So, the next U.S. recession starts this week?

[FoxyKaye]

What do folks think? I'm not an economist, but like a lot of folks, I've got a 401k and other investments that are currently being pounded by the falling stock market.

Is this a market correction, or are we now at the beginning of a new recession?

I tend to think the latter, since a lot of Americans have been hit hard by the subprime market collapse, live paycheck to paycheck, and the entire country seems to be debt-financed. A lot of these chickens seem to be coming home to roost right now.

[Prof.]

My dad is in the news business and all the "officials" are saying we are going to be in a recession for at least one year.:( DAMMIT, George!!!

[Blue Velvet]

So, markets collapse and the FED slashes interest rates, probably encouraging inflation... who exactly is dictating monetary policy?

Giulani is going to have change his campaign message; it's the economy, stupid.

[PlaceofDis]

too early to tell if its a recession or correction, or a bit of both.

personally i think its the last option, a bit of both. there really is no black and white way to look at it. there are so many factors in play here that its hard to tell just whats going on, but certainly i think its a bit of a correction and the beginning of a recession. although, people seemed panicked by the thought of a recession, and thus the panic is making things worse.

[Ugg]

I think it's a recession. The sub prime disaster is a classic pyramid scheme similar to what led to the crash of 1929.

I think it'll be June before we really know how bad things are.

[FoxyKaye]

So, markets collapse and the FED slashes interest rates, probably encouraging inflation... who exactly is dictating monetary policy?
I sure wish I knew - about the only good to come of this might be the opportunity to refinance my home loan at a ridiculously low interest rate. I'm also wondering if we might see 1970s style inflation again - in which case maybe I could pay off the home loan a lot quicker (it's a 30-year fixed). Wasn't there some country in Africa that just minted a $50 million dollar bill for general circulation?

[miloblithe]

Judging by the indicator of Apple's shard price, it's not just a recession, it's a collapse!

More seriously, yeah, we'll definitely see as we get more data. It's starting to feel recession-like though.

[Ugg]

Wasn't there some country in Africa that just minted a $50 million dollar bill for general circulation?

Zimbabwe is not exactly the most stable country. With inflation running over 10,000% it's somewhat of an anomaly. Even bushco couldn't make that big of a mess of the US although they've certainly tried.

[Much Ado]

Judging by the indicator of Apple's shard price, it's not just a recession, it's a collapse!

Because investor confidence in AAPL = the strength of the US economy? :rolleyes:

It's going to be close-run, but I think we'll narrowly avoid a full-blown recession.

[Eraserhead]

'm also wondering if we might see 1970s style inflation again - in which case maybe I could pay off the home loan a lot quicker (it's a 30-year fixed). Wasn't there some country in Africa that just minted a $50 million dollar bill for general circulation?

The Vietnamese have 31000 vietnamese dong to the pound (16000 to the dollar) and they are certainly doing well at the moment.

But if its Zimbabwe then it isn't a surprise that they have very large notes they have huge inflation.

[Blue Velvet]

I'm also wondering if we might see 1970s style inflation again...


Let's see:

• Servicemen — and women this time — returning from an unpopular war
• Trouble with Iran
• Fuel prices soaring
• A lame-duck president
• Rising inflation with growth collapsing: stagflation
• Simultaneous fear and obsession with China
• Stirrings in Russia

That can surely mean only one thing...



The return of flares. :D




And some great cultural changes in the air as the centre cannot hold. Love it.

[miniConvert]

I think folk all over the world are feeling a lot less rich at the moment. If that sentiment continues then surely a recession is inevitable. For the first time ever I felt like I was being ripped off in Starbucks the other day :D

Still, I'm hopeful. I just hope the Bank of England doesn't pull any crazy stunts like the Fed has. Sterling vs Euro is buggered up enough right now.

The only thing that's for certain is that if the US goes into recession then it has implications for us all.

[IJ Reilly]

By definition, you don't know the economy is in a recession until after it is already in one. The stock markets don't cause recessions, but they do act in anticipation of future conditions. The markets are betting on a recession, or at least slower growth. We'll know in a few months who was right.

[Eraserhead]

Still, I'm hopeful. I just hope the Bank of England doesn't pull any crazy stunts like the Fed has. Sterling vs Euro is buggered up enough right now.

That was the stupidest thing they could do IMO.

[skunk]

A contribution I have just received from George Soros:
The worst market crisis in 60 years

By George Soros --- Published: January 23 2008

The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.

Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.

Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks' commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever befor e. That made the crisis more severe than any since the second world war.

Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an en d.

Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

[Eraserhead]

^^ Looks like I've timed finishing University wonderfully :rolleyes:.

[Ugg]

The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

The Japanese shopping spree of the 1980s will be insignificant in comparison to the Sovereign Wealth Funds of the noughties.

Norway's attempt to sink Iceland's economy is only a taste of the future. And the Norwegians even have a modicum of morality.

What happens when the Chinese buy Boeing?

[FoxyKaye]

A contribution I have just received from George Soros:
Oh... my. So, if the entire United States economy was the Genesis project, we've just built everything on protomatter, haven't we?

I wonder what will become of the dollar when the international markets dump it in favor of the Euro?

[IJ Reilly]

A contribution I have just received from George Soros:

An old friend of yours? Could I receive a contribution from George Soros? Please? :)

I think this is all a bit too buzzword compliant for my tastes. I don't see where he's made a case that this current credit crisis is fundamentally different than than the others we have experienced. So what if the world economy is becoming less US-dollar denominated? He makes it sound like this has drastic consequences, but it is unclear what those consequences are, precisely.

As for his description of the sub-prime train wreck -- so what else is new? And the rise of the Chinese economy -- tell me something else I didn't know. If I've completely missed some original and deep insights from Mr. Soros, I beg enlightenment.

[FoxyKaye]

I think this is all a bit too buzzword compliant for my tastes. I don't see where he's made a case that this current credit crisis is fundamentally different than than the others we have experienced. So what if the world economy is becoming less US-dollar denominated? He makes it sound like this has drastic consequences, but it is unclear what those consequences are, precisely.
I took it to mean that he's looking at changes in geo-political power structure (how's that for a couple buzzwords) that weren't necessarily factors in previous recessions - the Cold War kept a lot of things in check, for better or worse, and it also made the Dollar the international currency of choice in many circumstances. However, this time, there are emerging international economic alternatives that mean faith lost in the Dollar this time might not be regained in the future - and the U.S. might decide that there's a military intervention or two to be had to rectify the situation. Basically, we could see more Iraqs as the US Government makes military plays to keep the economy rolling was one implication I read. That, and what will happen when the bully in the international playground breaks its legs and realizes it has no friends to take it to the hospital.

[Eraserhead]

@ IJ Reily I'm sure that Skunk can reply better than I can, but I would say that the Federal Reserve have screwed up badly with the .75% drop in interest rates, as it looks desperate and without confidence.

Also that at some point assuming the amount of credit has been increasing since WW2 there has to be a crunch at some point.

[Dont Hurt Me]

refinance time!:) I want to see the fed go down another qtr of a point.:)

[skunk]

So what if the world economy is becoming less US-dollar denominated? He makes it sound like this has drastic consequences, but it is unclear what those consequences are, precisely.I believe the key part here is, as FoxyKaye has divined, that it has been only the status of the US dollar as international reserve currency of choice which has allowed the US to draw on almost inexhaustible supplies of credit to finance its deficits. Once this ceases to be so, the excrement is going to become virtually inseparable from the air-conditioning.

GS isn't actually a personal friend. I just get his emails. :)

[Thomas Veil]

I got a little bit into this in the Bernanke thread, but...

Tons of foreclosures +
Inflated housing market collapse +
Job market flat +
Below expected Christmas sales +
Talk of other countries going to euros +
Citibank and Morgan Stanley selling parts of themselves to foreign investors to raise cash +
Fed dropping interest rates .75% =
_______________________________
I got a bad feeling about this.

A really bad one. I'm old enough to have been in and out of several recessions, and I don't think I've seen one with this kind of confluence of events. When everything else was going bad, people said, "Well at least real estate is still holding its value." And now that's not true anymore. You put that together with what look like desperation moves like the Citibank/Morgan Stanley things and the Fed drop, and this looks worse than just your average recession.

I just have the same uneasy feeling that I had when Bush tried to convince us we should go to war with Iraq: "Uh-oh. This could get really, really bad." I sure hope I'm wrong.

[Queso]

Seriously, I expect a US recession coupled with a global slowdown for the next couple of years. Indicators suggest Europe will weather the storm best, so hopefully the recent correction in the pound/euro rate will boost UK exports to the eurozone and keep us from following the US down. We also have a lot of Russian money coming into the country which will help the service economy, and the high oil price should add to the UK coming in for a soft landing rather than a collapse.

I don't see this as 1989 all over again. Not unless you live in the States anyway.

[FoxyKaye]

By "1989 all over again" you mean the downturn that dogged Bush I while in office, leading to Perot's infamous, "it's the economy, stupid" commentary?

Hmm. That does raise an interesting point - the recession (when it comes) would be perfectly timed with what should be a shoe-in Democratic presidency in November, meaning that no matter what else happens the newly-elected Democratic President will get the blame for it in 4 years.

[Music_Producer]

This 'recession' or stock market 'correction' is the least of our worries. My worry is the imminent collapse of the fiat currency system. Currencies used to be backed by gold/silver earlier.. that all changed since the 70s (I think) Now it's easy to just 'print' money and lend it to banks, etc. This has enabled the credit scheme to run to its highest levels..

When it all goes down, the only assets that will be strong enough to withstand everything will be 'real' money - i.e. precious metals. (Unless you are good at stocking barrels of oil in your home)

Edit : The way all the central banks are being vigilant and are ready to cut rates.. it's evident that they are all trying to save their collective a$$e$ and corporates. I have a feeling that the Feds will push rates down to 0 if required.. this in turn, will cause the bubble to inflate all over again - except this time, it will be much much larger.. and once that bursts..then the real collapse will begin.

[Rodimus Prime]

I read on the new that it may be to a point that no mater what the fed does we are going to go into a recession. Not because of dollar or any of those other reasons listed but because the market is exhausted. It goes up and down and we been going up for 7 years straight now and with some rather huge booms so the market is just getting tired. A recession hits and it has time to recover and pull itself out. I think it is going to be rough on some people with some lay offs but for the most part it just going to be a huge slow down. Most people will keep there jobs but bonuses and what not will be a lot smaller than normal and the companies will be very careful for a while.

The good companies to work for will go more into a hiring freeze and lose some money as they weather the storm keeping its people.

[IJ Reilly]

I believe the key part here is, as FoxyKaye has divined, that it has been only the status of the US dollar as international reserve currency of choice which has allowed the US to draw on almost inexhaustible supplies of credit to finance its deficits. Once this ceases to be so, the excrement is going to become virtually inseparable from the air-conditioning.

I call this old news, and I don't think it's necessarily true that debt is only desirable in certain specified currencies. Investors abroad buy debt for a variety of reasons, probably the least of which is the currency in which it is denominated. I'd agree that if foreign investors decide en masse that US debt is too risky, then interest rates in the US will soar and we could be in big trouble (and by reference, the rest of the world). But we've been hearing this particular dire prediction for literally decades now, and it's beginning to sound a bit cry-wolfish.

GS isn't actually a personal friend. I just get his emails. :)

Yes, but does he know that?

[nhallmark]

This 'recession' or stock market 'correction' is the least of our worries. My worry is the imminent collapse of the fiat currency system. Currencies used to be backed by gold/silver earlier.. that all changed since the 70s (I think) Now it's easy to just 'print' money and lend it to banks, etc. This has enabled the credit scheme to run to its highest levels..

When it all goes down, the only assets that will be strong enough to withstand everything will be 'real' money - i.e. precious metals. (Unless you are good at stocking barrels of oil in your home)

Edit : The way all the central banks are being vigilant and are ready to cut rates.. it's evident that they are all trying to save their collective a$$e$ and corporates. I have a feeling that the Feds will push rates down to 0 if required.. this in turn, will cause the bubble to inflate all over again - except this time, it will be much much larger.. and once that bursts..then the real collapse will begin.

You voting for Ron Paul, bro? :p

[Rodimus Prime]

This 'recession' or stock market 'correction' is the least of our worries. My worry is the imminent collapse of the fiat currency system. Currencies used to be backed by gold/silver earlier.. that all changed since the 70s (I think) Now it's easy to just 'print' money and lend it to banks, etc. This has enabled the credit scheme to run to its highest levels..

When it all goes down, the only assets that will be strong enough to withstand everything will be 'real' money - i.e. precious metals. (Unless you are good at stocking barrels of oil in your home)

Edit : The way all the central banks are being vigilant and are ready to cut rates.. it's evident that they are all trying to save their collective a$$e$ and corporates. I have a feeling that the Feds will push rates down to 0 if required.. this in turn, will cause the bubble to inflate all over again - except this time, it will be much much larger.. and once that bursts..then the real collapse will begin.


we went off the gold standard a long time before the 70's. We went off of it I Believe in 1932 because of the cost of WWII

[nhallmark]

we went off the gold standard a long time before the 70's. We went off of it I Believe in 1932 because of the cost of WWII

It was 1971. Google the Bretton(sp?) Woods Agreement...I think wikipedia has the history of it all(can't find the link).

[Rodimus Prime]

It was 1971. Google the Bretton(sp?) Woods Agreement...I think wikipedia has the history of it all(can't find the link).

yeah that may of been the official date but look back during the great depression and you will find we effectually went off it then. The government made it illegal for a US citizen to own gold (in the form of the gold standard type gold) effectually ending the gold standard.

[nhallmark]

yeah that may of been the official date but look back during the great depression and you will find we effectually went off it then. The government made it illegal for a US citizen to own gold (in the form of the gold standard type gold) effectually ending the gold standard.

You're right. I remember reading about that. I guess a better way to put it is the current monetary system/policy has been in place since 1971.

[Eric Piercey]

Fiat systems are more or less destined to fail. This one is no different. You simply can't have a system in which money can just be created on a whim that won't eventually fall apart for various reasons. Gold is almost $900, no shocker. I'm considering moving all my $$ to Euros.

[Rodimus Prime]

Fiat systems are more or less destined to fail. This one is no different. You simply can't have a system in which money can just be created on a whim that won't eventually fall apart for various reasons. Gold is almost $900, no shocker. I'm considering moving all my $$ to Euros.

How is the Euros any different. It is on a Fiat system as well. Things go up and down in price.

[Ugg]

How is the Euros any different. It is on a Fiat system as well. Things go up and down in price.

Oil and airplanes are priced and sold in dollars. This means the US can print more dollars whenever the price of oil goes up.

[miloblithe]

Oil and airplanes are priced and sold in dollars. This means the US can print more dollars whenever the price of oil goes up.

As of last month, Iran doesn't accept dollars for oil. Not only do they not accept dollars, but (theoretically) the exchange is denominated in euros.

http://en.rian.ru/world/20071208/91488137.html

Chavez clearly wants Venezuela to follow suit.

[wonga1127]

You're right. I remember reading about that. I guess a better way to put it is the current monetary system/policy has been in place since 1971.


Gold standard effectively ended in 1933, after FDR signed an executive order making it illegal to own gold bullion, coin, or gold in reserve at a bank (ie, money). After that we went to an essentially fiat system, but money was still redeemable in "lawful money", as noted on the greenbacks themselves. That ended in 1968. 1971 we unlocked the price of gold, previously set at $35/oz.

[Rodimus Prime]

As of last month, Iran doesn't accept dollars for oil. Not only do they not accept dollars, but (theoretically) the exchange is denominated in euros.

http://en.rian.ru/world/20071208/91488137.html

Chavez clearly wants Venezuela to follow suit.

yeah but if I rememeber correctly the real reason Iran did this is because they do not like the US. Not because of the value of the dollar.

[MikeTheC]

Oh... my. So, if the entire United States economy was the Genesis project, we've just built everything on protomatter, haven't we?

I wonder what will become of the dollar when the international markets dump it in favor of the Euro?

It isn't every day you see a female (I'm assuming you're female) quote Star Trek III. You're awesome! (BTW, assuming you're a woman -- are you married, lass?)

Actually, the Euro isn't exactly based on the best practices, either, since it's also only fractionally-backed by anything (i.e. gold, silver, etc.) and will, in time, probably finish up like the dollar is now.

What we need to do is what (whether you'd vote for him or not) Ron Paul is talking about, and that's to get the Dollar back on the Gold Standard, instead of simply being Fiat money. Actually, there's a bunch of other things we need to do too, but that's pretty huge in and of itself.

[Ugg]

What we need to do is what (whether you'd vote for him or not) Ron Paul is talking about, and that's to get the Dollar back on the Gold Standard, instead of simply being Fiat money. Actually, there's a bunch of other things we need to do too, but that's pretty huge in and of itself.

Repeat after me. There is not enough gold, platinum and silver to back all they currencies of the world. Having it backed by an increasingly rare metal is the pipe dream of some crack smoking junkie.

Having a currency backed by a rare precious metal is a concept that belongs in the middle ages, not in the 21st century. Even then, it did nothing to prevent wild currency swings.

Why you continue to promote such an irresponsible idea is beyond me.

[MikeTheC]

However, this time, there are emerging international economic alternatives that mean faith lost in the Dollar this time might not be regained in the future - and the U.S. might decide that there's a military intervention or two to be had to rectify the situation. Basically, we could see more Iraqs as the US Government makes military plays to keep the economy rolling was one implication I read.
Hmm...

I'm not sure it matters what other countries' currencies are based on, so long as they're all fiat currencies and not directly and exclusively backed by precious metals (gold, silver, platinum, etc.)

Other than that, I think the pressure to act militarily will be the product of a sum-total effect who's causes we've been allowing and/or generating here for some time. Consider:

Many of us (myself included) have complained how immoral and unethical things seem to be getting out there "in the street", and while we're most of us agreed that it's because kids are growing up being allowed to get away with anything, we can't seem to agree on what a good basis of morals and ethics rearing should be.

I mean, we can't even have a long-lasting civil discussion of various religions and theologies, let alone more spiritual discussions without barbs and daggers and firebombs being lobbed from all sides -- and I'm talking about here on MacRumors.com, let alone elsewhere on the 'net and IRL.

The cracks made by atheists about a believer's God referred to as "some kind of invisible space fairy" still sting. Sorry, but it just proves the point how utterly immature we have become as a society -- how childish, petulant and foolish -- if we can't even have the personal dignity to treat each other with respect.

As people get older, and as some of them then enter the system as a result of various offenses (cultural and personal as well as financial as well as political and social as well as misdemeanors-and-felonies) society seems to be letting them off the hook, thereby inciting and encouraging more of the same.

Now, as a society, we've decided that so much of what passed for bounds and rules which governed our behavior have gone by the boards that it's becoming increasingly easier and easier to justify and/or to excuse all sorts of stupid, harmful, depraved and truly sick things.

Have you heard the latest? There's now a device that's been invented by some probably well-meaning mother to "alert and remind" parent drivers that their children are still strapped in the car they've just parked and turned off and are about to get out of.

Why are we reminding people -- no, more accurately, why are we reminding parents -- not to leave their children in cars that are going to become fatally hot? How about drilling into the heads of people in this country that the basic tenet of respect for life actually means something?!? If you have to "remind" a "forgetful" parent of the obvious -- that you shouldn't leave your child strapped into your unoccupied, sun-baked car -- then frankly we've gone somewhere in society which suggests something far worse than absent-mindedness.

And speaking of these nare-do-well parents, let's not forget that incidents of "Gee, golly, I didn't know I was pregnant!" unwed moms who abandon new-borns -- I mean, for the love of God, what's ever happened to basic maternal instincts? Have we bred those out of our culture too? -- are continually on the rise. And dropping off new-borns at firestations and police stations are as well, almost to the point where it's like "Oh, I have this unwanted kitten. I'll just drop it off at a shelter."

These kinds of behaviors are implicitly telling us we don't value life, so how can we possibly value ourselves or each other? We're lost, and yet while we should be interested in finding our way home, we're more interested in becoming even more personally irresponsible, isolationist and hedonistic. This isn't progress, folks.

So, what happens when (not if) our country's population enters another recession, or worse yet an out-and-out depression, and "we the people" cry out to our government to basically do something, and this time we don't give a d**n what the means used is. Just get us more water, more grain, more oil, more electronics, more whatever, and our government (who, you'll recall, is ultimately staffed by people hailing from this decaying culture) who are on average no more moralistic than any of the rest, and they decide to simply take by force what we the people are screaming for.

It's not a pretty picture, and I don't intend to paint as something else.

However, just like a smoker who wants to give up smoking but hasn't, or whatever, we're free to change our behavior, and we can do it in the very next second. All we have to do is actually do it. This implies the innate belief in the realistic possibility of change. However, there are still some things worth fighting for, and getting us back on the track we started on as a nation would sure fix so very many of these problems.

Change itself is not impossible. However, having the will to change -- heck, even the desire to change -- is what we seem to be sorely lacking in this country. It could, it is, and it will continue to lead to our downfall.

The very first thing we have to do is understand we cannot all be out for ourselves, and only exclusively interested in and focused on our own personal agenda. That is like a cancer or a poison, and the sooner we understand that the best way to personal self-empowerment, self-determination, personal liberty and the end of the so-called "nanny-State" is to quit being irresponsible and greedy, and realize what we do affects not only ourselves but all those around us to one extent or another (and that that actually does matter).

*steps off of soap box*

[MikeTheC]

Repeat after me. There is not enough gold, platinum and silver to back all they currencies of the world. Having it backed by an increasingly rare metal is the pipe dream of some crack smoking junkie.

Having a currency backed by a rare precious metal is a concept that belongs in the middle ages, not in the 21st century. Even then, it did nothing to prevent wild currency swings.

Why you continue to promote such an irresponsible idea is beyond me.

Sorry that you feel that way. So then, tell me: what should currencies be backed by? Surely there's something which they can be backed by or should be backed by. Otherwise, how can they possibly have any value at all? And why would you actually want to accept something for goods or services you produce or render if it is therefore, in a word, valueless?

[hulugu]

...

Many of us (myself included) have complained how immoral and unethical things seem to be getting out there "in the street", and while we're most of us agreed that it's because kids are growing up being allowed to get away with anything, we can't seem to agree on what a good basis of morals and ethics rearing should be....

*steps off of soap box*

I think there's actually a lot of agreement about morals and ethics. We can fight about the details, the how and sometimes even the why, but generally speaking I think we can come to some hard and fast agreements about what really matters.

As for "kids in the street" this has a lot to do not only with how children are being raised in my opinion, but also how society treats them, the rise of the two-income family, the lack of neighborly interaction brought on by social and even architectural elements, and a host of other small problems and effects. Kids today are actually very smart and moral creatures, but they have been given a different set of pressures and are, in my opinion, simultaneously required to be permanent children and instant adults.

*steps off soap box*

Next.

[hulugu]

Sorry that you feel that way. So then, tell me: what should currencies be backed by? Surely there's something which they can be backed by or should be backed by. Otherwise, how can they possibly have any value at all? And why would you actually want to accept something for goods or services you produce or render if it is therefore, in a word, valueless?

We'll essentially it's just a large rendering of credit. It's a promise to pay based on the trustworthiness of the source. In much the same way the gold standard is the same thing, do we really know how many gold bars are held to back the currency? And, even if we wanted to, could we demand one of those gold bars in exchange for goods? If you can't take the gold with you, then what does the backing of currency with precious metal really mean?

[MikeTheC]

We'll essentially it's just a large rendering of credit. It's a promise to pay based on the trustworthiness of the source. In much the same way the gold standard is the same thing, do we really know how many gold bars are held to back the currency? And, even if we wanted to, could we demand one of those gold bars in exchange for goods? If you can't take the gold with you, then what does the backing of currency with precious metal really mean?

Right, but credit based on what? Trustworthiness? So I'm going to repay you in trustworthiness? And you're going to accept that?

This is a never ending sea of promissory notes which mean absolutely nothing. Now, I don't know whether I'd buy into the notion that there's not enough gold or silver or what-have-you on the planet, but even if just for the sake of argument we state that there isn't, then what is it you're working for?

I mean, how about we give up the pretense of any kind of currency and simply go to a barter system? Maybe I don't want to be paid with promises to pay me. What if I want something else? And what if John down the street wants something else, too? Perhaps I want to be paid in wood. I mean, that's a commodity and, while it's true that it's renewable, it's still a physical, tangible thing. Heck, I can make a house from wood! I can build furniture. (Well, no, I can't build furniture personally, but it can be done.) There's any of a number of real, physical things I can do with wood, all of those tangible and useful, far more so than promises of promises of... well, still more promises.

Maybe your thing isn't wood. Maybe you might be more interested in paper itself. Or perhaps in sheet metal. Now there's a highly versatile asset to have. You can build cars and planes from that stuff, and not just houses and furniture. Or how about...

Well, you get my point. I want something which is real and physical and tangible. And I don't want something which has no actual basis or value, or something which we can just basically pretend more of into existence just to suit our own whims.

[hulugu]

Right, but credit based on what? Trustworthiness? So I'm going to repay you in trustworthiness? And you're going to accept that?

This is a never ending sea of promissory notes which mean absolutely nothing. Now, I don't know whether I'd buy into the notion that there's not enough gold or silver or what-have-you on the planet, but even if just for the sake of argument we state that there isn't, then what is it you're working for?

I mean, how about we give up the pretense of any kind of currency and simply go to a barter system? Maybe I don't want to be paid with promises to pay me. What if I want something else? And what if John down the street wants something else, too? Perhaps I want to be paid in wood. I mean, that's a commodity and, while it's true that it's renewable, it's still a physical, tangible thing. Heck, I can make a house from wood! I can build furniture. (Well, no, I can't build furniture personally, but it can be done.) There's any of a number of real, physical things I can do with wood, all of those tangible and useful, far more so than promises of promises of... well, still more promises.

Maybe your thing isn't wood. Maybe you might be more interested in paper itself. Or perhaps in sheet metal. Now there's a highly versatile asset to have. You can build cars and planes from that stuff, and not just houses and furniture. Or how about...

Well, you get my point. I want something which is real and physical and tangible. And I don't want something which has no actual basis or value, or something which we can just basically pretend more of into existence just to suit our own whims.

But, in order to do business beyond a barter system, we need to have an agreed upon standard. Unless I take gold or platinum or sea-shells, your horde of such an object is meaningless. Thus, we have globally agreed that gold is valuable and credit just as so, thus we have promissory notes to pay. The stock market, credit cards, and other systems exists on this system and work quite well, requiring a big pile of gold at the end doesn't really solve any of the problems that come from a collapsing financial system.

Financial systems are a set of agreements, nothing more. And, pretending that gold is the financial salve is simply missing just how tenuous all this stuff really is.

[nhallmark]

The main reason to have currency notes backed by something(gold, silver, etc.) is so government(or CBs) can't steal the value of our money through inflation and create more when they feel like it to do things the people are against or don't know about.

I actually don't see the problem with a fiat currency as long as there is a way to keep them from printing more notes...and the only way we've been able to do that throughout history is by tying the currency to gold, etc.

The issue, to me, is like MikeTheC said, our society is increasingly lacking in the moral department, which includes people working in government, CBs, etc. If we still valued things like honesty and personal accountability, none of this would be an issue, IMHO.

MikeTheC and hulugu, I'm enjoying your posts ;)

[mactastic]

yeah but if I rememeber correctly the real reason Iran did this is because they do not like the US. Not because of the value of the dollar.
I don't think the two reasons are mutually exclusive...

It isn't every day you see a female (I'm assuming you're female) quote Star Trek III. You're awesome! (BTW, assuming you're a woman -- are you married, lass?)
You're going to need an operation that I don't think you're willing to have to attract her attention! :p

[Desertrat]

It looks to me like we're in for a period of stagflation. We already see the inflation part; people are bitching at great length about prices rising swiftly.

When I read about a decline of about 3% in freight tonnage, I see contraction. That's ocean, rail and semi haulage, with certainly doesn't indicate economic growth. We read of tens of thousands of fairly high-paid workers losing their jobs and that means less money in circulation--in a society whose economy is 2/3 based on consumption.

And there's a lot more data to indicate that we're in or going into a recession. When guys like Soros appear worried, it's a good indicator that hard times are on the way. Face it, he has employees who do nothing but analyze economic matters. That's why he can make a billion bucks a year.

To me, then, the issue is how long it might last--and I don't guess anybody knows the answer to that...

'Rat

[IJ Reilly]

And there's a lot more data to indicate that we're in or going into a recession. When guys like Soros appear worried, it's a good indicator that hard times are on the way. Face it, he has employees who do nothing but analyze economic matters. That's why he can make a billion bucks a year.

"If all the economists were laid end to end, they'd never reach a conclusion."

I'm hearing a lot of conflict out there from experts. Many are still convinced that a recession (at least it's technically defined) is not inevitable. Very low GDP growth for the first two quarters, on the order of 1% or less, is their prediction. FWIW. Consumers, also FWIW, are far more gloomy.

[themadchemist]

So, markets collapse and the FED slashes interest rates, probably encouraging inflation... who exactly is dictating monetary policy?

Giulani is going to have change his campaign message; it's the economy, stupid.

Some circles think the inflation worries from the Fed have been overblown. Bernanke has been so cautionary on inflation that he's held back interest rate cuts that probably should have happened some time ago. This, perhaps, was a pent-up need.

[FoxyKaye]

You're going to need an operation that I don't think you're willing to have to attract her attention! :p
Alas, MikeTheC, that's true. That, and I've been happily partnered for 7 years. But I appreciate the compliment.

I was thinking more about the gold/silver/etc. standard stuff, and although I also wish it were still the case, I do agree that it can't happen anymore - it would have been different if we never went off the standard in the first place, but since we have, to re-back all our currency with metal would seem to take too much re-jiggering of the economy, let alone precious metals supplies. Though I often wonder if there's something else that could back a currency aside from metal - another element? ("I'd like my 3 cubic feet of hydrogen, please").

Then again, with the mess we're in, the economy would seem to be in need of some major reform. Although, Ken MacLeod (author of the Star Fraction and Fall Revolution series) has an interesting quote: "What if capitalism is unsustainable, and socialism is impossible? We're f-cked, that's what."

[Desertrat]

We could do like Mexico, when the peso hit some 3,000 to the US $: Move the decimal point. So, 3:1. Made the accounting easier, anyway--although it's now about 10.9:1. And the French had "old francs" followed by "new francs"; from some 350:1 to 3.5:1. :D

Central banks are fun to watch, if you're a masochist.

'Rat

[Eric Piercey]

Though I often wonder if there's something else that could back a currency aside from metal - another element? ("I'd like my 3 cubic feet of hydrogen, please").

Then again, with the mess we're in, the economy would seem to be in need of some major reform. Although, Ken MacLeod (author of the Star Fraction and Fall Revolution series) has an interesting quote: "What if capitalism is unsustainable, and socialism is impossible? We're f-cked, that's what."


Okay let's step back a bit for clarity.

In a tiny group barter is fine. As groups become larger and more diverse and begin dealing with other groups an accepted currency greatly facilitates commerce, and growth. Then we run into other groups-of-groups (nations/states) each with their own currency and we must agree upon a universal exchange standard.

Okay can we agree this far? This is basic ABC123 logic.

Let's talk about currency for a sec. For obvious reasons it can't be easily created. It must, by definition, be scarce to be of value. The less scarce, the less value a currency holds.

Still with me? I'm keeping this as basic as possible so we don't break into ridiculous arguments that stray off.

The creation of a currency must therefore be tightly controlled for the currency to hold its value. Someone has to make it and control it. This group is vital, obviously.

Note, I've said nothing about the currency being backed or fiat as of yet.

Okay so in a perfect system you have a bunch of nations each with their own very carefully controlled currencies, all in agreement more or less on the value of their own currency as it relates to all the other currencies.

This is still basic economy 101.

As we've already discussed, if the creation of money is not controlled it becomes less scarce and the value drops. In other words it then takes more units of the currency to buy a loaf of bread...

...which you can actually eat and helps sustain life. But let's not go there quite yet. Let's stay on the topic of currency itself, not of "real vs imagined" value.

Okay so nation A suddenly loses control of it's currency for whatever reason. This currency, let's just call it the dollar, is suddenly worth ..oh let's say about 4% of it's original value. Let's also say this currency is very widely used. The dollar is so widely used its value actually effects the value of other currencies. Now this part is complicated, but it's still right on. One reason the fall of the dollar effects other units is this. Since we had all agreed upon an exchange rate we were free to trade with other countries. That was the whole point in the first place. This means your currency gets mixed in with other currency and theoretically it doesn't matter because we all agree on worth. But if currency A is a large majority of the currency in the overall mix, you can see what happens if it drops in value. Nation B now holds 1/3 of its assets in Nation A's currency. Does nation B want its economy to suffer because Nation A can't control its currency? Other nations are forced to prop up the value of the weak currency in order to maintain their own worth, but there is still a leak in the boat. If country A can stop the leak, all is well and time will heal the damage, but if the leak continues the other countries are forced to either get rid of their dollars (cutting their losses) or help control the leak.


Welcome to the real world econony. The dollar is falling hard. The rest of the world is concerned, but their concern isn't for you and me. It's their own worth they're concerned with and rightfully so. Why should they keep trading with this degenerate nation that just keeps making more money to keep it looking good on paper? But it's worse, this country is also using those funds to stir up trouble and increase its holdings of "real" resources, ie. oil land.

Now... here's where it gets really convoluted. What if all these central banks or at least the big players decided since they basically control the destiny of the entire planet- why let things take a natural course. Why not get together and mold the destiny of mankind?? Why wouldn't they, right?? When you have all the money you could possibly create at your fingertips, the only thing left to control are things of "real" value. You also realize more than anyone how valuable these tangibles are, since even you cannot create them. Sure you might buy them.. but these things aren't necessarily buy-able. Take oh say, climate. Take, oh say health. Take, oh say oxygen. What you can control however are the masses who both a) gather, and b) consume these tangibles.

These are the people who control the world, the central bankers. They don't want currency based on tangibles, but rather fiat currency. This is so 100% true that you'd have to a complete moron to ignore it. Once you start to understand this, you begin to see how they control the masses. Anything that money can buy is controlled by these powers. Media is a big one. Oil is another. These two things alone control our information and our power. They can also manufacture scarcity in almost any good, create diseases, bio engineering, or the mere perception of these things .. everything that can be influenced by money is at their fingertips.

Who do you think George W. Bush works for? For you?? HA! The long arm of the elite central bankers controls the vote. They decide who runs things. They place greedy individuals into positions of power. These are people who will make sure the policies they want passed will pass, one way or another in exchange for money, or more often continued power.

This is why FIAT currency is bad folks. Absolute power corrupts absolutely. My one hope is that those in power have a plan that works. Certainly they know it works for them.. but hopefully they're wise enough (not just the children of visionaries) to lead Mankind forward. Were power given back to to individual nations ... well the masses can't agree on anything... just a bunch of greedy pigs wallowing in the mud gobbling up the money thrown down by the bankers. You and I are just units to be used and or destroyed in the grand vision. We could all denounce money, but commerce would cease and we'd have the chaos and horror TMC hinted at as we clubbed one another for water and food. We're slaves/ dependent on the system.

Now.. as for the dollar. I think the plan is to drive it into the ground. When it's worthless and the **** hits the fan the CB's will give us the Amero and unite South and North America economically. The political structure will be allowed to remain for awhile yet. The CB's depend on the existing political structure to hold control of the people.


It's too late to switch back to money based on real things. It won't be allowed. Ron Paul allowed to get into the presidency?? Please!! If you're a RP supporter you see what the media is doing to him. Complete marginalization and where they do mention him, they distort. It's sick. The vote is complete BS. The will of the people will never be served again as long as votes are electronic. Seriously.. there is no longer a real vote in the US. It's a puppet act. The numbers don't add up. Bush legitimately re-elected last term? Pfft. Funny how the sway state in 2002 was Florida, huh? Can you imagine the world we'd live in today if Al Gore had won? People like him don't get elected anymore. He values life over $ and power. The CB elite aren't necessarily evil individuals. They feel it's their duty to rule, and almost certainly squabble for control amongst themselves.

[Desertrat]

Eric, as suppoort for your comments about the decline of a currency, today's "Whiskey & Gunpowder" claims that the Chinese are paying some $4 billion per month in interest on U.S. bonds they've bought from their trade-surplus income.

"From Credit to Money, Part 1". http://www.whiskeyandgunpowder.com

IMO, this stimulus package so favored of Bush/Clinton et al will add to our problems--as will any further fed rate decrease.