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PS: (I know posting a PS or comment on your own comment is probably extremely annoying – won’t do it again)
I said none of our problems have long-term money-creation solutions. What I should have added is that they do have wealth-creation solutions in my opinion. Wealth is not so easilly created when the medium you use to store wealth (money) is constantly being debased.
By returning to a gold standard, our method of storing wealth would be sound. Businesses and foreign banks would be much more likely not only to do business in the US, but also to continue to use the dollar in their business wherever it might be. Only a fool would choose to continue doing business in, or putting their savings into, any other (fiat) currency.
This would return wealth to the US in the form of jobs, savings, investment, immigration for new jobs other than gardeners (which will help enormously in meeting our SS responsibilities) etc.
As for the argument of deflation: dollars could still be added to circulation. All it takes is for more gold to be produced and deposited with the US Treasury, which would issue new (never-existed-before) dollars in exchange for it. Of course the difference is these would be real demand-deposits, not equivalent to current day, print-whatever-you-want, whenever-you-want dollars.
Gold would be produced whenever miners perceived the cost of drilling for it to be less than the dollars received for it. Theoretically, this would be exactly (or as exactly as any system could get) the correct amount of new dollars an economy would need.
In my opinion, if there is a solution to our problems besides all-out collapse and possible disintegration of the US, this is it. It may be too late for even this to work, but I believe it would have a much better chance than any argument I’ve seen so far, all of which call for more wealth debasement – I mean money creation.
I just caught this thread. Sorry I’m a little late to the party, but here’s what I would do. Now, I didn’t read everyone else’s solutions so as to avoid clouding my judgement. I’ll read them after I post this:
First, I wouldn’t spend this newly created money. I’d destroy it.
Then, I would count up all the gold in the possession of the US government. Supposedly, it’s 260 million ounces.
Then I’d count up all the existing dollars in circulation and do the math of dividing them by the quantity of gold in existence. I’d announce the figure to the world, the new dollar/ounce of gold figure, and then I’d use a few sticks of dynamite to blow up the dollar printing presses. (I’m speaking facetiously of course: One press would be left in existence to replace worn bills. I’d put it in a giant glass-enclosed room in the middle of the Washington Mall for all to see, and equipped with web-connected cameras for anyone to monitor at anytime. Bankers could line up at the door to turn in worn bills, and then get in another line to collect the new ones!)
Comic-relief break over: This would fix the dollar to gold once again. Every dollar would actually be worth something. Faith in the dollar and in the US economy (long term) would be restored. We would be left with a multitude of problems, none of which have long-term money-creation solutions, but at least we’d have a stable currency.
The "Big 3" would still go under, at least two of them (by the way, when they say "Big Three" are they referring to the auto manufacturers, or the auto unions?), but somebody would buy the assets, rehire some if not most of the workers, and make profitable cars for a a change. That’s better than bailing them out for a few months and having them go under anyway.
People who took mortgages they could not afford will still be foreclosed on, and banks that made bad loans will still go under. But somebody will come in and buy the houses and rent them to the people that lost them, or the banks will rent directly to them. They didn’t really lose the houses by the way: you cannot "lose" something you do not own. They lost the right to keep paying a mortgage they could not afford to begin with. If they didn’t even pay a down payment, exactly what are they "losing" – the miniscule equity one accumulates over the first few years of a 30-yr mortgage? That’s better than trying to bail out banks that are going to go under anyway, or pulling the rug out under the rule of law and making it illegal for banks to foreclose on delinquent borrowers.
We’d still be in a recession caused by cheap money and onerous regulations. We’d still be facing baby-boomers becoming elligible for SS benefits in ever-increasing numbers. We’d still be facing ever-increasing energy prices, and a world with finite resources.
But guess what: none of those problems can be solved by printing money into existence. Most of them are a result of printing money into existence. Like a heroin addict, we have to quit cold turkey. Yes, it will be very painful, but like a drug addict, that pain is better than the alternative.
I share your sentiments exactly. Of course the perennial problem is timing. I am positive oil will be back at $100 before we know it, for the reasons you’ve cited, but will it fall to $20 before it does that, and how long will it be before it goes to $100 or $400? I’ve owned and continue to own various oil stocks, but some of my favorites are SJT, BPT, and HGT. None of these are actual companies. They are all Trust Funds created between oil companies and land trusts. It’s the closest thing possible to owning your own oil well! The oil companies are required to pay the trust a fixed percentage of all sales proceeds and dividends are paid automatically every quarter. Anyway, check them out. They provide all the fun of oil investing without the risk of corporate balance sheet surprises.