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The Money Has Run Out

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ok the money ran out some time ago but the illusion continued for a while

Welfare and Warfare

Guns & Butter

Politicians discovered that the populace will go along with their never ending military adventures if they were bought off with promises of generous pensions, free medical insurance, subsidized housing, unlimited drug benefits, farm subsidies, tax loopholes, and thousands of other voter boondoggle payoffs. The Federal Reserve printed the fiat currency, the military industrial complex created the enemies, young Americans fought and died in foreign countries in undeclared wars of choice, and corrupt politicians promised unlimited benefits to the masses in search of votes while rigging the tax system to benefit the rich and powerful. The creation of the Federal Reserve and the Federal Income Tax in 1913 unleashed politicians from the chains of fiscal responsibility. The “guns versus butter model” was turned upside down. Before the Federal Reserve was created the U.S. had to choose between two options when spending its finite resources. It could buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. Politicians handed out butter to the masses and M-16 rifles to our young men. All of the New Deal and Great Society social programs are dependent upon unlimited amounts of debt to be issued for all eternity or until the entire corrupt house of cards collapses.

The beauty of socialism and the welfare state is that when a country is young and vibrant, with a rapidly growing economy, the many pay for the benefits of the few. The baby boom that occurred throughout the modern world after World War II granted politicians the means to expand their welfare pledges. The more politicians promised, the more votes they received. It was a beautiful scheme, until reality struck.

Ferguson provides the reality check in The Ascent of Money:

“Yet there was a catch, a fatal flaw in the design of the post-warfare welfare state. What had started out as a system of national insurance had degenerated into a system of state handouts and confiscatory taxation which disastrously skewed economic incentives.”

The larger the welfare state becomes, the lower economic growth, higher inflation and lower productivity overcome the social benefits. As unions become stronger, the economic system becomes more dysfunctional and warped. The economy in a welfare state becomes bogged down in misallocation of resources, mal-investment, rules, regulations, and distorted pay structures. Incentives to increase profits are eliminated. Incentives to create new businesses and to boost efficiency are purged as bureaucracy gains increasing power. As the populations of the welfare states age, there are only a couple of alternatives for the politicians who never looked beyond the next election when passing legislation to hand out more entitlements. Politicians increase taxes on the productive to pay entitlements for the unproductive. The entitlement promises are so great in the United States that politicians couldn’t possibly raise taxes high enough to pay for them. This is where a willing Central Bank steps in and prints money and allows politicians the easy out of borrowing to pay the entitlement promises. This method works until it doesn’t. Ask Greece and Spain.

Turning Japanese

The welfare state really gained momentum after World War II with Japan and Great Britain leading the way. Ferguson describes the beliefs that overtook the developed world:

“From now on, the welfare state would cover people against all the vagaries of modern life. If they were born sick, the state would pay. If they could not afford education, the state would pay. If they could not find work, the state would pay. If they were too ill to work, the state would pay. When they retired, the state would pay. And when they finally died, the state would pay their dependents.”

With a post-war worldwide baby boom, the taxes easily paid for the benefits in the early years. The myopic politicians and bureaucrats failed to consider that life expectancy would increase from 62 years old in 1935 to 78 years old today, a 26% increase in 75 years. They also failed to anticipate that the Baby Boomers would have fewer children. The average family size has plunged from 3.5 in 1935 to 2.5 today, a 29% decline. After the implementation of Johnson’s Great Society programs in the late 1960s, the percentage of families with 2 or more children plummeted from 36.7% in 1970 to 23.7% in 2007.

As usual, any program conceived by politicians always has unintended consequences because they have not properly considered the potential scenarios. A properly run Ponzi scheme like Social Security, Medicare, and Medicaid requires that enough new money come into the system from new suckers to pay off the old suckers. With the old suckers living much longer than anticipated and not enough new suckers being born, politicians have resorted to doing absolutely nothing. Any politician who proposes any adjustment, restriction or cut in these programs is immediately ridiculed, spat upon and run out of office by the AARP and the entitled classes. The U.S. is about to experience what Great Britain and Japan have already experienced. The major difference is that Japan and Great Britain did not have to fund warfare along with welfare like the U.S. has been doing for half a century. This experiment of delusion will not end well.

Great Britain’s experiment in socialism came crashing down much sooner than Japan, as their population was much older. Their system degenerated into a system of state handouts, high taxation, no economic incentives, slow productivity, high inflation, and economic stagnation. Social transfers rose from 2.2% of GDP in 1930, to 10% in 1960, 13% in 1970 and 17% by 1980. Unions controlled the politicians and resisted all efforts to institute incentives based upon traditional capitalistic principles. Margaret Thatcher was able to slow the advancement of the welfare state for awhile, but was unable to put a stake through its heart. Great Britain continues its long-term decline with a GDP equal to Italy today. Japan, on the other hand, appeared to have figured it out, with the most dynamic welfare state economy in the world from 1970 until 1990. But, then the wheels came off. Demographics have a way of ruining the best laid plans of politicians.

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Yes, ultimately it's all about production. We have a finite productive capacity and we have to decide how to allocate it. If we devote capacity to 'X' then that capacity is not free to be used for 'Y'. If you have infinite capacity of course then it doesn't matter but that is not the case in the real world.

Currency should be a way to enable the total pool of 'productivity' to be physically represented/abstracted and thus facilitate division of labour - but when you have a fiat currency it ultimately gets corrupted because the people who control it are, or become, corrupt. At this point, money stops becoming a useful medium of exchange which benefits everyone and just becomes a way for the money-men to steal the people's sweat from their brows.

Right now, because of the pre-eminence of the Dollar the US is able to literally print it's way out of any situation. If it wants a new aircraft carrier it doesn't need to worry about diverting real resources from feeding, housing and clothing the people, over to war. It just 'prints' the money (figuratively speaking) and people from around the globe will swap resources and labour for it because they believe that a dollar bears some link to the real world of productivity. So the US gets a 'free' aircraft carrier based on nothing other than worthless promises to pay. The rest of the world is essentially considering the US economy to more or less have unlimited capacity to produce.

The problem for them will come when the rest of the World decides that they aren't going to continue to swap their valuable, often irreplaceable, assets or labour for worthless bits of green paper and all the dollars end up back in the US causing hyperinflation. This will happen because you can be sure that powers like Russia, China and the Middle Eastern oil nations know that their acceptance of the dollar is giving the US the means to maintain its military threat to them.

It's just like some stranger swans into a small town and starts living the high life, writing cheques for everything. All is great for a while - the stranger lives the high life and the local businesses all seem to be profiting from his custom - until it becomes obvious he doesn't have the money in his bank account to cover his promises to pay. In the end the creditors either face a total loss or have to settle for much less than they thought they were owed and the person who formerly lived a fantastic life on the back of cheques is penniless and forced to live within their means from then on. At least until some time has passed and everyone has forgotten how accepting cheques from strangers got them into so much trouble and starts to do so again.

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In Britain, productive = buidling property. So being more productive means building more houses! :lol: Economically speaking, we have a one-track mind.

Edited by blankster

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Though the account in the OP seems to make sense in the case of USUK, does it also work for, say, the Scandinavian countries? Germany?... Or is there something else at work as well?

Peter.

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another thought provoking post

though strictly speaking money may never run out as they can carry on printing until US $ loses worlds reserves currency status (which may be round the corner) I generally agree what is written.

Most people in America associate the Democratic Party with spending on welfare programs and the Republican Party with spending on warfare. Until reading Niall Ferguson’s brilliant The Ascent of Money, I never realized that welfare and warfare have gone hand in hand for over a century

yep

that has been the case & if I could add whats the difference between these two parties or any two parties for that matter in Western world?

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another thought provoking post

though strictly speaking money may never run out as they can carry on printing until US $ loses worlds reserves currency status (which may be round the corner) I generally agree what is written.

Most people in America associate the Democratic Party with spending on welfare programs and the Republican Party with spending on warfare. Until reading Niall Ferguson’s brilliant The Ascent of Money, I never realized that welfare and warfare have gone hand in hand for over a century

yep

that has been the case & if I could add whats the difference between these two parties or any two parties for that matter in Western world?

Yep

its all a big game to some - unfortunately many lose their lives in the game

if only enough could see it

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Yep

its all a big game to some - unfortunately many lose their lives in the game

if only enough could see it

while in China (holder of @ $2.5 trillion) internal pressure is mounting to dump $ due to US military exercises planned with South Korea which China's calling it open intimidation.

Its getting interesting by the day,

ww3 anyone?

It is rare for the Foreign Ministry to vehemently oppose an event five times in less than a month. But that is exactly what it has done to the proposed naval exercise between the United States and the Republic of Korea (ROK).

The magnitude of its displeasure shows that the joint US-ROK drill is nothing but saber rattling on China's doorsteps and a test of its patience.

The ministry's official reaction also reflects the public anger over such an open threat to China's security and interests. The Chinese media and netizens have been criticizing the drill ever since the US announced it a month ago.

Sources in the ROK Ministry of Defense confirmed to Xinhua on July 15 that the drill would start off ROK's east coast and then move on to the Yellow Sea, which is just a few hundred kilometers from China's eastern coast. A US media outlet cited American military sources as having said that nuclear-powered aircraft carrier USS George Washington would take part in the Yellow Sea exercise.

The US-ROK anti-submarine exercise has been postponed several times because of strong opposition from other countries, including China. It is apparently meant to act as a deterrence to the Democratic People's Republic of Korea (DPRK). Seoul and Washington accuse Pyongyang of torpedoing the ROK warship Cheonan, a charge the DPRK has dismissed as absurd.

...

http://www.chinadaily.com.cn/opinion/2010-07/17/content_10119037.htm

Confronting both China and Russia: U.S. Risks Military Clash With China In Yellow Sea

http://www.globalresearch.ca/index.php?context=va&aid=20149

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One aspect I never see mentioned is the symbiosis between the welfare state and the 'consumer society' These are two sides of the same coin because people's willingness to consume is a function of how safe they feel- the existence of the health and financial safety nets functions to some degree as a giant 'moral hazard' as it allows people to spend the money the they might otherwise put aside to protect themselves and their families against Illness, unemployment and old age.

One reason that China will have problem turning it's people into western style consumers is it's lack of social provision- people save their money as a hedge against the future.

I think the writers of articles like this think they can remove the social support and still retain the kind of 'long tail' consumer economy we have now, where we are all happy to spend freely on knick knacks and electronic toys of ever increasing diversity and uselessness.

But in a world where we were all directly responsible for our own health care, unemployment and pension cost's there would be a lot less demand for shiney toys.

This might be seen as a good thing until you realise just how many people's jobs depend on the market for non essential trivia. So while the notion that we should all become industrious worker ants seems superficially appealing, the question is who are the ants going to sell their output to- in the absence of the much derided grasshoppers?

The irony is that the most rabid free marketeers need the welfare state to exist as much as their socialist opponents- without it their entire business model falls over as their 'consumers' stop spending and retreat into their bunkers.

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Though the account in the OP seems to make sense in the case of USUK, does it also work for, say, the Scandinavian countries? Germany?... Or is there something else at work as well?

Peter.

Don't let the facts get in the way of the OP's ideology; it's welfare wot dunit. Oh, and socialism.

I wonder what of value the OP produces, apart from his fascinating explanations on HPC of course.

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Don't let the facts get in the way of the OP's ideology; it's welfare wot dunit. Oh, and socialism.

I wonder what of value the OP produces, apart from his fascinating explanations on HPC of course.

The problem isnt socialism (go further back)

socialism is a distraction

as is war

- the elite dont pay any tax (sure they may pay over some £'s or $'s but how did they create those £'s and $'s)

those socialists who may have good intentions (forgetting about the theft) should concentrate more on the money printers if they wish to have a future fair for all

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One aspect I never see mentioned is the symbiosis between the welfare state and the 'consumer society' These are two sides of the same coin because people's willingness to consume is a function of how safe they feel- the existence of the health and financial safety nets functions to some degree as a giant 'moral hazard' as it allows people to spend the money the they might otherwise put aside to protect themselves and their families against Illness, unemployment and old age.

One reason that China will have problem turning it's people into western style consumers is it's lack of social provision- people save their money as a hedge against the future.

I think the writers of articles like this think they can remove the social support and still retain the kind of 'long tail' consumer economy we have now, where we are all happy to spend freely on knick knacks and electronic toys of ever increasing diversity and uselessness.

But in a world where we were all directly responsible for our own health care, unemployment and pension cost's there would be a lot less demand for shiney toys.

This might be seen as a good thing until you realise just how many people's jobs depend on the market for non essential trivia. So while the notion that we should all become industrious worker ants seems superficially appealing, the question is who are the ants going to sell their output to- in the absence of the much derided grasshoppers?

The irony is that the most rabid free marketeers need the welfare state to exist as much as their socialist opponents- without it their entire business model falls over as their 'consumers' stop spending and retreat into their bunkers.

That's what I having trying to say to all the austerity junkies on this site for the last few weeks.

We may well have "run out of money" and I agree that "something must be done" but I also recognise that the current plans will just wreck everything with no proper assesment of what comes next.

To me, it's a definate case of "out of the frying pan and into the fire".

I also am under no illusions as to the far reaching effects to which virtually nobody will be immune. The number of folk on here who think they will be OK is a bit like the number who think they are above average, when asked. There are far too many to make mathematical sense.

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But in a world where we were all directly responsible for our own health care, unemployment and pension cost's there would be a lot less demand for shiney toys.

But id buy a lot more shiney toys, and have more money for lots of other things if I werent paying for others health care, unemployment benefits, pensions and so on.

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One aspect I never see mentioned is the symbiosis between the welfare state and the 'consumer society' These are two sides of the same coin because people's willingness to consume is a function of how safe they feel- the existence of the health and financial safety nets functions to some degree as a giant 'moral hazard' as it allows people to spend the money the they might otherwise put aside to protect themselves and their families against Illness, unemployment and old age.

One reason that China will have problem turning it's people into western style consumers is it's lack of social provision- people save their money as a hedge against the future.

I think the writers of articles like this think they can remove the social support and still retain the kind of 'long tail' consumer economy we have now, where we are all happy to spend freely on knick knacks and electronic toys of ever increasing diversity and uselessness.

But in a world where we were all directly responsible for our own health care, unemployment and pension cost's there would be a lot less demand for shiney toys.

This might be seen as a good thing until you realise just how many people's jobs depend on the market for non essential trivia. So while the notion that we should all become industrious worker ants seems superficially appealing, the question is who are the ants going to sell their output to- in the absence of the much derided grasshoppers?

The irony is that the most rabid free marketeers need the welfare state to exist as much as their socialist opponents- without it their entire business model falls over as their 'consumers' stop spending and retreat into their bunkers.

Nope, they just change what products they supply.

if you want a larder, a big fridge and gold, the market will do that for you.

if you want shit plastic junk and takeaways every night, you'll get that to.

Providing you can pay for it, ofc.

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Though the account in the OP seems to make sense in the case of US/UK, does it also work for, say, the Scandinavian countries? Germany?... Or is there something else at work as well?

There is a bit of the "something else" at work.

The Scandinavian countries and Germany do indeed have large state expenditure. Roughly the same as ours at the moment. The main difference is that they also have VERY free market economic policies and low regulatory burdens on their business sectors. (no bailout for SAAB for example).

In Denmark some of the public services are in fact run by private organisations in competition with each other I think, and of course there are the free schools in Sweden. So AFAIK they have economies that are actually in much better shape than ours.

Other things are also at work the German pension age is well publicized at 67 - that would save us many Billions each year - and anecdotally I have heard that their welfare systems are much less abused and in fact much less generous in the long term

than ours is in the UK.

Always bear in mind that Norway is a bit of a red herring due to the north sea oil (though they invested rather than spent it like us).

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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