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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: John Hunt who wrote (13615)	1/30/1998 7:09:00 AM
From: tekgk	Read Replies (3) \| Respond to of 18056

Actually, the shell game is much worse than Crudel states. I have the deficit at 308 billion. Message 3249132 Zeev thinks that it doesn't matter and that there is actually a shortage of treasury debt paper. I have never really understood his argument - I see all current debt being rolled over and I saw that the supply increased by 188 billion for FY 97. His argument seems to center around the fact that the interest on the debt was 320 billion and that the supply needs to grow by at least that much to meet demand. This might be true in a strange way if everyone who earned interest on the debt wanted to roll the interest into more debt. I would speculate that much of the debt is held by retires who use the interest as current income and can't be calculated into the supply and demand equation at a 100% level like Zeev suggests. Perhaps Zeev could shed some more light on his position. My view is that history shows that currencies decoupled from fiscal restraints like commodities(gold silver etc.) collapse in about 30 years or so. The reason is simple - government officials discover that they can create money and hand it out to their supporters. The problem isn't in the supply and demand fundamentals of the money during the early stages of the game (although if done too quickly it can matter and will be manifested as price inflation). The problem is that the size of the government as a percentage of GDP can now grow without the normal restraints of having to collect taxes. Eventually the government saps enough of the productive resources of the economy and causes living standards to decline. The decline is compensated for by an acceleration in the money creation process which cycles around and causes yet another decline in the standard of living. Eventually political instability or external forces lead to a massive revaluation of the currency or a collapse of the country. The dollar was decoupled from gold in 1971. All statistical indicators show that the living standard for the majority of the American population has been falling since the late 70's. The accounting deficit game like inflation is just another symptom of the problem. Both inflation and deficits can be manipulated and therefore tend to fluctuate in either direction. Living standards are much more difficult to manipulate and decline in a much more straight forward way. When thinking about living standards think about symptoms like prison populations. We have more people in prison in this country than Stalin had at the peak of his power. Two thirds of the black youth population in our capital are or have been in prison. People are diluting themselves if they think that this pressure cooker can be contained indefinitely. When my father came to the new world in the late 40's he was able to buy and pay for a 200 acre farm in five years while working at a pulp and paper mill. In addition to the farm he was able to buy machinery and a nice truck - try doing that today. I don't advocate a return to a gold standard - it's politically and financially impossible at this stage of the game. I also dont buy the argument that the gold standard caused the 29 depression like most people advocate. The depression was a result of a earlier decoupling from gold in Europe and our infusion of liquidity to compensate for the problems that this caused. I find that the most interesting symptom of a decline in it's later stages is a nearly universal belief in a new era! My theory is that the rapid infusion of money near the end creates some sort of bubble that becomes the societies temporary measure of wealth.