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Toto deVeer

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Posts posted by Toto deVeer

  1. "fiat money example?"

    In a world of 6.5 billion persons, the main purpose of a gold-backed currency is to control the growth of the money supply, in line with that of the supply of gold, which has traditionally been in the region of a modest 2% y/y.

    I chose the 'long depression' because, even though on a gold standard, the money supply still expanded, even though prices declined. This continued for a period of 10 years. The same result can happen whether the currency is backed or fiat.

    Although I agree that a gold backed currency will require a greater fiscal discipline.

  2. Here's some radical thinking:

    The United States sits between two large obligations. The first is the past obligation, this is about $13 to $14 trillion. Then there are future obligations. This is roughly $60 trillion.

    If they inflate, this will make past obligations more manageable. If they deflate, this will make future obligations more manageable. The best outcome for the US would be to allow a deflation, as defined as a decline in prices similar to that of the so-called 'long depression'. This would reduce future obligations over a 10 year period to roughly $40 trillion. If the economy during this period were permitted to grow, the result would be far more manageable past and future obligations.

    The way to achieve these two seemingly opposite tasks is to allow asset values to find their own level, reduce corresponding private sector liabilities, reduce the size of government and roll back taxation by restructuring government finances. These are the only solutions.

  3. Money is that cash stuff - papery things, coins and the like.

    That's all.

    Everything else is a derivative of it and trades on the value of it - which is found by how much of it there is in actuality.

    (Almost all bank deposits are payable in full on demand btw - and doing that alone would cover every flat surface in the UK in tenners. That's hyperinflation, that is.)

    Only about 3% of the total dollars in circulation are cash and coin. The other 97% is electronic. For Sterling I cannot say, but I would expect the ratio to be the similar.

    The banks are not obliged to pay in full on demand. Most banks will have limits on withdrawals, but no limits on transfers. There is a big difference in the way these two function in a fractional reserve system.

    The Central Banks do not control the money supply, they follow it. This has been published in numerous places but if you do not believe this you can go to see the latest interview with Professor Keene on the Max Keiser website.

    The M3 is the best indication of what the banks are doing, not the central bank. This is the true indicator of how much money the banks are putting in circulation. However, the M3 clearly illustrates that a very precipitous monetary contraction is underway.

  4. the history of every state collapse fiat money experiment

    or maybe its different this time

    centrally planned economies always end in disaster

    tipping point must be close - sorry already past, but not everyone realises it yet due to the money printing illusion

    the road to wealth destruction

    The so-called "long depression" of 1800's was highlighted by a bank panic and the collapse of a huge speculative property bubble in Europe. Sound familiar? Yet even though money supply was increased, prices fell for 10 years, about 3.8% y/y. Deflation is not a bad thing, contrary to Keynesian theory.

    From Rothbard, p.154-155

    Orthodox economic historians have long complained about

    the “great depression†that is supposed to have struck the

    United States in the panic of 1873 and lasted for an unprecedented

    six years, until 1879. Much of this stagnation is supposed

    to have been caused by a monetary contraction leading to

    the resumption of specie payments in 1879. Yet what sort of

    “depression†is it which saw an extraordinarily large expansion

    of industry, of railroads, of physical output, of net national

    product, or real per capita income? As Friedman and Schwartz

    admit, the decade from 1869 to 1879 saw a 3-percent-perannum

    increase in money national product, an outstanding

    real national product growth of 6.8 percent per year in this

    period, and a phenomenal rise of 4.5 percent per year in real

    product per capita. Even the alleged “monetary contractionâ€

    never took place, the money supply increasing by 2.7 percent

    per year in this period. From 1873 through 1878, before

    another spurt of monetary expansion, the total supply of bank

    money rose from $1.964 billion to $2.221 billion—a rise of 13.1

    percent or 2.6 percent per year. In short, a modest but definite

    rise, and scarcely a contraction.

    It should be clear, then, that the “great depression†of the 1870s

    is merely a myth—a myth brought about by misinterpretation of

    the fact that prices in general fell sharply during the entire

    period. Indeed they fell from the end of the Civil War until 1879.

    Friedman and Schwartz estimated that prices in general fell

    from 1869 to 1879 by 3.8 percent per annum. Unfortunately,

    most historians and economists are conditioned to believe that

    steadily and sharply falling prices must result in depression:

    hence their amazement at the obvious prosperity and economic

    growth during this era. For they have overlooked the fact that

    in the natural course of events, when government and the banking

    system do not increase the money supply very rapidly, freemarket

    capitalism will result in an increase of production and economic growth

    so great as to swamp the increase of money supply. Prices will fall, and

    the consequences will be not depression or stagnation, but prosperity

    (since costs are falling, too) economic growth, and the spread of the

    increased living standard to all the consumers.

  5. Not a chance in hell.

    The us has already hyperinflated, no one knows what the uk has done, because it's all lies. They certainyl haven't let the banks collapse or stopped spending money.

    All it waits for is the afternoon when too many people go shopping wih their mattress money and prices will go to the moon.

    Check the M3 on shadowstats.com. You'll see that it's collapsing. This is despite the huge (unprecedented) QE and stimulus, in the trillions. Add to this the accountancy tricks that are being used to cover up asset losses, a mountain of asset losses, and you will see that deflation is coming. It is just a matter of time.

    Auto sales have dropped from 13.8 million y/y to 8.3 million y/y over the last 30 days. All that the stimulus is doing is pulling forward consumption from the future, but this is pulling forward from a very very low future baseline. The result will be an ever steeper drop in consumer activity.

    The inflationists will argue that the only way the government can pay back debt is to inflate. They forget that the real obligations ARE IN THE FUTURE. This means that inflation will not solve anything; inflation is only useful for past obligations.

    Therefore the only solution is more savings and more tax --> directly affecting purchasing power --> greatly reducing velocity --> creating huge deflationary pressures.

    What you are observing at the moment is a very transient inflationary precursor to the real trend, which is deflation Within this overall trend there may be temporary oscillations but nonetheless the trend is down.

  6. There are no price signals - price signals are created by the ability to refuse an offer. As the state is now ordering almost everything around at gunpoint price signals have gone bye bye.

    Inflation is all to do with the money supply and nothing else. It's patently obvious that those in charge of the money supply are going to print to infinity in a pointless and doomed to fail attempt to maintain their economic, political and social dominance over us all.

    I have no idea why anyone even bothers making economci arguments about it - it's very obviously mervyn king et al personal choice.

    You are going to experience deflation, not inflation. QE, balance sheet obfuscation, etc are making the problem worse.

  7. Injin,

    The true cost of QE is the interest cost; it is not the cost in nominal terms. The longer QE continues the longer will be the accrued interest. At the moment, the QE effort has been successful in holding down interest rates, which also means a lower cost to the taxpayer.

    As I mentioned earlier, the major issue is the obfuscation of true asset values at the banks and their balance sheets; until this stops the credit markets are going to remain locked, QE must continue and the economy will continue to sink.

  8. I still do not understand this vast worry about printing money. It is being held as reserves and is not circulating; it is of electronic form and can be wiped at will; it is just a mirage; simply another accounting trick to create the illusion that banks have adequate capital ratios.

    The most important issue is the other side of the book; that the banks have been allowed to suspend mark-to-market, have untold toxic assets on the books, and are being allowed practice all kinds of fraudulent accounting (that would have been illegal just a year ago).

    This is preventing the market's most basic function, that of price discovery, is freezing the credit markets, propping up failing enterprises at the expense of prudence, and ultimately making unemployment much higher than it otherwise would be.

  9. "the paradox of thrift is fairly basic A-level standard economics"

    Is that the one where the savings rate is too low to support investment so the government has to step in and print money....

    Or is it the one where overseas investors have to come over and buy up your country's assets because nobody has saved enough to invest themselves...

    Or is it the one where pensioners have to be paid out of current tax receipts because nobody saved for their retirement?

    Debt is good.

    Thrift is bad.

    Negative interest rates are good for you...

  10. The only reason that we have not seen full blown, head on, massive deflation is that regulators have allowed the banks to suspend all realistic asset valuations. Thus there is huge pent-up deflationary pressure that will ultimately be unleashed. That, more than QE or stimulus is the reason why the true impact of deflation has not been felt yet.

    The problem for the present scenario is that the longer that realistic asset valuation is put off the more the credit markets suffer and this will completely kill consumption and employment. These factors are working against each other.

  11. Both made good points, but I don't think Mish was prepared for the argument.

    Dan seems to be hanging his hat on a 1970's style scenario. He kept coming back to it again and again.

    If so, he has made a fatal error. The consumer and the government in the 1970's had historically low debt levels.

    Now, as we know, this is different. Although Dan stated that there has never been 'symbolic' currency deflation....etc etc, Mish should have countered with 'There has never been such astronomical debt burdens, and a confluence of so many unresolved asset bubbles'...

    I have concluded that assets are going to deflate around the world, simply because the debt must be deleveraged back to normal levels. Mish is right to make the point that the consumer behaviour has changed. This is going to be a trend for a generation.

    However, the CPI is a different story. First of all you simply cannot trust the statistics coming from government. Secondly this is not going to be a smooth trend. I liken it to more of a step function, oscillating from inflation to deflation over time, but I suspect that slowly the CPI will follow asset values.

    All in all it will be the most difficult investment scenario in history.

  12. No doubt the UK would be declared a terrorist state, just like Brown declared Iceland one when he learned their banks were going down.

    Of course, Brown and his team first had to violate European Law by transferring the Icesave obligations to the national balance sheet, but this was necessary before he could declare Iceland to be a terrorist state. This thuggery appears to have worked quite well, as Iceland's national economy will soon be supplying £billions of codfish to the British and Dutch citizens, while those few thousand still alive in Iceland enjoy starvation.

  13. "End of Empire hurts."

    That's an interesting point. Most historians would suggest that the British Empire ended after WW1, or possibly as late as WW2.

    Actually the empire still exists, but it is a financial empire; the anglo-banking empire. It gained a lifeline via the Federal Reserve System in the USA (which has links to the UK and is based upon the UK system), which morphed into the Anglo-American financial empire. Thus the 'British Empire of Money' has lived on and actually gained in power and influence up to recent years, and this is coming to an end now.

  14. The economics profession was too myopic to see the dangers developing over the last 20 years. These dangers are now morphing into political problems, most strongly manifested in the USA. The government is badly disconnected from those who form the backbone of the US economy. This is a very dangerous situation. Note Pelosi's comments just yesterday. Unprecedented.

    These ramifications will require other countries to re-arm, something that has not been required since the 1930's.

    The USA spends more money on the just the Gulf fleet than most countries do on their entire defence budget. Austrailia, Japan and Taiwan may find themselves having to defend against China. Europe may find that they have to develop a defence network. Currently these national budgets are not accommodating this. This means that money will have to be cut from other areas. And in the case of war, will the Poles or Czechs want to fight on behalf of the Germans? Will the British want to fight on behalf of the French? This will be the ultimate test of the European Union, something that has not been necessary because of the US defence umbrella.

    These political changes are coming against the tough economic climate that faces us.

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