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23 thoughts on “This won’t end well”
The “Dot com surplus” was fake. The debt went up every year that Clinton was in office. Type in the dates for the Clinton years into the link below, and see what I mean.
Current debt figures are meaningless, because the Fed has begun monetizing the debt.
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Doesn’t the current debt numbers mean that there is at least that much money owed? I suppose the government could just “forgive” the debt owed to itself. But don’t they then have to “destroy” the money they created for the loan?
This is all a bit to outside my field of expertise to understand and accurately predict the outcome. But I can’t see the situation turning out well with all the smoke and mirror games they are playing.
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The “best” solution is that they pass a balanced budget amendment (and dramatically reduce fractional reserve banking), then the Fed buys up most of the outstanding Federal Debt (at the same time virtually all the other major central banks of the world do the same), then they write it off and declare bankruptcy and dissolve themselves (again, at the same time the rest of the central banks do the same). It gets rid of the vast majority of the debt burden, and avoids a massive inflationary spike, and removes vast power from the bankers.
It actually solves the problem quickly, removes the primary source of future problems, and hurts the little guys less than the elites…. so it’ll never happen.
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then the Fed buys up most of the outstanding Federal Debt
With what? I don’t see how that’s with anything but newly printed dollars, and yes that’s a hell of an inflationary spike.
If I borrow real wealth from you (in the form of actual goods *or* dollars you acquired by trade of real goods) and consume it, I create a debt. Unless that debt is repaid in real goods or dollars that I acquired in trade of real goods, that debt is a hole, a net loss of real wealth, that can only be filled with real wealth – with actual production of real goods. New dollars are not real wealth, they are fake “wealth”, an artificial commodity with a “value” that consists entirely of controlled scarcity, legal tender laws and a confidence game.
If the Fed prints money to liquidate the debt, it’s inflationary, and in the long run nets to the same net wealth loss as an outright writeoff. The only difference pertains to who bears the brunt of that loss – the bond issuer (government, who for this purpose means “taxpayers”), or bond/dollar holders.
The only other option is for the Fed to somehow confiscate or borrow $17.5 trillion of real wealth (in goods, or non-new dollars) from somewhere to make bondholders “whole” again. Good luck with that.
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That’s the rub. Our money is predicated on debt, and paying off bank debts destroys money because of fractional reserve banking. Pint money with one hand to destroy debt on the other hand. It would cause a huge disruptions, but all the other choices I’ve seen wold cause more problems over a much longer period of time.
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Actually, the Fed is a large part of the problem. Read “The creature from Jekyll Island” some time. Or Von Mises “Human Action”, or preferably both.
About that second graph: I’ve seen it pointed out that, priced in gold, a high quality suit costs today just about what it cost in the day of Caesar. But since quacks like Galbraith and Wilson deliberate set out to destroy real money, we’ve been living for the past century with fake money (paper money) and suffering the consequences, in recessions and booms, depressions and wars. Not to mention ever-lasting inflation, which is a complicated way of saying “the government stealing the wealth of the people”.
By the way, you have to watch out with the CPI. I think there are several, but the one most often used (for example for “inflation indexed” payments from the government) is deliberately biased to make inflation appear lower than it really is. For example, I believe it excludes the cost of fuel.
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It also, if I’m not mistaken, does not cover the costs of food, which is really one of the items they SHOULD track.
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You are both correct. The government’s CPI does not include fuel or food. They claim these commodities are “too volatile” to be included. Too volatile, they say…..
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A top quality pistol or the very best quality pair of boots… Have cost approximately 1 Oz. of Gold for as long as these have all been available.
Please note, the value of Gold in Europe was a heck of a lot more before the Spanish conquest of South/Central America and the looting of the Gold found there. The figure for a Roman “suit of clothes” is one I’m going to need more evidence on.
What is this “muh-nee” you speak of?
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“A top quality pistol or the very best quality pair of boots… Have cost approximately 1 Oz. of Gold for as long as these have all been available.”
Google tells me that gold is currently around $1,300 per ounce. I don’t know what kind of boots you’re thinking of, but I have a hard time finding quality boots for much over $450-550. I find it hard to fathom that a 1,300 dollar pair of boots is measurably better than a ~$300-350 pair of off-the-shelf Berry-compliant boots, or a $450-550 pair of boots from someone like White’s….
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OK, so a pair of boots have gotten cheaper, about 1/4 of an ounce of gold. The dollar is down roundly 88% since 1957, and 96% of it’s value since 1913. Compared to the USD, gold is holding up pretty well.
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We had recessions, booms, depressions, and wars when we WERE on a hard money standard.
While I agree with going back to a hard standard (for all the *theoretical* advantages to a fiat currency — and yes, there are very real advantages to one, *if* you can trust the regulators adjusting the money supply — we simply cannot *trust* humans not to screw the system up in rather short order to “fix” something, so a hard currency has teh advantage of being fairly “hands off” so we won’t make things *worse* trying to “fix” things), don’t oversell the concept by making magical claims.
It just weakens your argument in the long run.
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I’m not convinced going back to the gold/silver standard is the best decision. But I’m afraid we are headed for that whether we want to or not. Hyperinflation has a way of forcing things, rather unpleasantly, in that direction. It’s not hard to see how we could end up with hyperinflation from where we are now.
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We had recessions, booms, depressions, and wars when we WERE on a hard money standard.
None of which were so deep and drawn out as the ones that have happened since 1913, when the “hard money standard” was increasingly being compromised.
Hard money acts as a constraint on debt shenanigans. Think of it as a chain on a big stupid dog. If he tries to go where he shouldn’t, he gets a painful, but short yank, and then recovers quickly.
Now imagine that someone takes pity on the big mutt and replaces that chain with a big elastic (but unbreakable) rubber band. In the short term, the mutt gets far less pain than before, so he goes farther and farther (put another way, he’s lost an important feedback mechanism that tells him when he’s going where he shouldn’t). But as he goes, that rubber band pulls harder and harder – until there’s enough tension built up in it to break his neck, a far greater danger than the old chain could ever have permitted.
Economic reality lets you be a stupid as you want, but it *will* collect what’s due – either over a long period of managed pain as that dog slowly walks himself back to his doghouse, releasing the “debt” – or in one bonecrunching snap.
1929 was the first such snap, releasing the tension that began with the Fed in 1913; the rubber bands have been getting stretchier and stretchier ever since – and our ability to know how far we’ve gone is horribly compromised.
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However, the booms and busts were generally MUCH quicker. The greater the debt load, the slower the recovery.
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When it comes to booms and recessions, there are actually three factors, as I understand it, that can really mess up the calculations of a businessman when trying to decide to expand a business.
The first is fiat currency: with it, a government can inflate the currency as a way to “quietly” tax the populace. It takes a little while for the effects to trickle down, but in the meantime, the dollars that depart from the Government’s hand have the same spending power as the ones that are already in circulation.
The second is “fractional reserve”: the idea that banks can loan out more money than they have in reserve. This can work just fine, so long as only a fraction of people are wanting to pull their money out of their savings accounts. When too many people want to do so, it puts the bank in danger.
Both of these have inherent instabilities; we happen to have a combination of the two: a fiat fractional reserve system. It isn’t clear that doing so provides any benefits, but as a bonus, we get the instability disadvantages of both systems!
The third thing that causes booms and busts is our belief that artificially low interest rates is the best way to spur business growth. While it does spur growth (it convinces business people that there is more capital available for loans than there really is), it also produces inflation, which leads to businesses to run out of money (because their loans turned out to be insufficient for what they wanted them for). This, in turn, leads to a bust…which leads to calls for “lower interest rates!”.
I don’t see any way to avoid this, other than to abandon currency altogether and trade in straight gold and silver (or some other commodity standard), and to get out of debt and stay out of it. I don’t have enough confidence in government, or even my fellow voters, to see any chance that we, as a society, will dig ourselves out of this situation…
I’m planning on being a teacher.
My mother was a teacher in the 60’s to the early 80’s.
Her salary, as one of the lowest paid in the country was almost 12,000 bucks in the late 70’s after years of teaching.
I just checked my county’s starting pay….about $40K. rising to about 53K.
I was happy.
Until I plugged that into an inflation calculator.
I’ll be making the same as my mother did.
The “Dot com surplus” was fake. The debt went up every year that Clinton was in office. Type in the dates for the Clinton years into the link below, and see what I mean.
http://www.treasurydirect.gov/NP/debt/current
Current debt figures are meaningless, because the Fed has begun monetizing the debt.
Doesn’t the current debt numbers mean that there is at least that much money owed? I suppose the government could just “forgive” the debt owed to itself. But don’t they then have to “destroy” the money they created for the loan?
This is all a bit to outside my field of expertise to understand and accurately predict the outcome. But I can’t see the situation turning out well with all the smoke and mirror games they are playing.
The “best” solution is that they pass a balanced budget amendment (and dramatically reduce fractional reserve banking), then the Fed buys up most of the outstanding Federal Debt (at the same time virtually all the other major central banks of the world do the same), then they write it off and declare bankruptcy and dissolve themselves (again, at the same time the rest of the central banks do the same). It gets rid of the vast majority of the debt burden, and avoids a massive inflationary spike, and removes vast power from the bankers.
It actually solves the problem quickly, removes the primary source of future problems, and hurts the little guys less than the elites…. so it’ll never happen.
then the Fed buys up most of the outstanding Federal Debt
With what? I don’t see how that’s with anything but newly printed dollars, and yes that’s a hell of an inflationary spike.
If I borrow real wealth from you (in the form of actual goods *or* dollars you acquired by trade of real goods) and consume it, I create a debt. Unless that debt is repaid in real goods or dollars that I acquired in trade of real goods, that debt is a hole, a net loss of real wealth, that can only be filled with real wealth – with actual production of real goods. New dollars are not real wealth, they are fake “wealth”, an artificial commodity with a “value” that consists entirely of controlled scarcity, legal tender laws and a confidence game.
If the Fed prints money to liquidate the debt, it’s inflationary, and in the long run nets to the same net wealth loss as an outright writeoff. The only difference pertains to who bears the brunt of that loss – the bond issuer (government, who for this purpose means “taxpayers”), or bond/dollar holders.
The only other option is for the Fed to somehow confiscate or borrow $17.5 trillion of real wealth (in goods, or non-new dollars) from somewhere to make bondholders “whole” again. Good luck with that.
That’s the rub. Our money is predicated on debt, and paying off bank debts destroys money because of fractional reserve banking. Pint money with one hand to destroy debt on the other hand. It would cause a huge disruptions, but all the other choices I’ve seen wold cause more problems over a much longer period of time.
Actually, the Fed is a large part of the problem. Read “The creature from Jekyll Island” some time. Or Von Mises “Human Action”, or preferably both.
About that second graph: I’ve seen it pointed out that, priced in gold, a high quality suit costs today just about what it cost in the day of Caesar. But since quacks like Galbraith and Wilson deliberate set out to destroy real money, we’ve been living for the past century with fake money (paper money) and suffering the consequences, in recessions and booms, depressions and wars. Not to mention ever-lasting inflation, which is a complicated way of saying “the government stealing the wealth of the people”.
By the way, you have to watch out with the CPI. I think there are several, but the one most often used (for example for “inflation indexed” payments from the government) is deliberately biased to make inflation appear lower than it really is. For example, I believe it excludes the cost of fuel.
It also, if I’m not mistaken, does not cover the costs of food, which is really one of the items they SHOULD track.
You are both correct. The government’s CPI does not include fuel or food. They claim these commodities are “too volatile” to be included. Too volatile, they say…..
A top quality pistol or the very best quality pair of boots… Have cost approximately 1 Oz. of Gold for as long as these have all been available.
Please note, the value of Gold in Europe was a heck of a lot more before the Spanish conquest of South/Central America and the looting of the Gold found there. The figure for a Roman “suit of clothes” is one I’m going to need more evidence on.
What is this “muh-nee” you speak of?
“A top quality pistol or the very best quality pair of boots… Have cost approximately 1 Oz. of Gold for as long as these have all been available.”
Google tells me that gold is currently around $1,300 per ounce. I don’t know what kind of boots you’re thinking of, but I have a hard time finding quality boots for much over $450-550. I find it hard to fathom that a 1,300 dollar pair of boots is measurably better than a ~$300-350 pair of off-the-shelf Berry-compliant boots, or a $450-550 pair of boots from someone like White’s….
OK, so a pair of boots have gotten cheaper, about 1/4 of an ounce of gold. The dollar is down roundly 88% since 1957, and 96% of it’s value since 1913. Compared to the USD, gold is holding up pretty well.
We had recessions, booms, depressions, and wars when we WERE on a hard money standard.
While I agree with going back to a hard standard (for all the *theoretical* advantages to a fiat currency — and yes, there are very real advantages to one, *if* you can trust the regulators adjusting the money supply — we simply cannot *trust* humans not to screw the system up in rather short order to “fix” something, so a hard currency has teh advantage of being fairly “hands off” so we won’t make things *worse* trying to “fix” things), don’t oversell the concept by making magical claims.
It just weakens your argument in the long run.
I’m not convinced going back to the gold/silver standard is the best decision. But I’m afraid we are headed for that whether we want to or not. Hyperinflation has a way of forcing things, rather unpleasantly, in that direction. It’s not hard to see how we could end up with hyperinflation from where we are now.
We had recessions, booms, depressions, and wars when we WERE on a hard money standard.
None of which were so deep and drawn out as the ones that have happened since 1913, when the “hard money standard” was increasingly being compromised.
Hard money acts as a constraint on debt shenanigans. Think of it as a chain on a big stupid dog. If he tries to go where he shouldn’t, he gets a painful, but short yank, and then recovers quickly.
Now imagine that someone takes pity on the big mutt and replaces that chain with a big elastic (but unbreakable) rubber band. In the short term, the mutt gets far less pain than before, so he goes farther and farther (put another way, he’s lost an important feedback mechanism that tells him when he’s going where he shouldn’t). But as he goes, that rubber band pulls harder and harder – until there’s enough tension built up in it to break his neck, a far greater danger than the old chain could ever have permitted.
Economic reality lets you be a stupid as you want, but it *will* collect what’s due – either over a long period of managed pain as that dog slowly walks himself back to his doghouse, releasing the “debt” – or in one bonecrunching snap.
1929 was the first such snap, releasing the tension that began with the Fed in 1913; the rubber bands have been getting stretchier and stretchier ever since – and our ability to know how far we’ve gone is horribly compromised.
However, the booms and busts were generally MUCH quicker. The greater the debt load, the slower the recovery.
When it comes to booms and recessions, there are actually three factors, as I understand it, that can really mess up the calculations of a businessman when trying to decide to expand a business.
The first is fiat currency: with it, a government can inflate the currency as a way to “quietly” tax the populace. It takes a little while for the effects to trickle down, but in the meantime, the dollars that depart from the Government’s hand have the same spending power as the ones that are already in circulation.
The second is “fractional reserve”: the idea that banks can loan out more money than they have in reserve. This can work just fine, so long as only a fraction of people are wanting to pull their money out of their savings accounts. When too many people want to do so, it puts the bank in danger.
Both of these have inherent instabilities; we happen to have a combination of the two: a fiat fractional reserve system. It isn’t clear that doing so provides any benefits, but as a bonus, we get the instability disadvantages of both systems!
The third thing that causes booms and busts is our belief that artificially low interest rates is the best way to spur business growth. While it does spur growth (it convinces business people that there is more capital available for loans than there really is), it also produces inflation, which leads to businesses to run out of money (because their loans turned out to be insufficient for what they wanted them for). This, in turn, leads to a bust…which leads to calls for “lower interest rates!”.
I don’t see any way to avoid this, other than to abandon currency altogether and trade in straight gold and silver (or some other commodity standard), and to get out of debt and stay out of it. I don’t have enough confidence in government, or even my fellow voters, to see any chance that we, as a society, will dig ourselves out of this situation…
Pingback: SayUncle » Charts and graphs
I may not have a degree in economics, but that third graph appears to follow the party line of the left regarding the national debt….
To wit, it tries to shift the blame for trillions of dollars of debt to Bush II from Obama.
The CPI is a useless figure that has been raped by the feds applying “hedonic adjustments” to make the CPI spike seem small.
You can get better figures at shadowstats.com
The real inflation rate is over 9%.
Here is a good example of what has happened to our money since 1964:
https://causalityends.wordpress.com/2014/07/02/if-you-arent-angry-you-arent-payin-attention/
I’m planning on being a teacher.
My mother was a teacher in the 60’s to the early 80’s.
Her salary, as one of the lowest paid in the country was almost 12,000 bucks in the late 70’s after years of teaching.
I just checked my county’s starting pay….about $40K. rising to about 53K.
I was happy.
Until I plugged that into an inflation calculator.
I’ll be making the same as my mother did.
Yay.
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So everything is Nixon’s fault, not Bush.
We’d have to go back at least to Woodrow Wilson to examine our immediate problems in context. The larger view goes back to the beginning of time.