In defense of the bailout and the Federal Reserve

hom36rown · Nov 24, 2008

Doctor Pot said:
True, but there is a counteracting force. As the dollar goes down, our products become more competitive internationally. I worked for a company once whose main competitor was Sweden. As the dollar dropped relative to the Euro, the company I worked for received more international business and the Swedish company received less. So eventually the world will level out some. Granted, that does mean we won't make ten times the wage of your average Asian, but it does mean we're not entirely screwed.

This may be true, but it doesnt change the fact that we face a painful readjustment. We have to start exporting more than we import, and that means drastic change. That means living painfully below our current standard of living. Not only will we not be making 10x that of an asian employee, we will be making less. China has a trade surplus, they have real wealth...the collapse of the dollar will cause a studder step in their economy, but in the end they will be better off.

Doctor Pot said:
Do you have any way of explaining this prediction? This crisis shrank the money supply, by lowering the value of people's savings accounts. Could you do me a favor and read the three articles I posted above?

Do I have an eplanation...how about the trillions of dollars that has been created? And there is a lot more to come. Like your article explained, we pay our IOUs with IOUs, but like I explained earlier, now that our trading partners realize that this cannot go on forever, especially Now that the naive idea that our economy is too big too fail has been shattered with the failure of so many major banks, they will no longer invest in our t-bonds(this also will cause a huge devaluation in the dollar) and we will be forced to actually pay our debt (actually having to pay our debt, wow now thats a crazy thought). And from the way the government has responded so far, I think they are going to further look to the printing press to pay their debts...a lot like the weimar republic. So the money supply is effectively increased, the value of the dollar drops, people are further robbed of their savings, prices skyrocket causing the markets to stagnate and voila you have stagflation. Also, what do you mean the crisis shrank the money supply by lowering the value of people savings account?

Doctor Pot said:
You seem to be operating under the assumption that it's a zero-sum game. It's not. Generating money does cause inflation, but if that inflation is low and manageable, it won't cause major problems.

Yes but creating trillions of dollars over short periods of time is not going to keep inflation low and managable. Less foreign credit will also cause a signicant drop in the dollar.

Doctor Pot said:
It's not a bug, it's a feature! Seriously though, it enables businesses to get easier credit which stimulates the economy.

And that is exactly how you get fake fuckin bubble economies like the US'. Think about it, what got us into the housing crisis in the first place...easy credit! Easy credit has been what has been giving us the illusion of real wealth, but it is the problem. Americas economy is just one big bubble based on easy credit. Easy credit made the housing market seem like it was booming, but really it was an illusion...just like easy credit has made it seem for decades now that our economy is booming, when in reality our economy doesnt produce much of real value.

bobharvey · Nov 24, 2008

VTXDave said:
How does one defend giving the Secretary of the Treasury authority over said funds without any oversight? Constitutional? I think not.

THANK YOU. He basically has dictatorial power. The bailout bill is the biggest heist in the history of the world. Obama is not going to bring any "change." The players will change but the game is the same.

Doctor Pot · Nov 24, 2008

hom36rown said:
This may be true, but it doesnt change the fact that we face a painful readjustment. We have to start exporting more than we import, and that means drastic change. That means living painfully below our current standard of living. Not only will we not be making 10x that of an asian employee, we will be making less. China has a trade surplus, they have real wealth...the collapse of the dollar will cause a studder step in their economy, but in the end they will be better off.

China has a trade surplus because their shit is cheap and everyone wants to buy it. And their shit is cheap because they make 10x less than we do. If we made only 2x what they do, our better productivity would make us way more competitive with them in many industries. We still have a much larger economy than China, but their economy is growing faster.

Do I have an eplanation...how about the trillions of dollars that has been created? And there is a lot more to come. Like your article explained, we pay our IOUs with IOUs, but like I explained earlier, now that our trading partners realize that this cannot go on forever, especially Now that the naive idea that our economy is too big too fail has been shattered with the failure of so many major banks, they will no longer invest in our t-bonds(this also will cause a huge devaluation in the dollar) and we will be forced to actually pay our debt (actually having to pay our debt, wow now thats a crazy thought). And from the way the government has responded so far, I think they are going to further look to the printing press to pay their debts...a lot like the weimar republic. So the money supply is effectively increased, the value of the dollar drops, people are further robbed of their savings, prices skyrocket causing the markets to stagnate and voila you have stagflation.

The dollar has been a very stable currency since the end of World War II, and it's used outside the US quite a bit. In fact, a few countries have had so much trouble with their own currencies that they just gave up and now use US dollars exclusively. I know Ecuador is one of those. Anyway, what you're talking about is a "run on the dollar". It could happen, but this assumes there's some much better currency that people would convert their dollars to, and there isn't. Euros are comparable, but not a huge improvement. The US also has the distinct advantage of having such a huge amount of dollars out there that a few hundred billion dollars in generated currency barely registers on the inflation metrics.

Also, what do you mean the crisis shrank the money supply by lowering the value of people savings account?

You're aware that many people are losing large portions of the money in their retirement accounts and savings accounts right? This loss is shrinking the total number of dollars that people have. Fewer dollars mean each dollar is worth more.

Yes but creating trillions of dollars over short periods of time is not going to keep inflation low and managable. Less foreign credit will also cause a signicant drop in the dollar.

As long as the money generated isn't too much more than the total amount of money lost due to the housing crisis, the inflation wouldn't be too bad.

And that is exactly how you get fake fuckin bubble economies like the US'. Think about it, what got us into the housing crisis in the first place...easy credit! Easy credit has been what has been giving us the illusion of real wealth, but it is the problem. Americas economy is just one big bubble based on easy credit. Easy credit made the housing market seem like it was booming, but really it was an illusion...just like easy credit has made it seem for decades now that our economy is booming, when in reality our economy doesnt produce much of real value.

I should have explained this better, since your initial characterization was incorrect. Banks only need to hold 10% of their outstanding loans in liquid assets. This enables them to make a lot of loans, and provides enough cash for people that want to withdraw from their accounts. That doesn't mean they only need have 10% of the assets they're loaning out, only 10% of the liquid assets. So they'll take your $1000 and loan $900 of it out, while keeping 10% as liquid assets. This may only apply to FDIC-insured banks though, I can't remember. But the problems came up when they bundled their loans as securities, sold them off, then used the money from selling them to make more loans. Essentially, they were doing this too much.

hom36rown · Nov 24, 2008

Doctor Pot said:
China has a trade surplus because their shit is cheap and everyone wants to buy it. And their shit is cheap because they make 10x less than we do. If we made only 2x what they do, our better productivity would make us way more competitive with them in many industries. We still have a much larger economy than China, but their economy is growing faster.

First off, what makes you think we have better productivity than china. We have much larger economy in the sense that we consume way more(which is wealth destroyed), they have a better economy in the sense they they create wealth by saving money and having a trade surplus. We cannot pay off our debt by consuming more than we produce and spending more than we save. We arent going to magically just start manufacturing twice as much, so we are obviously going to have to consume 1/2 as much...this is means a drastically lower standard of living. But, most likely the gov't will just rob everyone of their wealth to pay the debt, through higher taxes and printing money- whcih will also of course mean a lower standard of living. Either way, we're screwed, but I think the latter is a worse idea.

Doctor Pot said:
The dollar has been a very stable currency since the end of World War II, and it's used outside the US quite a bit. In fact, a few countries have had so much trouble with their own currencies that they just gave up and now use US dollars exclusively. I know Ecuador is one of those. Anyway, what you're talking about is a "run on the dollar". It could happen, but this assumes there's some much better currency that people would convert their dollars to, and there isn't. Euros are comparable, but not a huge improvement. The US also has the distinct advantage of having such a huge amount of dollars out there that a few hundred billion dollars in generated currency barely registers on the inflation metrics.

The dollar was stable after wwII becuase america had real wealth at the time due to a huge manufacturing industry, also, the dollar was still tied to gold. These thing are of course no longer true. The only thing that has kept the dollar so stable over the past decades is that it has been the world's reserve currency. If our economy collapses, the dollar will plummit...at which point the euro will be much better than the dollar.

Doctor Pot said:
You're aware that many people are losing large portions of the money in their retirement accounts and savings accounts right? This loss is shrinking the total number of dollars that people have. Fewer dollars mean each dollar is worth more.

retirement accounts yes, savings account no.......savings accounts are definitely making less, but they havent lost money

Doctor Pot said:
I should have explained this better, since your initial characterization was incorrect. Banks only need to hold 10% of their outstanding loans in liquid assets. This enables them to make a lot of loans, and provides enough cash for people that want to withdraw from their accounts. That doesn't mean they only need have 10% of the assets they're loaning out, only 10% of the liquid assets. So they'll take your $1000 and loan $900 of it out, while keeping 10% as liquid assets. This may only apply to FDIC-insured banks though, I can't remember. But the problems came up when they bundled their loans as securities, sold them off, then used the money from selling them to make more loans. Essentially, they were doing this too much.

Right.... so they keep your $100 and loan out $900...this $900 usually ends up in a bank, so then whatever bank gets it keeps $90 and loans out another $810...which ends up in another bank and so on an and so forth. So that by the time theyre done the banks have created $8000 out of your $1000...exactly like I said

Doctor Pot · Nov 24, 2008

hom36rown said:
First off, what makes you think we have better productivity than china. We have much larger economy in the sense that we consume way more(which is wealth destroyed), they have a better economy in the sense they they create wealth by saving money and having a trade surplus. We cannot pay off our debt by consuming more than we produce and spending more than we save. We arent going to magically just start manufacturing twice as much, so we are obviously going to have to consume 1/2 as much...this is means a drastically lower standard of living. But, most likely the gov't will just rob everyone of their wealth to pay the debt, through higher taxes and printing money- whcih will also of course mean a lower standard of living. Either way, we're screwed, but I think the latter is a worse idea.

Gross domestic product - ours is 4x what China's is. Sure they have a trade surplus, which means they're gaining on us, but we're still more productive as a nation and obviously per capita. The stuff we manufacture tends to be the top-dollar stuff, ie stuff companies use as opposed to what consumers use.

The dollar was stable after wwII becuase america had real wealth at the time due to a huge manufacturing industry, also, the dollar was still tied to gold. These thing are of course no longer true. The only thing that has kept the dollar so stable over the past decades is that it has been the world's reserve currency. If our economy collapses, the dollar will plummit...at which point the euro will be much better than the dollar.

Of course, the Euro isn't tied to gold either. And for there to be a run on the dollar, its value would have to collapse, and the Federal Reserve has a vested interest in keeping this from happening. They wouldn't loan out so much money at once that the dollar would collapse, since those greedy bankers want their dollars to stay valuable right?

retirement accounts yes, savings account no.......savings accounts are definitely making less, but they havent lost money

My savings account lost a lot, but I was invested in mutual funds. Money market funds have a lower return but are practically impossible to lose money on, that's probably what you're thinking of.

Right.... so they keep your $100 and loan out $900...this $900 usually ends up in a bank, so then whatever bank gets it keeps $90 and loans out another $810...which ends up in another bank and so on an and so forth. So that by the time theyre done the banks have created $8000 out of your $1000...exactly like I said

Yeah, you're actually probably right on that, by "they" I assumed you meant the lending bank, but if by "they" you meant banks in general, indirectly, then that's probably accurate.

hom36rown · Nov 24, 2008

Doctor Pot said:
Gross domestic product - ours is 4x what China's is. Sure they have a trade surplus, which means they're gaining on us, but we're still more productive as a nation and obviously per capita. The stuff we manufacture tends to be the top-dollar stuff, ie stuff companies use as opposed to what consumers use.

GDP includes all the nonexportable services that make up the vast majority of our economiy, which don't actually create any wealth. Since our economy is dominated by nonexportable services, the majority of our gdp comes from our own consumption, which of course is not a measure of how much wealth we have created. So basically our GDP has nothing to do with anything. You say the stuff we manufacture is top dollar stuff, but again, that doesnt matter because we still spend more on imports than we make on exports, meaning we are losing wealth each year. So the chinese are gaining wealth, we are losing it...i'd say the chinese definitely have the better economy.

hom36rown · Nov 25, 2008

Doctor Pot said:
Of course, the Euro isn't tied to gold either. And for there to be a run on the dollar, its value would have to collapse, and the Federal Reserve has a vested interest in keeping this from happening. They wouldn't loan out so much money at once that the dollar would collapse, since those greedy bankers want their dollars to stay valuable right?

The fed can't do anything about the coming economic collapse, and that is what is going to cause the collapse of the dollar. Them printing money is just more inflation on top of that, which will help the government because it lessens the burden of our debt, but of course makes things alot worse for the average citizen.

FLoJo · Nov 25, 2008

its not hard to understand, we spend more than we make, we ship in more than we ship out, we print more money and increase our debt.. and at the same time the FED and the BANKS are putting us into MORE DEBT and obtaining REAL ASSETS with SHIT MONEY.

they dont give a shit about their dollars, because with real assets, they have power.

all the macroeconomics, bullshit leveraging of funds, inflation blah blah doesnt mean shit in the large scope of things, its about power over people, and this propaganda is just to aid the debates so they can consolidate the banking industry while we meddle over the small issues.

the news is already talking about one world government, one world banking (where the banks will run the gov like they do now) the UN wants a one world religion.. its all one world and all the fluff is to pull the wool over our eyes.

heres a nice little quote from the man whose family along with the morgans started our beloved federal reserve which wants to save the dollar and our country right?? this is directly from his book.

"For more than a century, ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will.

If that's the charge, I stand guilty, and I am proud of it." -David Rockefeller

TheBrutalTruth · Nov 25, 2008

Doctor Pot said:
Gross domestic product - ours is 4x what China's is. Sure they have a trade surplus, which means they're gaining on us, but we're still more productive as a nation and obviously per capita. The stuff we manufacture tends to be the top-dollar stuff, ie stuff companies use as opposed to what consumers use.

Capital Goods, as opposed to Consumer Goods, not to mention the software to run everything, but that is technically also a capital good.

Of course, the Euro isn't tied to gold either. And for there to be a run on the dollar, its value would have to collapse, and the Federal Reserve has a vested interest in keeping this from happening. They wouldn't loan out so much money at once that the dollar would collapse, since those greedy bankers want their dollars to stay valuable right?

Obviously not, of course, the relative value of the dollar matters little when you have 50 Million, or 50 Billion, even if it loses half its value, or 90% of its value, you still have a lot of money.

My savings account lost a lot, but I was invested in mutual funds. Money market funds have a lower return but are practically impossible to lose money on, that's probably what you're thinking of.

Savings accounts can't lose money, because they are savings accounts. You are referring to a brokerage account, but even brokerage accounts can't lose money, except for the stocks or mutual funds that you invested in. Very different things. As far as the statement that MMFs can't lose money that is incorrect. MMFs are typically managed to keep the value of them as close to $1 as possible, with out sinking under $1. There was a MMF a month or two ago that went under because its value slipped to $0.90, and that lead to it being dissolved.

Yeah, you're actually probably right on that, by "they" I assumed you meant the lending bank, but if by "they" you meant banks in general, indirectly, then that's probably accurate.

I don't really have a response to this, but I'm sure the citizens of Weimar Germany would enjoy having the opportunity to lynch you for your views on inflation.

And the government didn't create just a few hundred billion dollars, try a couple trillion dollars.

As far as the dollar having value, relative to where it was in 1971 it is worthless, and about the only thing that has kept this from becoming obvious is the importation of cheap goods from the third world.

I can just imagine the following scenario in Germany, or Zimbabwe. A man gets paid his 200 Billion Marks or whatever, and gets it in 4 50 Billion notes, so he goes to the bank, and walks up to the cashier and asks, "Can I get ones?"

The cashier asks why, and the person replies, "Well, I need toilet paper and something to burn to keep my house warm."

Doctor Pot · Nov 25, 2008

hom36rown said:
GDP includes all the nonexportable services that make up the vast majority of our economiy, which don't actually create any wealth. Since our economy is dominated by nonexportable services, the majority of our gdp comes from our own consumption, which of course is not a measure of how much wealth we have created. So basically our GDP has nothing to do with anything. You say the stuff we manufacture is top dollar stuff, but again, that doesnt matter because we still spend more on imports than we make on exports, meaning we are losing wealth each year. So the chinese are gaining wealth, we are losing it...i'd say the chinese definitely have the better economy.

We export more than China, or at least we did in 2005:
http://www.nationmaster.com/encyclopedia/List-of-countries-by-exports

Interesting, that the largest exporter in the world is actually Germany. We need to learn a thing or two from them. But yeah, we also import way more than China so we have a net deficit.

hom36rown said:
The fed can't do anything about the coming economic collapse, and that is what is going to cause the collapse of the dollar. Them printing money is just more inflation on top of that, which will help the government because it lessens the burden of our debt, but of course makes things alot worse for the average citizen.

That's the thing, economic collapses tend to increase the value of the dollar because they make everyone lose money. Fewer dollars mean dollars are more valuable. If the economy collapsed, the government would have a really tough time paying back all that debt, since it wouldn't have much income. It would be even worse for them.

FLoJo said:
its not hard to understand, we spend more than we make, we ship in more than we ship out, we print more money and increase our debt.. and at the same time the FED and the BANKS are putting us into MORE DEBT and obtaining REAL ASSETS with SHIT MONEY.

they dont give a shit about their dollars, because with real assets, they have power.

all the macroeconomics, bullshit leveraging of funds, inflation blah blah doesnt mean shit in the large scope of things, its about power over people, and this propaganda is just to aid the debates so they can consolidate the banking industry while we meddle over the small issues.

the news is already talking about one world government, one world banking (where the banks will run the gov like they do now) the UN wants a one world religion.. its all one world and all the fluff is to pull the wool over our eyes.

heres a nice little quote from the man whose family along with the morgans started our beloved federal reserve which wants to save the dollar and our country right?? this is directly from his book.

"For more than a century, ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will.

If that's the charge, I stand guilty, and I am proud of it." -David Rockefeller

I'll admit, David Rockefeller is a globalist, ie he wants to strengthen international laws and governing bodies. But his family isn't nearly as powerful as it once was, and he's quite open about his goals. The UN doesn't want one world religion, are you nuts?

I do admit our trade deficit is a real, important problem that we need to deal with. But unless we have a decent economy, we'll never be able to address that problem. Now, there are plenty of people who insist that we're doomed no matter what. Even if they're probably right, we can't listen to them because they offer no solutions or plans. Now there are a few plans floating around, but they all suck to various degrees. Increasing the deficit will just probably suck the least.

TheBrutalTruth said:
I don't really have a response to this, but I'm sure the citizens of Weimar Germany would enjoy having the opportunity to lynch you for your views on inflation.

And the government didn't create just a few hundred billion dollars, try a couple trillion dollars.

As far as the dollar having value, relative to where it was in 1971 it is worthless, and about the only thing that has kept this from becoming obvious is the importation of cheap goods from the third world.

I can just imagine the following scenario in Germany, or Zimbabwe. A man gets paid his 200 Billion Marks or whatever, and gets it in 4 50 Billion notes, so he goes to the bank, and walks up to the cashier and asks, "Can I get ones?"

The cashier asks why, and the person replies, "Well, I need toilet paper and something to burn to keep my house warm."

You keep using this same example over and over and over, and I keep giving you the same response. Inflation is acceptable if it's low, but devastating if it's extremely high. Obviously, Weimar Germany was the latter, with like 1000% inflation or worse. Interesting graph:

http://www.visualizingeconomics.com/wp-content/uploads/inflation-history.jpg

Inflation has gone up a lot during wars. The fact that they dropped the gold standard in 1971 was an effect, not a cause of inflation. Because of the inflation, they were worried that there would be a run on gold. And the inflation was initially caused by the Vietnam War.

For the last two decades, inflation has been around 3%. Will the proposed response to this crisis increase inflation? Almost certainly, probably to around 5%. But considering it was 11% during the Vietnam War, that's not too horrible. At least it's not as bad as the alternatives.

Dfunk · Nov 25, 2008

Doctor Pot let me start by saying that you seem intelligent & well researched, but your missing the big picture in my opinion. The banks will consolidate by 2012 - I guarntee it. There will be one central bank for the world & a new currency or revised world currency by then also. What makes you think the Federal Reserve Bank(a private bank) won't ask the U.S. government to pay them back? Do you think that other countries wouldn't use their services? The Fed is not part of your government & when they ask for there money & we can't pay...I think you can figure it out. This is how it will be done. The Fed already basically owns the federal government & you too since you are not free.

medicineman · Nov 25, 2008

My suggestion, very uneducated, I'll admit, nationalize the Fed, declare the debt invalid, fire all the private bankers, and start a new federal bank that is actually part of the government. Of course along with this, we must institute a pay as you go policy, stop unnecessary wars, Iraq, Afghanistan etc. put the US economy back on the tracks and find a way to balance the trade deficit. If that means not buying more from foriegn countries than they buy from us, so be it. See how simple it could be. I think those in charge are just over educated and did I mention Greedy. Oh I forgot, cut spending, especially for the Military industrial comples, Fire Blackwater, Haliburton etc., cut the military budget by about 80%, and make treaties with our enemies.

Doctor Pot · Nov 25, 2008

Dfunk said:
Doctor Pot let me start by saying that you seem intelligent & well researched, but your missing the big picture in my opinion. The banks will consolidate by 2012 - I guarntee it. There will be one central bank for the world & a new currency or revised world currency by then also. What makes you think the Federal Reserve Bank(a private bank) won't ask the U.S. government to pay them back? Do you think that other countries wouldn't use their services? The Fed is not part of your government & when they ask for there money & we can't pay...I think you can figure it out. This is how it will be done. The Fed already basically owns the federal government & you too since you are not free.

The Federal Reserve is part government and part private (it was created by the government), and they generally do what the Federal Government says. The Federal Reserve is made up of a government portion and representatives from member banks. Banks aren't run by individuals, they're run by boards, so in order to sink the Federal Government, they'd all have to collaborate, which would be illegal. Plus, the banks would only demand money if their depositors demanded money. They wouldn't though, because it's against their interests, and depositors don't all withdraw massive amounts of money all at once like that. The banks receive payment from the Fed regularly, but they also deposit money there too so it usually evens out.

I'm plenty free. I have my money invested in gold and platinum now (I made like $700 last week

), but even when I didn't, I could still pull my money out when I needed it. If it starts to suck too much in the US, I can always move. How am I not free?

medicineman said:
My suggestion, very uneducated, I'll admit, nationalize the Fed, declare the debt invalid, fire all the private bankers, and start a new federal bank that is actually part of the government. Of course along with this, we must institute a pay as you go policy, stop unnecessary wars, Iraq, Afghanistan etc. put the US economy back on the tracks and find a way to balance the trade deficit. If that means not buying more from foriegn countries than they buy from us, so be it. See how simple it could be. I think those in charge are just over educated and did I mention Greedy. Oh I forgot, cut spending, especially for the Military industrial comples, Fire Blackwater, Haliburton etc., cut the military budget by about 80%, and make treaties with our enemies.

If you made the debt invalid, you'd take money away from not just bankers, but little Timmy whose grandpa gave him a savings bond for his birthday. And everyone who has money invested in conservative money-market funds. College funds, retirement funds, etc. Treasury bonds are considered to be the safest type of investment, so it would hit the people who have the most conservative portfolios the hardest. And foreign depositors who will now think twice before investing in the US again. This type of thing has been done before, usually by third-world dictators. The typical result is a mass exodus of the educated class, an end to foreign investment, and massive currency destabilization.

Also, you're making the assumption that private companies are not free to operate in other parts of the world. They are. If Wal-Mart wants to get their stuff from suppliers in China, they have that right in the US. Restricting the trade deficit would mean enacting laws that restrict freedoms.

But cutting defense spending is probably a good idea. Especially for those bloated weapons projects that we never use. We already made the best fighter jet in the world (F-16), and we didn't really need the F-22 or the F-35. These planes are designed for conventional warfare, and there's little chance of us seeing any of that in the near future.

Has anyone seen the Saturday Night Live Weekend Update lately? There's an "economist" on there that's always yelling "We need to FIX IT!" When they ask him how, he'll respond with something like "Step one, figure out what needs to be fixed. Step two, FIX IT!" He reminds me of some of the economists I see on TV these days.

medicineman · Nov 25, 2008

So, in essence you are saying that the fed is financed by government bonds, Right? Now if that is true, why are all those "private" bankers involved at all?

TheBrutalTruth · Nov 25, 2008

Doctor Pot said:
The Federal Reserve is part government and part private (it was created by the government), and they generally do what the Federal Government says. The Federal Reserve is made up of a government portion and representatives from member banks. Banks aren't run by individuals, they're run by boards, so in order to sink the Federal Government, they'd all have to collaborate, which would be illegal. Plus, the banks would only demand money if their depositors demanded money. They wouldn't though, because it's against their interests, and depositors don't all withdraw massive amounts of money all at once like that. The banks receive payment from the Fed regularly, but they also deposit money there too so it usually evens out.

I'm plenty free. I have my money invested in gold and platinum now (I made like $700 last week ), but even when I didn't, I could still pull my money out when I needed it. If it starts to suck too much in the US, I can always move. How am I not free?

If you made the debt invalid, you'd take money away from not just bankers, but little Timmy whose grandpa gave him a savings bond for his birthday. And everyone who has money invested in conservative money-market funds. College funds, retirement funds, etc. Treasury bonds are considered to be the safest type of investment, so it would hit the people who have the most conservative portfolios the hardest. And foreign depositors who will now think twice before investing in the US again. This type of thing has been done before, usually by third-world dictators. The typical result is a mass exodus of the educated class, an end to foreign investment, and massive currency destabilization.

Also, you're making the assumption that private companies are not free to operate in other parts of the world. They are. If Wal-Mart wants to get their stuff from suppliers in China, they have that right in the US. Restricting the trade deficit would mean enacting laws that restrict freedoms.

But cutting defense spending is probably a good idea. Especially for those bloated weapons projects that we never use. We already made the best fighter jet in the world (F-16), and we didn't really need the F-22 or the F-35. These planes are designed for conventional warfare, and there's little chance of us seeing any of that in the near future.

Has anyone seen the Saturday Night Live Weekend Update lately? There's an "economist" on there that's always yelling "We need to FIX IT!" When they ask him how, he'll respond with something like "Step one, figure out what needs to be fixed. Step two, FIX IT!" He reminds me of some of the economists I see on TV these days.

Yes, and you have yet to explain how inflation is actually good for an economy when the quantity of money really has little to do with the economy.

It doesn't matter if there is $100,000 or $1,000,000 if the $100,000 or $1,000,000 is continuously moving around, well except for the fact that either amount would leave pennies or less for each person to be able to hold at any one time.

Though as far as inflation being a good thing, I disagree, because it robs people of their wealthy.

I think controlled deflation would ultimately be better for an economy. It puts more wealth in the hands of everyone, and thus leads to general advancements in technology, because people can afford to pursue their ideas.

Right now, I really doubt that it would be possible for the next Henry Ford to come into existence. The absolute costs of R&Ding are much more relative to income than what they were back then.

Doctor Pot · Nov 25, 2008

medicineman said:
So, in essence you are saying that the fed is financed by government bonds, Right? Now if that is true, why are all those "private" bankers involved at all?

The Federal Government is financed by treasury bonds, the Federal Reserve doesn't need financing; it's the one that does the financing. The Fed also acts as a "bank for banks" in that it provides financial services to banks. The member banks get those financial services in exchange for agreeing to certain rules laid down by the Federal Government.

TheBrutalTruth said:
Yes, and you have yet to explain how inflation is actually good for an economy when the quantity of money really has little to do with the economy.

It doesn't matter if there is $100,000 or $1,000,000 if the $100,000 or $1,000,000 is continuously moving around, well except for the fact that either amount would leave pennies or less for each person to be able to hold at any one time.

Though as far as inflation being a good thing, I disagree, because it robs people of their wealthy.

It does slowly devalue money, yes. So what can you do to prevent that? Easy, just put your money in a savings account or CD. Problem solved.

I think controlled deflation would ultimately be better for an economy. It puts more wealth in the hands of everyone, and thus leads to general advancements in technology, because people can afford to pursue their ideas.

More like, it makes rich people get richer even faster, and poor people who are in debt owe more and more. You'd get a pay cut every year. It'd be almost impossible to afford a house; you'd need to save up all the money first. It really tilts the economy so those who are already rich are the biggest winners. But the biggest problem is that it does the opposite of what you're saying, it leads to decreased investment. Loans would be extremely risky and much harder to get or pay off, so fewer people would invest money.

Right now, I really doubt that it would be possible for the next Henry Ford to come into existence. The absolute costs of R&Ding are much more relative to income than what they were back then.

Yeah, but there's a simple explanation for this too: all the easy stuff has been invented already. The problems that haven't been solved yet are the really hard ones that take a huge amount of R&D to solve. For a while, this wasn't the case, during the dot-com boom. Once the Internet was developed, it became a platform for all sorts of other innovations, from Amazon to eBay. In the same way, it's possible for new entrepreneurs to come on the scene, they just have to piggyback on a new technology that's widely available and easy to experiment with.

FLoJo · Nov 25, 2008

i would say putting money into a savings account or a cd would not mean problem solved.. you have to have a certain amount of cash in order to achieve the good interest rates which are still usually a tad less than the rate of inflation, so in essence you are losing money over time.... especially with the fed printing money how they have been, we are going to easily see rates of inflation well over 5 percent...show me a "safe" investment that yields more than that

Doctor Pot · Nov 25, 2008

FLoJo said:
i would say putting money into a savings account or a cd would not mean problem solved.. you have to have a certain amount of cash in order to achieve the good interest rates which are still usually a tad less than the rate of inflation, so in essence you are losing money over time.... especially with the fed printing money how they have been, we are going to easily see rates of inflation well over 5 percent...show me a "safe" investment that yields more than that

Gold and platinum, that's what I'm invested in. Of course, they're not all that stable, which underscores my point that a gold-based currency would be a bad idea, but they do keep their values remarkably well in a weak economy.

The last few years, interest rates in savings accounts have been lower than usual. I'd like to blame Bush somehow because it's the thing to do, but it probably wasn't his fault. My bank's savings account interest has been around 3% since I've had an account there though.

And yeah, inflation will probably make it hard for savings accounts to quite keep up with inflation, which sucks but is a small price to pay considering the shit we're in and the alternatives.

Dfunk · Nov 25, 2008

You make some valid points, but your still a slave to the system unless your involved in illegal activities so um...not free totally...no one is that I know of. It's called economic slavery & it works much better than past systems of slavery. Let me explain...The system of slavery we are currently in works to the advantage of the wealthy. It requires people to feed & house themselves...pretty smart huh? If you don't participate in the system you can die, be a bum, or go to jail instead of getting whipped...nice variety of options I'd say. I also said the Federal Reserve Bank not the Federal Reserve which is a government entity. It's complicated & that's how it's supposed to be so the average person dosen't understand...The American people do not tell the bank what to do...that's an illusion.

Doctor Pot · Nov 25, 2008

Dfunk said:
You make some valid points, but your still a slave to the system unless your involved in illegal activities so um...not free totally...no one is that I know of.

I think everyone here is involved in illegal activities to some extent, and I'm no exception. :bigjoint:

It's called economic slavery & it works much better than past systems of slavery. Let me explain...The system of slavery we are currently in works to the advantage of the wealthy. It requires people to feed & house themselves...pretty smart huh? If you don't participate in the system you can die, be a bum, or go to jail instead of getting whipped...nice variety of options I'd say.

That's called "life". We all have to contribute to keep all the gears of society moving. At least until we can make robots do all our work.

I also said the Federal Reserve Bank not the Federal Reserve which is a government entity. It's complicated & that's how it's supposed to be so the average person dosen't understand...The American people do not tell the bank what to do...that's an illusion.

Lots of things are complicated, generally just because life is complicated and not so much because "they" don't want you to understand. Nuclear physics texts are complicated, but it has little to do with "them" not wanting me to know how to build a nuclear bomb. Although after thinking about it, you probably are right that the government has a vested interest in it being confusing. But I think it's more so that your average schmucks don't decide to foment a bank run. After all, one of the main goals of the Federal Reserve was to stop bank runs.

In defense of the bailout and the Federal Reserve

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