I am not numb to dollar fall potentials as warren warns..
I am just not naive enough like you to think the bankers, politicians, military men with guns, etc etc are going to let me profit from hoarding gold ALA the HUNT brothers or Jack Chen.
Have you looked at soft currency economics advocated by another islander? - Economist Mosler. Quote from the top of his webpage:
RYAN: "Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?"
GREENSPAN: "Well, I wouldn't say that the pay-as-you-go benefits are insecure, in the sense that there's nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase."
epicoalition.org
blogger.com
A.) Why was paper money invented
B.) How was money created in the Past
C.) What happened when other major currencies died
D.) How did the US dollar come into such promence in the world
E.) What really is money any way.
I did research on the subject to answer these questions. However I did research with the understanding that I am not in the trenches by any means and only read books on the history of money, therefore I do not sift through old records. Upon some thousands of pages of reading I discovered a few things which caused me to think hyperinflation was the only route and fiat currency was here to stay.
The first major issue it tried to get my brain around was why we have paper currency in the first place, uncovering the human need for the birth of fractional reserve banking. I found that some kind of fractional reserve banking had been around all throughout recorded time in one form or another. I traced its roots back to warehouse receipts, whereas a warehouse offering more receipts for goods than it actually had, by mistake or intent was actually engaging in fractional reserve banking.
The leap of understanding I made was involved with how receipts started to become a defacto money, giving rise to lending using receipts.
Another part of my understanding of paper money came from the fact that early traders would trade for undesired goods as a medium of exchange in order latter trade for goods that they really desired. This of course meant that traders could not get the desired good outright as the trader with the desired good didn’t want what the trader originally had. Therefore I made the link that commodity money, gold and silver, was only an extension of trading.
The trading property of Western money was forever changed in 1691 as the first official paper money was introduced in Massachusetts. This money was based on future taxes. As you could well expect, hyperinflation ensued. Why not print money for today and make those responsible to pay taxes tomorrow to pay.
Money was then linked to gold and silver making the first local commodity moneys in an effort to argue that inflation would be curbed hyperinflation which destroyed the paper money.
However the next leap of logic I made was in finding that all of these moneys hyperinflated as well.
As money progresses through time people create more and more elaborate structures to expand the creation of paper money in a controlled fashion. The Central Bank movement was formed in America with the through that the Federal Reserve could inflate the currency in a controlled manner.
Actually Andrew Jackson dismantled the Bank of the United States, America’s central bank before the Fed.
So the Fed creates money based on gold and future taxes. Then in 1973 the money is now officially based on future taxes.
Now, when looking at all of America’s debt it is becoming obvious to me that the US dollar is not in fact based on future taxes, but pure political power. Economics, military, and otherwise.
Most of America’s debt is based upon our social programs, with an estimated $55 trillion for things like Social Security, Medicare, and the like. The national debt the US admits to be about $8 trillion. The US is borrowing heavy amount to service this debt as it comes due and this borrowing can only increase with time.
But why do we have so much debt to pay for our social programs is because in our political system everyone votes. So anyone running for office has figured out that if you just promise the people who actually vote anything and pay for it with debt, that is the best way to get and stay elected.
So how does this process end.
The process of giving to the parasites of society at the expense of future debt payments leads to a process whereas the US must continue to borrow heavily. This trend will only stop when our political system changes to exclude having to pay of these economic parasites.
Therefore even though the banks are very influential, they cannot stop what is about to happen because it the selfishness of the human voter which is leading us down the path to hyperinflation, just like so many times before.
Chromatic Dispersion
3:33 PM, October 17, 2005
Gillian: Are you sure you won't change your mind?
Spock: Is there something wrong with the one I have?
The Voyage Home
their mind is already closed, particularly to the obvious, and especially to what history have proven, time and again
The obvious to me sweet General is that in 1990 I purchased a home in boca raton - a short time later a vacation condo somewhere else that will remain undisclosed - when my career moved to RTP a short time later another home in Durham, NC. Not GOLD - had I purchased GOLD in 1990 and every year thereafter with the same funds I used to purchase my 3 homes - I do not believe I would have the same joy I got from the homes or have the same wealth I have today. I am OPEN to reason though - if you can show me my purchases of homes 15 years ago and the much joy I got out of visiting my vacation condo would have been much inferior to buying shiny metal gold and putting it in the hole - I will change my mind. I am open to any data or statistics you wish to reveal to prove your falsehood.
Especially funny, the non-believers, without deliberation and absent proof, actually believes that I (I suppose), or ANYONE ELSE (by implication?) WOULD NOT BE ABLE TO BUY A BURGER WITH A PIECE OF SPECIE :0)
HAHA - PROVE gold was the better investment to my 3 homes and all the joy I got from them. Coconut will not be using gold coins to make purchases - that would require bankers, politicians, men with guns to vanish tomorrow - not gonna happen.
I guess they would instead believe that an upside-down mortgage-encumbered 2-car garage-enabled shack in suburbia dependent on plentiful black-gold can be swapped for Mouse de foi gras :0)
General certainly a real estate phoenix man like you knows that good cash flowing properties with favorable loans can survive even hard times. However if the bankers, politicians, men with guns vanish and gubbments do not have work programs and re-establish society - then perhaps property rights will vanish worldwide too and then the PHOENIX building will not make you money anymore - but whoever has the big gun collecting the rents will.
Now no time in the past have you EVER read FREE CHINA say PLATINUM was not a good investment - Free China has held that and palladium in the past. Once free china had to buy some new platinum spark plugs for his toyota supra turbo - but to say to buy GOLD - because platinum is used in cars and petorleum industry is a stretch eh? My russian friends got me into some good invesments in the past when Russia tried to corner certain markets on certain metals that car makers had to have for environmental reasons - something those POLLUTED cities in China need to strive for as well.
Liquidity of GOLD - HMMM - Gold requires a MEME - one of a goldbug sucker to make it have inherit VALUE. It requires my orange growing grandpa to think giving you one of his oranges for some of your shiny metal is in his best interest - and while oranges are plenty perhaps that is true - but when oranges become scarce perhaps not. I know my russian friends and Elroy have both commented how the rich city russians of the past went to the poor farmers to trade gold for food and they starved to death - the farmers needed to read how liquid gold was so they could get the correct MEME right? They were just too ignorant to realize shiny gold metal was better than an orange you could eat. El Mat will TRUST the computer and data bits for FLU simulations and shots - but not for finances - is that the same for you? You do not have bank accounts, stock accounts, checking accounts etc etc - you already put so much TRUST in the system it is hilarious to watch you write about buying shiny GOLD.
bankdersysrisk.blogspot.com
Lets first take on you first statement about deflation and how it arises. This would indicate that the money supply is declining inducing reduction in asset prices (housing). The US dollar is overvalued is as a result jobs are shifting to cheaper, but not less incapable countries. So it looks like deflation is not only possible, but the pressures all look for a decline in labor costs and prices due to international economic pressure.
However, the US dollar is the world’s reserve currency. This means that all currencies are compared to the US dollar before any two currencies are exchanged with each other. Also foreign central banks, the countries banks have a majority of their assets in terms of the US dollar. This situation is similar to the post World War One when most of the world was on the British pound standard.
During WW1 England and all of the other European countries left their gold standards in order to fund the war. They therefore expanded their respective money supplies greatly. After the war England, whom was one of the financial leaders of the time, decided that they would restore England to economic leadership if they returned to the British pound sterling relationship to gold at the pre-WW1 level.
The banking system had already been moving away from gold as a world currency and replacing government debt (this is really the ability to obtain tax money) as the banks core reserve (the banks basis for lending out credit). Because government bonds, sovereign debt, is now used as a basis for a bank reserve, this linked money created through fractional reserve banking to a countries debt load.
...Why a gold standard? Countries wanted to tie their currencies to gold because tying it to future tax revenue has always been unstable and lead to unlimited creation of money through printing, leading of course to the devaluation of buying power of the currency. With the illusion of gold backing the currency, the countries of the world could claim their currency was stable as long as they could redeem the paper currency for gold coins to the population. They then enacted policies to drive hard currency out of circulation until the final outcome was that gold was really only used for international settlements.
...As the value of the British pound sterling was still overvalued to the comparable money supply of other countries in its relationship to gold, this forced a negative trade balance with the other countries of the world. English currency entered the other countries like locus in a biblical curse.
During the 1920’s England refused to deal with their negative trade balance and provided money for their welfare state as unemployment skyrocketed. English sovereign debt and money supply went into to steep rise. Overextended as the English were, they continued to inflate their currency, but still kept their currency overvalued per agreements they had made with other central banks. This situation finally collapsed upon itself when England went off of the gold standard right before they had exhausted their supply of gold. This caused massive inflation in England.
So, as history dictates, countries will gladly sacrifice the value of their currencies buying power in order to pay for the social programs and government expenditures. Even though the banks are very very powerful, they cannot compete with the voting populist. This is because politicians are elected and not by banks, but by people. And politicians generally get elected by promising the what ever it takes to win an election.
As to our current situation with housing in the US, and the world for that matter you can expect some initial deflation in terms of the asset prices, but then the banking system will become unstable as banks become insolvent. If the banks cannot clear money transactions then the economic system get paralyzed as this induces first general insolvency and quickly, very quickly leads to bankruptcy.
With enough bankruptcies, which make it harder to people to earn an honest living, social breakdown always occurs. To combat this and keep in power the government must bail out the banking system. In bailing out the banking system will certainly deflate the buying power of the dollar. However the corollary to this is that prices rise very quickly.
Since the US dollar is the world’s reserve currency, exchange rates may not change that much between countries because this would induce similar situations all over the world.
Therefore Deflation, if you define it as the buying power of the dollar increasing can only happen as a lasting outcome with the total destruction of the banking system. The US would never allow this situation to happen, due to the fact that politicians are always trying to get re-elected and they need the political system in tact to do it, but the buying power of the dollar is an acceptable causality.
As I stated before the only way with paper money you can have deflation is if you can
A.) A mass exodus from the banking system, this is really not possible any more
B.) A competing currency is available, all other currencies are based upon the US dollar and gold is no longer a currency that can be used.
C.) Loss off Faith in the banking system, possible, but you have to at least have A or B in order to derail the amount of money created through fractional reserve banking and fend off inflation by removing money from the banking system.
D.) Hyperinflation can happen regardless of anything else. The government just prints its way out of debt. This happens every few years somewhere on the globe. There is NO DEBT LEVEL TOO HIGH THAT A COUNTRY WITH DEBT DEFINED IN TERMS OF ITS OWN CURRENCY CANNOT HYPER INFLATE OUT OF. Hyper inflation causes problems, but not nearly as many as the collapse of the banking system, at least from a political point of view.
China and Japan?
These countries economic systems are at risk just like any other country that holds large amounts of our debt compared to their economy. All countries will be affected, and their currencies shall fail, meaning their political system is destroyed as well, or they will hyper inflate, with almost as many political dire consequences.
...By the time World War 1 had ended the primary source of bank reserves was in fact government debt instead of gold. Gold could still be used for international settlements between countries, but these various countries were exerting economic, military, and financial pressure on each other to stop this. The US was still technically on gold, but all countries, including America were inducing the general public from using gold coins in everyday use. This is why central banks would only redeem their currency in gold bullion and no longer in gold coins. |
