American Debt

[papasmurfbell]

http://finance.yahoo.com/blogs/daily-ticker/america-declare-bankruptcy-doug-casey-124119100.html

[cravnravn]

That guy is a faking douche bag...

[papasmurfbell]

In what way?

[cravnravn]

Yeah. Lets keep spending and file backruptcy...Bankruptcy is a legal form of stealing.

[papasmurfbell]

That is what he has said. He is apparently changing his mind. China is being an enabler.

[Dunno]

Yeah. Lets keep spending and file backruptcy...Bankruptcy is a legal form of stealing.

 

No, bankcruptcy is a legal way to force debt holders (who were stupid enough to lend you money) to take whatever assets you have and then be satisfied regardless of their actual value compared to the loans outstanding.

 

Inflation on the other hand is a legal form of stealing by the goverment. So is the issuing of unbacked credit by the banks via the Fed for that matter.

 

The guy makes a good point, the system will collapse, it's just a matter of determining how. Debt jubilee, hyper inflation, massive deflation, fascism (defined as state controlled capitalism) or maybe something else will eventually happen, but something will happen as the current path is unsustainable.

 

Good to see Lauren Lyster back on Internet/TV although I preferred her previous show Capital Account. These snippets are a bit too short for my liking.

[dc.]

China is enabling because they trust us to pay it back. No one would accept our bonds as debt if they didn't think we'd pay them back.

 

Honestly, there's no reason we can't balance the budget and pay the debt off over time - a lot of time of course - but it has to start with some level of decision making. Obviously the argument is about what to cut and what to raise. But it can be done.

[cravnravn]

No, bankcruptcy is a legal way to force debt holders (who were stupid enough to lend you money) to take whatever assets you have and then be satisfied regardless of their actual value compared to the loans outstanding.

 

 

I meant stealing by the consumer, do you know that once the consumer files bankruptcy and their home goes into forclosure, the bank will drag their feet and that consumer doesnt pay a mortgage for atleast 3 years, before we bought, we rented a home from a woman that her home was in foreclosure, she was rich, caus she still had a job and was spending the rent money we paid her

[dc.]

Inflation on the other hand is a legal form of stealing by the goverment. So is the issuing of unbacked credit by the banks via the Fed for that matter.

Not sure what you mean by the second part - are you unhappy with fractional reserve banking in general or some broader Fed policy, such as its own open market operations alluded to by your statement about inflation?

 

As for the first statement: that's a load of crap. First, while governments certainly play a large role in creating inflation these days, the statement ignores that inflation can and will certainly exist even with a government (in fact, it can be far worse without government). Inflation is a fact of life for any number of reasons. And moderated, steady, controlled, expected inflation is in fact much better than the opposite. Since the inception of the Fed, inflation has been pretty well-regulated. Perhaps never as perfectly as anyone would wish, but overall well-managed. While the number of dollars in existence has certainly increased tremendously over this time, so too has the need for dollars - in other words, we've been producing more and more at higher value, leading to a need for more of these dollars. The ability of the Fed, or any central bank, to make rapid changes - faster than the government itself actually printing money - is a critical part of being able to respond.

 

The bottom line: so long as we have a good understanding of and faith in what the inflation level will be, we can make decisions wisely. But acting as if we could live in a world without inflation or, arguably worse, a world of deflation, is silly.

 

As a side note - I am not a great proponent of many Fed policies more specifically. The Fed, like the government in general, has done an awful job of 'contracting' our economy in times of great prosperity (see 2001-2008). Had the Fed actually acted in a responsible manner in that time, and ended some of its inflationary/expansionary measures, we would certainly be in a better spot now. But that's not a very separate conversation from one involving "inflation = the gov't stealing." Ron Paul is a nice guy with some great views, but his views of inflationary policy are silly.

[Dunno]

Not sure what you mean by the second part - are you unhappy with fractional reserve banking in general or some broader Fed policy, such as its own open market operations alluded to by your statement about inflation?

 

As for the first statement: that's a load of crap.

[...]

The bottom line: so long as we have a good understanding of and faith in what the inflation level will be, we can make decisions wisely. But acting as if we could live in a world without inflation or, arguably worse, a world of deflation, is silly.

Yes, because fractional reserve banking is equal to issuing unbacked credit, ie stealing from all the rest of us. Now clearly, you seem to be happy to be stolen from or doing the stealing, but that is your prerogative.

 

Why is it stealing?

 

Let's assume in a world there are 10 000 units of money and 10 000 units of products. The price would be 1 unit of money for every unit of product. If you own 1 000 units of money, you would be able to purchase 1 000 units of product. Now, the money supply is expanded by 1000 units, but since you are not the goverment or a primary dealer of the goverment, ie big bank, you do not get this money first.

 

With 11 000 units of money, but still only 10 000 units of products, the price is now 1.1 unit of money for every unit of product. With your 1 000 units of money, you can now only buy 909 units of product. What happened to the other 81 units?

 

If you don't believe that the issuer of money (ie goverment) has stolen those 91 units from you, what has happened to them? There are still 10 000 units of product, and you still have 1 000 units of money, yet you can suddenly purchase 91 units less.

 

The same can be shown for inflation. If you start working at the age of 25 and put a dollar away and then bring it back out 40 years later in a world where inflation is 2.5 % (since the Fed recently changed it's language) how much of it's value is still there and what happened to the rest? I would argue that the goverment (or the issuer of money) stole the difference, but clearly you do not. So what happened to the difference if it was not stolen from you because you clearly put one dollar of value away, but bring out, well, how much of value?

 

Deflation is the natural order of things. Why? Because as we do things, we as humans become better at it, we become smarter, invent new techniques and/or technologies. The supply of whatever it is we are producing increases and as supply increases, prices drop (absent weird goverment interventions or worse grants of monopolies).

 

Now, you are free to explain why inflation is so great and why we need it when it isn't the natural order of things.

Edited January 20, 2013 by Dunno

[papasmurfbell]

Also the Fed is giving money away left and right without out permission.

[dc.]

Dunno,

 

The argument works both ways. Do you own a house? Have you ever bought a car? Have you ever taken a loan of any kind?

 

Without fractional reserve banking, how are you supposed to buy a house or a car? How is a business supposed to get a loan to open its doors? It could only be done if you actually had the full amount necessary or if you could find someone to give you the full amount necessary, without borrowing from others. So, that's one reason that fractional reserve is to some degree necessary - at the least it's more efficient.

 

As for inflation, a number of thoughts. Take your example, 10k units and 10k currency. First, without the investment possible via fractional reserving, how do we ever produce more than the 10k units? We likely cannot. Growth is not possible.

 

But assuming growth is possible, if we suddenly produce 11k units, but have only 10k currency, every unit costs less. At first, of course, this sounds good, but it's equally theft from borrowers as your opposite example. If I took a loan to buy my house, and home prices fall because our currency does not maintain pace, I wind up under water. My home is worth less than I actually have to pay back. Have I been stolen from? My physical asset lost value, but the loan from the lender did not.

 

The reality is that there are flaws on both sides. Investments can be both physical and financial. If we follow or allow deflationary policies, we hurt the value of physical assets that people invest in - homes, cars, etc. If we follow or allow for inflationary policies, we hurt the value of financial assets that people invest in - cash, stocks, bonds. Largely, I consider myself a "saver." But purely financially, I am a net-debtor. Between a mortgage, a car payment and a few student loans, I have more in gross debt presently than I have in net value (financial and physical), probably. Ask people who know me, and they know I am not spending frivolously - in fact, I commit a significant portion of my income to direct savings. In the end, though, most people are net debtors. Which means most people would be hurt by deflationary policies more than by inflationary policies. Should you ever lose your job and be unable to make a payment, you would be in even greater trouble than at present because you would not have the physical asset value to cover the financial cost.

 

Finally, as a short answer to your first question - what happened to the lost units - the long answer is that as prices rise, so will wages. Wages are prices. Originally I made $10k, but eventually I will make $11k. In fact, historically it is shown that I will make that increase before the inflation in product prices. Unfortunately, the opposite is also true to some extent, returning to deflation. As prices fall, so too will wages -- (Unless we are assuming a co-op style work environment, in which workers are earning in shares of production or profit - but I would argue we're not)

[dc.]

I also want to clarify momentarily, again... I am not advocating massive inflationary policy. I dislike much of what the Fed does. But I think mild, expected, predictable inflationary levels are more tolerable and useful in an economy than deflationary levels. I'd rather lose 1% of each financial asset saved (because I can better mitigate that through other options) than 1% of each physical asset owned.