Economic Policy

[johngatlt1234]

Any nation which wants to progress has to follow sound economic policies to achieve its ends.

Sound economic policy dictates that saving be considered a virtue. Savings allows accumulation of capital which then can be used for industrial production.

In America consumer activity is a figure that is used to judge economic activity. We have consumer confidence readings, Retail sales, New home sales and a bunch of other data. What we are doing is missing out on the whole point that economic growth is not measured by how much consumers spend but rather the sum of the goods and services produced by the country.

Production always comes before consumption. Just as you cannot expect a paycheck if you dont work, so also you cannot expect to consume if you have not produced. It is precisely here that we have a problem.

With the decoupling of Dollar from Gold, we now have the capacity to print as many dollars we want so that we control the swings of the business cycle. Predicting the business cycle is no easy feat, so we have a few extra dollars floating around that causes inflation. Now inflation is not a bad thing in the mind of the Federal reserve. Here is how it works.

Inflation allows the price of goods to rise. A financially prudent family would put aside money for a rainy day for emergencies. As far as possible they will save for the purchases of big ticket items. With inflation, it is possible to buy the item now, and pay for it with inflated dollars. So it makes sense for the consumer to borrow to buy things. The consumer is on a buying binge, because if he buys today, he knows it is going to be cheaper than tomorrow. The Government is also doing the same, take on debt and then pay back with inflated dollars. A wonderful racket. However, all this comes with a little fine print called debt repayment.

In order for consumers to service debt they need jobs and for the Government to service its debt it needs tax revenues which again is dependent on jobs.

Consumers are so accustomed to looking for bargains that other countries are more than happy to supply us with cheaper goods. So now we start running trade deficits. Meaning we print a dollar and buy someone elses production. Trade deficits means loss of employment which means we are eroding our tax base, meaning the govt has to borrow more and more to keep afloat.

There are a lot people who buy Govt bond, because of safety of capital. Those who export to us love to buy our bonds too. It keeps the price of the dollar up and because they hope we dont default, things can continue indefinitely or so they think.

What could go wrong?

1. The dollar declines in value so that no one wants to buy Govt. Debt. If the dollar declines and since Govt debt is denominated in dollars we will pay back with a deflated dollar. Obviously a foreign nation would like to get interest and also be covered for the dollars decline. The demand for debt declines and so the coupon rate goes up. We have to pay an even greater debt servicing cost so we have to borrow more and pay more interest. For the consumer that leaves them will less and less deiscretionary spending. Consumers will be less likely to take on more debt, because of their inability to repay.

2. We just do not create enough jobs so that existing debt taken on by consumers is defaulted upon. It is here that financial institutions will be hurt most. More and more capital that should be available for investment will now be used as a reseve for bad debts, leaving little room for the economy to grow.

Are we there yet...

We cannot borrow ourselves out of this situation. When things start to go bad the first sign will be the decline in the dollar. We have had a 20% decline in the dollar vs the Euro in the past 2 years. Can it get worse? Gold is another indicator. For years it was languishing below the $ 400 level and now it it right there and is threatening to go higher.

Could we use our Military might to force others to buy our debt...We might have to given the way things are going. Ask any banker and they have people in China and India because that is where the new growth story is.

It will surely be a sad day when someone retires and finds that there is no social security, because all the surplus money that is being pulled in for Social Security is being used to mask the real size of the deficit and our debt problems would be a whole lot bigger.

Can Bush or Kerry even begin to tackle this? Their parties have gotten us into this pickle. On the campaign trail no one wants to talk about this major issue that will affect the life of every American for years to come. Most Americans are in their naivete do not believe we have a problem. It is there?

The cure for this problem lies in reducing the size of the Government and getting back to sound economic basis. which means a return to the Gold standard and an end to the income tax as we know it. The income tax has been used to usher in this policy of consumer spending. A consumption tax will promote saving and be beneficial for all in the long run. For those of you who think immigration is a bad thing, I would suggest that you change your minds. The future of any country is determined by the ratio of its young to old population. A greater percentage of our people are older than a few years ago. It is the same reason why Corporations want to invest in China and India, because of better population demographics. If we do there might be hope for Social Security yet.

I am voting Michael Badnarik Libertarian party candidate for president, because he is the only person whose platform allows this change to happen. And boy do we need the change

For those not voting for Badnarik, I would appreciate your input as to why/

[bishop]

you're wrong on a multitude of items i'm afraid.

Sound economic policy dictates that saving be considered a virtue. Savings allows accumulation of capital which then can be used for industrial production.

a virtue according to who? most small businesses begin with small business loans - credit, not savings.

What we are doing is missing out on the whole point that economic growth is not measured by how much consumers spend but rather the sum of the goods and services produced by the country.

consumer spending accounts for 2/3 of all economic activity. everything about the economy revolves around consumer spending. companies and people would not invest in production if they did not believe that people would consume their products.

the mantra of entrepreneurship is "location, location, location". why? because you have to establish your business in a place where you believe chances are good that people will consume your products. you don't just build it and expect people to magically come.

There are a lot people who buy Govt bond, because of safety of capital. Those who export to us love to buy our bonds too. It keeps the price of the dollar up and because they hope we dont default, things can continue indefinitely or so they think.

the dollar became the world's currency by the simple fact that following ww2, all of europe and japan filled their reserves with dollars. this happened years before nixon floated our currency. every country that fills its reserves with dollars (i.e. every major economy in the world) takes measures to ensure that our currency remains stable.

1. The dollar declines in value so that no one wants to buy Govt. Debt.

this past year, japan bought a record $1+ trillion in bonds. china also bought some $500 billion in bonds. and europe bought a hefty amount themselves. the appetite for buying u.s. debt is higher now than ever before. the primary reason why they do this is to prevent the dollar from declining further.

Can Bush or Kerry even begin to tackle this?

only if they can first balance the budget. my view is that no matter what, you must always balance the budget. if our elected representatives wish to spend into oblivion, then they must raise taxes to fund their expenditures. or, if they wish to cut spending and make government more efficient and less wasteful, then they can cut taxes so long as the budget is balanced. imo, taxes take second stage to the more important goal: a balanced budget.

badnarik's good on some aspects of trade, and bad on others.. so is kerry.. nader isn't serious about the economy imo - he's serious about cracking down on corruption and radically increasing social spending. bush.. he's an oxymoron and a half - spending like a militaristic socialist, but cutting taxes at the same time.

i don't think any of our available options are particularly great.

[johngatlt1234]

Quote by: bishop, you're wrong on a multitude of items i'm afraid. a virtue according to who? most small businesses begin with small business loans - credit, not savings.

Find a bank that will loan you money on the basis of just a business plan and I will show you a bank going out of business. Most startups are funded with credit card loans, personal savings or venture capital. Banks usually lend after you have a going enterprise.


[/quote]consumer spending accounts for 2/3 of all economic activity. everything about the economy revolves around consumer spending. companies and people would not invest in production if they did not believe that people would consume their products.

the mantra of entrepreneurship is "location, location, location". why? because you have to establish your business in a place where you believe chances are good that people will consume your products. you don't just build it and expect people to magically come.[/quote]

You have to produce to be able to buy. Just a hypothetical example, you land on this island of which you are king. First thing you do is start a mint and print money. Can you buy anything with the money you printed?
Production comes first...
When we are printing the dollar bill and buying the world's manufacturing that is what we are doing giving them a printed piece of paper for their goods and they accept it because till now it has held some modicum of value. They wont if its value keeps on declining.



[/quote]the dollar became the world's currency by the simple fact that following ww2, all of europe and japan filled their reserves with dollars. this happened years before nixon floated our currency. every country that fills its reserves with dollars (i.e. every major economy in the world) takes measures to ensure that our currency remains stable.[/quote]

There was an agreement to the effect that made the dollar the currency of choice for trading goods and services. Even Japan after all the intervention hasnt been able to stop the slide of the dollar? What then? Japan has a vested interest, they want to sell goods to the US. Other nations might not have such an interest, they might latch on the Euro or a gold denominated currency





[/quote]this past year, japan bought a record $1+ trillion in bonds. china also bought some $500 billion in bonds. and europe bought a hefty amount themselves. the appetite for buying u.s. debt is higher now than ever before. the primary reason why they do this is to prevent the dollar from declining further.[/quote]

The theory here is that we are too big to fail and hence they will do all they can to prop up the dollar... The laws of supply and demand always rule, when there is a flood of dollars because of a negative trade imbalance, the dollar has to fall. You can halt the slide temporarily but not forever. Just like you cant defy the law of gravity on earth

[bishop]

Find a bank that will loan you money on the basis of just a business plan and I will show you a bank going out of business. Most startups are funded with credit card loans, personal savings or venture capital. Banks usually lend after you have a going enterprise.

regardless, the overwhelming majority businesses enabled via credit. personal savings is merely seen as collateral that the debt can be repayed. ala credit risk. what you receive in loans often greatly exceeds whatever savings you may have. that extends into all forms of loans as well, not just business. we are a credit society, not a savings society.

Production comes first...

it's debatable... nothing would be produced if there wasn't a demand for it.

Even Japan after all the intervention hasnt been able to stop the slide of the dollar? What then? Japan has a vested interest, they want to sell goods to the US. Other nations might not have such an interest, they might latch on the Euro or a gold denominated currency.

the dollar may have been devalued, but so too have all other world currencies. they've moved parallel for the most part. and price inflation, the real thing that matters, has been relatively stable for the past several decades, aside from spikes usually relating to oil prices. other countries are planning on filling their reserves with euros in about 3-5 years from now. although the euro will represent a small percentage of total reserves. it's going to be a loooong time before the dollar is replaced as the standard reserve currency.

if you balance the budget, the risk of countries moving towards other currencies will significantly diminish.

and virtually every developed/developing country wants to see our currency strong because everybody imports their products into america.

The theory here is that we are too big to fail and hence they will do all they can to prop up the dollar... The laws of supply and demand always rule, when there is a flood of dollars because of a negative trade imbalance, the dollar has to fall. You can halt the slide temporarily but not forever. Just like you cant defy the law of gravity on earth

as i said with examples, the demand for dollars is at an all time high. you're argument has no basis other than theory. in that doomsday scenario, if suddenly everyone stopped buying dollars, then yes, things would most definitely be bad. however, the reality is that that is not likely to happen in the slightest.

whenever the fed holds bond auctions, there's never any bonds left over. another good example that everyone and their mother wants our currency.

[johngatlt1234]

Balancing the budget...now there is a novel thought...

We have an expectation of a $ 500 billion dollar deficit for a few years...Clearly we not going to have a balanced budget any time soon no matter who is elected.

By your own statement...since our budget will be unbalanced...other countries will look to other currencies...implying further pressure on the dollar..

I dont know where the breaking point is....but I have no doubt if the pressure continues we will get to that point sooner or later

[bishop]

Balancing the budget...now there is a novel thought...

it would negate what i think is your call to return to the gold standard. (which isn't feasible whatsoever btw) if that isn't what you suggest, then please clarify your position.

By your own statement...since our budget will be unbalanced...other countries will look to other currencies...implying further pressure on the dollar..

each country has its own unique circumstances. therefore, to suggest a one-size-fits-all theory is not being intellectually thorough.

from russia's central bank:

http://www.russiajournal.com/news/cnews-ar....shtml?nd=40945

Meanwhile, the Central Bank of Russia may have its own opinion on the ratio of foreign currencies in the reserves. In September, Senior Deputy Chairman of the Central Bank Oleg Vyugin said that the Central Bank was not going to introduce serious changes to the structure of the country’s gold and foreign currency reserves. “Our currency policy is not based on the exchange rate of the main currencies, and we don’t speculate on the exchange rate. That is why any change in the euro/dollar exchange rate does not prompt us to change the currency structure of the reserves,” he stressed.

china wanted to buy euros before they even hit the market. but would they really want to shift their assets over to euros? as it is, they have an estimated $500 billion dollars.. they'd devalue their assets if they switched them to euros. so long as we're china's primary market, which we are by a mile, they want the dollar to remain strong. further, if they truly moved to use the euro as their primary reserve currency, then they would severely devalue their primary means of reserves - their dollars. the primary economic reason is to use the euro as protection against an american recession. they are moving towards a "mixed basket" exchange rate and in order to accomplish that goal, they need to fill their reserves up with the various currencies that comprise the "mixed basket". china's (and hong kong's) currencies are pegged to the dollar, and maintaining this peg is costly. in hong kong's case, it's produced several recessions. the chinese government understands the inflexibility they receive when they peg their currency against ours and they're moving to change that.


what else...

are global commodities going to be priced in euros? not likely, especially since bush has claimed dominion over the middle east.

while europe's politicians have celebrated the euro's success against the dollar, their business communities have not. the dollar's decline has hurt their sales/profits and they've actively worked to prop up the dollar (as has everybody else). what else would europe buy to fill their reserves? the yen? with japan's 2 decade long fight against deflation? the yuan? with china's massive credit problems?

I dont know where the breaking point is....but I have no doubt if the pressure continues we will get to that point sooner or later

the breaking point, if one should exist, is a loooong time from now. we can substantially correct this problem by simply balancing the budget and paying down the debt.

badnarik's suggest to base our currency on the gold standard is ridiculous. and, it's impossible - we have too many assets and investments across the world for us to be able to back them with gold. moving back to the gold standard would cause an economic crisis far greater than the one you're trying to prevent. he also plays games on people who have no real education in economics. when he talks, he tries to suggest that currency inflation is the same thing as price inflation (the one that directly affects people - and the economy). they are not the same whatsoever.

[johngatlt1234]

this is a new one on me currency inflation and price inflation...

from my knowledge inflation is caused by too much money chasing fewer goods. Price inflation

Currency inflation would be too many other currencies wanting to be devalued vs the dollar?

As far as the Gold standard goes...Alan Greenspan once spoke eloquently in its favor...Seems like he has changed too.
What the Gold standard does is take decisions such as interest rates and the amount of money we can have in circulation out of the hands of people like AG and let the market decide. Would you rather be paid in a paper dollar or a dollar backed by Gold?
Did you know that for the last two years we have been fighting deflation?
Has Alan Greenspan got deflation licked for the time being? I dont think so...

[PatrickHenry]

Peroutka, Constitution Party: From the Platform: http://www.constitutionparty.com/party_platform.php

The closer civil government is to the people, the more responsible, responsive, and accountable it is likely to be. The Constitution, itself, in Articles I through VI, enumerates the powers which may be exercised by the federal government. Of particular importance is Article I, Section 8 which delineates the authority of the Congress. The federal government was clearly established as a government of limited authority. The Tenth Amendment to the Constitution specifically provides that: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

The Congress of the United States has become an overpaid, overstaffed, self-serving institution. It confiscates taxpayer funds to finance exorbitant and unconstitutionally determined salaries, pensions, and perks. Most members of Congress have become more accountable to the Washington establishment than to the people in their home districts. Both houses of Congress are all too often unresponsive and irresponsible, arrogantly placing themselves above the very laws they enact, and beyond the control of the citizens they have sworn to represent and serve. We seek to abolish Congressional pensions. It is time for the American people to renew effective supervision of their public servants, to restore right standards and to take back the government. Congress must once again be accountable to the people and obedient to the Constitution, repealing all laws that delegate legislative powers to regulatory agencies, bureaucracies, private organizations, the Federal Reserve Board, international agencies, the President, and the judiciary.

We favor more vigorous efforts in both domestic and foreign markets to protect the interests of owners in their copyrights and patents.

Yeah, stop the Chinese from ripping everybody off. See my post here: http://www.volconvo.com/forums/index.php?s...opic=1496&st=60

[SIZE=3]Cost of Big Government[/SIZE] A legitimate and primary purpose of civil government is to safeguard the God-given rights of its citizens; namely, life, liberty, and property. Only those duties, functions, and programs specifically assigned to the federal government by the Constitution should be funded. We call upon Congress and the President to stop all federal expenditures which are not specifically authorized by the U. S. Constitution, and to restore to the states those powers, programs, and sources of revenue that the federal government has usurped. Budget considerations are greatly impacted by the ever rising national debt. Interest on the debt is one of the largest expenses of government, and unless the interest is paid, the debt will continue to grow as interest is added to interest. If we are to get rid of the debt, a time needs to be set within which the debt will be funded, and then pay it off within that period. Whatever the payoff period may be, three things must happen within that time. * The annual reductions have to be made without fail. * All interest must be paid as it accrues; and * The government must not spend more than it takes in during the payoff period. One of the greatest contributors to deficit spending is war. If the country is to get rid of debt, the United States cannot become gratuitously involved in constant wars. Constitutional government, as the founders envisioned it, was not imperial. It was certainly not contemplated that America would police the world at the taxpayers' expense. We call for the systematic reduction of the federal debt through, but not limited to, the elimination of further borrowing and the elimination of unconstitutional programs and agencies. We call upon the President to use his Constitutional veto power to stop irresponsible and unconstitutional appropriations, and use his Constitutional authority to refuse to spend any money appropriated by Congress for unconstitutional programs or in excess of Constitutionally imposed tax revenue. The debt could be more rapidly eliminated if certain lands and other assets currently held by the federal government were sold, and the proceeds applied to the debt. This policy should be employed, and funds from the sale of all such assets should be specifically applied to debt reduction. We reject the misleading use of the terms "surplus" and "balanced budget" as long as we have public debt. We oppose dishonest accounting practices such as "off-budget items" used to hide unconstitutional spending practices. We call for an end to the raiding by the federal government of the Social Security, Railroad Retirement and Medicare funds. We believe that over a protracted period the Social Security system may be privatized without disadvantage to the beneficiaries of the system. However, the program has been in place since the 1930s, and workers and their employers were taxed for the program and paid in good faith. The government promised to deliver the benefits, and must meet this commitment. We call for the abolition of the Civil Service system, which is perceived to confer on government employees a "property right" regarding their jobs.

Under no circumstances would we commit U.S. forces to serve under any foreign flag or command. We are opposed to any New World Order, and we reject U.S. participation in or a relinquishing of command to any foreign authority. The goal of U.S. security policy is to defend the national security interests of the United States. Therefore, except in time of declared war, for the purposes of state security, no state national guard or reserve troops shall be called upon to support or conduct operations in foreign theatres. We should be the friend of liberty everywhere, but the guarantor and provisioner of ours alone.... We believe that all defense expenditures should be directly related to the protection of our nation, and that every item of expenditure must be carefully reviewed to eliminate foreign aid, waste, fraud, theft, inefficiency, and excess profits from all defense contracts and military expenditures.

[SIZE=3]Wage and Price Control[/SIZE] We deny that civil government has the authority to set wages and prices; so doing is inconsistent with principles of individual liberty and the free market.

And many more enlightened economic principles.

[bishop]

from my knowledge inflation is caused by too much money chasing fewer goods.

there's three types of inflation: demand-pull, cost-push, built-in.. they all have different causes although the end is the same..


if the dollar inflates faster than prices, then the net effect is deflation. if the dollar deflates faster than the fall of prices, you get inflation. if the dollar inflates along with prices, then the net effect is nothing. etc...

the whole thing about currency inflation is rather academic.. since the world's economies have filled their reserves with dollars, they're sharing this "inflation".. it's spread wide across the world so much that the risk of some sort of currency collapse is extremely unlikely.

what's of primary concern is managing our current account deficit and national debt. both would be corrected if we simply balanced the budget and began paying down the debt. there is simply no need to go the impossible route and reinstate the gold standard.

for those who suggest that we ought to return to gold, i'd be interested in seeing an explanation of how we would be able to accomplish that goal. i've studied that myself and i've found it to be damn near impossible. (we could never cover all our foreign assets with gold - that was the whole reason why nixon floated the dollar)

Did you know that for the last two years we have been fighting deflation? Has Alan Greenspan got deflation licked for the time being? I dont think so...

i don't think so either... check this thread.. we had a lengthy discussion about that.

http://www.volconvo.com/forums/index.php?showtopic=2635

[johngatlt1234]

foreign assets...in gold.. all we do is say that the existing money in circulation is tied to the Gold reserves we currently own... If we add to our Gold reserves, we can print more currency.

Are there some other things that you are looking at Bishop?

[bishop]

foreign assets...in gold.. all we do is say that the existing money in circulation is tied to the Gold reserves we currently own... If we add to our Gold reserves, we can print more currency.

that was the reason why we left the gold standard. there wasn't enough gold for us to tie to currency in circulation (what i meant when i said assets). ever since nixon floated our currency, the amount of foreign-held assets has dramatically increased. i don't know if there's enough gold in the world for us to peg the dollar against.

also, entire financial systems have been borne our of the floating foreign-exchange. the creation of the forex is a perfect example. the global economy has evolved to a state where it expects the valuation of currencies to be part of the free market, and it has developed substantial infrasctructure to support that system. it simply isn't nearly as easy as badnarik is suggesting - and when he keeps harping on the constitution rather than voicing knowledge about economics, i look at him as disingenuous. it's also why i keep harping about balancing the budget and paying down the debt. if that miracle could actually happen, then maybe the idea of returning to the gold standard could work. personally, i prefer the idea of the tobin tax as a means to limit currency volatility.

Are there some other things that you are looking at Bishop?

whatcha mean?

[johngatlt1234]

It is the other way around...

You have x amount of gold and you say y amount of dollars floating..

if we peg the dollars to amount of gold...then you know what the value of your dollar is in gold...

Being in limited supply the price of Gold will rise.. so will the value of your currency or you could put more money into circulatation.

Right now with floating currencies most are selling gold.

[bishop]

what that would accomplish?

the whole point of the gold standard argument is to base paper currency against something whose value is relatively static.

what you just suggested was to keep the value of inflated (what libertarians like to call "monopoly") money. in doing so, you'd falsify the value of gold in the process - and the price of gold would be based on fiat money rather than the other way around. think about it.

people have been buying gold because of the volatility in the foreign-exchange market, not because they fear it will collapse. people believe in the stock market, but when the market's shaky they tend to tuck their assets away in something conservative/safe.. i've already mentioned sensible solutions to that problem (currency volatility) - much easier to accomplish than a return to the gold standard. perhaps another method would be to move towards a universal system of currency valuation. however, that solution isn't feasible either because of the political rammifications it entails.

[jose]

I add these links for your reading pleasure
http://www.321gold.com/editorials/ru...ell081204.html
snip
The whole system is obviously doomed, but the world's politicians don't think in terms of "doom." Doom is in the future, and politicians are concerned with "now," and the next election.
http://www.financialsense.com/stormwatch/o.../2004/0618.html
snip
What we have here is financial alchemy and I can't help but believe this is going to end badly. There is simply too much risk and uncertainty. What astounds me is the fact that investors seem oblivious to it all.

my advise is to borrow dollers to buy gold coins and wait six months

[bishop]

here's a good historical context to compare our current situation to:

http://clinton4.nara.gov/WH/new/html/Fri_D...51111_2000.html

Today, President Clinton will announce that The United States is on course to eliminate its public debt within the next decade.

how quickly bush has turned the country to shit.