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I few weeks ago my closest friend died. He was my dog, my boy and his profound wisdom mentored me, although we were almost the same age. One can only die if one did not produce the domino effect, which manifest most profoundly through the producing of offspring. However, another domino effect is the reverberations upon others from the impact of another's life. I have committed myself to changes in my life born from the reverberations of the impact of my friend's life and death upon my own life.

This communication is not about my friend or me, however. This is about you...all of you. I have not looked at forums, blogs and message boards for nearly a month. Rather, I have been using my time more for research and gaining knowledge to which is leading to planning, preparation, prayer and hopefully, performance that will allow me and my family to survive the upcoming global economic crisis.

I thought that when I returned that I would find commentary concerning this upcoming crisis, yet, it does not seem to be on the mind of many, if any. I really wish that most of you would change what you currently find worth your time and commentary and start exploring the hard realities of an impending economic depression. Forget all this democrat and republican, liberal conservative political misdirection and focus instead on economic fundamentals. Of course, people have been predicting that calamity is nigh for some time. However, there error was in predicting a date, not the fact that it is coming.

The thing that many of you might want to note is that economics is a behavior science subject to the self fulfilling prophecy of human fears. If people or rather consumers think or fear that things are going bad or have hard evidence of it as fact, their consumption behavior will change or contract, which will self fulfill the prophecy. Consequently, it is very important to control the psychology of American consumers to keep them confident and to keep them consuming goods and services and not hunkering down, which will only exacerbate the condition if done is mass.

Our government is lying to its people. The government tells you that inflation is running only about 2.5 to 3 percent over the last decade. There was even talk of the threat of "deflation". However, in 1995, the methodology for the calculation of the Consumer Price Index (the CPI) changed. I won't go into the fictitious and invalid rationalization for the new formula, but suffice in saying that it is invalid. Had the not instituted the new methodologies of hedonics and substitution, among others, and left the formula as was, the inflation rate would be averaging around 7 or 8 percent over the last decade.

Why is this important? Well, for one thing, the government knows that entitlement programs, pensions and other fixed income instruments are in future jeopardy from the lack of revenues to fund them. These entitlements are adjusted each year in a Cost of Living Adjustment or COLA. COLA's in theory are an attempt to maintain the purchasing power of entitlement monies, fixed incomes and other programs based upon the current value of the dollar effected by inflation. Thus, the CPI, the government calculation of the rate of inflation, is the benchmark for COLA adjustments. Hence, underreporting the rate of inflation through a bogus CPI actually reduces the government's payments for entitlements.

Not only that, if real inflation is running about 8% and your get a raise of 3 or 4 percent last year, your pay actually has decreased 4 or 5 percent. In other words, high rates of inflation, relative to stagnate or CPI level wage increases reduces ones standard of living via eroding the real purchasing power of their paychecks. Not only that, if you have money in savings, which few Americans do, based upon the personal savings rate data, the interest paid does not keep pace with real inflation, thus eroding the real value of your saved money.

An erroneously low CPI index also overstates Gross Domestic Product (GDP). GDP is the primary statistic that most politicians, investors and economist focus the most on. As long a GDP is said to be growing at a healthy rate, our economy is said to be in good shape. However, GDP real growth is its growth rate relative to the rate of inflation growth and not absolute growth. For example, if inflation for the past year was 3% and GDP grew by 3% also, real GDP growth for the past year is zero. Moreover, if absolute GDP growth was 3% and the real rate of inflation was 8%, GDP growth is actually negative and two consecutive quarters of negative GDP growth meets the definition of an economy in recession. Folks.... In reality we have been in a recession since 2000.

I think most people are aware also that unemployment figures are bogus. If not, the official unemployment rate ignores people who are severely unemployed to the point of discouragement. Such people have stopped looking because when they were looking, they could not find work. In recent years, this group of people has ballooned, but not being counted among the unemployed. Moreover, the phone survey, which constitutes the rate, went from a statistical sampling of 60,000 to 50,000 and much of the decreased sampling took place in inner cities where black concentration and unemployment rates are the highest. That having been said, one can only imagine what the true rate of black unemployment is in this nation, as well as our rate of poverty, which is formed from the same survey sampling.

How many of you know that America is now the largest debtor nation in the world? What this nation owes to foreign central banks is well into the trillions of dollars. Much of that is born from running a 25 plus year trade deficit, which requires borrowing to make up the difference for our rate of consumption and investment that we cannot afford or fund ourselves. Look at what being debtor nations have done to the Third World. These nations spend more money servicing the interest payments on their debt than the do on schooling and infrastructure improvements. These nations are indentured to the IMF and the World Bank, which are simply controlled by the USA and Great Britain bankers. It now takes 4 dollars debt to create a one-dollar growth in GDP. Eventually the debt grows so large that we will have to borrow just keep up with interest payments.

The United States became a debtor nation in 1973. The reason being is that the USA rise subsequent to that point was due to the destruction of the worlds major economies, except the USA, as a result of WWII. Everyone needed our money for loans to rebuild, much of which was used to buy goods and services from our nation whose infrastructure came out the war intact. There loss was our gain and translated to a virtually economic monopoly that increased our standard of living. However, as nations rebuilt and became more self sufficient, the monopoly was eroded by foreign competition.

In 1973, our nation was on the gold standard. Foreign nations could sell their dollars back to the USA in exchange for Gold. When the USA economy started to go bad in the early seventies and inflation began to rise, foreign banks holding dollars wanted to trade them in for gold. In other words, they wanted the USA to pay their debts to these foreign banks in gold, which would have depleted our nations gold supply and readjusted our economy lower.

Instead of letting this happen, Nixon took the nation off the gold standard by "floating" the dollar, which meant that the dollar was no longer based on a tangible asset. This meant that the foreign banks would have to be paid in dollars, which could now be printed at will, without the constraints to supply from gold reserves. The result of this is far too many dollars in circulation, which leads to easy credit, debt, inflation and eventually massive defaults when these debts cannot be paid. Now think of the recent change in law in regards to bankruptcy and what the nation's banks have lobbied to protect accounts when the crisis hits. The Banking industry elites run the nation.

Making matters worse is the seeming arrival of "Peak Oil", which is the theoretical point where half the world's oil reserves have been used up. At this point, supply cannot keep pace with growing demand and consequently the price rises to ration the remaining oil to the highest bidder. All modern economies are dependant on oil and if use of energy is reduced then a proportional reduction in the economy must follow suit as economic growth is dependant upon growth of energy consumption which fuels it. Even though the concept of peak oil logically valid and inevitable, no one really knows when it will manifest because no one really knows the true reserves of oil producing countries and companies, which often overstate reserves to build and or maintain investor confidence. What is known is that fewer and fewer new large discoveries have been found over the last decade. Without new reserves to replace tapped out old ones, the future for oil dependant economies is bleak.

The problem with this nation is that its people suffer from a superiority complex. Far too many Americans are so confidence in this nation inherent superiority and its most favored nation status with God, that it cannot even introspect itself for improvement. Anyone who dares question the system is called a hater of America and point to all the other nations and people who supposedly have it worse. These are simply tactics to preserve the status quo, which up until the last decade, were simply the accrued benefits of the misfortune of others insecurity translating to our nations security. The people of this nation are not inherently superior in the eyes of God or in the eyes of humankind. The systems that we operate under also are not inherently superior either, as time will and is telling.

The truth of the matter is that the concept of global "free markets" does not jive with a nation's sovereignty and ability to control its own fate. By its very nature, freedom implies the lack of controls. Thus, as one gravitates more towards globally freer markets, one gravitate towards an uncontrollable fate. Entities in a global free market are all attempting to maximize the benefit to themselves, which can often be achieved by symbiotic relationships, but just as often, if not more, come at the expense of other entities in the market. Such is the nature of competition as in order for someone to win; someone must also lose unless competition results in a draw.

The problem for America is that when the free market works against our interest, as it is doing now, we have not control over our economic fate and the decline of our standard of living. Right now we are borrowing our way to the maintenance of our living standards, which is not sustainable. The nation's political elites, of both parties, will face a revolting populous if the promise of this nation is not fulfilled to its citizens. For those who want to stay in power, the only way to control the free market decline of America is via military action or threats. Other nations must be made to [fear] not acting in the interest of America. For example, oil is traded in US dollars, which has plummeted in value relative to currencies like the Euro. If oil producing nations decided to sell oil for Euros, which holds value better and thus is a better economic move for a country, it would be devastating for the US economy. Consequently, nations must be persuaded not to do this. Iraq did this and reaped big profits from this move, but it paid the consequence. In short, the global free market is nothing more than the freedom to act within the interest of the world's only super power, lest you face its wrath.


What I am about to say now is simply my personal opinion and not the result of economic research. I personally believe that our system is closer to evil than it is to righteousness. The reason that I say that is that our system is motivated and fueled by two of the 7 deadly sins, greed and gluttony. It is the greed motive that drives the entrepreneurial spirit and its is the desire for materialistic gluttony that fuels consumer spending which drives the whole vibrancy of the economy, which in turn creates the massive profits for entrepreneurs. Furthermore, the pillar of the whole system is Banking and their legal practice of usury. In all major religions, the practice of usury is condemned. Of course, if you look up the definition of usury, you will find a definition different from the traditional religious usage. Usury is simply profiting from the lending of money by virtue of interest charged.

Think about it. If I have a surplus of money, some of which I will not need for a while and I lent that money to you, what would be my rationale for charging you interest? If I don't need the money, it's not costing my anything to let you have it, assuming that you will pay it back. If you need money and I have money in abundance, then my charging you interest is simply the exploitation of your need create profit for myself. The banking system, however, is even more underhanded than that. Banks actually lend out money that they don't even have. It's called "fractional banking".

The way it works is that there is a reserve requirement set for all Banks by the Federal Reserve Bank. The reserve requirement is the percent of loans that must be backed by actual savings deposits. The only money (true hard currency) that banks truly have to lend is the money of its depositors. However, a low reserve requirement, of say 10%, allows banks to lend out $100 dollars for every $10 dollars people have deposited in long term accounts in their banks. Thus, an astute person would ask" where does the $90 difference come from"? The answer to that question is "out of thin air" or electronic entries in accounts. That $90 dollar difference is the equivalent of counterfeit money. It is "credit money", not real money. Yet, they expect to have the principle and interest paid back in real hard currency. What if you or I did that? What if we printed up some counterfeit dollars, lent them out, but demanded that we be repaid, with interest, in real dollars?

Well, I could go on, but I think that should be enough, I hope to make people think about the future and not simply place their confidence that the people and institutions running this system and nation will ensure a bright future. Contrary to what some ideologies like to claim, individuals in an interdependent human construct do not have control over their fate. When things start to go bad, everyone will be affected to one degree or another negatively. However there are some things that you can do before things go bad that will help you better endure the crisis. The first thing you can do is to be ahead of the curves and trends. Before the masses realize that things are going bad, you need to realize it and start cutting back on your consumption and start accumulating money to invest in Gold or Silver. The reason I say gold or silver is that it is a protection against hyper inflation. Moreover, when the real estate bubble bursts, the stock market will fall and people will be looking for a safe place for their money, which will be precious metals. Consequently, the increased demand for precious metals will make the prices rise considerably. Hence, if you purchased Gold before the rush on Gold, the value of your investment may quadruple in a short time.

Another thing you can do is invest in land where you can grow food and maybe raise livestock. If things decline to depression like conditions, or worse, you need the ability to go back to the basics for survival, like living off the land. If you own the land, you don't have to indenture yourself to use the land and lend to your being exploited like many of our parents or grand parents who share cropped in the south. What we all need is a disaster recovery and survival plan. Plan, Prepare, Perform and last but not leas, Prayer.

Remember Winston Churchill said: "The farther back you look, the farther ahead you can see". There is nothing new under the sun in the human condition or behavior. The past is always prologue.

PS The fate of America will mirror the fate General Motors. When the company was at its zenith, so was America. When it struggles, America struggles, w hen it declined, America declined. America, like GM, will have to downsize to survive and be competitive, but unlike GM, it does not have the type of leadership that does it, which will lead to economic calamity.

Peace and best wishes.
Vita vya panzi (ni) furaha ya kunguru. War among grasshoppers delights the crow. Msema kweli hana wajoli. The speaker of truth has few friends. ("`-''-/").___..--''"`-._ `6_ 6 ) `-. ( ).`-.__.`) (_Y_.)' ._ ) `._ `. ``-..-' _..`--'_..-_/ /--'_.' ,' (((' (((-((('' (((( Noah The African in America
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Noah, you are a fascinating, thoughtful brother. Please accept my condolences on the loss of your friend. I'm sure we are poorer for never having been able to know him ourselves.

Your question, "What's going on?" is severely appropriate to me. I was 26 when I first concluded that America's society as we knew it then (1995) would not last another 30 years. Nevertheless, since then I've lived my life as though I never believed that.

One possible reason may be that I was so depressed at the time that I doubted I would allow myself to live long enough to see that day. And once I resolved my major inner problems, I became so enthused about life that I ignored the idea that things would collapse.

I am not as sure anymore that I was right. But you've laid out a lot of facts to think about. I look forward to the comments of others.
My condolences on the loss of your friend as well.

I was relieved to see that you offered things to do, e.g. investment in gold, buyiing land. Otherwise your information would be a disservice.

It is good advice. Thank you.

Your advice is good in any (foreseeable) economic scenario.

World economy is it self a system, as I'm sure you know. Someone controls it.

You gave an excellent example of Nixon's solution to the United States owing money. He changed the rule.

Sovereign nations can do that.

People can too, but they go to jail for it.

I agree with you buy gold, and buy land.

Diamonds also work well.

One can learn by looking to see what the wealth did with their money in the two world wars.

PEACE

Jim Chester
quote:
Originally posted by Noah The African:

I few weeks ago my closest friend died. He was my dog, my boy and his profound wisdom mentored me, although we were almost the same age. One can only die if one did not produce the domino effect, which manifest most profoundly through the producing of offspring. However, another domino effect is the reverberations upon others from the impact of another's life. I have committed myself to changes in my life born from the reverberations of the impact of my friend's life and death upon my own life.



Noah, my friend. I too, am sorry about your loss. But I'm get you're back. I missed you.

Now for the bad part. I'm sorry, but your presentation is just not completely accurate. I don't have time to cover it all right now, because I have work to worry about. However, I'll give just one quick example.

The reason that the dollar was taken off the gold standard was to achieve continuous parity with other currencies.

Gold, like anything else, is a commodity and the price fluctuates over time. In fact, the dollar itself is a commodity and is traded by speculators as are other currencies on the world currency markets.

A dollar bill has no value in and of itself. It's just a piece of paper. That is, you cannot cloth yourself with it, shelter yourself with it, or feed yourself with it.

It's only "value" is what you can exchange it for. Children know this intuitively. If you give a child a dollar, it means nothing to him/her until he/she is standing in front of the candy counter. Then they know that the real "value" of a dollar is what they can exchange it for.

A little off topic, but a child, standing in front of the candy counter, intuitively understands the concept of alternative cost or real cost. That is, the real cost of the snickers bar is not the dollar they pay for it. It is every other individual item they might have had that they must give-up: a bag of M & Ms, a Milky Way Bar, a small flashlight, a toy. They had to give up each of these things in order to have the Snickers bar.

Somewhere, between childhood and adulthood we forget this basic idea. We forget that the $2BN a week we spend killing people in Iraq has an real cost an alternate cost (beside the enormous cost in loss of life). It is not $2BM dollar bills that might be worth something if we needed to keep ourselves warm. The REAL cost is everything we gave up that we could have traded those $2BN for and had instead... schools, hospitals, social programs.

Sorry, I have to finish fast.

So, back to exchange rates and floating the dollar. What is true for the dollar is also true for other currencies as well. They're worthless except for what you can exchange them for and since you can't spend them in this country, you can only spend them in the country of origin, that is exchange them for goods in the country of origin. Therefore, it is good to have parity between currencies, parity between exchange rates, so you will always get the same amount of goods and services.

That is, if it takes $1.25 to buy a loaf of bread in Australia and it takes $1.00 to buy a loaf of bread in the U.S., then the exchange rate should be for every U.S. dollar you get $1.25 Aussie dollars since all currencies are only good for what they will buy.

The gold standard did not account for this principle because the price of gold fluctuated independently of the price of goods and services, and thus created imbalances between the purchasing power of each currency. This was the real reason for the "float".

Gold standard people or people who own a lot of gold like to claim the fallacy that you mentioned. But it is not true for the reasons I listed. Does this make any sense? Hope I got it right.

Gotta run. I'm glad you're back.
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Popcorn....correct me where I am wrong....

I am sure that there were multiple considerations for "floating" the dollar. However, pegging the dollar to Gold had the unpleasant effect or tradeoff of constraining economic growth, because new money could not be introduced into the economy unless new gold supplies were created. Consequently, companies could not borrow the needed cash for investment because banks did not have the money to lend. These companies, as well as our government, would have to borrow abroad for the money. This is was the negative side of have a gold based dollar.

However, the impetus for going of the gold standard was when foreign central banks and governments began losing confidence in the dollar (because of rising inflation and its diminishing value) and wanted their loans repaid in gold, which at that time was a SET value of exchange (not fluctuating as you suggest) . The run on gold from American banks would have collapsed the banking system in because if you depleted the gold supply, you deplete the money supply, which would reverberate negatively through the economy. That is when Nixon decided to float the dollar and create "fiat currency". Foreign banks then had to be paid in fiat dollars. Fiat currency is currency with no intrinsic value. Its plus side is that can be created at will and the negative side is it encourages too much liquidity which often leads to inflation.
quote:
Originally posted by Noah The African:
Popcorn....correct me where I am wrong....

I am sure that there were multiple considerations for "floating" the dollar. However, pegging the dollar to Gold had the unpleasant effect or tradeoff of constraining economic growth, because new money could not be introduced into the economy unless new gold supplies were created. Consequently, companies could not borrow the needed cash for investment because banks did not have the money to lend. These companies, as well as our government, would have to borrow abroad for the money. This is was the negative side of have a gold based dollar.

However, the impetus for going of the gold standard was when foreign central banks and governments began losing confidence in the dollar (because of rising inflation and its diminishing value) and wanted their loans repaid in gold, which at that time was a SET value of exchange (not fluctuating as you suggest) . The run on gold from American banks would have collapsed the banking system in because if you depleted the gold supply, you deplete the money supply, which would reverberate negatively through the economy. That is when Nixon decided to float the dollar and create "fiat currency". Foreign banks then had to be paid in fiat dollars. Fiat currency is currency with no intrinsic value. Its plus side is that can be created at will and the negative side is it encourages too much liquidity which often leads to inflation.


Hi Noah,

I'm sorry, my friend, but I am not going to correct anybody anymore. It has gotten me in trouble recently. Smile

I will just state my understanding of it.

Ideally, the thought is that if you have $20.00 in U.S. currency that will buy one bag of groceries in the United States, and you were planning to visit France, you would want to exchange that $20.00 for an amount of euros that will buy the same bag of groceries, in the same amount and of the same quality. This is the ideal situation.

With fixed exchange rates, in either the U.S., or France, or both, the purchasing power of both the dollar and the euro or both will fluctuate depending on inflation, interest rates, the money supply, and other factors.

In this example, with fixed exchange rates, let us say that inflation in France is unusually high. The cost of goods and services in France is raising rapidly so that now, you cannot buy the same amount of groceries in France with your $20.00 euros as you can in the U.S. with $20.00 U.S. If you can only now buy three-quarters of a bag of groceries in France, you have lost value. But the exchange rate is fixed. Too bad. You're out of luck. You can go into any bank in either country and you will always recieve the same amount. That is, with a fixed exchange rate.

"Floading" rates were called that because they are suppose to achieve equelibrium between currencies, or parity.

This is were currency speculators serve a purpose. If the value of a currency is low, that is lower than what it can be exchanged for in goods and services - and let us again use the euro - currency speculators will dump U.S. dollars in exchange for euros because the euro will buy more. In this case the euro itself is the actual "commodity" being bought. This increased demand for euros will drive up the pr euro exchange rate until it is again on par with the dollar, until the exchange rates will again purchase the same amount of goods and services. When I say "on par" I don't mean equal, as in $1 US = $1 euro. I mean $1 US = $1.28 euros or whatever it takes to buy equal amounts of goods and services.

This is why there has been such an outcry against China and it's fixed currency exchange rate. I'm not sure what it is today but it was about 1 yuan = .12 cents US. This is much to low and American Investors and consumers can get a much better deal by exchanging dollars for the yuan because at that exchange rate they can get a lot of yuans and buy a lot of stuff. Americans are buying Chinese goods by the truck load partly because of the exchange rate imbalance.

And this is why the International community wants the Chinese to "float" the yuan (which they are resisting). If they "float" it, investment in China will diminish and so will overseas sales because Chinese goods will not be such a good deal anymore, they will not be as cheap.

I hope this makes sense and I hope I got it right. I know currency valuations are confusing. It always helps me to remember some of these things when I remember that a dollar bill itself is worthless. It's just a rectangular piece of paper. It's not going to keep me warm or feed me. It's only what I can trade it for that is of value.

I practice, the U.S. had been off the gold/silver standard long before it was officially declared over. It was never the gold behind the dollar that made it in such world-wide demand. It was/is simply faith, faith that the U.S. government would/will stand behind it's monetary system, that it would keep inflation under control, and that a dollar could always be exchanged for goods and services, at least equel to it's value and often times more.

So, "FLOATING" a currency is a good thing for consumers. It insures that you will at least get close to the "value" of your money in different countries.

The worst inflation in the U.S. in recent times was during the late Carter-early Reagan Administrations. I haven't check the Internet but I believe in some years it was double-digit inflation.

But even at it's worst, it was inconsequential compared to Germany in the early 1920 when inflation rates hit 3 million percent a month (that's right! and people were burning money in their stoves to keep warm) or in Hungary following WW II when prices doubled every 15 hours. Also, Argentina in the '90s.

Investment in the US economy is another complicated matter that is effected by many things. But in general, at least in the private sector, it is financed through the sale of corporate bonds, which are bought and sold on the bond markets.

If a company feels that it can afford to expand, it will notify one of the big brokerage firms that it intends to issue a investment bond, at a fixed rate, with a fixed maturity date. The brokerage firm in turn will look for investors (including banks) and will sell shares of the bond to the public, mutual fund companies, and over-the-counter if it's a cheapie.

Hope I got all this right, Noah. It's been a few years.
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Death is one of the greatest reminders and teachers known to man. It is Death in many instances that force us to re-evaluate much of what we do, say and believe, so the death of a friend and a mentor is his or her last lesson for those whom he or she taught. It is not surprising to me Noah that without saying it as I have or maybe not even thinking it as I just stated it, you know that the last lesson your friend and mentor gave you was the "Introspection" his death caused you to do and from that you will learn things that he may not been able to teach you in life.

The alarm you are sounding is timely and should be heeded by those of us who hear it, of course there will be those who will say the house is not on fire, mainly because they can not see or smell the smoke due to their impaired vision and sense of smell or maybe they are in denial. Either way, they will learn eventually, you and the family of brother have my condolences and it is good to see you back.
quote:
Originally posted by Noah The African:

Our government is lying to its people. The government tells you that inflation is running only about 2.5 to 3 percent over the last decade. There was even talk of the threat of "deflation". However, in 1995, the methodology for the calculation of the Consumer Price Index (the CPI) changed. I won't go into the fictitious and invalid rationalization for the new formula, but suffice in saying that it is invalid. Had the not instituted the new methodologies of hedonics and substitution, among others, and left the formula as was, the inflation rate would be averaging around 7 or 8 percent over the last decade.



Noah,

I feel you are absolutely right about this, although I have not kept up on my reading. We can see that prices are going up beyond the 2-3% annually that the government claims. It has to be greater than that with all of the money the government is spending on the military. To see why this is so, take the simple model of GDP = PI. For simplicity, lets forget about personal savings (which is at of near zero anyway) and exports.

So, Gross Domestic Product must be in equilibrium with Personal Income. We, the producers of GDP are also the consumers of GDP with our personal income, the money we are paid.

Ideally, every product and service included in GDP is something that can be used, something that will be bought with our personal income.

But what happens if the government cuts taxes yet continues to spend big time on the military, on military hardware, and on military development?

Now there is a big chuck of GDP that consumers can't use. That is, nobody will be going into Walmart to buy a tank or an F-18 fighter-bomber. Even if you could buy one, you'd have no use for it, unless you're Timothy McVeigh.

So now, included in GDP is a big chuck of Military Hardware and Equipment that the consumer can't use. For purposes of illustration, let's say it makes up one third of GDP.

But we still have all of the money we were paid for generating GDP, including all of the money we were paid for producing all the military stuff. Because we can buy military equipment... it's of no use to us, we have more money than we can spend and only two/thirds of GDP left to spend it on.

We all want a part of the remaining two thirds that is left and we have our original PI to spend on it. And because we have more money then there are goods and services to go around, we start bidding-up the prices of what is left. Eventually, equilibrium is reached and GDP = PI, but we only got two thirds of the pie at higher prices then we were paid in wages and salaries.

This is inflation as it relates to military spending. It is an invisible tax imposed on every consumer through government spending. Unless the government raises taxes to pay for all the military junk (and they've done just the opposite since Bush was elected) inflation is inevitable, IMHO, at a higher rate than the government reports.
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We can help each other to understand better Popcorn. I understand that money and exchange rate is a commodity that is speculated upon and bought and sold to make profits from differences in rates of exchange.

The issue is, however, what caused the government to break the gold standard? It's true that the value of all currency is determined essentially by the confidence that people have it or rather the confidence they have in the government and nation that issues it. Even if the nation was not truly on the gold standard and was simply printing money, what inspired them to end the illusion? I would theorize that when holders of dollars wanted to exchange them for gold, then the jig would be up. They (foreign banks) preferred to hold government securities such as treasury notes and other instruments were they could earn a return on those dollars. When the return on holding dollars started to diminish, the incentive was born to hold gold and foreign interest started requesting gold.

Many people argue that "fiat currency" or floated currency has been good for the economy. However, is it the fact that the currency was floated or the fact that most foreign central banks held their reserve currency in dollars or the fact that oil is traded in dollars, which creates an artificial demand for dollars? If all those dollars were to be released, as the dollar has been in a free fall in order to try and decrease the trade deficit, the value of the dollar would go into free fall and hyper inflation would run rampant. Indeed, if the value of the dollar is falling relative to other currency, nations who are holding this currency as reserve are loosing money, which is obviously not to their best interest.

That having been said, much of the money and spending is not even fiat money, but actually "credit money" created by banks. Fractional banking allows banks to "create money" and lend it out for profit. The effects of "credit money" upon our economy needs further study as it seems nefarious in my opinion.
Popcorn, in regards to inflation, it is not simply PI that is bidding up prices, but also borrowed money. The result is that when you get too many dollars chasing too few goods, the price of the goods increase. That's market driven inflation. However, another form of inflation is resources driven inflation caused by changes in the price of oil. When I was taking economic classes back in the late 80's, it was said that oil prices were the biggest mover of rates of inflation, but now experts are saying that oil prices no longer influences rates of inflation like they did 20 or 30 years ago. I don't understand how that can be true other than our nation become more service oriented rather than industrial.

As I said, if the calculation for the rate of inflation is wrong, then GDP growth rates, adjusted by the CPI, are also wrong. Just a few years ago economist were talking about the threat of deflation, meanwhile, home prices were seeing double digit increases in cost. The ability of the poor and middle class to purchase home was made more difficult, if not for predatory lending and the relaxing mortgage rules and Fannie Mae buying up all this mortgages from the originators.
Noah, I think your thread is a good reality check for people to pause and reflect, and hopefully not feel too overwhelmed.

I think one of the other issues a lot of Americans (of all races) face is a disconnectedness with things outside the USA. I almost suspect that is purposefully built into the politics, media and education system, but I could be being too cynical.

If at all possible, I would enourage all Americans to travel outside their country to see other cultures, and to be able to step back and look at their own country from the 'outside'.

I know not everyone has cash to splash around, but the reality is that it is cheaper for Americans to travel than almost anyone else. At least airfares seem to be that much cheaper. It's another worthwhile investment to consider.
Just a thought. Smile
quote:
Originally posted by Noah The African:

Even if the nation was not truly on the gold standard and was simply printing money, what inspired them to end the illusion? I would theorize that when holders of dollars wanted to exchange them for gold, then the jig would be up.



Noah,

I'm not sure what the given rational was for ending the gold standard except for the collapse of the Bretton Woods Agreement in 1972. I have a small textbook on this agreement and I will try look through it and make sense of it if my mind still can.

I do know that the Bretton Woods Agreement was established in the early 1940 during WW II with the U.S. dollar as the standard by which all other currencies were valued. The U.S. dollar at that time was the strongest and most stable of all currencies in the world. The U.S. backed the U.S. dollar with gold, although the actual exchange of gold for dollars never happened.

The Bretton Woods Agreement or gold standard sought to bring stability to world currencies but it was a "fixed standard" with all other World currencies (at least those countries that signed the Bretton Woods Agreement) tied in value to the U.S. dollar. In practice, it was not an absolutely "fixed" system, as countries could re-value there currencies up or down relative to the dollar. But this was something most governments were reluctant to do because it implied economic instability.

Let's see. My mind just went blank. It's happening more frequently lately. Where was I going with this?

I forgot. It had something to do with forced, artificially priced value of gold fixed at $35 an ounce. I know that all during the sixties this value for gold, backing the U.S. dollar was enforced, but it became harder and harder to enforce as the true value of gold on the commonities market was far above that.

Nations were reluctant to give-up the Bretton Woods Agreement and the gold standard but the $35 an ounce price of gold was not longer viable.

IMHO, a free "floating" exchange rate system is much more efficient in that it allows the value of a currency to be tied to what it will actually buy. But I will do some more reading... I think, it's pretty dry stuff.

You have inadvertently (maybe not inadvertently Smile) hit on one of the real dangers that face the U.S. economy. The jig is up period, if any of the nations that hold large amounts of U.S. dollars in reserve, that is, U.S. debt - Japan, South Korea, Taiwan, China, and others - decide they no longer want to hold these dollars and decide that maybe the euro is a more stable currency. If even a small amount of these dollars were "dumped" on the currency exchange markets it would cause financial panic worldwide and perhaps all countries would start dumping dollars.

Do you remember... I think it was about 6 months ago when South Korea's Central Bank decided to reduce it's reserve holding of U.S. dollars. It was a relatively small amount, not small to you or me Smile but small compared to the amount of dollars they hold. Just this small "dumping of U.S. dollars sent the financial markets into a tailspin that day. Actually, South Korea's Central Bank wanted to get rid of more dollars but pressure from the U.S. made them stop the sale the following day.

But can you imagine what would happen if the all of these nations that hold our dollars decided to no longer hold them and exchange them for some other currency? This total debt that we owe is in the trillions of dollars and just the service of this debt (interest) is growing each year as the number becomes larger and larger. In 2004, the trade deficit for that year alone was $665 Billion dollars, a staggering amount that we cannot even imagine because for most of us there is no point of reference.

Most of this amount (borrowing) comes from an excess of imports over exports. Americans now spend far more then they make through credit card borrowing, borrowing on the equity of there homes, personal loans, any way they can get it. We are mortgaging our children's future and there seems no end to it. Americans take their lead from our government and when the government spends in the red, hey... what the heck. Also, when we have a President who makes comments like ... I forget the exact quote but it was something like "Help the economy. Go out and spend money" This was following the 9-11 market downturn but comments like this don't help curb American spending. It is getting to the point were we MUST take the wealth of other nations. Scary, huh?

I'll try to find my little textbook (ugh!) and do some reading on the Gold Standard. I'm glad you are back, Noah. I hope all is going well for you and your family.
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quote:
Originally posted by art_gurl:

I think one of the other issues a lot of Americans (of all races) face is a disconnectedness with things outside the USA. I almost suspect that is purposefully built into the politics, media and education system, but I could be being too cynical.

If at all possible, I would enourage all Americans to travel outside their country to see other cultures, and to be able to step back and look at their own country from the 'outside'.



I agree totally, AG. Can I come and visit you? Smile I'll wash your car and take care of your cat.
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Popcorn, you are a fountain of knowledge. We can only speculate as to the reasons for going off the gold standard. I recollect that American citizens could not redeem their dollars for gold, but foreign banks could. It seemed that the reason that people preferred to hold dollars, rather than gold, if from the interest one can earn from dollars or treasury notes. Holding gold produced no return and that is why few institutions requested gold. Confidence is everything in free market economics. One has to look at what was going on in the nation economically immediately prior to floating the dollar. Inflation was on the rise, there was the expensive war in Vietnam and economic slowdown. Consequently, foreign banks might have began to lose confidence in the American economy and dollar and saw holding gold as a better hedge against the declining value of the dollar, which their currency were pegged against. This is what I would have done had I be a foreign central bank holding dollars in reserve. The thing to note is that the banking system is fragile and never in balance. If at anytime depositors come for their money in mass, the whole system collapses. The reason it collapses, as I am sure you know, is because it lends out other peoples money to make a profit off the interest. Had foreign banks made a rush on American gold deposits, in exchange for their dollars, the system would have collapsed.

I tend to be one who believes that there is an eventual offset to every action. Floating the dollar is no exception. Floating exchange rate create too much fluctuation or volatility in prices. Moreover, what happens is that the value of currency is artificially influenced by speculative investors who buy and sell currency hoping to take advantage of fluctuating exchange rates... the volatility born from floated currency. The supply demand dynamics that should be setting monetary value is the triangular interdependency of the vertices of workers, customers, capital. Now, however, the value of currency is to a large degree set by speculators. There are probably more dollars trading hands from speculation, than from real economic activity these days.

As I stated earlier, it is my belief that the free market is also a very dangerous market. The free market is free to work in your favor...or your disfavor. When the free market starts to work to the disfavor of military powers, the powers must then seek to control or influence the behavior other through fear and intimidation.
We can only speculate as to the reasons for going off the gold standard.---Noah the African

I think you indentified the reason in your initial post.

The gold standard obligated the United States to redeem its paper currency in gold, I think the currency was 'silver certificates.'

Nixon simply changed the rules.

This a lesson to remember about government promises.

First it is promises made by politicians.

Second: If it is law, it is written by politicians.

Third: Government (sovereign government) can do what it pleases as long as it is willing to apply its military forces to make it true.

The one with the biggest army wins.


PEACE

Jim Chester
quote:
Originally posted by Noah The African:

Think about it. If I have a surplus of money, some of which I will not need for a while and I lent that money to you, what would be my rationale for charging you interest? If I don't need the money, it's not costing my anything to let you have it, assuming that you will pay it back. If you need money and I have money in abundance, then my charging you interest is simply the exploitation of your need create profit for myself. The banking system, however, is even more underhanded than that. Banks actually lend out money that they don't even have. It's called "fractional banking".

The way it works is that there is a reserve requirement set for all Banks by the Federal Reserve Bank. The reserve requirement is the percent of loans that must be backed by actual savings deposits. The only money (true hard currency) that banks truly have to lend is the money of its depositors. However, a low reserve requirement, of say 10%, allows banks to lend out $100 dollars for every $10 dollars people have deposited in long term accounts in their banks. Thus, an astute person would ask" where does the $90 difference come from"? The answer to that question is "out of thin air" or electronic entries in accounts. That $90 dollar difference is the equivalent of counterfeit money. It is "credit money", not real money. Yet, they expect to have the principle and interest paid back in real hard currency. What if you or I did that? What if we printed up some counterfeit dollars, lent them out, but demanded that we be repaid, with interest, in real dollars?



Noah,

I'm afraid that if I posted my true feelings about our government, I would be committing a treasonable offense. However, just a few benign comments.

First, if I where to lend money without charging interest in almost any country, it would cost me something. And charging a borrower interest at a reasonable rate is not "exploitation of your need to create profit for myself".

As an example, let's assume that your measure of the real inflation rate is 8% (3% as claimed by the government plus hidden inflation of 5%).

Further, let us assume that I come to you and ask you to borrow $1000.00 for one year without interest. At the end of the year I pay you back the $1000.00 that I promised to pay, and we are both happy campers.

But I am a happier camper then you because I paid off my debt to you with dollars of less value then the dollars you lent me. That is, since money is only good for what it can buy and with inflation running at 8%, I only paid you .92 cents for every dollar you lent me. In total purchasing power, I only returned to you $920.00 of the original $1000.00.

In economics, this is known as the "future value of money". With an 8% inflation rate, the future value one year from now of $1000.00 is only $920.00. By lending me $1000.00 without interest for a year, it has cost you $80.00.

Second, there is again the ugly specter of "alternative cost". Sorry, but it cuts both ways.

This "cost" is anything else you might have done with the money that created future value. This might include, investing, time certificates, a simple savings account, or just giving it to the poor. If you would have done one of these things or any other thing that created future value, you gave it up when you lent me the $1000.00.

Lastly, to be clear, a bank with less then $7 million dollars in transaction deposit accounts (checking, savings, etc.) is not required to hold any amount of cash in reserve. This never happens because a bank needs to have some cash for day to day operations. Still, as of 12-23-04 and the Garn-St Germain Act of 1982, a bank with less then $7 million in deposits is required to hold no cash reserve against deposits.

Further, a bank with $7 million to $47 million in deposits is only required to hold a 3% cash reserve. This requirement was set under the Monetary Control Act of 1980 with the same effective date of 12-23-04.

It is only banks with transaction deposits in excess of $47 million that require a 10% cash reserve, also defined by the Monetary Control Act of 1980 with the same effective date.

And sorry, I have not been able to find my little "Gold Standard" textbook, but I will.
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Popcorn, believe me, I took all that you said into consideration before I made the statement. I am focusing on THE PROFITING of the lending of money. An entity cannot profit from lending money unless all those things you mentioned was accounted for. One cannot proft unless they get more out of a relationship than that which they put in. If a bank is getting more out of the exchange than they put it, then the borrower, the other half of the relationship, is absorbing the loss.

The lending of money [can] and [should] be a non-profit role of the government, in my opinion. By allowing banks to control the lending of money, you allow banks and bankers to essentially control the money supply and hence the economy, as well as, taking advantage of money needs. (Note: The federal reserve bank is not run by the government. It is a privately owned entity).

The system is a curse upon the economic structure of this nation and will likely be the trigger that sends the economy into a worse great depression. When people start losing confidence and start coming for their money....the system will collapse, as it did in the last great depression.

On an aside, the other day I forgot to transfer money from my savings to my checking account. Consequently, I made several transactions with my debit card that resulted in overdrafts. Despite having thousands of dollars in my saving account in their Bank, they charged me 36 dollars for each overdrawn transaction. Each overdraft charge was more than each Item I purchased.

I am a system analyst. I write programs that extract information from databases all the time. There is no cost justification for those charges. It is pure profit taking despite the fact that I allow them to be in business by deposits held in their bank which they loan out for profit.

Part of the reason there is an economic threat from the housing market is born from the default threat posed from all those adjustable rate mortgages. They banks suck people in at initially low rates, inspiring people to push the limits of what they can afford. However, when interest rates start to rise on the backend of the deal, many people will start defaulting on their loans because they cannot make the payments at the higher rates of interest.

The banks, mortgage companies and other lenders have all these different type of programs that entice people in at super low rates, but calculate that in the long run, the adjustable rate will turn around to their favor and allow them big profits. Aside for that, you have the predatory lender who charges extremely high rates for people with marginal or bad credit. Even if a person has an impeccable rent or previous mortgage payment history, but had late payments on credit cards, car note, student loans and other accounts, the system will use a bad credit score to justify charging people higher interest. If things get tight, people prioritize their payments and since people always need a place to live.

The lending of money is a parasitic business.
I was absentminded in not presenting, again, the practice of fractional banking. Whatever the reserve requirement is, banks make money lending money that does not exist, as well as lending money of depositors that do exist.

Banks have other assets, but bank lending is predicated upon long-term deposits in their bank. Thus, the question becomes, in fractional banking, where does the money come from that banks lend 10 times is excess of actual deposits?

When a bank lends out money in excess of their deposits, and often times their asset base, that money is simply an electronic entry into an account. Its not backed by any REAL money. Consequently, its more than an issue of interest, its an issue of having the power to create money for the sole purpose of lending out for interest and profit.

If you are I attempted to do anything parallel to what banks are allowed to do, we would be thrown in jail for loan sharking, counterfeiting and being con men/women.
quote:


Originally posted by Noah The African:

The lending of money [can] and [should] be a non-profit role of the government, in my opinion. By allowing banks to control the lending of money, you allow banks and bankers to essentially control the money supply and hence the economy, as well as, taking advantage of money needs. (Note: The federal reserve bank is not run by the government. It is a privately owned entity).



Again, there is the concept of alternative oportunity cost and the concept of risk.

Historically, since records have been kept, an American business can expect to make 6-8% profit. This profit is justifiable because of the alternative oportunity cost, the cost of time a business-woman, man "gives-up" to make the business a success. 6-8% profit is often times referred to as "normal profit". After all, would anyone bother spending their time starting and running a business and giving-up whatever else they could be doing with their time if they didn't expect some return? The expectation of return/profit in normal. Without the expectation of profit, no businesses would ever be started.

In addition, is risk, a concept gamblers, speculator, and Wall Street investor know well.

A business-woman, man who begins a business runs a risk of losing whatever money she/he has invested in the startup of the business. The odds on gambling and the return on investment are very similar. If I were to bet on a horse to win with odds of 20/1 and I am fully aware of the odds and I place my $1 bet, then I am entitled to a "high return" on my $1 bet. After all, it is this "risk" and the chance of high return that induces me to place my bet on a horse that is unlikely to win.

Likewise, if I start a business with a low probability of success, that is a business that will most likely fail, then I am entitled to a high return on my "$1 bet", if my business is a success. If this were not so, business-women, men would be foolish to take risks and there would be no motivation for new, innovative products and ideas because these products and ideas are risky and it's always more difficult to get financing.

If you are familiar with banking then you may be familiar with the mutual fund industry. Risk is an essential part of the mutual fund industry. In addition to the normal risks inherent in the portfolio of stocks or bonds one specific mutual fund may hold, there are many other risks. To name but a few; political instability if some of the holding are in foreign countries, natural disasters, the risk when a new manager takes over a fund, the alpha and beta statistic (how close the fund is related to the rise or fall of the Dow or NASDAQ) and other factors.

If a woman-man should choose to invest in what is presently considered a high-risk fund, say a fund that invests almost exclusively in Latin America of Africa, and this woman or man knows the risks, why should she/he not expect a high return from there risk? Without this, there would be no investment in Latin America or Africa, both of which are considered high-risk.

So, a 6-8% profit that includes the alternative opportunity costs and cost of normal risk is not unfair for an established business. However, for a new business where the risk is greater, a greater profit is to be expected.

Banks are businesses, also. It is unfair and unwise to condemn them for making a profit, for without profit there would be no banks in a free-market economy. Also, all interest that they charge on loans is not the same. Again, it is based on risk. The best customers usually get the lowest rates, prime or prime plus one quarter.

Also, your argument does not separate the two primary functions of banking: money warehousing and loan-brokering.

And I'm sorry my friend but your statement that the Federal Reserve Bank or system is a privately owned entity is just plain misleading. Much information has been omitted.

The Federal Reserve System is an system of 12 regional reserve banks established by Congress in 1913 by the Federal Reserve Act of 1913 and the Owens-Glass Act. It is true that in 1982, in a U.S. Supreme Court decision the Court declared that each of the 12 Banks were "not federal instrumentalities for purposes of a Federal Torts Claims Act, but are independent, privately owned and locally controlled corporations independently funded". But the Supreme Court also declared at the same time that "the Reserve Banks have properly been held to be federal instrumentalities for some purposes." Most importantly, the key wording here has been held to be "for purposes of tort" meaning "for purposes of being sued", meaning they can't be sued.

Furthermore, the twelve regional Federal Reserve Banks, which are the operating arms of the nation's central banking system, are organized much like private corporations, possibly leading to some confusion about "ownership." The Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold or traded or pledged as security for a loan and dividends are, by law, limited to 6 percent or lower per year.

In addition, the Federal Reserve System is under the direction of the seven member Board of Governers, each member being appointed by the Priesident and confirmed by the Senate. The Chairmen of the Board of Goveners, currently Alan Greenspan, reports to Congress.

And finally, there is the Federal Open Market Committee, consisting of the seven board members and five members from the member banks. This committee meets regularly to set interest rates and other policy matters.

So you see, the statement that the Federal Reserve is "privately owned entity" is just not accurate. It is misleading to make such statements.

Also, the statement about the housing industry being in trouble because of variable rate loans is also misleading. This is because fixed rate loans have become so prominent in the past 3-4 years. Any problem the housing industry may face is because of over-valuation of housing prices, not from variable-rate loans.

Further, many banking systems run only by the government have proven to be disasters. The former Soviet Union is a good example.

I am not defending this system. I am only presenting the truth and what is factual as I believe it to be. As I said before, my private thoughts about the system probably border on sedition. However, I will not agree to or distort what is factual.
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Popcorn, no one in the government can tell the FED what to do or what policies to enact. The FED does not follow orders from the government. It is a private institution, with quasi government ties. There are three branched of government, the executive, the legislative and the Judicial. There is no "Banking" branch of government. The government wants the ability to influence the economy via monetary and fiscal policy. It appoints the board of governors as the conduit to influencing the private sector of banking, primarily through controlling the rate of interest charged. Interest rate is like the faucet that control how much money banks should release into the economy.

I understand and agree with you that all profit is not bad. However, there is no control on profit, which inevitably leads to exploitation. Slavery was economically rationalized because of the profit motive. There is no win-win in nature. If someone is profiting, someone else is experiencing a loss, regardless of the fact that they voluntarily do it or place value in things above their intrinsic worth.

Say for example I have a bottle of water and a man coming out of the desert is so thirsty that he is willing to give me a thousand dollars for that bottle of water. Because of his situation, that bottle of water has a value to him much higher than its intrinsic worth. Thus, we enter in an exchange in which I trade the bottle of water that cost me $1 for $1000 dollars, netting an astronomical profit. Pharmaceuticals companies do something similar to this all the time, taking advantage of the needs of people to live and be free of discomfort. Banks do it to by taking advantage of peoples need for money.

The concept of value hides or distorts the unequal exchanges taking place in the economy due to people voluntarily entering into agreements, based upon need, situation, or extreme wealth or extreme poverty. When the Indians sold Manhattan Island for a dollar, it was based upon the value that [they] new it had, not the value that the Europeans [knew] it had, which of course was information they did not want to share. It is the unequal exchanges that accrue to class stratification.

Also, do not forget that our banking system lead to disaster also. Banks were investing peoples money saving and when the stock market crashed, they lost a lot of peoples money. Then when the people came for the money they had to close down the banks because they could not honor their obligations. That was the disaster of the great depression. The banking system will be at the forefront of the next great depression coming. I say this because the actions of the Banking elite are responsible for all the personal debt by making credit easy via low interest rates. Consequenly, people have borrowed way beyond their means. When the FED gets deep into reversing their strategy, in order to control the rise of inflation...watch out!
Another thing that seems rather counter intuitive is charging higher rates of interest for people who are considered high risk. Now, maybe it's just me, but if a person were truly high risk, I would not lend them any money. To a bank, high risk likely means a person who may get over on the bank as opposed to the bank getting over on them.

Banks and Lenders don't make money off people with excellent credit, because the rates they charge are too low to make a profit. Thus, it's the marginal credit market where they get over, because they never truly make loans to people who are really high risk...that would be foolish.

I mean...think about it. If a person income to debt ratio or credit score makes them a high risk, is making their installment payments higher via higher interest rates going to make them more or less likely to miss payments? I would say more. Of course, the Banks would say that they must charge the higher rates to generate the extra cash to cover the losses to the bank for people with bad credit who default. Well, if that's true, then the bank should not be lending money to these people at all and hence they would not have the losses to cover for. Obviously they keep doing it because it is more profitable than costly.

What the whole system does is that it looks for pretext to exploit via high interest rates. If everyone were perfect in their behavior, the banks would go broke, because they can't make money off people like that. They are looking for legal pretext to gauge customers with high interest and fees. You can have a credit card from one of these Banks and have one of those extremely low interest rates. However, if you make one late payment, the rate is subject to change to a double-digit rate overnight. GOTCHA.

The system, as I said before, is parasitic. They are like vultures looking to eat the carcasses of those who slip up in life. That's how they get their calories...er uh...profit.
Noah:

I printed out and read your complete set of words.

I DO NOT DISAGREE WITH WHAT YOU SAY IN GENERAL.

However - I will follow in my usual course of actions and ask you to clarify a few points.

*If the USA now having been removed from the Gold Standard and now is practicing the "floating dollar in a currency market" can you tell me what intrinsic value that GOLD has to make it a better store of value?

If a man carrying a chest of gold having just complete a 36 hour walk across a desert comes across a person that owns a well that could give him water to quench his thirst - could you tell me the rate of exchange this wealthy but THIRSTY man will establish for this GOLD?

In my view GOLD has abstract value just as the pieces of paper that we accept as currency.

*****

Secondly you once again focus on capitalism and it's roots in greed and glutony. Point well taken. However when the relative wealth of the United States enables this country to offer support to other countries in need both on a permanent basis and in the case of emergency such as the Tsunami or the food shortages around the world - would you agree that this same wealth that is aggregated is put to good use for others who don't have markets in place to address their humanitarian needs?
quote:
Originally posted by Noah The African:

The system, as I said before, is parasitic. They are like vultures looking to eat the carcasses of those who slip up in life. That's how they get their calories...er uh...profit.



LOL. This was funny, Noah. it gave me a good laugh especially the "That's how they get their calories...er uh...profits." I need to laugh today.

However... (isn't there always an "however" or "but"?)


The FED is not a "private institution", not in the common usage of these words. But before I can even comment further, much information that has been omitted, needs to be stated. First and foremost by "FED" do you mean the Federal Reserve Board of Governors or the twelve regional banks?

In what follows, for purposes of illustration we will forget value added. That is, oil two miles below the surface of the earth has no value because in it's present location, no one can use it.

It is scarcity and demand that determines value. Nothing, absolutely nothing has "intrinsic worth", except IMHO, life.

It is humans who determine value by wanting a certain commodity. Gold as well as any other commodity does not have "intrinsic worth". If no one wanted it, no matter how scarce it is, it's value is or approaches zero.

A women walking across the desert with a lot of gold and dying of thirst would pay the keeper of the well all of her gold for one glass of water. Is the man who owns the well exploiting the women? Ask her! Ask the women dying of thirst! If it is a choice between all of her gold and life, which do you believe she will choose? The rate of exchange is not based on anything "intrinsic" it is based on the scarcity of water (supply) and the need to survive (demand).

One of the fundamental principles of a free market economy is that everyone is best able to determine their own welfare, that they are able to make informed choices, and that they are free to choose.

Should I tell my brother Noah what is best for him when he wants to buy a trinket, a trinket that has great worth to him but that I think is worthless? Or a Rolex watch? Who am I to do this? He is free to choose what is of value to him, and spend his earnings as he sees fit. And again, although this is an extreme example, should I tell my brother Constructive Feedback not to buy that glass of water for ten pounds of gold when he is dying of thirst? The choice is his. He is best suited to decide what is best for his own welfare. Not me.

If my sister is smart enough to set-up a water stand where she knows people will be crossing the desert with bags of gold, is this exploitation? Is this "taking advantage"? If this is true, then we are all "taking advantage" of a need in the work that we do.

If my brother Noah writes an overdraft on his account, or makes a late payment on his account and is charged a late fee or an overdraft fee, how can he complain? We assume he is an informed consumer and knows the rules. If he doesn't know the rules, than as the saying goes, he has just learned a valuable lesson. Who claimed that knowledge is free?

When the Indians sold Long Island for trinkets and mirrors, these items where unknown to them. For them, these item were scarce and of great value. But the Indians held land in abundance, demand was low, and thus the value of Long Island to them was low. From five-hundred years ahead and with all of the value added to Long Island, what can we tell them about "value"?

If you are referring to the stock market crash of 1929 and blaming the banking system for this, again this is a false statement. The stock market crash of 1929 had much to do with speculators being able to buy stock on "margins" of as low as 10%. That is, they could buy shares of stock with as little as 10% down. This allowed them to bid-up the price of shares way beyond their asset value and the return on investment a shareholder could expect. The SEC has changed the rules and a buyer must put down at least 78% of a stock's current day buying price (the SEC can vary this amount as high as the upper 80%).

It may surprise you to know that although banks could not meet the initial "run" of depositors on their branch offices and had to close their doors in the days following October 25, 1929, and the financial panic, eventually in most cases, all demands by depositors were met.

Finally, a correction. In an earlier post I may have said or implied that corporations could not be sued. This is incorrect. Obviously, corporations can be sued, Merck and it's product Vioxx, for example.

It is the shareholders of a corporation who cannot be sued for their personal assets, unlike a sole proprietorship, or partnership.
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Hi, Popcorn,
Granted, it is not a private institution by the popular usage of the term, but neither is it a government institution by the popular usage of that term.

Well...my use of the term value was employed not to discredit the concept of value, but to explain how it rationalizes or hides unequal exchanges which create social and economic separation. The lady in the desert probably would have paid tens time more then the gold she paid for a glass of water, if she had it. However, one she got her drink and saved her life, she is officially now among the poor while the seller of water is among the rich.

In life, we all get into situations from time to time that put us in need and make us value things beyond their intrinsic worth or true market price point or equilibrium. Again, a $1 bottle of water to a thirst starved person quickly can become a $1000 dollar bottle of water. Again, I myself would pay all the money I had for a bottle of water that would save may life because my life has a greater value of the money. However, in the end, there is an economic after effect of such transactions the create poverty on one end and wealth on the other.

There was a point in time where the majority of people lived off the land. That still exists in some parts of the world, like the Amazon rain forest, among others. All their needs and fate was provided by nature and the land. Then came the encroachment of modernity and private land ownership and developers who purchased or the land from the government and developed that land. Now the people who were once independent and without need are suddenly in need. They now need money, when they never needed it before. The only way that they can get money is to work. Thus, their need and value for survival puts them at the mercy of those who need and value cheap exploitable labor as the means to big profit margins. Thus, you have income and wealth being generated from the unequal exchange between workers and owners of capital. In other words, you have one group of people profiting off the needs and misfortunes of another group of people.

Such is system is really what I call seesaw economics because exploitation need and misfortune is the fulcrum that allows one group of people to be lifted up from the lowering of another group of people. The fact that people voluntarily, do to the combination of need and lack of other options, enter into these unequal exchanges seem to make it ok and not exploitive. Not all our system is that way, but certainly enough of it is that its removal would reduce the wealth of many.

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