Posted on 09/28/2005 4:09:54 PM PDT by hubbubhubbub
For over four decades, observant and open-minded individuals have become deeply concerned about the future of our great nation. They refused to accept the rosy official and media testimony regarding our nation's fiscal and monetary integrity. Similarly, they did not believe the negative rhetoric directed towards gold. Just as these independent thinking and far-sighted people recognized that one plus one would always equal two they also knew that no one, nor no nation, could create something from nothing. Throughout this period they witnessed the U.S. government and the Federal Reserve banking system work together to create U.S. dollars from thin air, in order to finance our growing national budget deficits. It was not only obvious to these people that inflation must result from our government's actions, but that numerous economic and financial distortions would occur and likely ultimately spawn a serious economic decline. They had learned from history of the damage that accrued to the lives of the common man, whenever a nation debased its currency.
Stable prices within an economy are produced when there is a balance between the purchasing media in its financial system, and the amount of goods and services offered on its markets. However, when the dollar value of the available items and services remain essentially constant, but a country's money stock is increased, the additional monetary units will over time act to bid up their domestic prices. This is what has occurred in America during the past six decades, since the U.S. left the Gold Standard. It is the underlying cause of the loss of the dollar's purchasing power.
According to extensive research performed by the outstanding American Institute for Economic Research (AIER, Great Barrington, Massachusetts), "For roughly 150 years after the Mint Act of 1792, by which Congress established and defined the Nation's currency, the purchasing power of the dollar fluctuated in a relatively narrow range. At the end of World War II, the price level was close to the peaks (and the purchasing power close to the troughs) reached after the War of 1812, the Civil War, and World War I".
During the preponderance of this period the dollar was defined as being worth a fixed amount of gold. Under the Gold Standard, dollars could not be created unless there was sufficient gold held by our government to redeem them. Further, during most of this era gold and dollars could be readily exchanged for one another by our government. This all changed with the signing of the Bretton Woods Agreement in1944.
After 1944, the dollar's purchasing power began to decline. This accelerated after President Nixon "closed the gold window" in 1971. With the stroke of a pen he severed the final link of the dollar to gold. Later, in the words of the AIER, "By 2000, the dollar had lost more than 90% of its original purchasing power."
The term "doom and gloomers" was likely coined by a member of the Establishment. It was done in an effort to discredit those who recognized this condition as well as their beliefs. This occurred because the "doom and gloomers"recognized early that the excessive issuance of dollars effectively cheapened those that already existed, and would lead to a number of damaging results. First, it would create inflation. Next, the higher prices and inflated money supply would excessively stimulate the economy. These events, in turn, would foster a number of other economic and financial distortions. Businesses and individuals would make poor economic and financial decisions. They would base their actions upon an economy which was artificially stimulated by excessive monetary creation. Their judgements and actions would be predicated upon fleeting, exceptional business conditions that were largely created as the newly issued dollars worked their way through the system. Businesses would expand their workforces, factories and products. Additionally, they and individuals would enter into far greater debt than was truly warranted because they believed that the "good times" would last longer than they should. The excessive monetary creation, in turn, would ultimately destroy the dollar's value on the world's markets, and further exacerbate the price inflation within our borders as the cost rose of imported goods.
Now, conditions have worsened to a far greater extent that anyone could have dreamed possible prior to the 1990's. Each recession since the Great Depression was met with greater amounts of monetary and fiscal stimulus in order to extricate the economy from any economic reversal. Whenever the economy began to flounder, the money supply would be rapidly expanded and interest rates would be cut by the Fed, while the government enacted tax reductions and spending increases. Importantly, during the past several years, the Fed appears to have become hell-bent upon creating as many dollar credits as are necessary. This, in order to prevent the economy from lapsing into any sort of extended or even minor recession, for fear of it snow-balling into something of far greater consequence.
Finally, the "doom and gloomers" are being joined by other voices. However, now they are emanating from the Establishment! Comments and declarations are now being espoused by those who are not only highly respected and authoritative, but who also hold among the most powerful positions in the world's governing and cooperative bodies.
This morning's New York Times contained an article entitled "I.M.F. Warns of Imbalance in World Consumption". The piece contained quotes from a recent IMF report. It began with "The United States is likely to experience slower economic growth next year, and its rapidly rising foreign debt is at the heart of dangerous global imbalances...". The Times then continued and stated, "The fund said that global economic growth had become too dependent on a handful of countries, led by the United States, that consume far more than they produce. That imbalance, it warned in its semiannual World Economic Outlook, could lead to a wrenching correction".
For the International Monetary Fund to use phrases such as "dangerous global imbalances" and "wrenching correction" when referring to the possible outcome of today's global economic and financial condition, is truly unprecedented! They could have used far more subtle terms, as they have in the past to get their point across, if they did not deeply believe that the world's economy was at great risk.
The Times article went on: "In an evident reference to the United States, with its big budget deficits and relentless consumer spending, the I.M.F. warned that the world's consumption is 'fueled by increasingly unsustainable fiscal stimulus, as well as housing prices that are ignoring the laws of gravity".
With these strong statements of concern, if not outright fear, I believe that the IMF is sending a scathing message. It is not only to the United States but to the rest of the world, that the worst fears of the "doom and gloomers" not only have validity, but that they may come to fruition if major structural changes in the U.S. do not occur. This stern warning was for the United States to limit its dangerous monetary expansion, increase its taxes, and force its consumers to reign in their wonton spending. Or, not only the U.S. but the world would suffer the consequences.
These alarming statements by one of the world's preeminent organizations followed a similar statement by the president of the Federal Reserve Bank, Alan Greenspan. In a recent speech, Mr. Greenspan discussed the historical precedent that resulted whenever investors became overly excited about certain investments. This occurred when buyers threw caution to the wind and ignored the risks produced by their actions, by driving prices to unsupportable high levels. He stated , "Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. ... But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."
Greenspan, with his statement, "vast increase in the market value", is referring to the current enormous overvaluation of the housing market and, I believe, stock prices. He appears in total agreement with the IMF statement that, "housing prices that are defying the laws of gravity". Do you remember Greenspan's famous 1996, "irrational exuberance" speech regarding the stock market? At that time, the Dow Industrials were in the mid-6000 range. Do you believe that he views the market as being less overvalued and less dangerous with the Dow today in the mid 10,000's?
Greenspan's reference to "history has not dealt kindly with the aftermath of protracted periods of low risk premiums" is his "fed-speak", sugar-coated fashion of addressing the likely severe and damaging economic fall-out when price levels return to normal.
I believe that these unnerving observations by Alan Greenspan and the IMF are likely the tip of the iceberg! As time passes, I feel that similar statements will be espoused by more and more conventional economists and government officials. They will be preparing the world for a potential economic melt-down that was created by our nation's prolonged, egregious, deficit spending campaign, and the creation of the enormous amount of dollar credits that they fostered.
The voices of the "doom and gloomers" will be increasingly joined by those emanating from mainstream America. They will be vindicated! However, just as all Americans benefited from the higher standard of living generated by the decades-long artificially induced boom, we may all have to suffer the consequences when the business cycle turns down, and the contrived boom turns to bust.
I realize that my analysis of the comments by the IMF and Alan Greenspan are disconcerting. However, I believe that it is better to face the reality and truth of a situation and prepare for its consequences, than to put one's head in the sand and ignore its reality and its potential damaging effects. My hope is to help the reader recognize our nation's precarious condition, and prepare for the difficult times that lie somewhere ahead.
Yes, obviously the market for oil is very much like the market for dollar denominated debt. LOL.
The evil geniuses running the foreign central banks as well as everyone in the bond market continues to hold 4.25% yielding 10 year bonds while you know the true inflation number is 8%. I guess it really is you against the world.
It ain't called the petro-dollar for nothing. Personally, I'm more of a oil bug than a gold bug. Energy is the lifeblood of civilization and not an unreasonble choice for a store of value.
You're making my point for me. If the world needs 85 million barrels of oil per day and something causes supply to drop to 83 million barrels, prices will skyrocket.
Are you blaming the 10 year Treasury yield of 4.33%, 4% lower than your claimed rate of inflation, on a sudden shortfall in supply? Does the world demand $1 trillion in new Treasury debt each year while we only supply $500 billion?
"My money goes way further than my mom's did when I was a kid."
Wow! So you can get a coke for a dime, a gallon of gas for a quarter and a house for $10k.
"Bull Pucky, The Family income purchasing power is now based on buying McMansions and having a color TV in every room and two 40K SUVs in the garage."
LOL and all on credit.
"In 1970 it took me 1 hour of labor to fill my VWs 10 gallon tank (.30 a gallon or $3.00), if I make $30 an hour today, and I pay $3.00 a gallon to fill a tank of gas, the numbers are inflated, but the basic standard, 1 hour labor remains the same. "
So you've worked your whole life and your standard of living is no better than 35 years ago. You've proven my point. The government has stolen from you by debasing the currency.
The United State's neglect of its energy infrastructure is *in part* due to the misallocation of resources that occurs when the government creates false incentives for investment in, say, the housing market. Rapid inflation of the money supply leads to rampant speculation at the expense of other sectors such as energy.
The market is first and foremost a means of communication. Centralized manipulation of currencies corrupts the signal.
Does the world demand $1 trillion in new Treasury debt each year while we only supply $500 billion?
How did you quantify the demand and can you show me a breakdown of the buyers.
Yes it is. Right now the market is communicating an inflation rate of less than 4.33%. Enough less that it makes sense to hold a 10 year note yielding 4.33%. You are the only one who thinks that inflation is 8% and has been for the last decade.
How did you quantify the demand and can you show me a breakdown of the buyers.
I'm trying to translate your assertion that inflation is 8% into English. Apparently there is no logic or fact behind your assertion. Maybe you read it in one of your goldbug magazines?
Many of the players in the market have cause to support the US dollar even if it means loosing money.
I'm trying to translate your assertion that inflation is 8% into English. Apparently there is no logic or fact behind your assertion. Maybe you read it in one of your goldbug magazines?
As I've stated before, the inflation of the money supply does not have a linear or homogeneous or even predictable relationship to price stability, itself difficult to measure. The 8% number comes from the Feds own data on M3.
If GDP grows 8%, an 8% growth in M3 means zero inflation.
Maybe you missed post #39 proving that wages have grown faster than the cost per square foot of a home - even with all the new comforts and improvements.
Looking back 35 years and calling it the good old days is a common argument made by the protectionist doom and gloomers and it makes absolutely no sense. Look at these changes from just 1970 - 1990. How is all this possible if our buying power and incomes have been spiraling downward? (Apologies for the formatting)
Working less for More
1970 - 1990
Average Work Week (hrs): 37.1 - 34.5
Annual paid vacation days and holidays: 15.5 - 22.5
Employee benefits as a share of payroll: 29.3% - 40.2%(1992)
Average Size of a new home (sq. ft.): 1,500 - 2,080
New Homes with Central Air: 34% - 76%
People using computers: <100,000 - 75.9 million
Households with Color TV: 33.9% - 96.1%
Households with cable: 4 million - 55 million
Households with VCR's: 0 - 67 million
Households with two or more vehicles: 29.3% - 54%
Median household net worth (real): $24,217 - $46,687
Households owning a microwave oven: <1% - 76.8%
Heart transplants: <10 - 2,125
Recreation boats owned: 8.8 million - 16 million
Manufacturers shipments of RV's: 30,300 - 226,500
Recreation golfers: 11.2 million - 27.8 million
Americans finishing high school: 51.9% - 77.7%
Americans finishing 4 yrs. college: 13.5% - 24.4%
Life expectancy : 70.8 - 75.4
Things have only gotten better since 1990.
In 1969, 51 percent of individuals in families were middle class. By 1993, that share had declined to 40 percent. The decline in the middle class was primarily the result of growth in the share of individuals in upper class families. By 1993, onethird more individuals in families had incomes more than 40 percent above the U.S. median than in 1969.
It was also true, however, that many individuals in lower class families in 1993 had higher real income than individuals in middle class families had in 1969, because sizeadjusted U.S. median real family income grew by more than 20 percent between 1969 and 1993. Thus, despite the fact that these individuals were no longer part of the middle class, they and their families had greater access to goods and services than some middle class individuals and their families had in 1969. This is one reason why the continued rise in per capita consumption is a better barometer of real economic wellbeing.
The Shrinking Middle Class: More American Families Gain Than Fall Behind
In 1950, more than 30 percent of Americans were classified as poor. Today the figure is 10 percent (if you're a Republican) to 15 percent (if you're a Democrat).
Do you have any sources to support that claim?
American household net worth is almost $50 trillion today, which is double what it was just a decade ago. Of that, only about 20% is attributable to homeowner equity. The average American household has more than 57% equity in their home. Between 1997 and 2004, Americans cashed in $3.5 trillion in capital gains. This is more than what was earned in the 20 years prior. That's a lot of liquid assets.
Federal Reserve: Flow of Funds (page 110)
The idea that Americans are overspenders and undersavers and addicted to debt is all myth. Household balance sheets have never been more robust. Last year Americans increased their financial assets--checking accounts, money market funds, mutual funds, IRAs, etc.--by an impressive $590 billion. Credit card debt in-creased a paltry 4%.
To put it in perspective, Americans' total debts, including mortgages, are dwarfed by their liquid assets. Our per capita liquidity exceeds that of Japan, a nation noted for its high savings rate.
LOL. And your sources are the "cheerleader" rags.
"In 1970 it took me 1 hour of labor to fill my VWs 10 gallon tank (.30 a gallon or $3.00), if I make $30 an hour today, and I pay $3.00 a gallon to fill a tank of gas, the numbers are inflated, but the basic standard, 1 hour labor remains the same."
Perhaps so, but that gallon gets you further. Average MPG went up over ten miles between the early '70's and 2000. My dad had a VW bug in 1970 - his current van gets twice the milage that bug did, and is a much more comfortable ride, to boot (just for starts, it has a heater that actually keeps you warm ;) ). By 2004, passenger cars would go twice as far on a gallon of gas as cars in 1974.
http://www.dep.state.fl.us/energy/reports/pdf_2002/table19.pdf
http://www.autosafety.org/article.php?did=812&scid=77
There you go again....How is all this possible if you are right? From the Federal Reserve bank of Dallas:
Americans in the 1990s routinely withdraw money from automatic teller machines all over the world. We communicate on cellular phones, cook meals in minutes using microwave ovens, watch movies at home on videocassette players, listen to concert hall-quality music on compact discs and flash instant messages from one computer to another on a global grid called Internet. Americans figure checking-account balances on pocket calculators, use camcorders to film our children playing soccer, fight ulcers and depression with new wonder drugs, flick many things on and off by remote control. We have more cars, more household appliances, more vacation homes, more entertainment options and more free time than Americans two decades ago.
In 1993, restaurants received 43 percent of the country's spending on food, a big gain from the 33 percent of 1972. Eating out, once an occasional luxury, has become a way of life. Even when we eat at home, we often rely more on market goods—heat-and-serve products, microwave meals and carry-out items. Usually, these shortcuts raise the cost of feeding a family, but as consumers become wealthier, they often opt to pay extra for ease and convenience.
The average amount spent on jewelry and watches, after adjusting for higher prices, more than doubled from 1970 to 1991.
drivers in safer cars are better off because they have fewer accidents, reducing the amount of time and money spent on repairs. Safer highways may lower GNP, but they raise the standard of living.
the population generally sees itself as healthier. Surveys by the U.S. Department of Health and Human Services show a steady drop in the proportion of Americans who rate their health as "fair or poor," from 12.2 percent in 1975 to 9.3 percent in 1991. Infant mortality rates fell from 20 deaths per 1,000 live births in 1970 to less than nine in 1991. The death rate from natural causes fell by 27 percent from 1970 to 1990, with the most progress coming in diseases of the heart. Cancer death rates are up slightly, but modern medical science provides treatments that prolong life. The portion of the adult population with high cholesterol fell sharply over the past two decades. What once was fatal can in many cases now be treated. Heart, liver and lung transplants, almost unheard of in the early 1970s, are common today.
Looking back at the high-growth years from 1960 to 1973, for example, the nostalgic may gloss over many unsettling events. The country wrestled with the real possibility of nuclear annihilation, an unpopular war in Vietnam, racial strife that erupted in rioting, assassinations, political scandal and high rates of poverty. Many later problems—inflation in the 1970s, toxic waste dumps that needed cleaning up in the 1980s—trace their origins back to those "good old days."
History books can tell us about how Americans once lived. For the grandparents or great-grandparents of today's workers, life really was a struggle. Hours of work stretched from dawn to well after dusk. Workplaces were often dimly lit, dirty and dangerous. Houses were hot in the summer, cold in the winter. At home, the daily chores were unending and backbreaking. Death came early. The social critics of the time attributed much of the harshness of everyday life to the failings of capitalism.
Looking backward over a century or more, though, it's obvious that the free enterprise system works—and works well, so long as private profit incentives are unfettered by government taxes, regulation, debt, policy instability or other burdens. Herein lies the secret to growth. If we let the system work, then every successive generation ought to be able to claim that 'these are the good old days.' Few Americans would fail to recognize that living standards have improved by leaps and bounds over the long sweep of time.
Our Rip Van Winkle, his eyes not blinded by nostalgia or negativism, sees quite clearly that it's still true today. His fresh perspective affirms the promise of even higher living standards in the future-as long as we allow the free enterprise system to work."
These Are the Good Old Days - A Report on U.S. Living Standards
If you spent less time LOLing and more time trying to support your fact-free nonsense you might be able to salvage a modicum of credibility here.
Can you refute anything that the "cheerleader" rags offer as evidence? Or, is the extent of your knowledge and skills confined to LOL?
How about explaining to us how we can afford all these luxuries if our buying power and incomes are dropping. How do you explain away our massive net worth? Bet you can't.
Not exactly.
You are assuming facts that are not in evidence.
35 years ago when we first got married we had nothing, today we own a home (no mortgage), two cars, one paid for the other we owe a little on (but have money in the bank to pay it off if we wish). No other debt at all. Money in savings, both have 401K and stocks. So compared to the young couple of 35 years ago, we are well off.
How do you account for that?
The Federal Reserve is not a cheerleader rag. Is your source the New York Times?
"So you can get a coke for a dime, a gallon of gas for a quarter and a house for $10k."
When my dad got his first job, gas cost far more than a quarter a gallon. In 1958, fresh out of college with a bachelor's degree in accounting (and business management? Or maybe he switched to that for his Master's), he made all of 1.50 an hour. Three years later, he had a "good job" that got him $400 a month. In context, yeah, my money goes further - my husband doesn't even have a bachelor's degree, and he's supporting us at a higher standard of living than my dad did.
I am comparing the average income of one time with the average income of another; you're comparing the dollar of one time to the dollar of another, and they simply aren't the same thing. But, since my earlier statement was confusing, how about, "The average income now goes way further than the average income when I was a kid 40 years ago"?
I am not arguing against holding the amount of money in the system constant to the gold standard - I think the government "cheats" by printing more money than is returned in battered bills, and it's an outrage* - but I do argue that life has gotten better in the past fifty years, and I definitely argue that it's possible for most families to live on one income if they are willing live like one-income families of the fifties did. What has changed is our expectations, our standards, not our ability to live on one income.
*By cheating I mean that when the government prints more money and uses it to pay people and organizations that is in essence an "invisible tax" - early on the new money is "worth more" and the government can spend it at that level, then the economy adjusts to the greater supply of money and the value of dollar bills per se goes down. So far, the advances in technology in various fields have kept Americans ahead of the game despite this invisible tax.
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