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Politics : WAR on Terror. Will it engulf the Entire Middle East? -- Ignore unavailable to you. Want to Upgrade?

To: Richnorth who wrote (13156)	3/3/2006 2:27:45 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 32591

Helicopter Benanke swore he would always make cash fall from the skies to paper over any financial crisis. Why do we have an economy, or even a banking system? Is it to support the POG, or to serve the economic interests of the American people? Look what happened when Churchill returned England back to the Gold Standard, priced at pre-WWI levels, back in the '20's?? It almost devastated the British banking system which suddenly found it's lending practices artificially constrained by the deflationary price of a shiny yellow metal, with an artificially set exchange rate between the Pound and Gold that FAILED to take into consideration the economic expansion that had occurred during the war. I certainly don't want to see the USD and US economy constrained by strapping it to the POG, and certainly not to the arbitrary valuation ($42/ounce) we place on our current gold stores. It would create a global depression. And we need to look back when the Social Security Trust fund was running a surplus. With surplus revenues being pumped into Federal Coffers (and T-bill "IOUs" being placed into the SSTF), the government had less need to issue Federal Debt. So we were facing liquidity problems as the Fed attempted to add or withdraw money from the system via purchases/sales of T-Bills (which increases/decreases money supply). It put the Fed in competition with the international market for US government debt as the supply of debt became more and more constrained. What was evident is that, in order to manage the demand for US governmental debt, we needed to increase the supply, and I believe that was what Bush's policy was behind re-issuing 30 year bonds, as well as increasing deficit spending under the guise of economic pump-priming after 9/11. It provides the Fed more leverage in affecting monetary policy without causing major disruptions. One other thing you should realize is that their is a public US government debt that is held by public investors, and the private debt which represents unfunded liabilities of the US government. The majority of the private debt belongs to the SSTF and everytime we ran a surplus in the SSTF, this debt increased. However, for the purpose of providing sufficient liquidity for the Fed to conduct its monetary policy, it exacerbated the problem as fewer public debt instruments were available. Overall, I think we have less of a problem funding the public national debt than we do in figuring out how to finance the unfunded liabilities that will come due in future years. The only thing that will accomodate that is increased economic growth and higher tax revenues that occur as a result. But for the moment, I think the Fed is doing a pretty good job of maintain confidence in the banking system. Certainly far better than would be the case if we were to return to the gold standard. That would, in my opinion, create a tremendous crisis. Hawk