soulshaver wrote:
So you admit this is a problem. I am going to continue to call fractional reserve lending credit "fake currency." I think the mortgage crisis is an obvious example why.
No. I said it's only a problem if a significant percentage of those borrowing money default on their loans. Something that doesn't happen if the lenders are free to set the terms. When government comes in and forces lenders to give out loans at low interest rates as part of some scheme to pursue a political agenda *then* you increase the chances of a crisis like the one we're in right now.
You want to give all of the power to the exact same organization that consistently makes bad economic decisions to pay for the political agenda of the moment. I think that's a really really bad idea. What the current mortgage crisis should be teaching us is that we need less government interference in the lending market, not more.
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This is my primary complaint, followed by the structure of the Fed, and then by the fact that our dollar is backed up by debt which is our future labor efforts (income tax,) instead of some asset we already own as a government.
No. Debt is backed by future labor. The dollar is backed up by the ration of the number of dollars in circulation to the GDP. Period. You're over thinking this and munging together multiple different factors to make it seem like one thing has a broader scope than it does. Those are two different things. What we back our currency on has *nothing* to do with the effect of government borrowing on the economy. The government can do that just as easily under a gold standard as a floating standard.
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Right now we are just printing money and giving it to the banks. You want 300 billion? Here ya go. Oh what you needed 700 billion? Here take whatever you want I am just borrowing it from future generations anyway.
No. We're not. How many times do I have to say this? Show me where the Fed is adding an additional amount of currency into circulation to cover the money that the government is spending on bailouts right now. They are *not* the same thing. The Fed will adjust currency as needed based on economic factors. This has *nothing* to do with the government borrowing money. It can do that without the Fed putting more total cash into circulation.
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Are you actually making the case that the Fed has done a good job of controlling inflation?
Over the last 30 years? Absolutely. I'll repeat what I said much earlier in the thread. Most of us have lived out entire lives under economic conditions with low inflation and simply don't understand what "high" inflation actually looks like.
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Congress decides what the certain amount is, and it becomes law, not whatever some political appointee of the President.
Lol. The same Congress that can't control its spending urges? Right now, the fact that Congress has to borrow money if it's short is the only thing preventing them from just going spend-crazy (and some argue that even that's not enough). Allow them to control how much money is added into circulation each year, and they'll keep finding reasons to bump it up more and more. It's a recipe for disaster...
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Are you seriously suggesting that the people of the United States don't have a vested interest in making sure the economy doesn't collapse?
Of course they have a vested interest. But while "a person" will say it's important not to over spend or over-print new money, "the people" will always do so.
Do I have to go over the whole "Red/Green Game" example to illustrate why? Even when everyone in a system knows that doing something that helps some of them in the short term but hurts all of them in the long term is a bad idea and they shouldn't do it, they will not be able to avoid it because inevitably some of them will go for the short term gain, then some more will want to because they see others doing it, and eventually everyone will do it because whomever isn't is getting just as screwed in the long term, but gaining nothing today.
They wont choose to do it, but it will happen.
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Take control away from the private banks and give it to the people.
Except you aren't technically putting it into the hands of "the people". I always find it interesting how when we make decisions to go to war or restrict behavior, it's always "the government" doing it, but when we're talking about things like economic policy suddenly "the government" gets transformed into "the people" as though you're going to individually make choices that affect your outcome.
You're taking it away from semi-private banks and putting it into the hand of the government. The very government that then decides to spend the money.
It's called checks and balances. By putting the control over how much total currency is in circulation in the hands of a private banking group, the government must restrain its spending. Put that in the hands of the same group making the spending decision and the need to spend more will outweigh the desire to avoid inflation every single time.
Every group will have some vested interest. We should put the groups who's vested interest coincides with the result we want in control. The lenders have a vested interest in controlling inflation (for the reasons brought up on page one of this thread). Therefore, putting them in charge of controlling how much currency is in the economy is sensible. Congress's vested interest is in pleasing the people who voted each individual member into office. Ergo, they are *not* the right group to put in control. They're the exact wrong group to give that power to in fact.
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No you missed my point. We increase the amount of dollars in the system each year at a certain growth rate based on something like population growth or GDP growth. We DO NOT increase the amount of gold. What does this mean?
The value of the gold that is redeemable from the US Treasury decreases each year that we print money. Each dollar is worth less and less gold from the US Treasury each year.
Yes. And if each dollar is worth less gold when redeemed, then that means that each bar of gold is worth *more* dollars when done the other way. Get it?
What you're describing isn't really a gold standard btw. You've got dollars pegged to GDP with gold changing value compared to both. All you've done is say that the government will promise to give gold in exchange for dollars. Um... That's not really any different than how we do things now (which also tends to increase the value of stuff like gold over time).
A fixed gold standard means that each dollar is worth a pre-defined amount of gold. So if a dollar buys you an ounce of gold today, it'll buy you an ounce of gold in 20 years. Period. That's what being on a gold standard means. I suspect you just think it has to do with being able to trade in for gold or whatnot, but that's not the extent of setting that as a standard.
The problem with this is that there is a much smaller amount of gold in the entire world today then it's market value at current prices. Think about that. While a GDP pegged standard will increase the value of gold over time, it tends not to do so at a rate higher than the actual total economic growth (at least it hasn't). This means that using a gold standard instead will have one of two effects:
1. It'll massively increase the value of gold. This is why I say that those who have a vested interest in gold sources want this. I keep saying this. You keep ignoring it.
2. It'll stagnate economic growth (GDP). It's possible that the long term effects of a gold standard, while stabilizing currency somewhat will also reduce "real" economic growth in terms of total productive output. This is kind of the flip side of the coin mentioned above. If gold is only actually worth X amount to people, then the total worth of the economy can't exceed that, thus putting an artificial upper limit on economic growth over time.
Either way, it's not really that great of an idea. The cost for that stability just isn't worth it IMO. And the stability is false anyway. Lots of economies have had serious problems while under the gold standards (like the US economy during the Great Depression).
The point is that the supposed benefits of such a standard still don't help as much as advocates think. There's nothing preventing the government from changing the exchange rate by fiat as it wishes to in order to manipulate the currency. This leads us to the same sort of problems that a floating currency has, without any of the automatic adjustments that the later system possesses. Also, since gold is a physical object, it can quite literally flow in or out and leave a country that is otherwise economically healthy in dire straights.
It's just a monumentally dumb idea. People advocate it largely because they pine away for the "good old days", which actually weren't that good. By and large, all the great fears of a floating currency haven't come to pass. The few things that have happened haven't been any worse than similar problems we suffered while under the gold standard. It's not a magic bullet.
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Obviously the actual value of gold on the open market will not decrease each year, so that means people will have absolutely no interest in trading in their dollars for gold from the US Treasury because they would be losing money.
Again. What you describe isn't actually a gold standard. But even then, they'd trade their money in for gold and then exchange it for cash later. The problem is that the gold would flow out of the treasury and into speculators hands in your system. Um... This is exactly why we stopped issuing notes that were guaranteed to be redeemable for gold or silver. If people want to buy gold or silver they can, but those prices are based on current supply/demand rates. If the government has to hold gold or silver to cover the potential demand for it, you just create potential problems.
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The relative value of the dollar would be stable not so much because it is backed by a tangible government asset (Treasury gold or silver is practically worthless in this system) but because the growth or amount of dollars in circulation is tied to some fraction of our GDP. So dollars would have a direct correlative value to goods and services in our economy, which is the whole point of money in the first place.
Um... Which is how we do it now. No need for a gold or silver standard to do this. You control the ratio of dollars in circulation to real GDP. By doing so, you can control inflation rates. Add in control over lending interest rates in various sectors and what you're describing as the correct way to do things is *exactly* what the Federal Reserve system does.
Why are you arguing against the things you say are best, while arguing for the things you say are worst? I guess this is the part that I find incredibly confusing. You keep arguing for actions that are in direct opposition to what you say you want...
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It wasn't a question, I asked you to state one example.
You were asking for an answer that fit a set of criteria. Whatever. In any case, you framed it in such a way as to be impossible to answer. It's like demanding that I list off the number of cars manufactured last year that didn't have wheels and claiming that if I can't it proves that cars don't exist.
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If you want a question, what is one example of a new product that has improved our standard of living that was developed as a result of a company borrowing money? Many of the technological advances that we think have improved our life really haven't, they make us lazy, unhealthy, and ignorant.
You just can't get past the "complex question" fallacy, can you? Stop putting other conditions on this. I'm not going to debate the philosophical point over whether time saving devices are really good or whether they make us lazy. That's irrelevant to this point. Can we accept that things like TVs, digital cable, DVRs, CDroms, DVDs, Blueray, LCD screens, computers, cell phones, ipods, are all "quality of live" improving things?
They *all* involved someone putting up investment money. You ask for one example, but it's hard to find one that didn't follow that pattern.
Here. You want one specific example? I'll give you one I'm directly familiar with. CDMA based cell phones. It was widely believed to be impossible to make work on a cell phone network. A small company here in San Diego thought it could work. They gathered investors willing to take a risk and started development. Today, virtually every single feature you take for granted in a cell phone exists because of that initial investment.
Similar stories exist for other devices. While perhaps Apple put up most of the cash to develop the Ipod, it's a good bet that Apple wouldn't have existed as a company if a couple guys in their garage weren't able to get a business loan to make personal computers. At some point in the past of every single producer of every single product you use today, there's a loan that started things going.
That's the very credit system you think is bad. Yes. It creates risk. But without risk there is no reward.
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Also, what if that company hasn't yet payed off its debt or is a victim of the overinflated credit system and is about to go bankrupt? Wouldn't it have been better if they took their time and developed the product slowly with capital they had so they could have long term stability instead of the brand new shiny car right now?
No. Because it doesn't work. Ok. It does, but *very* slowly. A company today can get investment in some new technology based on the hoped for returns for the product that results. But that requires that returns happen relatively quickly. It pushes companies to produce new things. If they spend a little money over a long time, they may eventually get there, but it'll take many times longer. Also, it's quite possible that the thing would just not be invented in the first place.
You're making a really simplistic argument that ignores how the market really works. If it's going to take me 10 or 20 years of spending my excess profits to make some new product, I'm likely just not going to bother. I'll just take it for myself today and enjoy what business I have. But if I can increase my total revenue stream in say 2 or 3 years by borrowing some cash today (or taking on investors), it's a much more viable possibility.
The benefits far outweigh the risks. History pretty well proves this.
Again, don't disregard the effects of the credit system on our society when you are making this analysis. Massive inflation, recession, manufacturing slowdown, unemployment, foreclosures, reduced purchasing power of the dollar, etc...especially the major problems that we will see in the next year. Massive inflation? Of what? 2-4% average? You're kidding, right?
Look. You list off all those horrible things, and yet somehow magically we have more advanced technology and more comfortable lives today than we did 30 years ago. And it's a really good bet that even with this current economic crisis, and without changing our horrible credit system, we'll be just as much more better off in another 30 years.
The benefits outweigh the negatives. All those things you list aren't worse than what we gain over time. Not even close. Are you seriously arguing that you'd rather live your life in 1978 than in 2008? Do you remember 1978? Enjoy your 8-track player and leisure suit...
I'm not saying credit has been bad all around for everyone for all time, but our specific methods of credit and money creation are anything but positive. I don't understand how you can make that analysis in the face of this economy. Because you are overfocusing on dire short term predictions. I'm looking at the long term effects of said economic methodologies. Yes. Some minor practices can and should be changed to prevent abuses, but the general concept of banks borrowing and lending on credit is *not* a problem.
Because we have never had an economy designed and controlled by the people, only banking interests and royalty. What makes you think that your proposed changes will make this any different? The same people are still in power either way. You're jumping out of the frying pan and into the fire I think...
Edited, Dec 9th 2008 8:11pm by gbaji
