Tuesday open thread
There was once a man who had fine houses, both in town and country, a deal of silver and gold plate, embroidered furniture, and coaches gilded all over with gold. But this man was so unlucky as to have a blue beard, which made him so frightfully ugly that all the women and girls ran away from him.
What’s the moral of your story today?
January 8, 2013 - 1:41 AM
Most of my protestations against governments run amok are directed to Washington, but we need to guard against local governments as well. Case in point:
College Park couple says front yard vegetable garden is under fire again
ORLANDO, Fla. – A College Park couple’s vegetable garden is on the chopping block again after the city threatened fines if they don’t uproot it by Thursday, according to the Institute for Justice Florida Chapter.
Ridiculous.
This is funny, and treated with just about the seriousness it deserves.
http://www.zerohedge.com/news/2013-01-08/stephen-colbert-takes-trillion-dollar-coin
I can’t believe serious economists, or at least people who are taken seriously as economists, floated this notion.
A modicum of research proves rather quickly that no “serious economists, or at least people who are taken seriously as economists, floated this notion”.
http://pragcap.com/lets-end-this-debt-ceiling-debate-with-a-1-oz-1t-coin
But certainly a better question is why does a GOTPer take the notion seriously enough to plan legislation to “stop it”?
http://www.cbsnews.com/8301-34222_162-57562559-10391739/gop-lawmaker-proposes-ban-on-trillion-dollar-coin/
There is no end to the insanity or that lack of a sense of humor in some folks apparently.
I believe the “joke” is that the “trillion dollar coin” is as legitimate a “solution” as Congress holding the full faith and credit of the United States of America as a hostage for their debt “negotiations” instead of being responsible the other 11 months of the year.
I agree with the bigger notion, Sandi, that no one who is a real economist believes that we can simply issue more money – whether in the form of a platinum coin, paper currency or digitally – to solve our economic woes. But serious “economists” have proposed and promoted the bigger notion.
“Narrows”, Pulaski…glad to see rational perspective vis-a-vis the school shooting.
Maybe pond-dunk semi-auto owners.
Not sure about the Gov’s tax suggestions.
One regressive tax for another. The “bottom” line seems to be not tax whatever moves….but whatever moves the most.
At least the gas tax, taxes those using the roads.
3 – to follow-up, Sandi. The trillion-dollar coin itself is only a silly manifestation of the larger, more dangerous notion that we can simply print more money (in one form or another).
The following political operative actually supports the larger notion, and even seriously proposes aother equally fraudulent (and immoral and unethical) gimmick to inflate the currency:
http://krugman.blogs.nytimes.com/2013/01/08/rage-against-the-coin/
and
http://krugman.blogs.nytimes.com/2013/01/07/moral-obligation-coupons/
But let me ask: why platinum? Why not (as someone has suggested) simply polish a turd and arbitrarily declare that is worth two trillion dollars? Or three? Hell, wipe out the national debt and declare it to be worth $16T?
Because those would be silly because the instrument would have no measurable value that comes close to the fiat value (i.e., what Uncle says it is). Right?
Okay, then, to a more “serious” suggestion: issue a bond upon which the government legally could default (and, to those of us who recognize irony, call it a “moral obligation coupon” to boot)? That’s serious? Never mind the fact that inflation would render it worthless anyway.
Oh, and have Uncle buy them back, just as it secured bad housing loans (which had NO impact on the house crisis, we are assured) and other worthless pieces of paper? What’s one more worthless piece of paper, as long as we declare it to be worth something?
Fraud by any other name is still fraud.
But such are the gimmicks of “serious” “economists”.
It appears you still don’t “get it” 89Hoo.
The reason this came up is that the GOTP has decided to interpret the “debt ceiling” vote as a hostage taking situation as opposed to the intent of the rule. Soooooooo, someone else decided to “get cute” with the rule of law that said the Treasury can mint coins in any denomination and put them into circulation, and the Federal Reserve “has to” honor the coin. THAT is why no one is saying we should “simply polish a turd and arbitrarily declare that is worth two trillion dollars“. There is legality behind the notion of the coin, even as it is absurd. Just as there is legality behind holding the full faith and credit of the United States of America hostage to a “deal”, even as it is absurd. Do you see it yet?
Sure, if we could mint one, why not 16 or even 30 and present them to the Fed and ask for change? It makes as much sense as risking the credit rating, bond sale capability, recession and world scorn in order to force what you cannot man up and do any other time of the year.
Nations with fiat currency print money. That is what they do. They try to manage it so that they do not print so much they cause inflation, harm the value or create instability. But let’s face some very real facts. The United States is the “big kahuna” in this world. If we decided tomorrow not to pay a dime of our foreign debt, what would happen? Is China going to start a war with us? Is Japan? Is Germany? Hell no. What the fools in Congress miss when they start playing these games, and make no mistake, those fools started it, is that IF we “default” and IF we do not have the operating strength to pay our debts as scheduled, someone gets to decide who DOES get paid, how much and when. Do you, or they, realize who that someone is? It is the Treasury Secretary who serves at the pleasure of the President. So sure, default and let Geithner and Obama decide who gets paid and how much until the courts can (maybe) intervene. Go for it. Tear it all down and see who ends up on top.
For the record, “silly” is, as “silly” does.
The United States of America has “measurable value” we have not even begun to count and I am sick of this whole ridiculous hostage taking game.
Name a nation operating on what your “serious economists” tout?
Sandi, this was a red herring, and it was never intended to be serious. It will serve as a perfect screen for something as equally perfidious as another round of eternal quantitative easing, or Krugman’s equally dangerous suggestion (I assume he was being serious, though it’s hard to tell with him).
But the bottom line, as you said: “Nations with fiat currency print money. That is what they do…” and THAT is the problem. Fiat money nations inflate currency, debase currency, devalue currency, weaken the currency, weaken the economy. It happens with every fiat currency, always, always will. And when that doesn’t work, they resort to gimmicks. A red herring gimmick won’t change that, but it does hide “serious” gimmicks.
And since this is addressed to you, I have to add the disclaimer that yes, the GOP/NeoCons are as culpable as the CPUSA/Dem Party crowd. None has offered serious attempts at balancing the budget, none has offered serious attempts at cutting spending, and certainly none has given serious consideration to sound money.
Do YOU not get that?
Let me ask you a serious question, Sandi: why is counterfeiting illegal? Don’t tell me that it’s illegal because it’s against the law (that’s obvious and not helpful). Tell me the dangers counterfeiters pose.
8 – I’ve answered your question before, Sandi (many times, so pay attention), and the answer is that every country that was on the gold standard was prosperous and stable economically, every one. They only started to deteriorate when their leaders began to debase the currency to pay for centralized guns or better.
Look at the United States when it was on the gold standard. Look at the lack of inflation and the stability and the prosperity. Look at the Roman Empire before they started cutting the quantity of gold in the coins.
Thanks #10. I love the lectures, but “none” would have sufficed. None are on that “gold standard”, none are going back to that “gold standard” and even if they did, who still holds the largest gold reserves? The United States.
We can do this every week from now on. Your “serious economists” with no national economies to their credit, cannot discredit Krugman or anyone else. It is a fantasy, just like Scott’s successful Communist nation is a fantasy. They do not exist. They do not exist for a reason.
And just FYI, I am never sure who you consider to be “serious economists” but darned tooting Paul Krugman is one.
“He is a winner of both the John Bates Clark award, which is given out every second year to the best economist under age 40, and the Nobel Prize. He has published hundreds of articles in academic journals, many of them leading to path breaking innovations in economic theory.
…he has been right about most of the important issues in economic policy over the last decade. The list where Krugman has been right and the Washington insiders have been wrong is a long one.”
http://truth-out.org/opinion/item/13782-paul-krugman-for-treasury-secretary
Not agreeing with him does not make him wrong.
12 – yeah, he won a Nobel Prize. I know Barack Obama won a Peace Prize, not on anything he has actually done, but on the notion that he might someday do something peaceful somewhere (instead of maintaining the wars of his predecessors). I suppose Krugman’s Prize could have been based on the notion that he might someday write something that is economically sound somehow, instead of pimping for his socialist allies in the Democrat Party. Hasn’t happened yet, in either case, but I will acknowledge it when it does.
But I acknowledge your tenacity and willingness, Sandi, to consign yourself to and cheerlead for, inflation and fiat currency, economy be damned. The fact that it has not, is not, and can never work is irrelevant. That’s not an iceberg.
LOL, and we know your “serious economists” don’t pimp for their Austrian Economic allies? You “consign yourself to and cheerlead for” a fantasy and accuse me of saying “economy be damned”? That is truly rich.
The fact remains that it has worked, is working, and will continue to work. That really bothers you, I see that. No, it is not an iceberg, it is just reality. The problems in this nation are not the fault of the economic system but those that manipulate it and your system is subject to that same temerity. A good Congress could fix the problems, hell, they have before.
Your fantasy economy does not exist so it is easy to make the one that does the bad guy.
15 – how is it working? Unemployment is up…the dollar is debased…that’s success to you?
Will you answer my question about counterfeiting? Why is it harmful to an economy?
@16 89Hoo, says, “Unemployment is up..”. Seems to me since the majority of people are employed by the private sector, it’s private businesses you should blame for unemployment. Of course that would mean blaming capitalism and we can’t have that in the USA can we?
When I have time, I’ll come back to question about counterfeiting. But it has to do with the shifting of goods and services from those who need them. And as Larry Hamelin has pointed out, the dollar is like an inch or a foot. It’s a unit of measure so “debasing” the dollar is irrelevant. What’s important is who has the dollars and who decides what to do with them.
The book I have mentioned here before, This Time Is Different: Eight Centuries of Financial Folly advises me that it will take ten years to overcome the effects of our economic collapse. I have no reason to doubt that assessment and frankly think it might be optimistic given the nature of our Congress.
I also do not doubt that despite 800 years of information, we are still trial and error with a strong emphasis on error because our economic system is so heavily driven by politics and concentrated wealth bent on staying in power as opposed to a system that works no matter who is in the White House or who has a boom. It is not so much that I defend the status-quo on our economic system as refuse to reach for the fantasy you offer.
I am comfortable with small, concrete, helping steps, not leaps of faith.
The simple answer on your important question is that counterfeiting is like issuing your version of someone else’s work. In terms of money, it is your own currency but without any “full faith and credit”. It will leave someone else holding the bag, or you in jail, or both. It is like a stranger promising someone else I am an expert economist. Currency, whether fiat or in gold reserves has to have some faith and credit behind it that can be trusted. Only currency generated by the government has the full faith and credit of the country behind it. Widespread counterfeiting is as devastating as widespread theft because that is what it is.
17 – in that case, Scott, there should be no objection to simply issuing everyone their very own Dollar Bill Printer (multiple denominations!) so that every time they go to buy a gallon of milk, they just print out a few bucks and head down to the store. Right? If inflation drives up the cost of milk, no worries; we just print more. Right?
The problem with describing a dollar as merely an arbitrary unit of measure (and counterfeiting as irrelevant) is that it is does not accurately reflect what money is: money is products and services rendered.
When you give the grocer five dollars for some groceries, you are actually giving him five dollars’ worth of your skills (products or services). He doesn’t directly need your services, though, so he takes the money in lieu, and exchanges it later for something he DOES need. It may be that he needs to expand his store and puts some of his money in savings to allow to do that at a later date (he’s counting on the money retaining its value). The values placed on your skills, and the groceries you buy, and on the things the grocer needs are not arbitrary; they are determined by the marketplace.
If you were in a low-demand job (say a buggy-whip maker) you might not earn as much for your services, so you would not have as much to exchange for groceries, etc. You would have to compensate somehow (find another job, shop somewhere else, learn to live on less, whatever).
But with a magic Dollar Bill Printer (debasing by any other name…), what you produce becomes meaningless. Hell, you wouldn’t even have to work. Why bother producing anything at all?
So what about the grocer? What not just spend the money there, let him buy as much as he needs…oh, wait: he also has a magic Dollar Bill Printer, prints what he needs…why bother selling groceries? He’ll just go buy what he needs.
It makes the money worthless, as illustrated on a simple demand-supply curve. THOSE are the economic consequences of counterfeiting.
Having established that, then, what is the difference from an economic impact standpoint, of you and me cranking out bills on our magic Dollar Bill Printers and Uncle Sam printing more money?
None.
With regards to employment, I promise you that if we had a sound currency and sensible fiscal policies, unemployment would be much, much lower. Look at unemployment rates before Nixon took us off the gold standard and after.
89Hoo, what did the dollar do between 2000 and 2008?
19 – yes, counterfeiting is theft, economically. And now I ask you…having established that, then, what is the difference from an economic impact standpoint, of you and me cranking out bills on our magic Dollar Bill Printers and Uncle Sam printing more money?
None.
This may shock you, Sandi, but it is my belief that a country CAN, in theory, have a sound fiat currency…it’s just that it never happens, and given human nature, and gravity (stuff flows downhill) it never will.
In order for a fiat currency that is not backed by anything of value but the promises of the government to be sound, it has to have imposed upon it (via fiat, obviously) the same properties that make a solid currency sound:
- it’s value has to be determined by the marketplace. Only consumers, through the marketplace can give true value to what you produce, not an arbitrary establishment of value; if I think my sides of beef are worth three chickens, and no one is willing to give me three chickens, then obviously, they are not worth three chickens. But if someone arbitrarily says my beef is worth twenty bucks, and three chickens are worth twenty bucks, then I’m getting more than I should, and someone is paying me twenty bucks is getting less than he should.
This makes establishing a “starting point” for sound fiat currency problematic, but let’s say we solve that problem. That’s a huge, huge, huge, probably insurmountable problem, but for the sake of argument…
A value that is determined by the marketplace cannot happen with a currency that is constantly expanding. As Scott and you have pointed out, expanding it debases it, and subjects its value to factors outside the marketplace; makes it arbitrary.
- the fiat currency must retain its value, which means when the grocer sets aside money to pay for an expansion down the road, he has to have a realistic expectation that the value of what he has put away will be there when he is ready to use it.
A currency that is constantly expanding does not retain its value. Again, the demand-supply curve; remember that money is products and services; expanding its supply has the same effect of, say, a housing developer suddenly building thousands of more houses than the market demand warrants. Eventually, they become worth less and less, as well as the houses other people already own. Or a university system granting more and more college degrees (irrespective of the merit of the students receiving them)…suddenly those degrees, as well as the legitimately earned, are worth less and less. Sound familiar?
Therefore, the fiat currency must be relatively stable in terms of supply. Printing more money has the effect of making its value arbitrary and worth less. So if a government is going to declare a fiat currency, it has to pledge to those conditions, specifically to limit the amount of money in circulation.
Of course, this means the government has to live within its means. And that’s why a sound fiat currency will never exist, because the whole reason for a fiat currency is to allow the government to spend outside of its means (they call it flexibility).
BTW 89Hoo, the entire scenario you just laid out in #20 is why the currency cannot be truly debased. It fluctuates yes, but it will always have value because we NEED it to have value for the economy to work. If it were to disappear for some unknown reason, we would invent it all over again. If it gets down to “worth” nothing, we will build it back up again. Why is that so hard for you?
21 – inflation from 2000 to 2008 was 25%, meaning what cost you a dollar in 2000 cost a buck and a quarter in 2008. Put differently, the purchasing power in 2008 was only 80 per cent of that in 2000. That’s a twenty per cent drop in value in only eight years.
http://www.usinflationcalculator.com/
23 – Sandi, if it were to disappear, we would not reinvent a fiat currency beyond simple IOUs and handshakes, and enforced either by withholding goods and services or through more aggressive means. We would be trading goods for services, in a black market-like economy, until it became complex enough for a currency to evolve (which might not take long).
But it would not start out with me handing you a piece of paper and saying, “give this to Bob the farmer; it’s worth a chicken”.
25 – and I should correct myself…IOUs and handshakes are not fiat currency, they have values established by the parties of the exchange…i.e., by the marketplace.
23 – other countries HAVE seen their currencies drop to nothing Sandi. They invariably bring about political as well as economic chaos, revolution and often tyranny.
Look at all the banana republics in Central and South America and third-world Africa. They kept – and keep – printing piles and piles of fiat bills, and it keeps getting worse.
Look at Germany between WWI and WWII…forced to pay reparations that were overly punitive, they debased their currency in an attempt to comply with the Treaty of Versailles. Rampant hyperinflation, high unemployment…led directly to Hitler.
Sure, let’s look at any place you like. Why not start with Greece? That is the usual go to. The only thing is, they are not us. This is all fantasy. Out currency is not going to “drop to nothing” unless the world does and then currency is a moot point all the way around.
28 – well, with that thinking, I guess it was pure fantasy that saw the dollar lose twenty percent of its purchasing power from 2000 to 2008. Can’t happen here, right?
Sandi, what is the appeal of fiat currency?
Go with Gold…In 4 yrs it will be 20,000 per ounce…then you can buy up all the peoples stuff that said ” This can’t happen here”
The “appeal” is that it is reality.
“Gold has no intrinsic value,” he amazingly told host Bill Maher. “If you’re really worried about say inflation rising, I would buy Spam.”
Roubini continued, “You know, you can eat Spam, you cannot eat gold”
Read more: http://newsbusters.org/blogs/noel-sheppard/2010/05/22/economic-guru-dr-doom-says-buy-spam-not-gold#ixzz2HVkAY6yY
Sandi, Thats a fool talking. Gold will be worth enough to buy whatever someone wants. If you are sitting on 25 ounces of gold right now and if our economy tanks gold will be the new market worth a fortune.
Of course we are talking about Bill Maher here. Mr tax funded program.
Spam may be useful if the world ends, but that’s about it.
Spam, unlike gold:
– can be easily inflated (just make more, or dilute it) making it worth less and less (unless the only thing that concerns you is having Spam);
– has imitators (a form of inflation), making it worth less and less;
– becomes subject to deterioration once the can is opened, meaning it is not easily divisible into smaller quantities, meaning it is less useful as a means of exchange; (Hormel claims the shelf life is infinite (an unprovable claim) but I am not so certain the can you’ve had in your basement for twenty is the same as the one you just bought today).
– does not hold its value (because of the first three points);
– has no intrinsic value because of the first four points.
31 – but Spam is not fiat currency either, Sandi. I asked you the appeal of fiat currency. Got an answer?
Herb, who exactly is that gold going to be “20,000 per ounce” too?
I did answer you. I repeat: The “appeal” is that it is reality.
If you are about to lose your house I bet you it would be alot to you for food.
Gold is not a magic bullet. It is A bullet. Just like fiat currency is A bullet.
the supply of gold isn’t growing fast enough, meaning we’d be in a permanent state of deflation.
the countries that were the first to abandon the gold standard in the Great Depression were the first to recover.
It’s hard to imagine a more sure-fire way of creating uncertainty and destroying confidence.
instead of having a central bank with the capacity to successfully counter-balance these tendencies, an economy with a fixed exchange rate regime would continue to reinforce the existing negative trends in the business cycle,
You might convince me, I’m just a gullible old woman, but these folks seem pretty sure.
35 – ooh, ooh, I know!
Herb, who exactly is that gold going to be “20,000 per ounce” too?
Ahem…the answer is, “Whoever has $20,000 and wants to buy an ounce of gold with it.”
You’re welcome.
36 – I keep forgetting, you can’t give straight answers.
Okay, let me rephrase.
Since by definition, fiat money only has value assigned to it by the government, that it is accepted only because the government says to accept it…
…and because prior to the issuance of fiat money in 1913, the US economy was perking along just fine with a sound currency system…
…WHY did the US government deem it necessary to suddenly change the currency to one in which the value was determined by Washington?
Do you know?
My question is 20,000 whats? Isn’t the dollar dead in this fantasy of a $20,000.00 ounce of gold? Why would getting $20K an ounce for it matter if the dollar “drops to nothing”? Why would you take that sale?
38 – I didn’t ask about gold, I asked about fiat money.
41 – well I wouldn’t take that sale (I’d keep the gold) because, yes, if it reaches that point, the dollar is dead. But someone might, someone who doesn’t realize the dollar is dead. At the same time, in that scenario, I’d much more likely give 20000 pieces of worthless paper for an ounce of gold.
I doubt any mainstream economists in 1971 would see the value of the dollar drop so precipitously either. Remember, back in 1971, an ounce of gold was pegged at $35/oz…when Nixon removed the gold backing, the dollar dropped so much that it now takes about $1650 to buy an ounce (a bigger drop than from now to $20k per ounce). No mainstreamers saw that coming.
But there are two reasons to buy gold. First, no investment has paid off better over the last 1-15 years, and if you think the dollar will survive, hang on to it ans speculate with it. I don’t think it will reach $20K, but I don’t think it has topped out yet; $2500 per ounce wouldn’t surprise me.
The second reason is precisely the scenario you mentioned, Sandi: if the economy tanks, and the dollar is killed off, people will trade with something that has value. Gold has always, without exception, evolved as the currency of choice. You can hang onto your Spam, but it has its weaknesses.
As for me, I have a little bit of gold – a very little bit – that I’m going to hang onto for a rainy day; no, not the economic end of the world kind, the “I can’t pay my mortgage” kind.
OK, you didn’t “ask” about gold per se, you just keep mentioning gold and the gold standard as a frame of reference for the conversation we are not having. Got it.
What else did you ask that I did not answer? I was not under the impression you had to like my answer for it to be deemed “straight”. In the spirit of wanting so desperately to please you, I too will “rephrase”.
Yes, fiat currency requires that the value be assigned to it by the government issuing it. However it is not “accepted only because the government says to accept it”. I suppose it is like my belief in God, in Angels, in miracles, in love. I simply and completely accept that the full faith and credit of the United States of America means something. I take it on faith that my US currency will continue to be “legal tender” wherever it is offered. The international value of it has fluctuated virtually since the beginning, but that is a symptom of the system and global valuation. It has the flexibility that gold never had and cannot have. The fact that other nations are still buying our debt, bonds and investing here, as well as my faith in my nation, helps me stay comfortable with our system.
The fact that there is no nation that uses other than fiat currency also reinforces the enormity of the assurance in the world.
History says that our economy had recessions under gold too. “Perking along” is how most developing nations with our kind of assets will emerge for long periods of time. That has no bearing on either currency method IMO. Our fiat currency is as “sound” as any on the planet.
It is my belief that the gold standard was and remains too inflexible to allow national economies to do what they need to do in reaction to expansions, contractions, wars, booms, or busts. I am not a world or US leader, but I see their logic and again, so do all other nations.
Obviously there is no perfect system. I maintain that the link above has it right. Some people just need for everything to be defined in no uncertain terms, regardless of any situation or problem that causes. For some we must “define exactly what a dollar is, just as we can define exactly what marriage is, exactly what an “American is,” and exactly what truth is“. Reality is not that neat.
So in your world, the dollar will collapse but your mortgage holder will still be in operation and accept your gold as payment? Interesting? Is your mortgage holder perhaps a cockroach?
Sandi, to be precise, I discuss sound money, not exclusively gold; in fact I talk gold only when others specifically mention it. There are others ways to gt sound money, I even outlined how fiat can be made sound. So no, I’m not exclusively gold.
And I appreciate your confession that your faith in government fiat is akin to a religion. I don’t share that faith in temporal things, but in this land of religious tolerance, we all near our own cross, so to speak.
Yes, fiat money provides flexibility for governments to overspend. Why would we want that?
And yes are generally cockroaches.
Yes, fiat money provides flexibility for governments to spend beyond their means. Why would we want that?
Oh good Lord, why did I know that was what you would make of it. This is beyond useless. Goodnight.
That’s about what I figured…