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Post by nu-monet v6.0
Post by polar bear
Post by nu-monet v6.0
So I'm still waiting for the why America should fail.
Depends what you mean by fail. Britain is still
around, so is Spain. I'm not predicting utter catastrophe,
although it might seem that way to some. Just a reduction
in stature. A come-upance.
Once again, though, there just doesn't seem to be a reason
for it to happen. Spain had all of its specie depleted,
once the New World was out of reach. Britain had its upper
and middle classes devastated by WWI and was hopelessly
overextended in its empire, like Rome.
So, you're saying there's gold in Fort Knox? OK, show me the gold.
Let's see an audit. They won't allow that you know. You're expected
to just believe them when they tell you it's there.
Post by nu-monet v6.0
A banking crisis is almost entirely imaginary numbers,
though, with vast amounts of capital based on nothing,
that are nothing and do nothing, existing on computers
only to keep the books balanced.
Sorry, this is just wrong. Every financial claim ever issued is a
claim against production. That's what money is, ultimately. A claim
against production. So, when anyone, anywhere, anytime defaults, the
result is a loss of production. Think it through. If I can't pay
back what you lent me, then you are poorer and can't buy a new car or
invest in Ford Motors. Either way production declines. When massive
speculative positions go south, they either wipe out the speculator,
some bank, or result in new claims against government revenue. In
every case, capital shrinks, and production declines.
Post by nu-monet v6.0
For instance, currency exchange rates, a simple model,
only matter when currency is exchanged. Within each
country, currency has a value independent of the rate,
often even if there is great fluctuation.
Any currency with an official value different from the real rate of
market demand will generate either a carry trade or a black market.
In either case, money that would otherwise be invested in production
gets diverted into speculation.
Post by nu-monet v6.0
Granted, if you get leaders who are willing to pervert
the system for a select few, like the hedge fund
billionaire bailout of a few years ago, you're asking
for trouble, but only because you are supporting
imaginary money with real money, i.e. taxpayer dollars.
That is exactly what I'm talking about. The US has issued financial
claims beyond it's ability to pay. When it can longer borrow
sufficent funds to roll over these debts, the taxpayer is going to get
hit. You're already seeing it in California. Try telling people in
Orange County that their losses were imaginary. Even if the Fed did
bail them out, they still get part of the bill as federal taxpayers,
along with everyone else in America. Even those who don't pay taxes
will get hit in terms of reduced services.
Post by nu-monet v6.0
But there are natural limits to hanky-panky like this.
For example, the Laffer Curve, while a whipping boy by
modern economists who really hate the idea, still has
validity. In other words, the government *can't* tap
real money too much, or the real money stops coming.
Bwaha! I laugh at your Laffer curve! The government doesn't need to
take your money at gunpoint - it only has to inflate the money supply.
When you print more dollars, their value goes down. However, at the
beginning the government gets to spend the new dollars at parity with
the old ones because the market hasn't had time to adjust. Eventually
prices adjust upwards and the cost of living rises, with pensioners
paying the highest effective tax because their income is fixed.
Notice I said tax. The difference between the old value and the new is
a tax. No other word for it, except perhaps theft.
Post by nu-monet v6.0
Second, the government can't just print money to inflate
itself out of its woes, ala Jimmy Carter. Bill Clinton
was more successful in issuing lots of long term bonds
so he could benefit now, and someone else would have to
pay later. But still woefully inadequate to influence
the "real world."
The government is doing EXACTLY that. Printing money.
"the U.S. government has a technology, called a printing press (or,
today, its electronic equivalent), that allows it to produce as many
U.S. dollars as it wishes at essentially no cost.
-Federal Reserve Governor Ben Benanke
http://www.kitco.com/ind/Appel/dec232002.html
You should have seen the reaction in the bond market to that particular
canard.
Post by nu-monet v6.0
And real money pushes imaginary money around. A marginal
shift in real money is the difference between a "good
economy" and a "recession" *despite* what imaginary
money does.
I can't say this enough. There's no such thing as imaginary money.
Every financial claim is ultimately a claim against production. If
those claims aren't met, real money is gone and production will
decline.
Post by nu-monet v6.0
Almost all of Bill Gates' wealth is in imaginary money.
Beyond a few million in pocket change, it's all tied up
in stock or being used to support his tax avoidance
charities. Ironically, if he even wanted to have a
billion dollars of real, liquid funds, it would cost
him a dozen billion dollars of imaginary money value.
That's true, but what happens when this imaginary wealth evaporates, as
in the case of Enron for example? Don't forget, real money, as you
call it, went into buying that stock in the first place. That money is
gone.
Post by nu-monet v6.0
And that's where 'adjustment' comes in. The banking
crisis that seems to be happening right now, is totally
leveraged by real money. So when the correction happens,
it will only take a modicum of real money to put things
right.
And just where is that money going to come from? Someone is going to
have to sell assets to raise it. (stocks, bonds, real estate) That
will drive down the price of the collateral backing the loans. A
classic debt trap. I'll just add that the real crisis hasn't arrived
yet, and in fact isn't even on most people's radar. It's the GSEs.
Fannie and Freddie now account for nearly half the US mortgage market.
The US government is on the hook massively here, should they fail. The
last time I looked, Freddie's capital ratio, was 50 to 1. 50 to
f*cking 1. Do you know how insane that is? The minute long rates go
up, these guys are toast.
Post by nu-monet v6.0
So this is why I concentrate on the tried-and-true old
economy activities, especially mining. Mercantilism,
by the old definition, ruled the world for centuries.
My "New Mercantilism" just properly enlarges it to
include those things that make a nation strong. And
that includes only "real" economic effects.
Myself, I try not to fixate on any one variable. Mining is no doubt
important, but it's only one aspect of the total equation.
Post by nu-monet v6.0
And the US has those in abundance. Plus, a major brain
drain on the rest of the world. Nothing succeeds like
success.
If sucking the life blood from every living thing on the planet is the
definition of success, then yeah, the US certainly qualifies. It's
hard to sell stuff to a dead guy, though. Benign parasitism is a
better approach, symbiosis would probably work better, if given a
chance.
OK, I'm tired and I've burned far too many calories on this stuff
already. Like I said, I come here mainly to sing songs and have fun
and this sh*t isn't fun. It's work. Literally. It's what I do.
So I'll just let Murray take it from here.
http://www.mises.org/money.asp
He explains this stuff way better that I ever could. Seriously, read
his paper and see if you don't come away with a totally different view,
as I did. Mises, Hayek, Minsky, Rothbard. The Austrian crew. These
guys nailed it, especially Rothbard, and I'm not talking Libertarianism
either. Those guys are just lamoras hitching a ride.
pb
