Is the US dollar the next bubble to burst?

[Pliny]

Not to derail your thread, but at the present time I do not vote, because I feel it's a waste of time. I despise the corruption. I try to be an honest person in everything I do and will not sign my name in support of the conceited liars.

You should spoil your ballot at least.

You call politicians conceited liars. Well, politics has always been a snake pit and it takes conceited liars to survive it. Honest people are generally crushed before they get started.

You have to listen to politicians to see how jaded they are. If you can't make any sense out of what they are saying then chances are pretty good the vagueness is intentional.

For instance, Obama ran his campaign on "Change we can believe in." What does that mean and who are "WE". It is politicians that will make the changes so he must mean the government is "we" and not the people. He also stated at a Union rally that together we will transform America. Again what does that mean and does his target audience have anything to do with why he said it?

Obama is a politician and aware of the different types of government. He said he wanted to "redistribute the wealth" when he was talking to Joe the Plumber. Government redistribution of wealth is a socialist concept. Yet he attempted to distance himself from association with the term, socialism. Unfortunately, he was fairly successful at distancing himself because Americans traditionally don't have an affinity for socialist ideas but they elected him anyway.

A lot of the things Obama says are pretty vague. When it comes to the specifics he is about government being the savior of the nation. Yet he tries to tell you that he isn't about about big government at all or he is not an ideologue. He says he wasn't elected to bail out fat cats bankers on Wall street. But that is exactly what he voted to do. People directed some anger at the banks so Obama expresses his allegiance with the people. A Pretty transparent shift in attitude in order to help his sagging numbers but it isn't really all about the bankers it is about the bailout as well. If the bankers were gone, as they should be, then there would be no one to direct their anger at and they could start afresh.

All the while he has ignored the concerns of the citizenry to promote his pet government projects and dreams. Blaming Bush for the economy and big spending while he ratchets up spending himself.

I look at the kind of people he surrounds himself with as well; his Czars. These advisors are all big government powermongers.

Yes they are conceited and they lie. I don't think they realize it though until someone calls them on it. They try to reword things or restate them or say they "misspoke" or used the wrong wording or were misinterpreted and then attempt to word it so that it is something more acceptable. You know things are really bad when there is a lot this and no one can be sure of what anyone means when they say something.

I think Bush was basically up front but and took a lot of flack for his WMD and other things that turned out false but I think he believed them when he said them. He had some advisers that were powermongers too.

Basically, I will vote for whoever promises to do the least, cut spending, cut taxes, downsize, anything that limits the size and scope of government.

[Pliny]

Wrong. it is the balance of buyers and sellers.

No. It is the amount of money and credit creation that determine the value and thus the price level of goods in general. The balance of buyers and sellers may determine the price level of a particular item but not the "general" price level in an economy as does the amount of currency and credit creation.

[Pliny]

What has history got to do with it? You can have a thousand year old currency and ruin it in a month by printing at full throttle. Inversely, you could have a relatively new currency managed conservatively. Really, what does history got to do with it?

It has to do with the stability of a country. The EU has not proven itself to be stable as yet. It is showing cracks already and thus we see the big drop we do in the Euro of late.

[Pliny]

But the more you more you put into circulation the more you dilute the value, I'm not wrong.

This is demonstrably true. I think Dancer is looking at micro influences and not macro influences. so he is not completely wrong either.

True, but the printing press will be the demise of the dollar.

As it is with all fiat paper currencies.

Some people argue that the development of paper currencies must be correct because all countries have developed them and replaced gold as money. It is the tendency of governments to want "elasticity" in the nation's money supply that paper currencies are adopted. In other words they wish to be able to spend as much as they can. The temptation to print more is ever-present and democracies have a tendency to demand more. Spending and budget cuts are not popular and with special interests demanding and lobbying for more it is impossible to be elected on such a platform. It contributes to the progressive movement of government and defines socialism as being the evolutionary attainment of the totalitarian state. Economic collapse is inevitable unless the citizens realize government can never be the provider of benefit, privilege and favour it tries to be.

[Pliny]

Completely irrelvant....it is the world's reserve currency for different reasons.

Yes. One reason being - contractual obligation.

75% of something is worth more than 100% of nothing. The US dollar is actually on a rebound against the euro right now....is that because somebody is printing too many euros? (Hint: No)

Actually, it is. The EU is subsidizing the economies of Portugal, Spain, Greece and Ireland. Greece is on the verge of economic collapse and like Obama bailing out the banks, the EU is bailing out whole national economies.

Nope...in fact, Obama will likely continue a weak dollar policy because the advantages outweigh the disadvantages with respect to debt and US exports.

You are correct the advantages outweigh the disadvantages - in the short term and for the narrow interests of the American economy. It isn't a good global policy but there really isn't much of an alternative. That lack of an alternative may mean an economic collapse.

Sure...if you say so. Why do you care....because a rising loonie will hurt the Canadian economy much more.

Our government is doing what it can to devalue our loonie. Stupid government. I understand the resouce and manufacturing sector of our economy is somewhat dependent upon a low dollar value but that dependency should end. They weren't too concerned about the consumer and the prices he was paying for imports while they were raking it in when our dollar was at 70 cents.

Edited February 11, 2010 by Pliny

[bush_cheney2004]

...Actually, it is. The EU is subsidizing the economies of Portugal, Spain, Greece and Ireland. Greece is on the verge of economic collapse and like Obama bailing out the banks, the EU is bailing out whole national economies.

I haven't read all the details of the plan announced today, but it doesn't necessarily mean the EU is "printing money". Sounds like they will use accelerated distributions that they would have received anyway as EU members.

[Oleg Bach]

Ross Pereau had it right. "There is a sucking sound all over the world where all the wealth is being sent to the top one millionith of one percent of the people" To para phrase...It is not government but a few guys that are past the point of accumulation of wealth - these people are into having total power and domination over everyone. They get just as much satisfaction in creating a system as destroying it - Imagine 70 year old spoiled boys who toy with the world - who have no vision left - no compassion and swear that they will take us all to hell as they leave this world...total selfishness...a crazed bunch of quite and secretive lieing jerks run the world at present/// All you can do is wait for nature to take it's course and slowly destroy all artifice.

[maple_leafs182]

Sure...if you say so. Why do you care....because a rising loonie will hurt the Canadian economy much more.

Na, I'm not selfish like that, I don't want to see people suffer and many will.

The system is stupid.

Ross Pereau had it right. "There is a sucking sound all over the world where all the wealth is being sent to the top one millionith of one percent of the people" To para phrase...It is not government but a few guys that are past the point of accumulation of wealth - these people are into having total power and domination over everyone. They get just as much satisfaction in creating a system as destroying it - Imagine 70 year old spoiled boys who toy with the world - who have no vision left - no compassion and swear that they will take us all to hell as they leave this world...total selfishness...a crazed bunch of quite and secretive lieing jerks run the world at present/// All you can do is wait for nature to take it's course and slowly destroy all artifice.

agreed

You are correct the advantages outweigh the disadvantages - in the short term and for the narrow interests of the American economy. It isn't a good global policy but there really isn't much of an alternative. That lack of an alternative may mean an economic collapse.

They should of let all the too big to fails that were failing fail, it would of hurt I know, but what they did to try and save the economy is now going to make it hurt more and last longer.

See, stuff like this is why having a monetary based economy is stupid.

We shouldn't have to worry about stuff like this ever happening.

I propose a better way, resource based economy. It is more logical, the wealth of the world would be in the hands of all the people and not the hands of a few.

(When the dollar falls, silver and gold will shoot up, buy some now)

[Pliny]

They should of let all the too big to fails that were failing fail, it would of hurt I know, but what they did to try and save the economy is now going to make it hurt more and last longer.

Agreed. But they are not stupid. If you and I can figure it out they should know this. Are they intentionally attempting to prolong the bad economy?

In my opinion they are managing from a macro-economic level based upon some false assumptions contained in Keynesian economic theory. Those assumptions contained in their economic models give false outcomes.

I think their prime objective is to sustain the authority of a centrally managed economy over effective economic policies. It is very difficult for them to cut taxes as no one is willing to have their budgets cut or their privileges from government largesse reduced.

Environmental and other policies also sometimes override sound economic practices. An example is the golf cart sales in America. There is an environmental policy that allows tax credits for electric vehicles. Apparently, the tax credit plus a rebate will pay the full cost of the golf cart. It's like getting a free golf cart. This is a very costly government program and definitely not economically based on the interests of the common good. Although the common good was the reason for the policy.

See, stuff like this is why having a monetary based economy is stupid.

We shouldn't have to worry about stuff like this ever happening.

We don't have a monetary based economy. We have a fiat "token" based economy.

Money in order to be called money must be commodity based. One of the things lacking in the use of tokens as money is the fulfillment of a trade. The transfer of value is not completed until the tokens are spent. Although, as long as the tokens are accepted it falls within one of the properties of money, that being a store of value. It is very risky though because it isn't a true store of value since they are just tokens.

I propose a better way, resource based economy. It is more logical, the wealth of the world would be in the hands of all the people and not the hands of a few.

I don't have a full idea of what you mean by resource based economy but I think a "real" money based economy would fall under that concept.

From the sounds of it, and I am only basing my assumptions on the term, a resource based economy would be primarily about barter. Is that correct?

[Pliny]

Ross Pereau had it right. "There is a sucking sound all over the world where all the wealth is being sent to the top one millionith of one percent of the people" To para phrase...It is not government but a few guys that are past the point of accumulation of wealth - these people are into having total power and domination over everyone. They get just as much satisfaction in creating a system as destroying it - Imagine 70 year old spoiled boys who toy with the world - who have no vision left - no compassion and swear that they will take us all to hell as they leave this world...total selfishness...a crazed bunch of quite and secretive lieing jerks run the world at present/// All you can do is wait for nature to take it's course and slowly destroy all artifice.

If this is true how have we ever managed so far?

I think you are correct that power is concentrated and "money" (the tokens of the day we mistake for money)is inconsequential to those who hold the power.

But power without a civilization or society is useless. Power must demonstrate dominance, and if there is no one to dominate over, power becomes rather inconsequential.

I believe it is a love/hate situation that determines our political direction. they need people around to have power over but they hate that they are using up so much of the non-renewable resources, polluting the world and making, in their view, a mess.

Thus we see, the de-population and environmental movements, and the establishing of pristine territory, the global warming scare, amidst all the other political shenanigans and tug of wars. They will allow people like Chavez to centralize their national power and then they will usurp it or establish something like a Latin American Union similar to the European Union. National sovereign power is then watered down and it is easier to control the united centralized authority than individual nations. Or at least that seems to be the plan, eventually having a single global entity overseeing the central unions.

It has proven rather unwieldy and unpopular among the people in Europe but governments seem to be very willing to play the game and shore it up as much as they can.

Is it an evil plot? As in any plan there is good and bad. Some will benefit and some will not. If you wish to benefit you need to be with the program. Some don't understand there is a program. Some, like yourself, do understand there is a program but it is all evil. Me, like you say, nature will take it's course. When we have bad leaders and bad management we will suffer more than gain and when we have good leadership and management we will gain more than suffer. It seems we have a lot of bad leadership right now. The only way we can avoid the pitfalls of our leaders is to have some modicum of liberty and freedom in our own affairs and the ability to say "no" to government when we need to.

[dpwozney]

Yes the dollar will come down.

What determines the value of the currency is the amount in circulation.

They are flooding the market with trillions of dollars, inflation is inevitable.

If it looses too much value nations will drop it as the world reserve currency because they would be loosing too much money holding on to the dollar. This will lead to hyperinflation, the market will be flooded with dollars that nobody wants.

If the stated value, of "Federal" Reserve notes, declines enough with respect to copper and nickel, the 1946-2010 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.

The August 27th metal value of these nickels is "$0.0538977" or 107.79% of face value, according to the "United States Circulating Coinage Intrinsic Value Table" at Coinflation.com.

[M.Dancer]

If the stated value, of "Federal" Reserve notes, declines enough with respect to copper and nickel, the 1946-2010 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.

The August 27th metal value of these nickels is "$0.0538977" or 107.79% of face value, according to the "United States Circulating Coinage Intrinsic Value Table" at Coinflation.com.

I will sell you as many as you want at face value +1% + shipping and handling.

[dpwozney]

I will sell you as many as you want at face value +1% + shipping and handling.

Here in Canada, I would rather invest in pure-nickel RCM nickels minted before 1982 which I can obtain at face value with no shipping and handling costs.

[dre]

Agreed. But they are not stupid. If you and I can figure it out they should know this. Are they intentionally attempting to prolong the bad economy?

In my opinion they are managing from a macro-economic level based upon some false assumptions contained in Keynesian economic theory. Those assumptions contained in their economic models give false outcomes.

I think their prime objective is to sustain the authority of a centrally managed economy over effective economic policies. It is very difficult for them to cut taxes as no one is willing to have their budgets cut or their privileges from government largesse reduced.

Environmental and other policies also sometimes override sound economic practices. An example is the golf cart sales in America. There is an environmental policy that allows tax credits for electric vehicles. Apparently, the tax credit plus a rebate will pay the full cost of the golf cart. It's like getting a free golf cart. This is a very costly government program and definitely not economically based on the interests of the common good. Although the common good was the reason for the policy.

We don't have a monetary based economy. We have a fiat "token" based economy.

Money in order to be called money must be commodity based. One of the things lacking in the use of tokens as money is the fulfillment of a trade. The transfer of value is not completed until the tokens are spent. Although, as long as the tokens are accepted it falls within one of the properties of money, that being a store of value. It is very risky though because it isn't a true store of value since they are just tokens.

I don't have a full idea of what you mean by resource based economy but I think a "real" money based economy would fall under that concept.

From the sounds of it, and I am only basing my assumptions on the term, a resource based economy would be primarily about barter. Is that correct?

Agreed. But they are not stupid. If you and I can figure it out they should know this. Are they intentionally attempting to prolong the bad economy?

No they are trying to ward off bankruptcy at least until their terms expire. Thats all... delay the major collapse they all have known was coming since 1972 so that they can say it happened on someone elses watch. Its actually probably been a good policy if you look at the big picture.

Money in order to be called money must be commodity based. One of the things lacking in the use of tokens as money is the fulfillment of a trade. The transfer of value is not completed until the tokens are spent. Although, as long as the tokens are accepted it falls within one of the properties of money, that being a store of value. It is very risky though because it isn't a true store of value since they are just tokens.

Theres really not much difference in terms of value. Gold has value for the exact same reason that Government backed currency has value... People want it. Theres demand for it.

The problem with basing currency on a finite natural resource is that you cant control the size of the money supply, and if the money supply doesnt grow in step with the economy you'll get deflation because theres too few dollars chasing too many goods and services.

I think their prime objective is to sustain the authority of a centrally managed economy over effective economic policies. It is very difficult for them to cut taxes as no one is willing to have their budgets cut or their privileges from government largesse reduced.

What do you mean? Theyve been cuttin taxes for decades. And heavily. Todays generation of Americans pays lower taxes than any other since the 1920's.

[Pliny]

No they are trying to ward off bankruptcy at least until their terms expire. Thats all... delay the major collapse they all have known was coming since 1972 so that they can say it happened on someone elses watch. Its actually probably been a good policy if you look at the big picture.

A bit cynical but not entirely without merit.

Theres really not much difference in terms of value. Gold has value for the exact same reason that Government backed currency has value... People want it. Theres demand for it.

The biggest difference is that Government backed currencies have a tendency to disappear or lose almost all value when the government collapses or hyperinflates the currency. Gold demand is dependent upon it's intrinsic qualities which is why it has almost always been in demand.

The problem with basing currency on a finite natural resource is that you cant control the size of the money supply, and if the money supply doesnt grow in step with the economy you'll get deflation because theres too few dollars chasing too many goods and services.

You mean government can't control the size of the money supply.

It is true that deflation, a decrease in the money supply, will result in a general drop in prices and wages just as inflation, an increase in the money supply will, result in a drop in general prices and wages. If inflation and deflation admittedly occur then it is nonsensical to say that deflation results in too few dollars chasing too many goods or that inflation results in too much money chasing too few goods. The result is actually a rise or fall in wages and prices.

Governments have progressively increasing liabilities and thus do not like deflation, which means a decrease in revenues. And that is why they attempt to control prices and wages through inflating the money supply. Their revenues remain intact and grow.

What do you mean? They've been cuttin taxes for decades. And heavily. Todays generation of Americans pays lower taxes than any other since the 1920's.

Really? They paid more than 50% of their income in taxes? Perhaps the rich have had some cuts to their rates and Bush had his famous tax cuts. But tax credits, fees, licensing and penalties are probably not in your equation. Looking at tax revenues is also not a measure of the level of taxation. Revenues could be up or down depending upon the State of the Economy. In the US I know that the taxes went up under Bush I but revenues didn't go up until the last years of the Clinton administration and then they went down again probably not because of GWB tax cuts so much as a poor economy.

What is your measure for today's generation of Americans paying lower taxes than any other since the 1920's?

[dre]

A bit cynical but not entirely without merit.

The biggest difference is that Government backed currencies have a tendency to disappear or lose almost all value when the government collapses or hyperinflates the currency. Gold demand is dependent upon it's intrinsic qualities which is why it has almost always been in demand.

You mean government can't control the size of the money supply.

It is true that deflation, a decrease in the money supply, will result in a general drop in prices and wages just as inflation, an increase in the money supply will, result in a drop in general prices and wages. If inflation and deflation admittedly occur then it is nonsensical to say that deflation results in too few dollars chasing too many goods or that inflation results in too much money chasing too few goods. The result is actually a rise or fall in wages and prices.

Governments have progressively increasing liabilities and thus do not like deflation, which means a decrease in revenues. And that is why they attempt to control prices and wages through inflating the money supply. Their revenues remain intact and grow.

Really? They paid more than 50% of their income in taxes? Perhaps the rich have had some cuts to their rates and Bush had his famous tax cuts. But tax credits, fees, licensing and penalties are probably not in your equation. Looking at tax revenues is also not a measure of the level of taxation. Revenues could be up or down depending upon the State of the Economy. In the US I know that the taxes went up under Bush I but revenues didn't go up until the last years of the Clinton administration and then they went down again probably not because of GWB tax cuts so much as a poor economy.

What is your measure for today's generation of Americans paying lower taxes than any other since the 1920's?

It is true that deflation, a decrease in the money supply, will result in a general drop in prices and wages just as inflation, an increase in the money supply will, result in a drop in general prices and wages. If inflation and deflation admittedly occur then it is nonsensical to say that deflation results in too few dollars chasing too many goods or that inflation results in too much money chasing too few goods. The result is actually a rise or fall in wages and prices.

You have to look at what currency IS though. Its not meant as a vehicle to store wealth in the long term. Its a medium to facilitate transactions. If its not relatively stable there will be less transactions (less economic growth). If you look at gold for example its tripled in value in just the last 2 decades. Can you imagine if you had negotiated a mortgage in gold backed currency during that time? Youd be paying back 3 times as much purchasing power as you borrowed in the first place NOT including interest.

Currency should be relatively stable and there should not be a lot of inflation or deflation and what there is should be predictable. The ammount of currency in circulation should be based on the size of the economy. Not ore exploration yeilds, and mining.

If inflation and deflation admittedly occur then it is nonsensical to say that deflation results in too few dollars chasing too many goods or that inflation results in too much money chasing too few goods.

No its not nonsensical at all. And its not that deflation "results" in too few dollars chasing too many goods... Thats the LITERAL DEFINITION of what inflation IS. It happens when the economy grows faster than the money supply.

Take an economy with two commodities. Oranges, and government backed currency. If theres a hundred oranges in the market... and theres a hundred government backed dollars, an orange will cost a buck. If the market doubles in size so that theres 200 oranges in the marketplace and the currency supply doesnt grow as well then all of a sudden a government backed dollar can buy 2 oranges. This would discourage transactions and economic growth because now your transactional medium isnt stable enough to write anything but "spot contracts" against.

Western currencies have inflated but done so in a fairly linear and predictable manner for the most part, so they stayed effective as a transactional medium. But currency is currency and you should never have more of it than you need to complete your transactions. You shouldnt store wealth there. You can still store your wealth in precious metals if you choose, regardless of what backs currency.

What is your measure for today's generation of Americans paying lower taxes than any other since the 1920's?

Heres tax rates since the 1950's. The bottom bracket has gone from 17% to 10% and the top bracket has gone from 80% to 38%.

1950 - 17.4% 84.36% IRS

1951 - 20.4% 91% IRS

1952-1953 - 22.2% 92% IRS

1954-1963 - 20% 91% IRS

1964 - 16% 77% IRS

1965-1967 - 14% 70% IRS

1968 - 14% 75.25% IRS

1969 - 14% 77% IRS

1970 - 14% 71.75% IRS

1971-1981 15 brackets 14% 70% IRS

1982-1986 12 brackets 12% 50% IRS

1987 5 brackets 11% 38.5% IRS

1988-1990 3 brackets 15% 28% IRS

1991-1992 3 brackets 15% 31% IRS

1993-2000 5 brackets 15% 39.6% IRS

2001 5 brackets 15% 39.1% IRS

2002 6 brackets 10% 38.6% IRS

2003-2009 6 brackets 10% 35% Tax Foundation

[Pliny]

You have to look at what currency IS though. Its not meant as a vehicle to store wealth in the long term. Its a medium to facilitate transactions. If its not relatively stable there will be less transactions (less economic growth). If you look at gold for example its tripled in value in just the last 2 decades. Can you imagine if you had negotiated a mortgage in gold backed currency during that time? Youd be paying back 3 times as much purchasing power as you borrowed in the first place NOT including interest.

I'd be "paying back three times as much purchasing power"? If it were gold backed currency and I continued making payments in gold backed currency, essentially I would be making my payments in gold and the ounce I used two decades ago to make a payment would be worth about 10 payments today.

If I had a fifty dollar gold coin that bought two good suits when it was worth $50, and today the $50 gold coin is worth approximately $2000 fiat paper dollars, it will still buy two good suits. All that's occurred over time is the devaluation of the dollar brought about by inflation.

Currency, if specie, can be a store of wealth. If it is fiat paper of course not. No one told me that though, I wish someone would have told me that when I was 21. Our economic education is definitely lacking for some reason. It's just boring I guess. Wink! Wink! Nudge! Nudge!

Currency should be relatively stable and there should not be a lot of inflation or deflation and what there is should be predictable. The ammount of currency in circulation should be based on the size of the economy. Not ore exploration yeilds, and mining.

Why don't we first make "money" into a fiat currency and then turn it into a simple record of transaction with electronic debiting and crediting. Oh...wait...that is what we are doing.

Currency, if it is not specie or a commodity of some sort, needs to be backed by "money". In order for currency to be stable it cannot exceed what backs it. What backs our fiat currency is confidence in the government and stability of the country, the size of the economy is supposed to control governments creation of "money" but it isn't a constraint they will live by. Our currency is not backed by a commodity, government determines the amount of "currency" it will print or create which is a form of wage and price controls. They try to keep it slightly inflationary, not linear, but predictable as you say . However, governments notoriously overspend, and what eventually occurs is they create too much currency and it becomes valueless over time.

Once government takes control of the currency and the creation of money. It is only a matter of five or six decades or at best a century before the economy collapses. If they kept the money sound this would not happen but they don't like to have their hands tied by fiscal constraints, i.e., not enough money. The welfare/warfare state develops out of a free hand to create money.

If inflation and deflation admittedly occur then it is nonsensical to say that deflation results in too few dollars chasing too many goods or that inflation results in too much money chasing too few goods.

No its not nonsensical at all. And its not that deflation "results" in too few dollars chasing too many goods... Thats the LITERAL DEFINITION of what inflation IS. It happens when the economy grows faster than the money supply.

The point is that less money or, no growth in the money supply matching economic growth, will result in deflation.

Essentially, you are saying that the "correction" necessary for stability in prices and wages is to keep the money supply or currency at the same growth rate as any economic growth. And that is exactly what governments attempt to do today. All I am saying is that the "correction" will occur naturally with a drop in prices and wages. No one likes a drop in wages though, that's for sure. So the idea is deflation must be avoided. Governments also experience revenue drops...aggghhh...the sky is falling.

"There must be no deflation...no deflation... no deflation..."

Take an economy with two commodities. Oranges, and government backed currency. If theres a hundred oranges in the market... and theres a hundred government backed dollars, an orange will cost a buck. If the market doubles in size so that theres 200 oranges in the marketplace and the currency supply doesnt grow as well then all of a sudden a government backed dollar can buy 2 oranges. This would discourage transactions and economic growth because now your transactional medium isnt stable enough to write anything but "spot contracts" against.

So the result you desire is price and wage stability. I agree that economic growth will slow. A decrease in the money supply or if the economy outpaces the money supply is a natural restraint on growth. But the transactional medium is stable. It, in fact, can now buy two oranges when before it could only buy one. If you are adding to the money supply you are not restraining economic growth and eventually the economy overheats, badly managed businesses pop-up, malinvestment occurs and a bust is the result. This is the boom/bust cycle that is our lot in the current system. Or, for that matter, a fractional reserve system of any kind. Even if it is banks and not government that is creating excess notes to reserves.

Western currencies have inflated but done so in a fairly linear and predictable manner for the most part, so they stayed effective as a transactional medium. But currency is currency and you should never have more of it than you need to complete your transactions. You shouldnt store wealth there. You can still store your wealth in precious metals if you choose, regardless of what backs currency.

History tells us the inevitable end of government control of the money supply. We have gone through the degrading period and the fiat paper period and have started the electronic debit/credit period (a first). Now, we are witnessing the instability of western governments and a volatile currency market.

What do you think will occur next?

What is your measure for today's generation of Americans paying lower taxes than any other since the 1920's?

Heres tax rates since the 1950's. The bottom bracket has gone from 17% to 10% and the top bracket has gone from 80% to 38%.

As I suspected, based entirely upon income taxes. Taxes as a whole have increased over time. Governments in Canada have introduced a GST, Obama is talking about a VAT as well, increased all sorts of other taxes, penalties and fees over that time. A little more research is necessary to determine if taxes have overall gone down. The only study I know of is the Fraser institutes Tax Freedom Day which only goes back a few decades. From my earlier research on this, if memory serves, I think tax freedom day has moved about a month in the period of time they have been calculating it. It hovers around mid to end June these last few years. Europe is a whole nother story. Americans have traditionally been less socialistic and will vote against increased taxes. Their growth rate in taxation will be slower but it too, has to have increased overall in the last 5 decades. You can't introduce medicare and medicaid and create a Department of Education, Homeland security, etc., without increased funding.

Edited October 20, 2010 by Pliny

[dre]

I'd be "paying back three times as much purchasing power"? If it were gold backed currency and I continued making payments in gold backed currency, essentially I would be making my payments in gold and the ounce I used two decades ago to make a payment would be worth about 10 payments today.

If I had a fifty dollar gold coin that bought two good suits when it was worth $50, and today the $50 gold coin is worth approximately $2000 fiat paper dollars, it will still buy two good suits. All that's occurred over time is the devaluation of the dollar brought about by inflation.

Currency, if specie, can be a store of wealth. If it is fiat paper of course not. No one told me that though, I wish someone would have told me that when I was 21. Our economic education is definitely lacking for some reason. It's just boring I guess. Wink! Wink! Nudge! Nudge!

Why don't we first make "money" into a fiat currency and then turn it into a simple record of transaction with electronic debiting and crediting. Oh...wait...that is what we are doing.

Currency, if it is not specie or a commodity of some sort, needs to be backed by "money". In order for currency to be stable it cannot exceed what backs it. What backs our fiat currency is confidence in the government and stability of the country, the size of the economy is supposed to control governments creation of "money" but it isn't a constraint they will live by. Our currency is not backed by a commodity, government determines the amount of "currency" it will print or create which is a form of wage and price controls. They try to keep it slightly inflationary, not linear, but predictable as you say . However, governments notoriously overspend, and what eventually occurs is they create too much currency and it becomes valueless over time.

Once government takes control of the currency and the creation of money. It is only a matter of five or six decades or at best a century before the economy collapses. If they kept the money sound this would not happen but they don't like to have their hands tied by fiscal constraints, i.e., not enough money. The welfare/warfare state develops out of a free hand to create money.

The point is that less money or, no growth in the money supply matching economic growth, will result in deflation.

Essentially, you are saying that the "correction" necessary for stability in prices and wages is to keep the money supply or currency at the same growth rate as any economic growth. And that is exactly what governments attempt to do today. All I am saying is that the "correction" will occur naturally with a drop in prices and wages. No one likes a drop in wages though, that's for sure. So the idea is deflation must be avoided. Governments also experience revenue drops...aggghhh...the sky is falling.

"There must be no deflation...no deflation... no deflation..."

So the result you desire is price and wage stability. I agree that economic growth will slow. A decrease in the money supply or if the economy outpaces the money supply is a natural restraint on growth. But the transactional medium is stable. It, in fact, can now buy two oranges when before it could only buy one. If you are adding to the money supply you are not restraining economic growth and eventually the economy overheats, badly managed businesses pop-up, malinvestment occurs and a bust is the result. This is the boom/bust cycle that is our lot in the current system. Or, for that matter, a fractional reserve system of any kind. Even if it is banks and not government that is creating excess notes to reserves.

History tells us the inevitable end of government control of the money supply. We have gone through the degrading period and the fiat paper period and have started the electronic debit/credit period (a first). Now, we are witnessing the instability of western governments and a volatile currency market.

What do you think will occur next?

As I suspected, based entirely upon income taxes. Taxes as a whole have increased over time. Governments in Canada have introduced a GST, Obama is talking about a VAT as well, increased all sorts of other taxes, penalties and fees over that time. A little more research is necessary to determine if taxes have overall gone down. The only study I know of is the Fraser institutes Tax Freedom Day which only goes back a few decades. From my earlier research on this, if memory serves, I think tax freedom day has moved about a month in the period of time they have been calculating it. It hovers around mid to end June these last few years. Europe is a whole nother story. Americans have traditionally been less socialistic and will vote against increased taxes. Their growth rate will be slower but it too, has to have increased overall in the last 5 decades.

Good post Pliny... Ill respond to one part of it where you had a particularly good point, and issue you an IOU on your other points. Im busy today.

As I suspected, based entirely upon income taxes. Taxes as a whole have increased over time. Governments in Canada have introduced a GST, Obama is talking about a VAT as well, increased all sorts of other taxes, penalties and fees over that time. A little more research is necessary to determine if taxes have overall gone down.

This is a fair point... the government collects money in literally thousands of different ways. Theres dozens of taxes, fees, and all kinds of stuff. Im not sure how I would even start adding them all up. However if the government is collecting more of their money on things like fees and sales taxes I think its pretty safe to assume at LEAST that that upper bracket is paying a lot less now.

[Pliny]

Good post Pliny... Ill respond to one part of it where you had a particularly good point, and issue you an IOU on your other points. Im busy today.

Thank you. I await your post.

This is a fair point... the government collects money in literally thousands of different ways. Theres dozens of taxes, fees, and all kinds of stuff. Im not sure how I would even start adding them all up. However if the government is collecting more of their money on things like fees and sales taxes I think its pretty safe to assume at LEAST that that upper bracket is paying a lot less now.

Ummm...I was going to give you that but I think it is debatable too. They obviously buy more. Housing over $500,000 has the HST applied to it and under doesn't, at least in BC. They spend more on gas, travel, automobiles, taxed luxury items. Certainly a drop in their income tax means they have more disposable income and if they are disposing of it they are paying taxes on it in some form.

It is hard to say for sure that it is a lot less.

[Pliny]

I'm yawning!

[Slim]

Thank you. I await your post.

Ummm...I was going to give you that but I think it is debatable too. They obviously buy more. Housing over $500,000 has the HST applied to it and under doesn't, at least in BC. They spend more on gas, travel, automobiles, taxed luxury items. Certainly a drop in their income tax means they have more disposable income and if they are disposing of it they are paying taxes on it in some form.

It is hard to say for sure that it is a lot less.

You know, that would be a very interesting study to do: compare the lifestyles of the rich in two seperate countries. One with the higher income tax rate, the other with low tax. Monitor their purchases, travel, luxury items etc etc etc. Then work out home much money was returned to the state coffers. Would it be comparable?

Anyone heard of such a study taken place yet? Or should I be getting in line for a juicy research grant?

[Pliny]

dre Oct 20, 2010:I'll respond to one part of it where you had a particularly good point, and issue you an IOU on your other points. Im busy today.

I'm yawning some more....

[Pliny]

You know, that would be a very interesting study to do: compare the lifestyles of the rich in two seperate countries. One with the higher income tax rate, the other with low tax. Monitor their purchases, travel, luxury items etc etc etc. Then work out home much money was returned to the state coffers. Would it be comparable?

Anyone heard of such a study taken place yet? Or should I be getting in line for a juicy research grant?

Where is there one with a low tax?

Seriously, I think the level of all taxation would have to be considered. You might want to read about the Laffer curve. It's a theory that would have come out of such research.

[Pliny]

dre Oct 20, 2010:I'll respond to one part of it where you had a particularly good point, and issue you an IOU on your other points. Im busy today.

and.....zzzzzzzz

[dre]

and.....zzzzzzzz

Holy fuck dude... would you calm down? Out of meds?

Im sorry I forgot to get back to you, but why not IM me or something instead of clogging up the thread with this junk... which I didnt read and couldnt see anyways...

Edited October 29, 2010 by dre