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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: kris b who wrote (71493)	10/9/2006 12:50:25 PM
From: Tommaso	Read Replies (2) \| Respond to of 110194

>>>That is what happened in the 1930's. Absolutely. That is what is going to happen again in the next depression whenever it comes.<<< At the start of the 1930s, the United States was still on a full gold standard. Paper money was intrinsically valuable, being freely exchangeable into, and backed by, actual gold. This is what is known now as "commodity money," and as far as I know no longer exists anywhere in the world. Gold-backed commodity money had become the norm in the United States during the gradual retirement of the fiat greenback currency issued during the Civil War. The firmness of the currency was largely responsible for repeated bank panics and business contractions from about 1870 onwards: true deflations. Both Congress and President Roosevelt had come to see an overvalued gold-standard money as unfriendly to commerce, industry, and agriculture. The dollar was drastically devalued against gold and then all monetary gold was seized by the government. Since that time, there have been no further business contractions of that magnitude, or even approaching that magnitude, where there is widespread hoarding of money. As Bernanke, in his much-misunderstood and ill-advised flight of fancy pointed out, deflation can be cured by dropping fiat money out of helicopters. To say this is not to say that financial disasters will not occur. But to say that we will have a repetition of the 1930s is not convincing. What has now happened is that the U. S. government (and Bush is fully responsible for this) is maxing out its credit by borrowing from China, Japan, and many others to pay for what is going on in Iraq and Afghanistan. We are not, and perhaps could not, pay for this by raising taxes. I don't know if anyone has calculated how much income taxes would have to be raised to do so. My guess is, by at least 40%. Instead, the U. S. Treasury has sold bonds to foreigners. Much of this debt will probably end up being inflated away. The dollar may in that case lose half its purchasing power. Gasoline prices will go to $6.00 a gallon and all sorts of things will cost more. We will pay for our bad government by becoming poorer as a nation.