Economic Destruction.

Justin Collery

I've watched this thread for a while with interest. First a linky, it's a short and easy to essay by Alan Greenspan in 1966 espousing gold

http://www.constitution.org/mon/greenspan_gold.htm

Many of the points are prescient today. Restriction of credit, restriction of deficits, protection of wealth.

Abandonment of the gold standard requires stricter and more responsible fiscal regulation. An easy way to judge this is currency value, how many Lira to the Deutsch-mark where there?

The introduction of the Euro without fiscal union will come to be seen as The Germans giving us enough rope to hang ourselves with. By the time this has played out I am pretty sure we will have fiscal union, we should be pressing for full union.

There will be ructions as we have to give up our 12.5% corpo tax, but out national debt will be subsumed into the EU national debt, the public service will be paid for by Bonn, and road, schools and hospitals will be to the EU standard, not so that shabby, probably better then is likely now.

With the US, UK and Japan trying to devalue their currencies and the Germans refusing to do the same, it's not unlikely that the Euro will be the reserve currency of the future and we'll all be rich!

That...or the whole thing falls apart and we revert to agriculture :pac:

caesarthechimp

szjon, the same ignorant arrogance of the banker is often displayed on this forum; amazing how it endures, even as the begging bowl is held out.

szjon

Scarab80 wrote: »

I would question the feds current course of action aswell, US banks are currently sitting on 1 Trn in excess reserves due to QE1. The fact that they are not lending is less a monetary issue and more to do with a general atmosphere of risk aversion. Unfortunately this is human nature, however as history has shown us this risk aversion will end and growth will begin again. The fed are just trying to speed up this transition. Inflation in the US is currently running at just above 1%, when these excess reserves are finally put to use the fed can intervene once again by contracting the money supply and helping holders of the dollar.

OK, so explain T.A.R.P. If these troubled assets were taken from the banks to the feds balance sheet why are they risk averse? With no troubled assets the banks are free to take risks? How is the fed going to treat the losses from these troubled assets? Is it not that there is a whole shed load of troubled assets still out there? Namely every mortgage granted in the last 10 - 20 years? This mortgage scandal is starting to get interesting, financials down 5%ish last night on the news of full investigation. Lawsuits flying around like confetti and people repossesing their repossesed homes from the banks while the police look on.
Of course, the holders of the securitised products made up of mortgages are the second wave of trouble, then the insurers of said products.

I don't believe inflation figures, even if I did the 30 odd percent rise in soft commodities over the last few months is in the pipeline, currently knocking on to producers, then vendors, finally will be sitting in the lap of the people in the months to come.

As for mopping up the excess liquidity, why do you trust them to get this right? the reverse repo is in place and has been tested but in tiny amounts and the timing here is crucial, they are going to overun and the effects of mopping up will be as bad as slipping on the spill in the first place. IMHO

Why do you see the end of the dollar as global reserve currency as catastrophic,

Stability on a global scale would become extinct. massive volatility worldwide = recipe for disaster.

personally I think a basket currency basis for global reserve would be much healthier for both the US and global economies in the long run.

Agree, this would make more sense but hard to wean the US off the power trip.

I apologise for the presumption.

no need, I see where you are coming from but thanks.

Indeed GS are probably recognised as the closest thing to an embodiment of pure evil these days. However the Feb BOG are political appointees and who they are is a matter for the president and by extension the American people.

They get what they deserve. This is what fuels conspiracy theories. it is at least corrupt, human nature dictates this.

The fed district banks are owned by the banks in their district, they are not controlled by these banks though. All district banks and the board of governors are subject to full audit by independent accounting firms. There are some dispensations from regular auditing practice in order to preserve the independence of the fed from political interference.

I'm afraid I have to leave it here on fed funding and ownership. I can't say I have managed to figure it out yet. Very complex, convoluted system and conflicting information and evidence that many more before have tried to quantify. Needs more time. Bowing out of this one.

The banks receive it as a return for the fed holding their capital reserves, probably seems high at the moment given current interest rates however remember that this rate is set in legislation and does not float with the fed rate.

A guarenteed 6% return on the safest bet, US government backed money. That is high by ANY time or standard.

You can see, $11bn..... http://www.federalreserve.gov/boarddocs/rptcongress/annual09/sec6/c3.htm

You are probably thinking about the gold held in Manhattan at the Fed offices. This is not their gold, it is held in trust mainly on behalf of foreign nations and Swiss banks (who do not report their gold holdings)

I was under the impression that the fed could only be audited partially due to maintaining its independence. Recent history can also tell us we can not trust auditors to give us a clear picture. just look at Anglo irish. Again, I am short on knowledge here, will have to read more.

And the market is intelligent enough to know to look into these figures, you will see that they did not react to the inclusion of census figures, but instead base their decisions on the long term employment figures. Unfortunately in Ireland there is not the same public analysis of government figures that is carried out in the US.

The markets detached from reality a long time ago, no longer used for what they were designed for, investing in companies. Markets are not rational and anything they predict has been overshadowed by the complete lack of predicting this mess we are now in. Just look at the number of 'surprise' rises and 'unexpected' falls in the last few years.

Commodities are a temporary store of wealth, which during periods of expected inflation rise beyond their real value, but will return to mean once economies return to normal. See oil in 2008, from $70/$80 up to $150 down to $30 and back to $70/$80. Currencies rise and fall, see the yen, however a complete collapse of a currency requires one of two things - an unmanangeable amount of foreign denominated debt or an inability to use the currency to purchase necessary imports. The US and the dollar faces neither of these problems as US debt is dollar denominated and the US is still one of the most prosperous countries in the world and more than able to purchase imports, moreover most of these imports are themselves denominated in dollars.

I think this purely monetary viewpoint is where the argument collapses, I will elaborate further at the end, you completely ignore the social/political implications. ie. Confidence.

US GDP up between 2% and 3%, DowJones up 65% from it's trough, Unemployment down 0.5% from it's peak in Oct 2010. What more do you want to see?, it's not a stunning recovery but a long way from the collapse of the dollar.

This is nothing more than a dead cat bounce, BIG, VERY DEAD cat = BIG bounce. On a scale we have never seen caused by a massive growth in the supply of cheap money.

Hey we could be looking at fusion power within 50 years, what kind of a world will we be living in then. Add to that advances in genetic engineering and it's possible we have only begun to exploit the biological capacity of the planet

.

We could also be looking at a collapse of civilisation as we know it due to the lack of energy. these advances are not guarenteed and are subject to us having a limitless, cheap supply of energy to be able to make them happen. (Something no-one can guarantee) Peak oil is not about running out but the implications of a drastic rise in price leaving us unable to finance these alternatives, how do you build a nuclear reactor without oil? How do you fertilise, transport crops? How do you store things? Plastics etc. The implications of peak oil go far beyond the supply of energy. Also, if oil hasn't run out by the time we get round to coming up with these advances, prices will have risen due to the massive escalating costs of production. how much will a reactor cost with oil at $200 a barrel? What effect would it have on economies if it cost more to produce the plastic bottle than the product inside it. Peak oil is real, we have been living on a fossil fuel overdraft since before the industrial revolution.

I'm sorry you feel so pessimistic about the future of mankind, but life is for living and you should go out and live it instead of worrying about the holocaust around the corner that may never come. Human development has been inexorably and exponentially upwards since the neolithic revolution 10,000 years ago - absenting a period of religious irrationality in the 1st century - and there is no reason to think it is going to stop now. Be prepared by all means but don't forget to live your life.

You conveniently skipped over quite a few mass culls of the populus in that statement and you know it. It has happened before and will again. Preparing for the unknowns of the future is not pessimism it is pragmatism. I hope to protect my childrens future by enjoying a lower standard of living myself. This is something the last generation lost sight of, spending their futures and their childrens futures to have lots of chinese tat and go travelling. Keeping up with the joneses has taken us to this level of discontent and upcoming social unrest. Guess what, people like my kids will be the joneses of the future. My life is lived, I have children, everything I do now is to secure their future. if that means I don't upgrade my phone so be it. If that means I don't need all those lovely 'can't do withouts' then so be it. I've never been to Thailand, what have I lost?

People have lost sight of the fact that life is for living, consumption is not living. Allowing kids to borrow to go to uni just shows the greed and selfishness of the parents. My kids will be paid from my responsibility.

The dollar will recover the way it has always recovered, through US innovation and exports, helped by a weaker dollar.

I stand to lose €50 if this is true. i have a 3 year old bet on dollar collapse within 10 years, that gives me till 2017. personally I don't see it.

This brings me to the social/political aspect, largely ignored by defenders of the current system.

1. The tea party. Not to be ignored political change in America.
2. Waves of strikes across Europe. Not seen on this scale in a long time.
3. Massive anger at political and financial establishments. Worldwide.
4. China's ascendance to global super-power.
5. The decline of America, consumed itself to death.
6. Unknowns - those terrorists have been quiet for a while, calm before the storm?
7. Russia, Putin is waiting in the wings for what? Absolute power in Russia has been concentrated to a few. Will they turn off the gas again this year?
8. Iran. Israel will most likely attack the reactor if it succesfully brought on line. Stuxnet was a warm up. They did it in Iraq. how will such middle-east volatility help the recovery? Iran is presiding over OPEC now too.
9. Dollar confidence. Plummetting by the day. How long before suppliers won't want it?
10. European union. Can Germany keep us all afloat while its exports are getting too expensive?

That's just a few. The monetary arguments are well and good but without the socio/political situation they are pointless IMO. We have as a populace enjoyed a standard of living at levels we cannot maintain, this is the reckoning. Monetary policies are not going to get us out of this one in my opinion. you can't just replace all the future capital that has already been spent. On assets that are depreciating or were over valued to begin with. just look at the quality of housing built in the last 20 years in Ireland, people have paid massive amounts for houses you could knock down in a day with a hammer. good for 50 - 100 years if we're lucky.

xavidub

Another aspect of all this is the US attitude to it all. America is the only military hyperpower and has a National Security Strategy that says that it's military might will be used to protect it's pre-eminence in the world. This is quite possibly what will sustain the dollar in the face of other challenges.

szjon

xavidub wrote: »

Another aspect of all this is the US attitude to it all. America is the only military hyperpower and has a National Security Strategy that says that it's military might will be used to protect it's pre-eminence in the world. This is quite possibly what will sustain the dollar in the face of other challenges.

This is my real concern, history shows the decline of empires are never pretty, America could have some spectacular death throes before it gives up its 'rightful' place in the world.
They won't go down easy, I know this as I used to 'date' an american girl.;)

TimeToShine

I thought China had surpassed America or was that just a load of public Bullshít?