[Moderating]
Just posting “Sovereign Citizen bullshit” doesn’t contribute much to refuting the post. If you’re going to comment, let’s make a more substantive contribution.
Further comments on moderation should be made in ATMB or by email or PM.
Colibri
General Questions Moderator
Thanks for the answers Blake, but I’m still not seeing exactly how it would get out if the US dumped a lot of money into the bank. It doesn’t have to be all at once. With an economy as big as ours, couldn’t we simply put in smaller increments over longer periods of time? A hundred thousand dollars may not be a large amount to the entire US budget, but have a dozen departments put that into the treasury on a weekly basis and in a few years you’ll have quite a bit of change to use as you please. How exactly would China know that the extra billion dollars they’re getting paid for came from small increments of half a million dollars through different defense divisions for scrapped weapons that were fake?
As for the bread example, I was thinking of a much more insular market. I know we’re a global economy and probably any industry we can think of gets some products from outside our borders, but lets say the flour, electricity, and labor all comes from the US. If those prices were fixed, then the bread won’t cost more, there would be no extra tax on it. Couldn’t that scenario play out if the US simply freezes all prices as they are for all products and services in the US? Given how big the US is, I would think that smaller foreign companies doing business with us have less clout. If we say the price is going to be something and you don’t sell it at that price and we ban your company from dealing with US companies, you’re going to go bankrupt, so you have to sell your items to us for the price we dictate. Its how large companies like Wal Mart works, and its how those big companies used to do business in the industrial revolution. I guess my question is, if we say a price for a good is going to be something, and we buy a ton of that product, what entity is going to be able to stand up to the US and say they are not going to sell it to us at that price?
Yogsosoth: If you search this thread for MB you will see a link to a graph that shows you the monetary base of the US. Virtually all of those trillions are excess reserves.
What are excess reserves? Essentially what you are proposing - trillions of dollars dumped into the banks that aren’t doing anything.
As soon as the price rises in other countries, the producer of the good won’t be interested in selling to the US market at the fixed lower price. It’s not a question of compelling them to trade at the fixed US price. As long as there’s a higher price elsewhere, the foreign producers will stop selling to the US.
Canada, for instance, sells a lot of wheat on the international market, including to the US. If the market price in Russia or China or the EU countries is higher than the US fixed price, Canadian wheat companies would shift their sales to those markets. The US producers of bread would have fewer sources for the wheat they need.
Plus, domestic American producers of wheat would have a strong financial incentive to sell their wheat abroad for the higher price, rather than to the lower fixed US price. So to make the price controls on bread work, you’d also have to implement export controls, cutting off American wheat producers from selling on the foreign markets.
As Blake has already explained, you can’t do any of this in the real world.
Market rationality is wildly overexaggerated - markets tend to overvalue and undervalue in the short term - but the larger the market and the longer the term, the closer the market gets to proper valuations. Financial markets today are worldwide, which increases the number of actors who are searching after information. The value of the dollar and of U.S. Treasuries changes from millisecond to millisecond based on this worldwide consensus about what they are worth.
You cannot hide money in such a world, nor would you want to for even a millisecond. Without the trust that our value can be determined from public information, future value would be destroyed. Nobody would ever buy another bond, so we could never lend money again.
Another misunderstanding is that our debt is a thing. It is not. It is many millions of things, millions of bonds of different values, with different repayment schemes at different interest rates, with different expiration dates. You can’t simply hand people money. There is a known repayment schedule that everyone in the world has to understand or, again, they would stop buying debt. We redeem debt continually and sell new debt continually. The process has to continue without a hitch. If it stops, we’re Greece.
The size of the debt is another misunderstanding. China owns about $1 trillion in debt. So does Japan. It would take 10,000,000 fraudulent deals of $100,000 each to equal that 1,000,000,000,000. That can’t happen over a few years. And hiding anything of that magnitude requires a conspiracy of the size the Moon Hoaxers posit. We want transparency in governmental financial transactions. Transparency is the best possible condition and I’m somewhat baffled that you think that eliminating it is a good thing.
Price freezes are if anything less plausible. We’re actually tried them before, most recently under Nixon, and they didn’t work. And that was back when we were far more of a market superpower than today. The EU is an economy as big as the U.S., China is getting there, and the rest of the world is another pot that is bigger. It doesn’t work as a thought experiment and certainly has no possibility of existing for a moment in the real world. The only positive is that the resulting black market would be studied by experts for centuries.
I’m not sure that this is strictly true. Look at a gold price chart from 2000-present. It looks vaguely hyperbolic. Now look at the monetary base chart. That’s part of the reason.
However since the money is in excess reserves, it doesn’t have any effect on the economy - yet - so even though MB went from 800B to 2.8T from 2008 to now, that really shouldn’t. However the gold market doesn’t see it that way.
Now look at the dollar index for the past 5 years. One would think that more than tripling the MB should have driven the value if the dollar into the 9th circle of hell, right? Nope. It’s worth more now vis-a-vis other currencies than it was 5 years ago.
Welcome Alice, the Red Queen awaits.
Of course it’s made up of investors by definition. I don’t know what point you’re trying to make but it didn’t in any way invalidate Chrono’s point. It’s not even relevant to what he said.
To review, he said that investor (lender) behavior is determined by the interest rate. But the interest rate is determined by investors. If you see no problem there, ok.
I have to admit I don’t understand your point. The price of gold has nothing to do with any reality and everything to do with the delusion fantasies of goldbugs and doomsday nut cases. It should have no relationship to the value of the dollar, which is real world driven. And in fact, it doesn’t.
The dollar has the value of the solidness of the U.S. economy, which is obviously more solid than any other economy in the world and has been recovering nicely since the meltdown of 2008, which is exactly what your chart shows.
So how does any of this disprove my point about long-term market rationality?
Well presumably even gold has some long-term, fundamental value - no? If not then shouldn’t the price be more of a random, shot-gun plot?
What’s irrational is your characterization of some unnamed act by FDR as “Roosevelt also signed orders at this same time declaring a banking emergency which amounted to the fed gov’t going completely bankrupt for good to the intnat’l banking cartel, who became it’s creditors.”
There are four major actions that took place in 1933 that are generally credited with ending the banking crisis of 1933: the bank holiday of March 6, the Emergency Banking Act of March 9, the radio address of March 12, and the executive order of April 5 that you mention above. None of these have any resemblance whatsoever to your description.
The bank holiday was declared in Presidential Proclamation 2039, which also contained initial language prohibiting the hoarding of gold. The Emergency Banking Act affirmed the president’s powers during the banking crisis, allowed the US Treasury to take control of insolvent banks, authorized the Federal Reserve to issue emergency currency, and took other actions to guarantee that bank deposits remained secure.
Following these actions, the president held his first “fireside chat.” In it, he explained why the banks were closed and how they’d be reopened, affirmed the essential soundness of the banking system, and promised that currency would be available to redeem all deposits. This speech, and an arm-twisting telegram to the Federal Reserve Bank of New York, ended the bank runs and sent the moribund stock market on its largest one-day percentage increase ever.
Congressional acts the following year, like the Glass-Steagall Act and the Gold Reserve Act of 1934, created the FDIC, restricted the investment activities of banks, and created the Exchange Stabilization Fund.
I repeat, there is nothing in any of these actions which can be described as “declaring bankruptcy,” nor is there any reason to believe that the non-existent “international banking cartel” profited from these purely domestic actions, nor from the legislated increase in the price of gold by nearly 20%. The foreign exchange consequences are a little beyond me, but given the way the US dominated the world financial market for half a century, I think we should call that a win, too.
As I pointed out from the beginning, you misunderstood what he said. Chronos was talking about the United States making investments in things like feeding grandmothers with the money it borrows. At no point was he talking about the return U.S. debt holders can earn except as a cost of debt to the U.S. government.
[QUOTE=Chronos]
Admittedly, for most of the*** investments the government makes***, it’s tricky to calculate exactly what their rate of return is, but the bar isn’t set very high.
[/QUOTE]
I don’t suppose there’s really any point in my mentioning the govt doesn’t actually make any investments, is there? The stuff relating to the bailout, was a one-time deal. The govt doesn’t buy bonds or equities for investment, so I’m not sure what it is y’all would be referring to.
edit: And we’ve already established that investors don’t care about it’s other “investments”
You’re confusing investments with securities, which I guess is a common misunderstanding. And you needn’t speculate on what we’re referring to. Chronos said he was talking about investing the borrowed money in feeding grandmothers and growing our military.
For what it’s worth, I re-read Chronos’s original post and it was a little more confusing than I realized.
From what I quote below: There’s not supposed to be any logical connection at all between these two paragraphs.
[QUOTE=Chronos]
It’s also worth noting that as of right now, the debt isn’t actually a big problem. The problem with going into debt is that you eventually have to pay it back, with interest. But as of right now, the federal government is able to borrow money at an incredibly low interest rate. When interest rates are low enough, it makes sense to borrow as much money as you can, and then put it all into investments that have higher returns. Admittedly, for most of the investments the government makes, it’s tricky to calculate exactly what their rate of return is, but the bar isn’t set very high.
Now, it’s certainly possible (even likely) that, at some point, lenders will decide that the return on government bonds isn’t high enough to bother with, or that the risk isn’t low enough to justify the low returns. When this happens, the interest rates on government bonds will start going up, and the government debt will start becoming a problem. At which point we should start solving it.
[/QUOTE]
In the first paragraph Chronos is saying it’s cheap to borrow right now and the government can use the borrowed money to do useful things like feed grandmothers.
In the 2nd paragraph he says that someday it might not be cheap, then we’ll have to think a lot harder about whether it’s worth borrowing to feed our grandmothers.
There’s no implication that the debt-holders care about feeding grandmothers, but I can sort of see how you could misunderstand it given how he wrote it.
Since I have such a hard time understanding things, are we no longer taking about investments and interest rates?
I cannot think of a better summary for why this country–and other similarly-structured economies–are absolutely guaranteed to collapse.
The only question is, “when.”
It’s human nature to wait until crisis time and then address the problem, especially if addressing it now would be inconvenient. Doesn’t matter if it’s AGW or fiscal recklessness. Let’s not worry about that room on fire over there until the building is engulfed.
Because of the way inflation begets inflation (see “Zimbabwe,” above), if we wait (and wait we will) until interest rates begin rising, it will be far far too late. In my opinion, it’s already too late. We’re already addicted to big government, big military, big social, big pensions…all paid for in future dollars we are swiping from our kids.
First off, the size of the debt is astronomical. If a dozen departments put a hundred thousand dollars into the treasury each week, it would take over half a million years to pay off the debt.
But even if it could be done, you still haven’t solved the problem. Even if you can keep the source entirely secret, China is going to know within a few weeks that more US currency is in circulation. They won’t need to be told that, it will be perfectly obvious to any analyst with even a passing interest in foreign exchange rates. It will be obvious because the value of the US currency must fall as more notes are printed, simply because of supply and demand. And any analyst making a cursory examination of the markets will be able to see that the fall in value does not follow any increase in sales. IOW the greenback is going to be purchasing less, but there won’t have been large numbers of people trying to sell it, which is the normal way the purchasing power could have fallen.
So that leaves just one possibility: more notes are in circulation. Those notes are either counterfeit or genuine. If they are genuine then you are right back at square one: China knows the US government is printing notes and not telling anyone in order to pay them off in worthless currency. If there are trillions of dollars if counterfeit notes in circulation then either the US government is complicit, in which case go to one above, or else the government is powerless to stop counterfeiting, in which case the currency is even less trustworthy. No matter how it occurred, trillions of dollars of notes turning up on the world market will be noticed almost immediately, and the result will be a complete loss of confidence in the US dollar.
So not only do you get the inflation associated with printing notes, you get a freefall as people abandon the currency due to loss of confidence in its value, leading to further loss of value, leading to more people abandoning the currency. Where that stops nobody knows, but since the government has proven that it can not be trusted to tell the market the true value, the freefall will only stop when the market believes that the currency is well *under *value.
But it’s turtles all the way own. Whether the market is entirely insular or not doesn’t change that
So now the price of flour also needs to be fixed. But to produce a pound of flour, the flour mill need to use 50c of electricity, and 50C of labour and 50c worth of wheat. The mill sells flour for $2 a pound, making 50c profit.
After printing trillion dollars in new notes, inflation means that a pound of flour requires $1c of electricity, and $1 of labour and $1 worth of wheat. But since the price of flour is set in stone, the mill can only sell for $2 a pound, meaning they lose $1 on every pound of flour milled.
So now you have to set the price of wheat in stone. But to produce a pound of wheat, a farmer needs to use 50c worth of diesel, and 50c worth of labour and 50c worth of fertiliser, which he normally sells at $2 a bag. But with inflation he will need to spend $3 on his inputs, despite the price of wheat being set in stone at $2.
So now we need to set the price of diesel in stone. But the price of diesel is based upon the cost of steel for drilling rigs. So we need to set the price of steel in stone.But the price of steel is based upon the cost of wages i mining towns. So we need to set the price of miners wages in stone.
But if miners have their wages halved, they will be making minimum wage for hard, hot dangerous work.Obviously they will abandon the industry. And if they do that then the price of steel will increase, leading to an increase i the price of bread.
So to keep miners in their jobs you need to either force them to work at gunpoint, or else ensure that all their costs are set in stone.
The latter option means setting the price of clothes and medical care and education in stone. IOW you need to nationalise the entire economy, and a set prices based upon the recommendations of a central planning committee.
And the former option was *also *tried in the Soviet Union. Neither works.
The price of any commodity is based upon the value in the marketplace. There is simply no way to freeze the price of just a basket of commodities. The prices are dictated by the market. If you try to freeze the price at below market value, people will simply cease t produce those goods. Trying to freeze the price of the inputs doesn’t work, because those inputs are also valued by the market.
The entirely national economy is a massive feedback loop. The price of bread in New York is dictated, in some part, by the cost of aged care in Kentucky. If you freeze the price of bread, then the people in the bread production won’t be able to afford aged care for their parents, and they will find other jobs that will allow them to afford it. The result is that bread will cease to be produced unless you can control, not just all the physical inputs into bread production, but also the cost of aged care and cinema tickets and everything else that everybody employed int he production chain spends their money on.
IOW it will only work if you have centralised control of the national economy. And history has proven that that can not work, even if it were possible and a reasonable way to pay off the debt.
Firstly, how could it do that? Even with the vastly expanded “Interstate trade” interpretation, I doubt that SCOTUS is going to agree that Congress has the power to tell a boss that he can’t pay his workers *more *money. Or that a worker can’t quit one job and take one that pays better. Or that a dairy farmer can’t charge more for milk, even though people are willing to pay more.
And without that degree of control, you can’t fight inflation.
But even if you could, you are proposing a centralised economy of a kind that outdoes even the Soviet Union. You have instantly produced an economy that has no ability to respond to change and no ability to reward productivity.
What happens if they have a bad wheat crop this year? You have set the price of wheat at $2 a bag, which is this years price. But if we have a bad year, you will have half as much wheat available. So who gets to have the limited amount of wheat? Normally the market decides highest value use by selling it to whoever will pay more. But under your system *nobody *can pay more than $2 a bag.
Do we divide the wheat equally amongst all those who used it last year? So the farmer feeding it to his chickens gets half the amount he needs, and the bread manufactures get half the amount they need? Does it really seem wise to waste high value grain on livestock?
And what happens to the wheat farmers? They produced only half the grain they did last year, but they can still only sell it at the same price. So they will go bankrupt, meaning that even less wheat will be grown next year.
For that matter, how do you control supply? ATM a farmer decides whether to grow wheat or sorghum or maize based upon what price he thinks he can get, and that is based upon how many acres others have planted and so forth. But if all prices are fixed, why would they bother? If wheat is worth $2 a bag and maize is worth $3 and sorghum $1, everyone will pant maize. It doesn’t matter if the market is already clearly glutted, people will still keep planting because they are guaranteed a minimum $3 a bag. Millions of tonnes of maize will be dumped in the ocean, and still people will be planting more, because they are guaranteed $3 a bag. There can be a nationwide shortage of flour leading to bread riots, and still people will be planting maize, because they are guaranteed $3 a bag.
How do you intend to deal with those problems when you have a floor price on literally everything in the entire economy?
Anyone at all. Unless you are suggesting that the US invades Australia, then Australian farmers will sell to whoever offers the highest price. If the US Central Planning Bureau can offer more than anyone else in the world, only then will sell to the US.
The only difference your Nationalised Economy make is that, having arrived in the US, the wheat won’t go to whoever can get the most economic return from it right now. It will go to whoever got the greatest return when you froze your price. If that was a chicken farmer who was only using wheat because it was cheap that year, well that’s to bad. In the middle of bread riots, you will have to sell wheat to a chicken farmer at $2 a bag to fee his livestock because the price is frozen.
You have produced an economy that has no ability to maximise growth or returns on investment. It is an economy with no ability to respond to supply shortages or to increased demand. It is an economy that gives no incentive at all for forward planning or catering to market forces.
IOW it’s an economy that is wasteful, rife with corruption and black marketeering and doomed to shrink ever smaller with no possibility of growth.
Why would you want to take such a drastic step to pay the national debt? Having a national debt is not necessarily a bad thing, and when it comes to fiscal and monetary policy paying it off should not necessarily be the highest priority and is not necessarily the best thing for the economy.
Blake: Now that’s a post. Good on you.
