Blog

When Quantitative Easing Finally Fails

Expect more radical action from Capitol Hill as the Fed prov
Wednesday, August 1, 2012, 8:23 AM

While markets await details on the next round of quantitative easing (QE) -- whether refreshed bond buying from the Fed or sovereign debt buying from the European Central Bank (ECB) -- it's important to ask, What can we expect from further heroic attempts to reflate the OECD economies?

The 2009 and 2010 QE programs from the Fed, and the 2011 operations from the ECB, were intended as shock treatment to hopefully set economies on a more typical, post-recession, recovery pathway. Here in 2012, QE was supposed to be well behind us. Instead, parts of Southern Europe are in outright depression, the United Kingdom is in double-dip recession, and the US is sweltering through its weakest “recovery” since the Great Depression.

It wasn’t supposed to be this way.

Recently-released data from all these regions now confirm that previous QE, at best, merely bought time against even more grueling outcomes. Spain's unemployment, for example, has just hit a new post-Franco high of 24.6%, and the forecast for this crucially important EU economy remains negative. Recently revised US figures on GDP show that the post-2009 recovery was even weaker than previously estimated, with the first year post-crisis crisis clocking in at 2.5% vs. the expected 3.3%.

Plodding, slow growth in the aftermath of a global financial crisis is a recipe for stagnation. The inability of the US economy to work off its surplus of labor appears to have finally stirred OECD policymakers into action. This is, of course, a great and humbling disappointment to the recoverists, who keep mistaking various economic oscillations around a bottom for the start of a typical post-war, V-shaped recovery. Housing, autos, jobs, Internet IPOs, state tax revenues, and train traffic have all been called upon by optimists to sound the clarion call for a broad economic recovery. Yet the US economy still is only able to produce sector-specific or selected regional strength that never adds up to quite enough to restore national growth.

When we look at national GDP, at 1.5% in the most recent quarter, it is not clear the US economy has enough forward speed to statistically distinguish between slow growth and no growth. Large states like California, for example, are already seeing the return of declining state revenues. Meanwhile, national poverty -- one of the best measures of aggregate economic health -- continues to soar.

There is no doubt that any new round of QE -- especially a double shot from both the Fed and the ECB -- will have psychological impact. For Europe, QE would once again allay systemic risk. And for the US, QE will surely find its way to the stock market; which is not an insignificant outcome as America increasingly relies on the stock market to produce retirement income. However, the question arises, What series of radical measures policy makers will turn to after the next round of QE wears off?

Before we answer that question, let’s review the poor economic conditions leading to the next (and final) round of QE.

Housing

House prices in the US have done an excellent job of adjusting downward over the past 5 years to reflect the stagnation in US wages, the overhang of private debt, structural unemployment, and the rising cost of energy.

But there has been a recent media celebration of sorts over this story, as it now appears that housing is bottoming. To be sure, certain housing markets like Miami and Las Vegas continue to recover from completely bombed-out levels. Additionally, construction of new homes, especially multi-family homes, is off the bottom. For now.

The problem is that housing is a result, not a cause, of economic expansion. And unless housing is to work in tandem with wage and job growth, housing alone cannot power the US economy. Did the US not already learn that lesson already over the past decade?

Let’s take a look at fifteen years of home prices, from the US Census Bureau:

The unsustainable peak in 2006, when single-family homes reached a median sales price of $222,000, marked a near-doubling of price over the ten-year period from 1995. But as we now understand, not only were wages (in real terms) not rising during this period, but a new bull market in commodities was getting underway, robbing Americans of discretionary income.

The result is that house prices were able to keep up with the loss of purchasing power until slightly past mid-decade. Then they collapsed. Worse, the phase transition in rising energy prices kept going (and continues through today), which had an outsized impact because the topography of US housing, largely dependent on roads and highways, is quite exposed to transportation costs.

We can think of housing as facing several key constraints that will be sustained for at least another five years:

  • First, there is the tremendous overhang of personal debt in the US. Much of this is still carried within the mortgage market itself. (Additionally, student loan debt has also emerged as an enormous barrier to home buying.)
  • Second, there is the lack of wage growth and the problem of structural unemployment. The surplus of labor prevents the broad, marginal pressure needed to force national house prices upward.
  • Third, the constraint of oil prices will not ease. This means that urban real estate may do well on a relative basis, but the majority of US homes will continue to adjust downward to reflect the permanent repricing of oil (and hence gasoline).
  • Finally, the notion that real estate prices have bottomed with mortgage rates near all-time lows seems a very risky call. Is it more prudent to presume that a new advance in national real estate prices will be carried on the back of rates going even lower -- or higher? Which is it? The view that real estate has bottomed appears to assert that no matter where interest rates go from here, real estate is going higher. That is the mark of hope and belief; not analysis.

It seems very unlikely only five years into such enormous, structural shifts in the US economy that the repricing process is over in housing.

At minimum, I expect the median price of single-family existing homes to revert to the 2000 level of $147,000, with the strong possibility of an overshoot to the $125,000 level. This process will take several more years.

Jobs

As early as 2009, many of us understood that this was not a normal economic decline and therefore would not be followed by a normal economic recovery. Here's the lead paragraph to a New York Times piece, covering the latest GDP data:

U.S. Growth Falls to 1.5%; a Recovery Seems Mired

The United States economy has lost the momentum it appeared to be building earlier this year, as the latest government statistics showed that it expanded by a mere 1.5 percent annual rate in the second quarter.

This is precisely the kind of news flow that the business press can expect to report for years to come.

Sure, the stock market may advance from points of low valuation. Certain regions of the country, especially those tied to exports, may thrive for a while. But nationally, a long secular contraction is now in place that will combine stagnant wages, contraction in government payrolls, flat tax revenues, and the shift to a cultural preference for much lower consumption. In addition to the fact that young people will not buy cars, will not buy houses, and in general will not secure high-paying jobs (if they can secure jobs at all), the nature of work in the US has entered a degrading period. Low wages, part-time work, poor benefits, and higher health-care costs all serve to further squeeze consumption.

Let’s take a look at the structural shift from full-time to part-time work in the US.

At an inflection point in a normal recovery, US workers would quickly be hired back to full-time jobs. But a full-time job with benefits is a cost that US corporations no longer wish to bear. This is partly why US corporate earnings and their accumulation of cash has been so robust. Sited in the US but acquiring labor abroad, US corporations are having their finest hour as they sell products to non-OECD markets that benefit from wave after wave of stimulus from the OECD, while the economy and labor force in their home countries languish.

Here in the US, we have effectively stripped out an entire tranche of the full-time US workforce, with no plausible scenario currently in place for adding it back. America used to have nearly five full-time jobs for every part-time job. Now we have four. Meanwhile, Washington, characterized by professional normalcy bias, has finally started figure this out. More importantly, this is why the economy will veer continually towards recession absent some form of stimulus in the years to come.

While the jobs market is surely the primary reason why QE 3 will be attempted, it’s also the reason why more radical measures are likely thereafter, as opposed to QE 4. Many of the prognostications for QE’s impact on the labor market, especially from the Fed and Fed-connected economists, simply never came true. That will become even clearer after QE 3 fails.

Poverty

After leveling off in late 2011 and early 2012, the number of persons taking Food Stamps (Supplemental Nutrition Assistance Program, or SNAP) in the US is starting to push higher again. Given that food prices are set to make their next move higher as well, it’s reasonable to expect SNAP participation to reflect that pressure on household budgets. The annual cost of the program, which rose in the three years 2009-2011 from $50 billion to $64 billion and then to $71 billion, is quickly becoming a significant budget item. For comparison, should SNAP program costs reach $75 billion this current fiscal year, this amount is almost exactly equal to the most recent Department of Transportation Budget, at $74 billion.

While SNAP tracks the growth of poverty well, it's not the only measure. And the breadth and scale of US poverty continues to grow. This autumn, the Census Bureau is expected to release its latest figures on the growth in US poverty:

Poverty rate nears worst mark since 1965

The ranks of America's poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and a fraying government safety net. Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections. The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965. Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out.

The Diminishing Marginal Utility of Quantitative Easing

QE is a poor transmission mechanism for creating jobs.

While there has certainly been a recovery of sorts in US jobs since the deep lows of 2009, in which total employment has risen from 139 million to 142 million jobs, this has been insufficient to keep up with population growth. Accordingly, if the US job market cannot aggregate the number of new workers into its system, then it cannot work off the structural labor surplus. Indeed, the rather narrow targets that QE aims for are exactly the reason why the US and the OECD are fated to try more unconventional solutions once the next round of QE fails.

In Part II: What Radical Measures to Expect in the Post-QE Era, we forecast that policies to revive stagnant Western economies (and the US, in particular) will swing sharply away from central banks towards elective bodies. Such programs will involve various forms of debt jubilee and massive infrastructure programs. More unconventional is that some of these programs may be initiated using new forms of government scrip, equity participation, or other methods that allow the government to “spend” without incurring new debt.

Contrary to the deflationist view, which holds that governments will eventually turn to austerity, the examples of such failed efforts in the United Kingdom (which has entered a double dip recession) suggest that austerity will be nothing more than a brief, economic dalliance of Western policy makers -- recall that the Works Progress Administration (WPA) of the 1930’s was considered radical in its time.

We should expect no less this time around, as governments decide to pursue WPA 2.0.

Click here to access Part II of this report (free executive summary; paid enrollment required for full access).

Related content

32 Comments

3mize's picture
3mize
Status: Member (Offline)
Joined: Jun 15 2011
Posts: 2
When Quantitative Easing Finally Fails

I thought Mr. Macdonald's proposals for the future were interesting.  I have a son who is working very hard to pay his student loans.  I think one of the reasons college tuitions have become so high is that loans are so available, students do not have to make market choices based on affordability.  If tuition becomes free and government paid, I predict tuition will continue to rise faster than the rate of inflation much like healthcare costs.

DurangoKid's picture
DurangoKid
Status: Silver Member (Offline)
Joined: Oct 25 2008
Posts: 173
Government Scrip?

Why should currency issued by a government institution, theoretically constrained by some sort of democratic control, be inferrior to bank scrip or what we euphemistically call Federal Reserve Notes and credits?  By all means, employ the Treasury to increase the stock of money by the issueance of interest free dollars!  This is money unconstrained by the profit motive.  It can be used where the need is greatest regardless of the anticipated returns on investment.  We have a nation where the gun related deaths approach 10,000 per year, we have no national healthcare available to all citizens, we fritter away the last of our petroleum endowment on private passenger cars, but our money mediated relationships remain sacred at the expense of all else.  Isn't it time we ask just what kind of society we want?

KugsCheese's picture
KugsCheese
Status: Platinum Member (Offline)
Joined: Jan 2 2010
Posts: 722
Is that a corruption of "The Thinker" Image?

Where did the article's image come from?   Did a CGI person wireframe "The Thinker" and create "The Bummer"?

kito's picture
kito
Status: Member (Offline)
Joined: Feb 24 2011
Posts: 7
no qe3

gregor is correct. the next and last lsap is one that is like precious droplets of water needed to traverse across the vast expanses of the desert. bernanke will absolutely not use it until he has to.........and that certainly wont be before elections............after that, all fingers will point to congress to clean up their mess................

Seattle Billy Bob's picture
Seattle Billy Bob
Status: Member (Offline)
Joined: Jul 26 2012
Posts: 2
QE ... Gimme a break!

The power of the oligarchs is just amazing.  In the face of the wholesale corruption of the free capital markets by the banksters and the resulting thud of the economy, we find our so-called leaders wringing their hands over QE, should we or shouldn't we?  For some reason big capital is so afraid of losing a penny of their wealth to "redistribution" by the government and has such a stranglehold on electoral politics that they've managed to rewrite history and ignore the straightforward and obvious Keynesian solution to restarting the economy and overcoming the depression psychology, now referred to rather impersonally and abstractly as "the liquidity trap."  They've got their think tanks and economists putting out a constant stream of anti-Keynesian blather framing their arguments in ideology that ranges from "a Marxist threat to the free enterprise system" to simply "unwise ... and I know because, well, I'm rich and you're not."  

As the author says ... the country simply borrows some money (at record low interest) and invests in our infrastructure and future.  A lack of investment there over the past 30-40 years is a result of the complete dominance of personal and corporate self-interest over national self interest.   It's a no brainer ... but the problem we have is that our leaders have "no brains" and even less courage.  Dorothy, where are you when we need you?  

Long term, I agree with the economic realities pointed out on this website ... we have to learn to restructure our economy to deal with reality including the national debt.  But austerity, particularly as practiced against the middle class, is an unneccesary and even tragic step in the wrong direction.  It will make that restructuring even more difficult and actually increase the national debt.   

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Welcome - watch the Crash Course

Welcome Seattle Billy Bob,

Seattle Billy Bob wrote:

Long term, I agree with the economic realities pointed out on this website ... we have to learn to restructure our economy to deal with reality including the national debt.  But austerity, particularly as practiced against the middle class, is an unneccesary and even tragic step in the wrong direction.

I think you are missing the true problem is that we have been needing austerity for a very very long time (decades - at least before we went off the gold window) but have continued down the Keynesian path instead.

You seem to view this as a temporary issue caused by the near collapse in 2008 that if we can just kick the can one more time we will then figure out how to solve it.  The problem is we have been kicking the can for a long time and another kick requires major growth and the associated energy consumption to support it.  However, we do not have the energy to support such growth and the second we try to grow we will hit the wall of increasing energy prices when supply can not keep up with the demand from the new growth.

If you haven't watched the Crash Course yet, I highly recommend doing so as it shows the relationship between energy and the economy and nicely explains why things just don't seem to be working with QE and are unlikely to work even if more QE is tried. 

Seattle Billy Bob wrote:

For some reason big capital is so afraid of losing a penny of their wealth to "redistribution" by the government and has such a stranglehold on electoral politics that they've managed to rewrite history and ignore the straightforward and obvious Keynesian solution to restarting the economy and overcoming the depression psychology, now referred to rather impersonally and abstractly as "the liquidity trap."

While it's easy to scapegoat the rich, the problem is much much much bigger.  We are so far beyond fixing the current system that even taxing the rich 100% doesn't even come close to fixing things.   (see Eat the Rich for a nice take on it).  Note, that in video, he only talks about the deficit that is commonly reported, not the real deficit when using GAAP, which is running $5-7T/year.  No amount of taxing or redistributing of wealth can cover the promises made by governments.  They will be broken - plan accordingly.

Some other things to think about.  Most of the wealth that those rich people have is in paper assets, stocks, bonds, houses, land.  So say you decide your going to confiscate it.  What are you going to do with it?  Sell it to pay for things like health care, welfare, food?  Who is going to buy those assets?  It's the same problem the US treasury and other governments are having around the world, who is going to buy all those new bonds?  For the last couple of years the only solution is central banks and other governments printing money to pretend they are solvent - which simply raises prices for necessities, which hits the middle class and poor disproportionately.  The point is when the government borrows/prints to help the poor - they are doing the opposite - they are making their lives harder - it's why we have a pretty tight correlation between government spending and inflation - Chris had a great graph showing that at the Lowesville seminar a few years ago.  Chris if your reading this do you have a newer version of that graph?

playon's picture
playon
Status: Member (Offline)
Joined: Mar 23 2011
Posts: 9
WPA II

What is the argument against public works projects -- that money will have to be printed?  Plenty of money was printed to pay for the recent wars and bank bailouts.  The difference is that with public works projects, at we the people actually get something for our money -- new roads, bridges, maybe even some new hospitals and schools for places that need them.  And JOBS building the stuff.  If we are going to have socialism for bankers and the military then we ought to have it for everyone.  The money is going to be printed anyway, why not do some good with it before the dollar is completely useless?

playon's picture
playon
Status: Member (Offline)
Joined: Mar 23 2011
Posts: 9
WPA II

What is the argument against public works projects -- that money will have to be printed?  Plenty of money was printed to pay for the recent wars and bank bailouts.  At least with public works projects, we the people actually get something for our money -- new roads, bridges, maybe even some new hospitals and schools for places that need them. And JOBS building the stuff. Maybe we could even get the government to support our postal service instead of starving it!  If we are going to have socialism for bankers and the military then we ought to have it for everyone.  The money is going to be printed anyway, why not do some good with it instead of pissing it away on banks.

SingleSpeak's picture
SingleSpeak
Status: Gold Member (Offline)
Joined: Nov 30 2008
Posts: 431
Public theft, um, I mean Public works projects

Public works no

What is the argument against public works projects -- that money will have to be printed?

No, it's that the money will have to be paid back (with interest), and the money that is eventually used to pay it back could have been used by entrepreneurs to create productive, cost-effective jobs in the private sector. It shouldn't be government's job to decide the winners and losers by authorizing a project in the south that the people in the north will be paying for later. Also, you are robbing the economy of the future to do your project today. A project which BTW most likely could be and would be done cheaper and faster without federal government intervention if it is truly needed.

Plenty of money was printed to pay for the recent wars and bank bailouts.

And it will have to be paid back (with interest) by people that may not even be born yet. It's also known as generational theft.

At least with public works projects, we the people actually get something for our money

"we the (connected) people", or "we the (chosen) people", or "we the (union) people". The rest of us get the debt to be paid back (with interest).

-- new roads, bridges, maybe even some new hospitals and schools for places that need them.

All of these things can be built and have always been built when and if they are needed, when the money becomes available. And it can be done and has been done without theft.

Maybe we could even get the government to support our postal service instead of starving it!

Or maybe it will be replaced by a business that actually produces a profit, unless you prefer stealing money from future generations to keep an obsolete business on life support. If that's the case, let's bring back the Pony Express. Talk about full employment, we'd need riders, horses, saddles, whips, etc. Now there's a jobs program for ya!

If we are going to have socialism for bankers and the military then we ought to have it for everyone.  The money is going to be printed anyway, why not do some good with it instead of pissing it away on banks.

First of all it's not money, it's currency. Secondly, how about we legalize an alternative currency, maybe even gold backed, so that we can have the choice to use a currency that cannot be "legally" counterfeited?

SS

JustamereBear's picture
JustamereBear
Status: Member (Offline)
Joined: Apr 20 2012
Posts: 4
Re Quantitative Easing 3, 4, 5, 6, n.

The definition of insanity is doing the same thing over again and expecting different results.

J'Bear

JustamereBear's picture
JustamereBear
Status: Member (Offline)
Joined: Apr 20 2012
Posts: 4
RHare

RE; I think you are missing the true problem is that we have been needing austerity for a very very long time (decades - at least before we went off the gold window) but have continued down the Keynesian path instead.

I love this argument that we will have to sit down and either make a plan or DO something real soon. The problems can be easily solved if we put our minds to it.

Reminds me of the heavy smoker for 40 years. Diagnosed cancer of the lungs so he is going to plan to quit in the next 12 years. That will fix his cancer won't it?

J'Bear 

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Community and capitalism only work when voluntary.

JustamereBear wrote:

I love this argument that we will have to sit down and either make a plan or DO something real soon. The problems can be easily solved if we put our minds to it.

Reminds me of the heavy smoker for 40 years. Diagnosed cancer of the lungs so he is going to plan to quit in the next 12 years. That will fix his cancer won't it?

I actually don't believe we will stop until the patient is dead - our currency destroyed, economy in shambles, and fewer resources with which to rebuild.  I hope I'm wrong, but..... what I do worry more about is that as things fall apart (the patient is dying), those that have become dependent on the system will do everything to try to keep it alive, including handing over any last bit of liberty they have.  The reason I push so hard on the Libertarian view is that hopefully people will wake up and understand that the state (government) does not provide safety or prosperity, but just the opposite.  I consider it the part of the "Crash Course" emphasis on self reliance and community (local).  A community is not something that can be created by force - it like capitalism and the economy only works when it is voluntary.

Unlike a cancer patient, when the economy and our currency dies there will be a lot of people left around to deal with the pain.  To continue with this metaphor, the message of liberty is not aimed at the cancer patient, but their children.

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
Last Man Standing

It is too bad that americans seem to be allergic to cooperation of any kind.  It is always that rugged individual in his garage inventing the next nuclear reactor prototype with parts from a couple of old pickup trucks unencumbered by onerous government regulations that will save us all.

The military consumes the majority of our taxes dollars, most of the rest goes to corporate welfare. A few bits and pieces wind up in public works, and fractions of that get used for the social safety net.  Yet any time there is any discussion for public works spending, everybody get hyperbolic, oh my god, you are proposing stealing from my children!

All legislation gets written by special intrests, bad governance is now baked into the cake. We no more have a democracy than we have a functioning free enterprise system, but should you throw either system out based on current living examples in the US?  Why do we call the recentlly passed "healthcare" legislation Obamacare and not Pfizercare, no craven public servants were remotely involved in writing the legislation?

Let's fire all the teachers, cops and fire fighters, turn off the traffic lights (we'll use our individual ingenuity to get through the intersections in the morning ride to work, that will be much more efficient), stop paving the roads, cancel all the social security checks, close the post office, close all the public schools and universities, any regulatory agency of any kind, we don't need those. Courts, judges, who needs those either.  Get rid of the militry.....opps I forgot, I was getting carried away, that is the one part  of the government that is a perfect well oiled machine that is the picture of efficiency that suffers none of the bureaucratic inefficiencies and corruption that seem to plauge all the other parts of the government.  No need to touch their budget.  We'll talk about reducing the rate of growth of their spending and call it devastating budget cuts.

We can bring the guys from MF Global, Enron, World Com, Goldman Sach, HSBC, Wachovia to run our world and our lives. And on top of that we can have a private banking cartel run our monitary system, we'll call them the Ferderal Reserve so that when things go wrong we can blame the government.  That will work out great.  Uh, this is what we are doing, doesn't seem to be going so well......

Actually I am a supporter of Ron Paul, probably vote for Gary Johnson if that is the only other option.  But the libertarian rhetoric gets a little extreme and ridiculous sometimes.  We do need the rule of law, and a functioning democray, which means a functioning government of some kind, all be it much smaller than we have now.  Yes, the choice between upgrading our 3rd world infrastructure and a balanced budget is a false one.  Free markets can be very short sighted and self destructive even sometimes.  The desire to make money is not the cure all for human civilization.  There was a guy who lived around 2,000 years ago, they wrote a popular book about him, didn't he have something to say about that........  

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
I guess the $139B wasn't well spent.....

treebeard wrote:

The military consumes the majority of our taxes dollars, most of the rest goes to corporate welfare. A few bits and pieces wind up in public works, and fractions of that get used for the social safety net.

And what country are you talking about?  Military consumes 19% of the US budget, it's not even top as far as expenses.  Here are the top 10 (source):

  1. Social Security - $779B
  2. National Defense (Including the wars) - $716B
  3. Income Security  (welfare/disability/etc) - $580B
  4. Medicare - $484B
  5. Health - $362B
  6. Interest on debt - $225B
  7. Education, Employment, Social Services - $139B
  8. Veterans Benefits and Services - $130B
  9. Transportation - $103B
  10. Commerce and Housing Credit - $80B

If I look at that list, sure looks like at least 4 (perhaps 7) of those are social safety net or  58% of the budget....  Note - thats the $3.8T budget of which only $2.6T is actually paid for with taxes.

treebeard wrote:

Yet any time there is any discussion for public works spending, everybody get hyperbolic, oh my god, you are proposing stealing from my children!

I don't think we get hyperbolic, rather some of us have the ability to do math and logical reasoning.  Exactly how would you describe your post about military spending?  Logical?  Rational?  Don't get me wrong, I think we need to cut that spending as well, but saying the government is funding only the military is just flat out wrong!

treebeard wrote:

All legislation gets written by special intrests, bad governance is now baked into the cake.

...

Let's fire all the teachers, cops and fire fighters, turn off the traffic lights (we'll use our individual ingenuity to get through the intersections in the morning ride to work, that will be much more efficient), stop paving the roads, cancel all the social security checks, close the post office, close all the public schools and universities, any regulatory agency of any kind, we don't need those. Courts, judges, who needs those either.  Get rid of the militry.....opps I

So which is it, government is doing a good job and we need them or it's all written by special interests.  You can't seem to make up your mind.

treebeard wrote:

We do need the rule of law, and a functioning democracy, which means a functioning government of some kind, all be it much smaller than we have now.  Yes, the choice between upgrading our 3rd world infrastructure and a balanced budget is a false one.  Free markets can be very short sighted and self destructive even sometimes.

Agreed, we need government to protect individual rights, and your right we can probably upgrade our infrastructure and have a balanced budget, but certainly not on the path that has been undertaken for the last century.

How would you know free markets can be short sighted.  You went on a long rant about corruption - do you not understand corruption means their is no free market?  That because government interferes on behalf of all the special interests that we get exactly what you are complaining about.

treebeard wrote:

But the libertarian rhetoric gets a little extreme and ridiculous sometimes.

Exactly how is pushing for us to live within our means, to rely on community and free (read voluntary) trade ridiculous?  I find the people like you that rant about all the corruption, lack of democracy, military spending, corporate welfare, ... but then blast anyone that suggests just maybe that the government might just have something to do with the issue.  That perhaps if individuals had a bit more choice and control over how their labor and savings is being used we might just have a bit better outcome.

So who's extreme and ridiculous?

treebeard wrote:

Actually I am a supporter of Ron Paul, probably vote for Gary Johnson if that is the only other option.

So why would you vote for someone (either of them) when you clearly oppose their ideals - they are both strong Libertarians?  By the way, Johnson was a great governor and would make a great president if Ron Paul doesn't show up on the ballot.

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
We're not talking about the same thing

I agree with all your points, but we are not even talking about the same thing,  this has turned into a conversation about apples and oranges. I think we agree, but our use of language gives the appearance of more disagreement than is actuallly the case.  I did not express myself well in the original "rant", but I think our goals are indentical.

My comments about spending were related to discretionary spending, and that is an important distinction. Social Security is not a "tax" in the conventional sense of the word. It is a forced retirement savings plan.  The idea is that you pay the money in but then in retirement you get all that money back.  This is not money that government takes from you and spends theoreticallly on our behalf, which is an entirely different matter.  Discretionary spending is money that we will never see again, which is why it needs to be treated differnetly.

We both agree I'm sure that the government should not be in the retirement savings business.  The reasons that the current generation will never see any of their money are many, but that is a whole other discussion which can't be had until until some other fundemental issues are discussed.  But you can't throw this in the same bucket as discretionary spending.

I believe that our major disagreement stems form this, and I would really appreciate feed back if my assumptions are worng: You have a much better opinion of government as it is currently configured than I do.  I believe that the general perception (including yours) is that the government consists of welll intentioned bungling fools who have a theorhetical and philosophical difference with libertarian approach to governance.  They try to good, but because they have a flawed understanding of free markets and the role of government, they make a mess of things.  I believe the real role of government as currnetly configured is much more sinister. The real purpose of government is to maintain the status quo, to maintain the property, wealth and status of a small minority of the population.  "Social spending" is there purely as a measure to maintain societal stability, and for no other reason.  It is not intended as a ladder up out of poverty, the purpose is dysfunction and depnedency.

Things like immegration never get "fixed" because if immegrants were either thrown out of the country or given more rights, that would cause a rise in the working wages in either case and that will not happen. Things work very nicely just they way they are, thank you very much, depending on your point of view. This is one example of many, which as a rule, why I stay out of political "debtes". Debates constructed to create divisoin, that give the false face of legitimacy to why things don't change.  I let my passions get the better of me this time.

Vote with your money and your life style, it is the only option that we have left.

BTW If you look at discetionary spending, the military (which includes the veterans benefits because that is part of the cost of maintaining the military) using your numbers is at 28%.  A lot of the "social safety net" spending you put in other buckets is retirement and medical benefits for military personnel. Based on those numbers alone we are well north of 30%, I believe it is worse because much of the spending is hinden in other ways as well.  If I can find the numbers, I will post them.  But then again, why spend the time in "political" debates.

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Philosophy not politics....

treebeard wrote:

My comments about spending were related to discretionary spending, and that is an important distinction. Social Security is not a "tax" in the conventional sense of the word. It is a forced retirement savings plan.  The idea is that you pay the money in but then in retirement you get all that money back.  This is not money that government takes from you and spends theoreticallly on our behalf, which is an entirely different matter.  Discretionary spending is money that we will never see again, which is why it needs to be treated differnetly.

I don't see a difference because SS is not a savings plan of any kind.  Money is taken and either immediately spent for current benefits or used to purchase special treasury bonds, which is simply an accounting gimmick, and then spent.  Pretending it's different is dishonest.  SS is a tax.  It is the fruits of your labor being taken without your consent with a promise that they will give it back in the future by taking with force from someone else.

One of the key components of Libertarian thinking is that force (violence) should not be used other than for defending oneself or property from force by another.  Pretty simple, right?  Once you realize that taxation is taking from someone by force to give to another (stealing) then how can you morally defend any of this?  The discussions in politics are simply deciding who will be the victim of such force - are they richer, from another country, simply in the minority, etc.

treebeard wrote:

You have a much better opinion of government as it is currently configured than I do.  I believe that the general perception (including yours) is that the government consists of welll intentioned bungling fools who have a theorhetical and philosophical difference with libertarian approach to governance.  They try to good, but because they have a flawed understanding of free markets and the role of government, they make a mess of things.

Actually I don't have a better opinion, just different.  I believe that all living things are innately programmed to seek out advantages in their environments - this includes people.  When you give a person power over others, no matter how well intentioned, their natural tendencies will influence (to more or lesser degrees) them to make decisions that benefit themselves over others.   I don't think there is anything necessarily evil or sinister about this, it's just natural.  Overtime the distortions from all these decisions become greater and greater.  Lot's of small decisions adding up to big problems.

Big government is bad because it gives the people in government (including non-elected bureaucrats) power over others.  It transitions a voluntary exchange to a forced exchange which is why free markets are much more ethical.  In a free market you are voluntarily entering into an agreement, if both parties do not feel they are receiving a benefit then the transaction does not occur.  Large distortions are self limiting because once an exchange becomes too lopsided, the party receiving less benefit will not enter into the transaction.

treebeard wrote:

The real purpose of government is to maintain the status quo, to maintain the property, wealth and status of a small minority of the population.

So I don't see this as the case, I see the result of millions of smaller decisions each with just a little bit of bias eventually ending up to where we are today.  Yes, I believe some people in government are evil but primarily because it attracts those who covet control over others.

treebeard wrote:

Vote with your money and your life style, it is the only option that we have left.

That is exactly what I believe, the problem is we are not allowed to do so because we are forced (with threat of violence) into  transactions against our will by government.

treebeard wrote:

But then again, why spend the time in "political" debates.

I don't really view this as a political debate, rather more of philosophical debate.  Discussing politics in today's environment means you agree with "big government" and accepting that force is the right way versus voluntary participation.  I believe, as a Libertarian, that the individual making decisions voluntarily on their behalf leads to the most fair and ethical system.  That government should exist to protect the individual and their voluntary participation in society.  Once you accept that some people are  better than others and should have control over others you are far down the path to tyranny. 

How many times do you see people saying "They should make a law to stop me from ...." versus "They should make a law to stop them from ....".  It's easy to force your will on others when you have a government backing you up.  If your making the law it's progress, if your the victim of the law it's oppression.

LTJX's picture
LTJX
Status: Member (Offline)
Joined: Aug 9 2012
Posts: 1
How Do You Know?

Just curious as to exactly how you know that QE1/QE2 did not help?  You don't "think" it helped, but clearly you have no certain way of knowing just what the economy would have looked like without QE. Isn't it at least possible that the economy would have been far worse (something like the 1930's) without the QE that was implemented?  And that the real problem was that the QE amounts were simply too low to support a full recovery.  Events do point in this direction (the recovery did seem to falter right at the end of QE2) and there are many economists who think this was the case.  And plain logic supports the possibility.

There is too much hand-wringing over deficits by the GOP.  Deficit spending is very much needed and desirable in times of recession - that much is clear from history of the great depression.  And such deficits will naturally tend to resolve themselves by increasing incomes (therefore taxes) and by reduced safety net-related spending in times of prosperity.  Of course, it helps if the President in charge can refrain from starting an optional, trillion dollar war, while at the same time greatly cutting taxes for the wealthiest Americans (at first time in American history for that strange combination of policy).

And let's not forget who was in power when the current recession started (after several years of Republicans calling the shots) - and the world-threatening 2008 crisis was largely thanks to a newly less regulated banking and finance sector in the USA (the direct result of some of those "called shots").

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Favorable history written by those in power.....

Welcome LTJX,

LTJX wrote:

Just curious as to exactly how you know that QE1/QE2 did not help?

It's clear you have not watched the Crash Course.  I suggest you do so and it will answer your question about the real problems being created by the debt and not the partisan crap coming out of the MSM from the Repubocrats.   Both are just as guilty.

LTJX wrote:

There is too much hand-wringing over deficits by the GOP.  Deficit spending is very much needed and desirable in times of recession - that much is clear from history of the great depression.

I also suggest you research the depression of 1920-21 which had a considerable different outcome from the great depression.  Based on the 1920-21 depression (history) it appears that things would have been much less worse had no intervention been taken.  See the same argument....

It's pointless to say "look it might have been worse had we not taken such and such course of action".  That's the scam/excuse of politicians from both sides.  Good sound bytes but not much else.

Watch the crash course, it may give you a whole different perspective.  I would also suggest reading some of Tom Woods books, Meltdown is really well written with lots of references you can check out.  Keep in mind, those that are telling you how we have to fix the problems are the same ones that caused them in the first place.

LTJX wrote:

And let's not forget who was in power when the current recession started (after several years of Republicans calling the shots) - and the world-threatening 2008 crisis was largely thanks to a newly less regulated banking and finance sector in the USA (the direct result of some of those "called shots").

Open your mind and pay less attention to the partisan commentary.  You will quickly learn that this crisis has been in the making for a 100 years.... Saying the republicans caused it is just scapegoating.  Both parties are equally guilty of making promises that can never be fulfilled, politicians lie - math doesn't.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Thanks for lobbing one

LTJX,

Welcome aboard. Baptism by fire is the most sincere form of welcome on this site. You had to know this challenge was coming ... I wanted to give rhare a chance at the response before I stepped up. I've enjoyed the banter on this thread, but I can't stand by any longer.

LTJX wrote:

Just curious as to exactly how you know that QE1/QE2 did not help?  You don't "think" it helped, but clearly you have no certain way of knowing just what the economy would have looked like without QE. Isn't it at least possible that the economy would have been far worse (something like the 1930's) without the QE that was implemented?  

As rhare noted, there is no way to find out what other scenarios would have performed better. We got what we got. I would have preferred that the politicians would have remained on the sidelines and let the market answer the quest, but they needed to keep their contributors minimally placated ...

LTJX wrote:

And that the real problem was that the QE amounts were simply too low to support a full recovery.  Events do point in this direction (the recovery did seem to falter right at the end of QE2) and there are many economists who think this was the case.  And plain logic supports the possibility.

Wow! Where do we start? Are these the same economisseds (sic) that thought that the recovery from 2001 was sustainable? Who didn't see the housing bubble or the financial crisis of 2008? The only reason we had a semi-recovery was due to the federal reserve artificially setting interest rates too low. That induces rational people to borrow more than what is rational and subsequently spend their cheap money. This had the effect of making rational people think that demand was high and that more products needed to be produced. It was a virtuous cycle built on a faulty foundation. When it failed, the same group of economisseds (sic) came to the faulty conclusion that more needed to be done. "Plain logic" suggests that one look at the underlying principles that fostered the illusion of prosperity and ask if those are sustainable.

LTJX wrote:
There is too much hand-wringing over deficits by the GOP.  Deficit spending is very much needed and desirable in times of recession - that much is clear from history of the great depression.  

Why exactly is deficit spending needed? It distorts the very market that is needed to clear the ill advised "investments" that were made because of the distortions (caused by market manipulators) in the market. An argument can be made that the great depression ended in June 1932. Unfortunately, FDR changed the focus from the future to the past. He asked citizens whether they were better off now or in 1928. The majority voted for him. Now, we're paying for that lapse in common sense.

History shows that FDR's policies didn't work. The depression didn't end until WWII exhausted the competition. That is the true legacy of Keynsianism.

LTJX wrote:

And such deficits will naturally tend to resolve themselves by increasing incomes (therefore taxes) and by reduced safety net-related spending in times of prosperity.

When have deficits ever decreased? You may think that deficits decreased during Clinton's reign, but realize that we've had a Unified Budget since LBJ. As such, politicians use either the unified, or the separated budget depending on which supports their current argument. Clinton was able to use the largess from social security taxes to pretend that we actually had a surplus. If we required GAAP (Generally Accepted Accounting Principles) at the federal level, the supposed surplus never would have seemed to occur. Most of the people in America are totally unaware of the differences and as such support "feel good" politics that aren't supported by the actual facts.

LTJX wrote:

Of course, it helps if the President in charge can refrain from starting an optional, trillion dollar war, while at the same time greatly cutting taxes for the wealthiest Americans (at first time in American history for that strange combination of policy).

I agree that it was a strange combination. If politicians had to raise official taxes in order to prosecute a war (a necessary condition of honest money,) the public would quickly vote the politicians out of office if they felt the war were unnecessary. By borrowing money (from the federal reserve and others,) congress and the president were able to hide the true cost of the wars.

If you know about the fiat currency that we've had since 1913, you know that it must constantly increase its base or it fails. On a macro scale, any way to constantly increase the amount works as well as any other. If you remember the economic situation at the time, the stock market peaked in March and was sliding lower. For the people who owned stocks, it was apparent wealth destruction. Eventually, the deflation would have trickled to the working class. The powers-that-be needed a way to boost the money supply and they found one. Why would they increase taxes and undermine their goals?

LTJX wrote:

And let's not forget who was in power when the current recession started (after several years of Republicans calling the shots) - and the world-threatening 2008 crisis was largely thanks to a newly less regulated banking and finance sector in the USA (the direct result of some of those "called shots").

The parties are two sides of the same coin. Whatever happened to the "hope and change" that we were promised during the campaign 4 years ago? The only change I've seen is bigger bailouts, larger deficits, and more legislation that can be used to keep the citizens in check.

The 2008 crisis was the result of faulty regulation. (In my opinion, any non-banning regulation is faulty.) Let the individuals "invest" as they see fit and let them gain the spoils or suffer the consequences. Let the public companies invest as they have disclosed to their shareholders and let the shareholders gain the spoils or suffer the consequences. If a public company acts contrary to their stated limitations, the government should provide a platform (court) where grievances can be aired and remedies can be enforced.

Grover

RJE's picture
RJE
Status: Diamond Member (Offline)
Joined: Aug 31 2008
Posts: 1369
LTJX, welcome and why don't

LTJX, welcome and why don't we just set aside the question of what worked, didn't work or what now's. Take a look at this video from Mish's site and ask yourself the most important question: Is this some shit or what and wherever do we start?!

Scroll a bit:

http://globaleconomicanalysis.blogspot.com/

Respectfully Given

Go Tigers

BOB

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Article related to the conversation....

Grover - great follow-up!

This article was just on Zero hedge. While it talks more about war, it also applies equally to those that tell us the state knows best on fiscal and monetary matters:

Moral Relativism and Patriotism - Weapons of the State

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
Is it possible to have a more nuanced discussion

We all agree here I think that we have neither free markets or a functioning domecracy. This makes it easy for us to either attack the markets (banksters) or the government, depending on your particular point of view.  But what fun is that, like shooting fish in a barrel.  No one here has said, that I am aware of, that we should entirely eliminate free market capitalism (with or without money) or entirely eliminate government of any kind.  I have heard that big government is bad, does that mean that small government is necessarily good?  Big and small seem like feeble descriptors that will lead to an intelegent discussion about governments. Was the German  government that arose in the 30's bad because it was big or are there other descriptors that we can use to describe it?

When do multinational coorporations become so big that they dominate the market place to such a degree that there are no longer market choices?  Is that something that is OK, should we live with it until the market hopefully takes care of it in the future? How do you maintain the rule of law so that markets can function freely and fairly without interfering with basic market functionallity?

How do you manage the money supply so the number of dollars in circulation match the goods and services in the economy without the managing entity distorting markets for their own devices?

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Honest money is the key

treebeard wrote:

We all agree here I think that we have neither free markets or a functioning domecracy. This makes it easy for us to either attack the markets (banksters) or the government, depending on your particular point of view.  But what fun is that, like shooting fish in a barrel.  No one here has said, that I am aware of, that we should entirely eliminate free market capitalism (with or without money) or entirely eliminate government of any kind.  I have heard that big government is bad, does that mean that small government is necessarily good?  Big and small seem like feeble descriptors that will lead to an intelegent discussion about governments. Was the German  government that arose in the 30's bad because it was big or are there other descriptors that we can use to describe it?

treebeard,

Good questions. I think that our fiat money system and its inherent fundamental flaws rot the very basis of honest society. The problem is that bankers can legally create money based on a debtor's signature and then require that debtor to figure out how to pay back the debt. Usually, that entails trading time for wages. So what is a banker contributing to the deal? Is it really worth the interest that the debtor ends up slaving to pay?

Bankers know they have it easy, particularly when they "invest" some of their unearned income to elect government officials. The officials know that they need to repay the bankers' favors or they will not receive more when reelection rolls around. How does a political person repay favors? They create loopholes in regulations and/or tax the populace and give the spoils away. Does this sound like innocent taxpayers are getting a fair shake?

Government shouldn't be any bigger (or smaller) than it needs to be. Government cannot do anything without first taking from the citizenry. I'd really like to hear of any refuting examples. When it is bigger, it needs to take more. The questions should concern the appropriate size for government. What are the fundamental issues that government should do? How do we keep government in check?

Hitler's government filled the void left behind by the Weimer Republic. Hitler was one of the first politicians to embrace Keynesian monetarism. Hitler borrowed money in Germany's name and put the Germans to work building roads and factories. He slowly gained power by keeping his true intentions secret until it was too late to stop him. Slowly, the situation changed from apparent good to an outright dictatorship. I can't think of a more efficient government system - and few that ended in such despair.

treebeard wrote:

When do multinational coorporations become so big that they dominate the market place to such a degree that there are no longer market choices?  Is that something that is OK, should we live with it until the market hopefully takes care of it in the future? How do you maintain the rule of law so that markets can function freely and fairly without interfering with basic market functionallity?

How do you manage the money supply so the number of dollars in circulation match the goods and services in the economy without the managing entity distorting markets for their own devices?

When money can be created out of pure fancy and can purchase as well as honest money, it invites corruption from those in power. When politicians have to levy taxes to pay for a war, a road, or any other item, the taxpayers will decide whether or not to reward the politician on election day. When they can perform accounting tricks and claim that they are not raising taxes to provide this good, the populace gets lulled - particularly the ones benefitting from the largess. That is where the Gordian knot starts. Cut that tie and you're on your way to freedom.

Honest money, such as gold, can not be printed into existence. There is just exactly enough of it in the world, regardless of the quantity above ground. When more comes to the market (think of the conquistadores bringing their ill gotten booty from the Incas and Aztecs,) there is a temporary inflation. The inflation makes mining less profitable and thus limits new money coming to market. When the market has achieved balance and honest money (gold) is worth more than it costs to extract it, the signal will be there for the producers.

When producers run rampant and degrade the environment sufficiently, the politicians will figure out a way to convince the populace to vote for a small increase in taxes to stop the raping of the land. It is self-correcting as long as the citizens remain vigilant.

Grover

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
Is there a silver bullet?

Grover

I agree that an honest money system is a good start.  Anything that prevents us form kicking the can down the road and avoiding reality is a good thing.  But counting on market forces to establish an honest price for gold might be difficult to achieve.  Look at what is currently happening to the price of silver and gold, what is to prevent the same fraud and manipulation that is par for the cource now happening in the future?  How do you get the power to set the price of gold away from the central banks if we were to go that way.  I'm sure they will not sit idly by if we can ever move to such a standard.

I do think that your comment regarding a vigilant citizenry are key, but that also presuposes that the average citizen has access to good information. Look at what happened in the lead up to the 2008 crisis. Private banking interests, including the "federal" reserve, treasury department, and the media were all lock step talking the same nonsense.  There were a small minority of economists and market commentators who were raising the red flag, but they were all written off as nut cases.  How do you break that cycle?

These same guys are still missing from the mainstream commentary and all the crazies who missed the whole thing are now trying to "solve" the problem for the rest of us.

I think ultimately decentralization of the decision making process to those directly impacted by the decisions made is the best way to prevent fraud.  But how do you extrapolate that onto larger systems that work at a national level? Reliance on any "system" to create an honest foundation for operating markets puts to much faith in an idea for me.  Human beings, left to their own devices will always find a way to corrupt any system, if they can operate out of the light of day.

HItler was a fringe crackpot who found legitimacy because he had lots of funding from German heavy industry who loved his union busting ways (that is not a comment for or agianst unions either way).  He had lots of boosters in the US includig Westinghouse, IBM and the very famous Henry Ford. They were very happy to trade with him until it became politicallly impossible.  How do you stop that from happening again in a modern culture that puts some much faith in monetary success to detriment of all other values?

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
No silver bullet

treebeard wrote:

I agree that an honest money system is a good start.  Anything that prevents us form kicking the can down the road and avoiding reality is a good thing.  But counting on market forces to establish an honest price for gold might be difficult to achieve.  Look at what is currently happening to the price of silver and gold, what is to prevent the same fraud and manipulation that is par for the cource now happening in the future?  How do you get the power to set the price of gold away from the central banks if we were to go that way.  I'm sure they will not sit idly by if we can ever move to such a standard.

treebeard,

The whole power structure needs to change. Right now, the owners of the central banks have ungodly power over the political class. They need to have the "flexible" currency or they cease to be necessary. Their flexible currency can be conjured from the depths for any reason whatsoever. Go to an honest money system and all their power has been removed. There is no reason for them to exist, so decommission them. Individuals will set the price of gold by their very actions concerning gold. Take the current price structure - would you buy or sell at $1600? If more people buy, the price goes up until enough sellers place enough ounces on the market.

treebeard wrote:

I do think that your comment regarding a vigilant citizenry are key, but that also presuposes that the average citizen has access to good information. Look at what happened in the lead up to the 2008 crisis. Private banking interests, including the "federal" reserve, treasury department, and the media were all lock step talking the same nonsense.  There were a small minority of economists and market commentators who were raising the red flag, but they were all written off as nut cases.  How do you break that cycle?

It is tough to break that case while the cabal has the power of the printing press. These people generate the ability to purchase wealth at a flip of the switch. They reward the behavior of their followers and destroy their enemies. That is why all public facets were spewing the same drivel. Tell a similar lie enough times and people will believe it.

I wish I had a silver bullet for you, but there isn't one (that I know of.) Those who cut through the official crap will be eventually rewarded. Success has a way of inviting imitation. Let the lawyers who are currently whittling nits provide positive services (for profit) for the working class. Would you pay someone a fee to monitor companies whose stock you own? Let them be the watchdogs (and have other watchdogs watch them.) If the government provided the court system that it should, many lawyer's best interests would be aligned with ours.

treebeard wrote:

These same guys are still missing from the mainstream commentary and all the crazies who missed the whole thing are now trying to "solve" the problem for the rest of us.

I agree.

treebeard wrote:

I think ultimately decentralization of the decision making process to those directly impacted by the decisions made is the best way to prevent fraud.  But how do you extrapolate that onto larger systems that work at a national level? Reliance on any "system" to create an honest foundation for operating markets puts to much faith in an idea for me.  Human beings, left to their own devices will always find a way to corrupt any system, if they can operate out of the light of day.

I totally agree with your first sentence.Those who don't learn about fraud when their money is taken won't have the money to be defrauded again - economic Darwinism in practice. If the government were limited to what it should be, there wouldn't be a national level that needed to be extrapolated into. Think about it. If the government had to raise taxes to fund projects, people would quickly tire of the increased taxes and vote the bums out. There may be some class warfare where we soak the top 2% and leave the bottom 98% sitting pretty, but that choice will have fallout that blankets society as well. "Tax the rich / feed the poor / 'til there are no / rich no more ..." [I'd Love to Change the World - Ten Year's After]

treebeard wrote:

HItler was a fringe crackpot who found legitimacy because he had lots of funding from German heavy industry who loved his union busting ways (that is not a comment for or agianst unions either way).  He had lots of boosters in the US includig Westinghouse, IBM and the very famous Henry Ford. They were very happy to trade with him until it became politicallly impossible.  How do you stop that from happening again in a modern culture that puts some much faith in monetary success to detriment of all other values?

Hitler was a demonic genius who used everything and everybody for his own means. The people who got sucked into his realm were like moths attracted to an open flame. Eventually, they stray too close and get burned. They were lucky that political reality saved their very skins.

Hitler would never have been able to come to power were it not for the hyperinflation and subsequent collapse of the Weimar Republic. Industry was essentially nonexistent and good money was even harder to come by. By and large, the German people were destitute and depressed. Their Kaiser Wilhelm sold them a bill of goods (world domination) and failed to deliver. Had his government been limited by the taxpayers, he wouldn't have had the opportunity.

Grover

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
The Devil is in the details

I didn't want to get into the whole Germany thing to much, it was a side point, but no industry in Germany?!:

The bank was set up by Harriman and Bush's father-in-law to provide a US bank for the Thyssens, Germany's most powerful industrial family.

August Thyssen, the founder of the dynasty had been a major contributor to Germany's first world war effort and in the 1920s, he and his sons Fritz and Heinrich established a network of overseas banks and companies so their assets and money could be whisked offshore if threatened again.

By the time Fritz Thyssen inherited the business empire in 1926, Germany's economic recovery was faltering. After hearing Adolf Hitler speak, Thyssen became mesmerised by the young firebrand. He joined the Nazi party in December 1931 and admits backing Hitler in his autobiography, I Paid Hitler, when the National Socialists were still a radical fringe party. He stepped in several times to bail out the struggling party: in 1928 Thyssen had bought the Barlow Palace on Briennerstrasse, in Munich, which Hitler converted into the Brown House, the headquarters of the Nazi party. The money came from another Thyssen overseas institution, the Bank voor Handel en Scheepvarrt in Rotterdam.

By the late 1930s, Brown Brothers Harriman, which claimed to be the world's largest private investment bank, and UBC had bought and shipped millions of dollars of gold, fuel, steel, coal and US treasury bonds to Germany, both feeding and financing Hitler's build-up to war.

Would WWII happened without Thyssen? Who knows, but I think that chances would have been a lot slimmer without the worlds largest private investment bank behind him.

The point that I have been driving at is exactly how do we " Go to an honest money system and all their power has been removed. "  What entity is going to make that happen, are we going to elect Ron Paul to Government?

http://www.youtube.com/watch?list=PLB8F07875B150A28A&v=3fUKbzROwKs&feature=player_detailpage

Hows that working out?

Is the free market going to create an honest money system on their own? Should we be working for a smaller and more effective government rather than repeating empty slogans about government being the root of all evil? 

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
treebeard wrote: The point

treebeard wrote:

The point that I have been driving at is exactly how do we " Go to an honest money system and all their power has been removed. "  What entity is going to make that happen, are we going to elect Ron Paul to Government?

http://www.youtube.com/watch?list=PLB8F07875B150A28A&v=3fUKbzROwKs&feature=player_detailpage

Hows that working out?

Is the free market going to create an honest money system on their own? Should we be working for a smaller and more effective government rather than repeating empty slogans about government being the root of all evil? 

treebeard,

I'm afraid the current system is doomed to failure. They knew (or should have known) it was eventually going to happen when they created the Federal Reserve, but they did it anyway. I expect the majority of the populace will perish - and that's the best case scenario. In the worst case, someone in some government will push a button to release a hail of nuclear bombs. In the best case, those who remain will have no need or trust of paper promises. In the worst case, no one will remain.

I don't have an answer for transitioning gracefully to a sustainable system. Hybrids won't work and the moneyed interests have too much to lose to if we dump fiat. They buy the best government that money can buy to keep the masses in line. They want all of us to be their slaves.

Ron Paul has spent a career fighting these interests. He's been effectively cast as a nice but kooky uncle. He doesn't have a chance of winning, but I'll write in his name on election day. I'll continue to talk to anyone who will listen.

Grover

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Appropriate Levels

treebeard,

I apologize for remaining mired in the depths of despair. It doesn't promote a good conversation.

Humans have always organized a government structure. Small groups follow a clan leader while bigger groups form more complex governments. Governments must therefore be part of the human experience. Government must provide a service that the governed desire at a price that is considered reasonable.

Governments have to consume portions of the governed production - taxes. As society becomes wealthier, governments can grow as well. As a result, the services provided also increase. The bigger the government, the more taxes it needs. What is the point of diminishing returns? Which functions are most suitable for government to tackle and which should remain in the people's realm?

The founders of this country enumerated specific functions that the federal government should provide. Were their imposed limits constructed because society was much smaller (and less wealthy) then? Had they known of today's USA, would they reduce limitations to accommodate all the complexities of modern society?

Look at the various cabinet level departments. Which ones do you think are valuable and necessary? Which ones do you think have outlived or outgrown their usefulness? When you look at the necessity, consider the true cost (GAAP costs instead of cash costs) to determine your own benefit/cost ratio.

Grover

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Post note

To clarify the GAAP comment: That acronym stands for Generally Accepted Accounting Principles. In essence, it requires that deposits are to be made in the year they accrue ... to set aside enough funds to pay promised benefits when those costs occur in the future.

In 2011, the federal government collected approximately $2.5 trillion in taxes. They borrowed approximately $1.3 trillion in order to spend approximately $3.8 trillion. If the government abided by GAAP, the deficit would have been approximately $5 trillion. In other words, we would need to triple all federal taxes just to stay even. At least, that is what an honest government would do.

When you are considering your benefit/cost ratio for various departments, consider that the GAAP cost is approximately double the amount they currently spend ($7.5 trillion versus $3.8 trillion.)

Grover

RJE's picture
RJE
Status: Diamond Member (Offline)
Joined: Aug 31 2008
Posts: 1369
I have no idea if you will

I have no idea if you will think this is topic related but I know this: All of this bantering is past tense, it does not account for present decisions, and until everything truly comes crashing down will we even know how to dig ourselves out of this mess. I do not speak just for the United States but for the World and until all derivatives, and all the obscure hedges and paper has been fully vaporized will any system be remotely manageable. So again, where to even start? Chris speaks of being thankful for this time to prepare and I wholeheartedly agree. Mish says NOBODY knows which way any of this will turn out and I believe I see Chris nodding. With that in mind I prepare first, and learn as much as I can, will error in the process of learning but I don't care about this so long as I have 6 months supplies of the most basic of needs and can relax while watching everything unfold.

Preparations are key because the crisis that occurred in 2008 may pale as to what may occur next out of Europe, China, Japan and the rest of the world. Perhaps this will be worse than 2008, who knows. Cash, Gold and watch the paint dry seems to be a good idea for now. As Chris says, "it is better to be a year early than a day late", I subscribe to my Professors words on this opinion without question.

Respectfully Given

BOB

treebeard's picture
treebeard
Status: Gold Member (Online)
Joined: Apr 18 2010
Posts: 393
Trying to be positive

Grover,

I agree with all of your criticism of the current government. I agree that it may have to collapse because at this point it is so corrupt that it may be beyond reapair.  We are truly in uncharted waters here.

There are two basic points that I was trying to make.  First was that the concept of government, perhaps its a minor one, as an organizational structure for large number of people use create societal order is not a bad idea. Should it look anything like what we have now, of cousre not.  Its easy to tear down what we have now, but I think that it would be a much more productive discussion if each criticism was followed with a possitvie suggestion about what policy or structure should be in it's place.

Seocnd, large private entities, like multinational corporations, can be just as distructive to our freedoms and quality of life as government can be.  They can come in and destroy local economies and environments and move on to someplace else after they have explointed what ever was of value there.  It may make short term eceonomic sense to do so, profits for the next reporting season on wall street.  But in the long term, there are eventually not going to be any other places to exploit.  Remember one of the three "E"s is the envronment.

Combine large powerful out of control government, powerful and out of control wealthy special interests, no rule of law, and  dimishing resources and you have the mess that we are in. You can't attack either just the governemnt or just the market system, they both need radical revision.

Remeber that when the country was founded only white male property owners could vote, slavery was legal and the idea that the average working stiff should have any say in things was really not part of the concept.  You could argue that things have not changed all that much.

I think that we both agree that small and local is the way to go, both in terms of markets and government. How do we get there?

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Steps to freedom

treebeard wrote:

Seocnd, large private entities, like multinational corporations, can be just as distructive to our freedoms and quality of life as government can be.  They can come in and destroy local economies and environments and move on to someplace else after they have explointed what ever was of value there.

I think it is a mistake to assume that "large multinational corporations" like we see now can exist without a heavy hand of government and central banks to do their bidding.  With sound money and limited government a lot of the issues we see today can't exist because it is not profitable.  For instance, without the magic of fiat reserve dollar you couldn't see the type of trade deficits we see today.  They would self correct much quicker as any nation would be unable to sustain the continous debt.  Also without government eliminating competition for the large corporations we would see many smaller companies competing for business.  In a truly voluntary trade system, the business must provide what a customer wants at a price they can afford.

"No rule of law" is a huge problem.  It's why you have to get government out of the "business" of favoritism for both companies (regulation) and individuals (entitlements).  If government isn't handing out favors, it also removes the incentive to influence it.

treebeard wrote:

I think that we both agree that small and local is the way to go, both in terms of markets and government. How do we get there?

I think the first thing you have to do is stop the distortion via fiat currency.  Get rid of legal tender laws and allow any number of currencies to compete and allow citizens to choose what currency they want to use.  That right there will put a huge damper on government.  When they can no longer borrow or inflate it means you have to tax enough to pay for programs - a tough sell.  That right there should begin to reduce the willingness to go to war when we actually have to pay for it.

Next, you have to begin dismantling large Federal programs that can be better handled by local communities or businesses.  Education, Transportation are key places to start.

You have to start removing government involvement in business.  Withdraw all subsidies.  If a business is not able to survive on it's own it probably shouldn't exist because that means it's unsustainable at least in it's current form.

We need to start pushing responsibly back to individuals and communities.  There is no nanny to take care of you, you have to be responsible for yourself - but you also get the freedom to control what you do with your own body.

We also have to start acknowledging that what most people view as "necessary" is ultimately going to fail because it is based on faulty economic assumptions.  We won't have Social Security as it is currently done, we won't have Medicare, Medicare or Obama care.  We won't have many of the services currently provided by governments because they can't be afforded over the long haul no matter how much you wish it were so.   Once we can no longer borrow to pay for programs many of them will become unpalatable.  If every year each household got sent a bill with each program itemized, you can bet many would get chopped.   Would you be looking to change things if you got a bill like the following:

  • War - $1500
  • Defense - $6250
  • Medicare & Medicaid - $7500
  • Social Security - $6400
  • DHS - $530

The above is the amount/household spent on each of the areas each year.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments