Daily Digest

Daily Digest - May 3

Sunday, May 3, 2009, 11:37 AM
  • Week #19, Friday Night Special #30
  • Week #19, Friday Night Special #31
  • Week #19, Friday Night Special #31
  • Ford Sales off 31.3% YoY in April
  • Company warned officials of flu 18 days before alert was issued
  • Outbreak Map/Time Line Provided by Veratect Biosurveillance
  • “Paper money eventually returns to its intrinsic value – ZERO” (H/T Jarhett)
  • Foreclosures: Banks Setting Opening Auction Bid Below Amount Owed
  • Systemic Fraud at Public Pension Funds?
  • ISM Contracts at Slower Level (Chart)
  • Manufacturers Shipments Down (Chart) 

Economy 

Week #19, Friday Night Special #30 

From the FDIC: FDIC Creates Bridge Bank to Take Over Operations of Silverton Bank, National Association, Atlanta, Georgia

 Week #19, Friday Night Special #31 

From the FDIC: North Jersey Community Bank, Englewood Cliffs, New Jersey, Assumes All of the Deposits of Citizens Community Bank, Ridgewood, New Jersey

 Week #19, Friday Night Special #31 

Ben, Tim, and Sheila. Whom do they remind you of? Moe, Curly, Larry.
by Soylent Green is People From the FDIC: Cache Valley Bank, Logan, Utah, Assumes All of the Deposits of America West Bank, Layton, Utah

 Ford Sales off 31.3% YoY in April 

From Reuters: Ford April U.S. vehicle sales off 31.3 pct 

This is a year-over-year comparison: April 2009 vs. April 2008.

In March, Ford reported sales off 40.9%

In February Ford sales were off 46.3% YoY

And in January Ford sales were off 42.1%

December: 32.4%

November: 31%

The other manufacturers will report later.

Update: Toyota U.S. April sales fall 41.9% to 126,540

Update2: GM U.S. April sales down 33.2% to 172,150 units

Update3: Chrysler April U.S. sales fall 48%

 Company warned officials of flu 18 days before alert was issued 

Veratect, based in Kirkland, Wash., uses a technique known as "data mining" to automatically search tens of thousands of Web sites daily for early signs of looming medical problems or civil unrest anywhere in the world. Anything of interest is turned over to a team of 35 analysts to determine its significance and to post on the company's Web site 

Outbreak Map/Time Line Provided by Veratect Biosurveillance

“Paper money eventually returns to its intrinsic value – ZERO” (H/T Jarhett) 

THE US GOVERNMENT HAS LOST ALL CONTROL 

The US Government is not running the country. It is running around like a headless chicken reacting to events and firefighting. It doesn’t have a cohesive or proactive plan how to deal the biggest financial crisis that the world has ever experienced. So it hasn’t taken a single measure that could solve the crisis. The only thing it knows is to print money. The US Government doesn’t understand that running the printing presses ever faster can never be a solution to a problem that was caused by excessive credit and deficit spending.

Wall Street is in control
All reactive decisions taken by the Government are governed by Wall Street who are more in control than the Government. Wall Street understands the problem much better since they are the principal beneficiaries of the current financial crisis. The crisis was created by the loose monetary policy of the US Government. Wall Street took advantage and exacerbated the problem by issuing unlimited amounts of toxic debt and derivatives. Wall Street obviously had the total blessing of Government which benefited greatly from political donations and the perceived prosperity that the credit bubble created. So not only did Wall Street make immoral amounts of money during the credit bubble but they are now the main beneficiaries of the Governments money printing. So far the US Government has lent, invested or committed $ 13 trillion since the crisis started in 2007. The majority of these funds are being used to save the financial system.

Wall Street by, being too big to fail, has created the perfect situation for itself. Losses are being socialised and absorbed by the Government and profits are privatised. So whilst the economy as a whole is suffering greatly due to financial crisis, most of the financial sector is continuing to prosper. In the medium term such unfair inequality will have political and social consequences.
What the US Government doesn’t understand is that directing virtually all their rescue efforts to Wall Street is not going to solve the problem. The Nobel Prize winning economist Joseph Stiglitz said in a recent interview that the bank rescue efforts will probably fail because the programs have been designed to help Wall Street rather than to create a viable financial system. Stiglitz went on to say: “the people who designed the plans are either in the pockets of the banks or incompetent”.

US debt growing exponentially

The US Federal debt in 2009 is likely to grow by at least $2 trillion and reach 100% of and GDP at around $13 trillion. In 1929 Federal debt was only 15% of GDP! Also in 1929 the US was a creditor nation as against today when the US can only survive due to its foreign creditors. In 1929 total US debt (private, commercial, state, federal, etc.) was 170% of GDP. In 1932-3 it reached 260%. In 2009 total US debt to GDP (excluding unfunded liabilites of circa $ 60 trillion) will be around 425%. Before this crisis is over this percentage will be significantly higher and possible even exponentially higher

 Foreclosures: Banks Setting Opening Auction Bid Below Amount Owed 

From Jillayne Schlicke at Rain City Guide: Why are Banks Setting the Opening Auction Bid Below The Principal Balance? 

I attended a foreclosure auction in Bellevue, WA last week to discover if the rumor was true that banks are opening their bids below the amount owed. I received confirmation from three professional investors that yes, the banks have been doing that, it’s no secret, and there seems to be no discernable pattern. It’s not one particular bank or lender, it’s not particular types of property or in any specific area. It appears to be random.

... Only a few of the trustee sales attracted bidders, and the rest were deeded back to the bank. Out of the 92 active sales, 25 had opening bids below the amount owed to the bank.
Jillayne offers some possible explanations why the banks are bidding below the amount they are owed. I've been hearing similar stories in California.

 Systemic Fraud at Public Pension Funds? 

Mr. Cuomo said a preliminary review by his office found that as many as half of the intermediaries in pension fund transactions in New York State and New York City were not properly licensed and registered with a broker-dealer, as required by federal securities laws.

 ISM Contracts at Slower Level (Chart)

Manufacturers Shipments Down (Chart) 

 

 

 

30 Comments

Farmer Brown's picture
Farmer Brown
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Re: Daily Digest - May 3

The article by Jarhett (Matterhorn) is downright frightening.  Granted, I already knew from this site that these things are about to happen, but for some reason seeing it elsewhere makes me feel we are very close to the brink.

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Re: Daily Digest - May 3

Losses are being socialised and absorbed by the Government and profits are privatised. So whilst the economy as a whole is suffering greatly due to financial crisis, most of the financial sector is continuing to prosper.

 

So how more money can the governments pump out before there are severe consiquences. Another 5-6 trillion or are they already in trouble?

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Re: Daily Digest - May 3

Another 5-6 trillion or are they already in trouble?

They can't pay their debt now without borrowing and monitizing it. I'd say that quantifies already in trouble. Like a debt adict who can't pay without counterfieting money on a laser printer...

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goals vs. reaction

The US Government is not running the country. It is running around like a headless chicken reacting to events and firefighting. It doesn’t have a cohesive or proactive plan how to deal the biggest financial crisis that the world has ever experienced.

Someone at Lowesville (sorry, forgot who) came up with the observation that during WWII the US was goal oriented - we knew the end we wanted and geared up policy to meet that goal. Now we seem to be completey process-oriented - we react to events but have no clear end-game. Without a goal, how can we formulate policy? What good is process without a goal?

 

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Re: goals vs. reaction

 "Getting to Yes, Merrit Based Negotiations," Also, don't recall if it was that book, Fast Company or some other read that stressed the need for guiding principles.

Of course the Bush administration had at least one revealed in Paul ONeils book "Reality lags perception."

But yeah, your point I really, really think is a great one! If they had some guiding principles they wouldn't be process driven.

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Re: Daily Digest - May 3

Just a couple of thoughts.

If most of U.S. money in circulation is so-called "funny" or bankers money in form of debt which is only temporary and disappers when debts are paid-off, I can not stop wondering why most of the people think that printing real money in form of dollar bills is wrong?! Only excessive printing with no backing in goods and servicies is bad. But hey, private commercial banks "print" book-entry money all the time in amount 20 times higher than FED does and nobody is concerned? Only coins are truly government issued (permanent) money, because they are made by U.S. Treasury. But that sum is simbolic and tragic at the same time.

Even Chris Martenson in Chapter 8 made a stunning statement about money creation. He said: "I am not going to cast judgment on this and say that it is good or it is bad. It simply is what it is." Of course it`s bad, it`s extremely bad. We are talking about privately created money out of thin air, for god`s sake. In combination with highly unfair flat tax system which favors super-rich people, whole thing cripples your society and leads to plutocracy, mortal enemy of democracy and social justice.

American colonies printed their own paper money and trived, Lincoln did it rather successfully although during war time.

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Re: Daily Digest - May 3

Mental illness soars as global crisis hits

By Jennifer Macey for AM


Figures show the global financial crisis has coincided with a large increase in Australians seeking mental health services.

The Mental Health Council of Australia says Medicare figures show a 40 per cent increase in the number of Medicare claims for mental health consultations in the past two months.

The council says the jump is alarming and that anecdotal evidence that people seeking services are raising concerns about unemployment and other financial pressures.

Mental Health Council CEO David Crosbie says it is a massive increase.

"The number of people getting clinical psychology services has gone from about 54,000 in March 2008 to 83,000 in March 2009," he said.

In an effort to improve access to mental health care services, the Howard government introduced a Medicare rebate for visits to psychiatrists, clinical psychologists and therapists.

But in the past few months there has been a massive increase in people claiming this rebate for mental health care services.

Mr Crosbie says he is surprised by the recent jump in the figures.

He says mental health professionals expected an initial surge in people getting treatment once the rebate was initially introduced.

"I think it's alarming in that so many Australians feel the need to have a mental health care plan, and so many are seeking psychological therapy," he said.

"We thought that would plateau, the number of people who would be using these services, but it's clearly increasing quite significantly. In fact, quicker than it ever has before.

"In some ways that may reflect that we've had a lot of unmet demand, and it's a good thing that people are actually getting the help they need.

"At another level, it may reflect the kind of broader psychological stress on people that comes from that feeling that we're in crisis all the time is having an impact, and particularly when you marry that with high levels of unemployment."

Financial woes

The Mental Health Council produced the figures after analysing Medicare rebate numbers.

It is not certain whether the global financial crisis is the main reason behind the increase.

The actual breakdown of the gender or age group of those people seeking mental health care services has not yet been released.

Professor Ian Hickie from the Brain and Mind Institute in Sydney says he has heard of anecdotal evidence that people are worried about their jobs or other financial pressures.

"We've seen a lot of reports from young people - who we particularly access - about worries, about unemployment, difficulties getting casual work, difficulties paying their bills," he said.

"Certainly those who are somewhat older - particularly the men that we see - [have] concerns about whether they'll be able to hang onto their jobs, the financial pressure they're under.

"So it's a topic that seems to be accounting for more people coming forward for services, and certainly top of their list of things that they are now worrying about."

He says many people who need the services the most might be falling through the cracks.

Professor Hickie also says men, particularly younger men, may not be going to their GPs with mental health problems.

"We've been very lucky in Australia over the last decade that there's been a 30 per cent fall in suicide altogether, up until about 2006, and a 46 per cent fall in youth suicide during that period, when we had very strong economic growth and very low rates of unemployment," he said.

"That essentially stopped about 18 months ago, best we can tell from the figures, and we're now concerned that if the economic situation gets worse, you're likely to see a rise in suicide figures.

"That's pretty much the history of these things in Australia and in other developed countries."

Farmer Brown's picture
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Re: Daily Digest - May 3
Quote:

American colonies printed their own paper money and trived, Lincoln did it rather successfully although during war time.

Uh, no they did not, and no he did not do it succesfully either.  All paper monies used in the US ended in miserable failure and so will the current one.

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Re: Daily Digest - May 3

Agreed. I was literally just reading today in "Coin World", an article about Colonial Paper money and hyper-inflation. Virginia issued, $1, $2 and $3 thousand dollar notes and $1,000 dollars in paper was worth one silver dollar (This was about 1781). So they printed the money but they did not thrive by doing so.

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Re: Daily Digest - May 3
Patrick Brown wrote:
Quote:

American colonies printed their own paper money and trived, Lincoln did it rather successfully although during war time.

Uh, no they did not, and no he did not do it succesfully either.  All paper monies used in the US ended in miserable failure and so will the current one.

Sure Patrick, you must be banker or something?

They thrived and perform very well for decades building infrastructure and living standard, until english private bankers didn`t start counterfeiting paper money on large scale which was one of their special war tactics. And I believe you were at war with England, didn`t you?

"By 1750, Benjamin Franklin was able to write of New England:
There was abundance in the Colonies, and peace was reigning on every border. It was difficult, and even impossible, to find a happier and more prosperous nation on all the surface of the globe. Comfort was prevailing in every home. The people, in general, kept the highest moral standards, and education was widely spread." - from the book `Web of Debt` by Ellen Brown. Same you can read in Steve Zarlenga`s book "The Lost Science of Money".

Lincoln had an option to indebted his own country with privately created money out of thin air at usurios interest rates, which he knew it would be impossible to repay. So he decided to print greenbacks, real government or permanent money. But with war going on U.S. territory, production of goods and servicies sharply fell with lot of destruction. Money had loose its backing, so inflation occured. But he saved his country from the same destiny that english people were already for centuries. Highly indebted, poor and many without job. But, he was assassinated soon after that. Coincidence? Not a chance!

And by the way, gold is not money. You should inform yourself better. It can be used like medium of exchange, but it is not money. Rather commodity, not eatable but still commodity and greatly susceptible to speculation because of scarcity, thus causing severe deflation and horrendous debt to society and making production, trade and exchange nearly impossible. It was the case in U.S. back in 19. and early 20th century, in England which already had "gold standard" centuries before and privately own central bank.  Not to mention so-called dark ages in medieval Europe, caused by using gold instead of real money.

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Re: Daily Digest - May 3

It's strange but over at Calculated Risk they write this:

Even though the current recession is already one of the worst since 1947, it is only about 1/3 of the way to a depression (commonly defined as a 10% decline in real GDP).

Stated another way, to reach a depression, the economy would have to decline at about the same annual rate as the last two quarters for the next four quarters.

Just to put this in perspective, during the Great Depression, real GDP declined 26.5% from the peak to the trough.

I believe the odds of the current recession becoming a depression are very low (much less another Great Depression), but I think the current period has far greater risks than those earlier periods because of the severe financial crisis.

 

I don't understand. I was under the impression that a depression was pretty well guaranteed at this point. The people who write that blog must be aware of it too so why do they think that things will be so much better? Am I being too pessimistic or do they know something I don't?

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Re: Daily Digest - May 3

Hello FireJack:

I thought I had left that part of the copy out of the paste. My appoogies if I didn't. I don't agree with everything they post on that blog, but it is quite good. I also would point out that I have read many definitions of a depression. Some use unemployment, others GDP and a few asset values. Some all three. I'm not aware of only one.

I'm no economist, (but most economist missed this train wreck) but I'd say this is all but unavoidable. I'd also enphasize that if we used un-Santa Claused, un-Easter Bunnied GDP and unemployment numbers we'd be just entering a depression.

Take care

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Re: Daily Digest - May 3

ABC uses the word "oligarchy" to describe the grip the banks have on our political system. Must see video! http://abcnews.go.com/Video/playerIndex?id=7490761

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Re: Daily Digest - May 3

Malden,

"And by the way, gold is not money. You should inform yourself better." I'm guessing (forgive me if I'm wrong) that, from some of your grammar and spelling, English is not your first laguage - even so, I think being so brusque towards Patrick's comments is unfair.

Money is, by definition (at least the ones I've looked up and I've precised Wikipedia here) a) medium of exchange, b) a unit of account c) a standard of deferred payment (i.e. it can be moved in time and space), and d) a store of value.

By dictat, gold is not money; we are subject to Government decress that say we HAVE to use the currency that has been decided for us. Is the dollar or pound sterling a store of value? No way! Is gold a store of value. Yes. Is gold a unit of account? Well, presently at least, no. Money, in our day to day usage of the term, means the notes and coins we use, i.e the currency, but currencies certainly don't fulfil the full definition of money. And how many fiat currencies have survived (very) long term? Even the dollar as we know it today has only been in existence since Nixon took it off the gold standard, less than 40 years ago.

So one can argue the semantics, but to say dogmatically that gold is not money is, to me at least, wrong.

David

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Re: Daily Digest - May 3

 I think every Fiat currency that has failed, forget the number from the video, it was 2800 or 3800 if I recall, ends the Fiat over gold currency debate.

Gold is still here and can be EXCHANGED at the banks currency window.

 

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Re: Daily Digest - May 3

Davos,

Just to confirm, when you say "Fiat over gold currency", are you referring to gold when and where it's been used as a currency?

Should anyone comment about the failure of currencies that have been based on gold, bear in mind that this has been down to Governments debasing the coinage, not the failure of gold itself. On what I've read about the Bezant, the reason it lasted around 600 years as an acceptable coinage was the refusal to debase the coins.

David

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Re: Daily Digest - May 3

The Byzantines and the Romans both used gold for hundreds of years.  Their eventual collapse was due to debasement of the currency.  Malden, every paper currency that has been used has failed.  Gold that has been abused (by debasing it just like they debase paper money) has failed.  Gold used faithfully has never failed.  And if you think I'm a banker, would you think I would even by able to type the word, "gold" without melting into a pile of water?

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Re: Daily Digest - May 3

For quite a while, I fell strongly into the gold bug side of things and I still have no faith in our monetary system now. But the more I've looked into all of this, I've found that gold has (and is!) manipulated as well - though this is much more difficult than the dollar manipulations we are subjected to daily. In my study of history, "money" seems to be nothing more than a social contract or agreement. David's description is correct, but I'm not so certain that a plain gold standard would work perfectly either, for the simple reason that history has shown us that people will find creative ways to game (or eliminate) any system devised. Without constant vigilance, even a gold standard can face problems. It was our own complacency that allowed the gold era to end in America in '71.

While I would have much more confidence in a gold standard, I would be certain that eventually the day would come when people find ways to game it or just overturn it when the masses become intoxicated on the prosperity that trust fosters.

I think the issues of public awareness, leadership, and a sound money system are practically one and the same. Until the public becomes aware of what is happening, we will not have a money system we can trust. In my opinion, it is more likely that the dollar is simply replaced as the reserve currency than seeing the world revert to gold once again.

Mike

 

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Re: Daily Digest - May 3

Agree with you there Mike.  That's why we're on this site right, to be educated?  We certainly can't count on the government to educate us to know that they've been cheating us for hundreds of years!

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Re: Daily Digest - May 3

Interesting view of inflation/deflation and the Fed:

http://www.nytimes.com/2009/05/04/opinion/04meltzer.html?pagewanted=1&_r=1&th&emc=th

Quote:

Besides, no country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. These factors are harbingers of inflation.

When will it come? Surely not right away. But sooner or later, we will see the Fed, under pressure from Congress, the administration and business, try to prevent interest rates from increasing. The proponents of lower rates will point to the unemployment numbers and the slow recovery. That’s why the Fed must start to demonstrate the kind of courage and independence it has not recently shown.

Milton Friedman often said that “inflation was always and everywhere a monetary phenomenon.” The members of the Federal Reserve seem to dismiss this theory because they concentrate excessively on the near term and almost never discuss the medium- and long-term consequences of their actions. That’s a big error. They need to think past current political pressures and unemployment rates. For the next few years, they cannot neglect rising inflation.

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Re: Daily Digest - May 3

Let me reword that: "...ends the Fiat over gold - currency debat." OR "ends the Fiat Currency over gold debate."

I'm not speculating on if gold will be a currency later on.

I am saying that when we look back Fiat currencies have all failed. Gold is still around. And, as far as I know the only times that there was "inflation" with gold is when the goldsmiths loaned more out than what they had (by circulating more gold redemption notes then what they had) And there may have been some before they put the rough edges on gold coins when people shaved coins to make them smaller taking a portion for keeps.

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Re: Daily Digest - May 3

Mike, Patrick, Davos,

Agree with you all. Mike, I'm not a gold bug and I agree with your comments about gold, you're spot on, unfortunately no governing powers can resist our human failings!

David

P.S. Just a thought - this where personal integrity and power come into play; the childish "I can so I will" as opposed to the adult  "I can, but because of factor X, I won't" - it would appear that we're governed by the former rather than the latter.

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Re: Daily Digest - May 3
DavidC wrote:

I'm guessing (forgive me if I'm wrong) that, from some of your grammar and spelling, English is not your first laguage - even so, I think being so brusque towards Patrick's comments is unfair

You are right, it`s not my first language. Sorry if you have trouble to read comments.

DavidC wrote:

Money is, by definition (at least the ones I've looked up and I've precised Wikipedia here) a) medium of exchange, b) a unit of account c) a standard of deferred payment (i.e. it can be moved in time and space), and d) a store of value.

The store of value is not a proper function of money and it highly contradicts "medium of exchange" function. If you want to store value (accumulate wealth), buy something tangible: land, house, apartment, various metals like gold or silver and other durable goods.

DavidC wrote:

By dictat, gold is not money; we are subject to Government decress that say we HAVE to use the currency that has been decided for us. Is the dollar or pound sterling a store of value? No way! Is gold a store of value. Yes. Is gold a unit of account? Well, presently at least, no. Money, in our day to day usage of the term, means the notes and coins we use, i.e the currency, but currencies certainly don't fulfil the full definition of money. And how many fiat currencies have survived (very) long term? Even the dollar as we know it today has only been in existence since Nixon took it off the gold standard, less than 40 years ago.

What`s wrong with that? Real problem today is general ignorance about what money is, and especially that inflation and also deflation are artificially created and based on public swindle and brainwashing. If people are smart and well organised, they would protest and overthrow every corrupt Goverment. But don`t blame paper money for that. Blame so-called educational system and controled media and general lack of awareness and knowledge about real nature of money.

Let me ask you, how would you finance present day economy and people`s need with gold or silver whatever, when simply there is not enogh of it to support production, trade and exchange. Also, when bankers or some other wealthy individuals charge interest and require payment in gold, how would you create additional gold. Out of thin air? By magic? Even if we abolish interest charges, there is not enough gold to finance all needs of society.

It is essencial to define money properly. Money is an abstract social power or public service good if you prefer. It came into existence by low, not by nature. Money is just a receipt or register that some work has been done or goods deliverd and based on that, also a claim on others people work. So why would we used gold for a purpose of registering things? It would be like making airplane tickets of gold? It is comletely ridiculous, not to mention expensive. Money backing is all production of goods and sevicies for final consumption. Stop producing and all money would loose its value, because there would be nothing to buy.

New, fresh money should be issued and used to finance REAL ECONOMY, i.e. production and trade. Not for gambling like derivatives or consumption. Consumption is OK, but only from income and savings, personal or borrowed. First step is to nationalize money creation process and then use it for productive purposes. With fair, progressive tax system, problems would disapper soon after, almost over night.

 

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Re: Daily Digest - May 3

Malden,

"The store of value is not a proper function of money and it highly contradicts "medium of exchange" function. If you want to store value (accumulate wealth)..."

Woah! Storing of value and acting as a medium of exchange do NOT contradict each other! Also, storing value and accumulating wealth are NOT the same thing at all.

I did NOT say that there is anything wrong (or, for that matter, right) about the fact that we are subject to Government decrees that say we HAVE to use the currency that has been decided for us - I merely stated it as a fact. I agree that inflation and deflation are (to a degree) artificially created.

Money did not, originally, come into existence by law, it came about as a convenient means of medium of exchange (thus, if you make fishing nets and I make cakes, I can pay you for a fishing net in something other than cakes if you don't like or want cakes). Hence the historic use of seashells etc. This doesn't negate your comment however, as Governments have used laws to make us accept certain forms of money (e.g. paper currencies).

"Why would we used gold for a purpose of registering things? It would be like making airplane tickets of gold? It is comletely ridiculous, not to mention expensive." - this is no more ridiculous than using a piece of paper, or paying for a piece of paper with another piece of paper (the latter of which has been printed by a private institution!), the "value" of which is determined by the printer's ability to keep printing said pieces of paper.

I'm not a gold bug, but I would prefer to hold something that acts as a "store of value" (it's been quoted often that an ounce of gold in Roman times would buy a good toga, belt and sandals and it will still buy a suit, belt and pair of shoes) rather than a piece of paper  (say, a $1,000 dollar bill) that has been decreed I should use as a means of paying for "things", and which is losing value as soon as I keep it in my pocket due to the continued inflation as a result of printing of more pieces of paper.

David

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Re: Daily Digest - May 3

Malden,

I have no idea where you are trying to go with this.  All fiat currencies have failed.  That's a 100% failure record.  We are currently witnessing the unravelling of the greatest fiat currency the world has ever seen, and the effects are unimaginable for most of us.

The shortcomings you perceive gold to have come from one who views the characteristics of fiat money to be favorable.  Gold behaves differently.  No, we wouldn't be able to borrow beyond our means.  We wouldn't be able to create artifical asset bubbles fueled by fake money.  We wouldn't have to suffer booms and busts.  We wouldn't be able to collectively rob from our own futures by going into debt.  Most of all, fiat money is debt-based, which means that by its very nature it is a burden on our future and uses the leverage of future pain to fund present pleasure.  Gold is production-based.  It is the result of previously expended energy.  Based on that alone, it is the result of past work, past effort, and past pain, which can be used to either fund present pleasure, or stored away somewhere (where in the emantime it can collect interest, be leant, etc) for future deployment. 

The two systems are different in every way shape and form.  One is based on what's already been done.  The other on promises that pile up untilt they cannot be fullfilled and the whole thing comes crashing down. 

I agree it is not in our government's interest for us to understand money, and the only way we will ever fix these problems as a country or as a world is for the masses to be educated and understand how money works.

 

 

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Malden
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Posts: 27
Re: Daily Digest - May 3
DavidC wrote:

Woah! Storing of value and acting as a medium of exchange do NOT contradict each other! Also, storing value and accumulating wealth are NOT the same thing at all.

Care to explain? Maybe by "storing value" you mean unchanged value of money during time, and I agree with that. Besides, that`s a common sense. But many people mean that the function of money should be also hoarding it out of circulation for a couple of decades, making huge piles under house floor boards or something, and than when pile is huge enough throwing it into market. That highly contradicts first and most important function - medium of exchange, causing all kinds of distortions on the market. Money should be put into circulation for oiling wheels of production and trade.

DavidC wrote:

Money did not, originally, come into existence by law, it came about as a convenient means of medium of exchange (thus, if you make fishing nets and I make cakes, I can pay you for a fishing net in something other than cakes if you don't like or want cakes). Hence the historic use of seashells etc. This doesn't negate your comment however, as Governments have used laws to make us accept certain forms of money (e.g. paper currencies).

Well, primitive people use seashells because they did not know real nature of money. That became obvious when Australians came and flood them with lots of seashells they collect on shores. Those natives didn`t complain in first, because of complete lack of awareness what money realy is. Real money has no intrinsic value. It tends to be as much abstract as possible, depending what technology given society had. Romans and Spartans use coper and iron diped in acid to make it abstact as possible. Medieval Chinese used paper money during Ming dinasty and Empire have been flourished. At about same time, another system of abstract money, so-called `tally-stick" have been used in England for centuries with great success.

DavidC wrote:

this is no more ridiculous than using a piece of paper, or paying for a piece of paper with another piece of paper (the latter of which has been printed by a private institution!), the "value" of which is determined by the printer's ability to keep printing said pieces of paper. I'm not a gold bug, but I would prefer to hold something that acts as a "store of value" (it's been quoted often that an ounce of gold in Roman times would buy a good toga, belt and sandals and it will still buy a suit, belt and pair of shoes) rather than a piece of paper  (say, a $1,000 dollar bill) that has been decreed I should use as a means of paying for "things", and which is losing value as soon as I keep it in my pocket due to the continued inflation as a result of printing of more pieces of paper.

Gold is very good for storing value (among other things) But Roman Empire at first used bronze money, not gold and they thrived for almost 500 years and that was abstact money with several times higher face value that was the value of metal. After Punic wars, they gradully started to use gold and silver because bronze became scarce and many of their mines occupied. Eventually, landlords and war profiteers hoarded all or most of the gold charging interest on it and Roman Empire decline little by little until complete breakdown. At the end there was very little free citizens, only slaves, poors and super rich plutocracy. Moral of people break into pieces and they were occupied by barbarians. Byzantium had the same or similar fate.

Malden's picture
Malden
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Re: Daily Digest - May 3
Patrick Brown wrote:

I have no idea where you are trying to go with this.  All fiat currencies have failed.  That's a 100% failure record.  We are currently witnessing the unravelling of the greatest fiat currency the world has ever seen, and the effects are unimaginable for most of us.

Patrick, there would be no United States of America if your Foundig Fathers didn`t use paper money. Whole revolution was a battle for sovereign right of Colonies to issue their own debt-free fiat money. I gave you some examples and even quote words of Benjamin Franklin. Lincoln issued 400 milions debt-free greanbacks and was assassinated.

I also mentioned Romans and Spartans, medieval China and England, all using fiat money and making prosperous and rich societies. Island of Guersey is a another remarkable example of fiat money power when is combined with honest Goverment and above all enlightend people  http://www.aberhartfoundation.ca/PDF%20Documents/Social%20Credit%20Pampl...

Patrick Brown wrote:

Most of all, fiat money is debt-based, which means that by its very nature it is a burden on our future and uses the leverage of future pain to fund present pleasure.

It is, but as a result of public ignorance and swindle. Things were completely different when Benjamin Franklin lived or Lincoln. Money was debt-free and served like public good for oiling gears of production and trade. It was issued by representatives of society, not by some private bankers or crooks. That`s a huge difference. You are fighting a wrong enemy.

Patrick Brown wrote:

Gold is production-based.  It is the result of previously expended energy.  Based on that alone, it is the result of past work, past effort, and past pain, which can be used to either fund present pleasure, or stored away somewhere (where in the emantime it can collect interest, be leant, etc) for future deployment.

That can be said for all other goods and servieces. Why special treatment for gold? Btw, in the past, gold was often robbed or slave work was used with no effort, no cost, no pain for "producer".

Patrick Brown wrote:

I agree it is not in our government's interest for us to understand money, and the only way we will ever fix these problems as a country or as a world is for the masses to be educated and understand how money works.

At least we agreed on something : )

 

 

 

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Farmer Brown
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Re: Daily Digest - May 3
Malden wrote:

Patrick, there would be no United States of America if your Foundig Fathers didn`t use paper money. Whole revolution was a battle for sovereign right of Colonies to issue their own debt-free fiat money. I gave you some examples and even quote words of Benjamin Franklin. Lincoln issued 400 milions debt-free greanbacks and was assassinated.

Where in the hell are you getting this from?  Only gold and silver were used back then.  You're entitled to your own opinions, but not your own facts.  The Founding Fathers wrote a constituion where anything other than gold and silver coin were prohibited, so I think it's pretty clear where they stood on that one.  States were free to do whatever the hell they wanted, and many of them did create fiat currencies through state-chartered banks.  Not surprisingly, they all failed.

 

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Malden
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Posts: 27
Re: Daily Digest - May 3
Patrick Brown wrote:

Where in the hell are you getting this from?  Only gold and silver were used back then.  You're entitled to your own opinions, but not your own facts. The Founding Fathers wrote a constituion where anything other than gold and silver coin were prohibited, so I think it's pretty clear where they stood on that one.  States were free to do whatever the hell they wanted, and many of them did create fiat currencies through state-chartered banks.  Not surprisingly, they all failed.

I mentioned before that massive counterfeiting of Colonial paper money was conducted by English counterfeiters and agents of private banks. I invite you to explore this matter, because it had obvious and huge impact on U.S. Constitution regarding money creation. The problem is that there is no exact definition of money in the Constitution, nor explicit clarification does Congress have right only to coin money or also to create paper money. Nevertheless, Tomas Jefferson later realize those mistakes:

After watching the national debt mushroom, he wrote to John Taylor in 1798:

“I wish it were possible to obtain a single amendment to our constitution . . . taking from the federal government the power to borrow money. I now deny their power of making paper money or anything else a legal tender.”

It would be several decades before Jefferson realized that the villain was not paper money itself. It was private debt masquerading as paper money, a private debt owed to bankers who were merely “pretending to have money.”

Jefferson wrote to Treasury Secretary Gallatin in 1815:

The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment. Jefferson wrote to John Eppes in 1813, “Although we have so foolishly allowed the field of circulating medium to be filched from us by private individuals, I think we may recover it . . . . The states should be asked to transfer the right of issuing paper money to Congress, in perpetuity.” He told Eppes, “the nation may continue to issue its bills [paper notes] as far as its needs require and the limits of circulation allow. Those limits are understood at present to be 200 millions of dollars.”  - from Web of Debt book by Ellen Brown.

This also is very interesting and enlightning:

"Franklin wrote his pamphlet after observing the remarkable effects that paper currency had had in stimulating the economy in his home province of Pennsylvania. He said, “Experience, more prevalent than all the logic in the World, has fully convinced us all, that [paper money] has been, and is now of the greatest advantages to the country.” Paper currency secured against future tax revenues, he said, turned prosperity tomorrow into ready money today. The government did not need gold to issue this currency, and it did not need to go into debt to the banks. In America, the land of opportunity, this ready money would allow even the poor to get ahead."

and especially:

"When gold was the medium of exchange, money determined production rather than production determining the money supply. When gold was plentiful, things got produced. When it was scarce, men were out of work and people knew want." What a wise man, I must say.

The virtue of government-issued paper scrip was that it could grow along with productivity, allowing potential wealth to become real wealth. The government could pay for services with paper receipts that were basically community credits. In this way, the community actually created supply and demand at the same time. The farmer would not farm, the teacher would not teach, the miner would not mine, unless the funds were available to compensate them for their labors. Paper “scrip” underwrote the production of goods and services that would not otherwise have been on the market. The new paper money did more than make the colonies independent of the British bankers and their gold. It actually allowed the colonists to finance their local governments without taxing the people.

The Pennsylvania plan showed that it was quite possible for the government to issue new money in place of taxes without inflating prices. From 1723 until the French and Indian War in the 1750s, the provincial government collected no taxes at all.

When he (Benjamin Franklin) was asked by the directors of the Bank of England why the colonies were so prosperous, he replied that they issued paper money “in proper proportions to the demands of trade and industry.” The secret was in not issuing too much, and in recycling the money back to the government in the form of principal and interest on government issued loans.

and so on. I raise a question: "How many people, even economist know these facts?

 

 

 

 

 

 

 

 

 

 

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - May 3

Malden: I am familiar with the book you are quoting from as I am actually in the process of reading it myself. I think it's a good book, but I take everything I read in it with a grain of salt as well. The book seems to have a thesis that is pretty clear and attempts to support throughout, as opposed to really investigating evidence on both sides.

As the book suggests, paper money can be very advantageous to a government and can be managed properly. But I would argue that we have taken things out of context with the modern era. When paper money was just starting to be issued in the fledgling American colonies, the environment was completely different than it is in America today. Back then, it was akin to the local currencies that we see springing up. Now, the dollar is (still) the reserve currency of the world. Again, there is no absolute reason why a paper money system can't be managed well now, but I think it's much less likely to be managed well than in the Colonies. I would point to the many entangled and complex interest groups that have stakes in the value of the dollar as well as the very concentrated wealth centers around the world that can have enormous influence its value. Finally, the large and complex nature of an economy such as America would make it much more difficult to finely tune a paper money system when compared to the days of the Colonists. And this assumes that all relevant parties have a true interest in maintaining dollar strength. Again, fiat is not impossible to manage well, but I believe that today's environment makes it unlikely that it will be.

In the shorter term, gold can have a fairly volatile value. But over the longer haul, the value is fairly stable. Ideally, we could have a commodity or production based currency, but it would be very difficult to pay for things in barrels of oil. Many say that gold is not very useful to the economy. I agree, save for one thing: gold makes pretty good money for a number of reasons. As we begin to hit the downslope of the many peaks, we are going to find that printing paper will remain a strong temptation for the government's of the world. But paper is not the same as oil supply (or, for that matter, gold supply). Gold extraction is heavily dependent on energy and as energy peaks and declines, we will continue to see metal extraction rates decline. I propose that for the time being, precious metals would be an ideal monetary instrument to help us correctly price things in an environment of declining productivity.

The only thing that I could imagine might theoretically work better than this would be a fiat system based on oil or energy supply where each dollar is defined in terms of an amount of energy produced in a given year and is not subject to change. We'd likely soon see spun up numbers regarding energy supply. The key with gold is that it tends to put the power in the hands of individuals and take the power away from corporations, large governments, and special interest groups. It's not perfect, but I think we'd need a complete paradigm shift of our political and corporate environment, as well as a massive shift in public awareness before I could be convinced that we're even capable of properly managing a fiat system.

Mike

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