying this thing off, we probably needed to set that course when Perot was talking about it in the early 90s. We produced much more than we do now in terms of real value and we also had far less debt.