Debt based money does not a capitalist system make
This video is a bit old, the US dollar is temporarily rising as I post this comment, but the purpose of this clip is to help people understand that capitalism and debt based money are not the same. America was never intended to have a central bank. You can be capitalist without this ball and chain around our knecks. Free market capitalists hate the current system and have been predicting it’s end for decades. Is the delusion of hope and Obamanomics worthwhile?
Many people are pleased with the election of Obama, but I have observed that most of the blindly hopeful are also blindly clueless as to the true nature of the various crises afflicting the United States. My question I suppose is whether it matters — can psychology alone cure these problems? An alternative scenario: inflation AND deflation
All my predictions and calculations assume governments will intervene to re-inflate the credit bubble. My conclusion was that their efforts would ultimately be in vain as the excess currency loses its ability to generate real economic expansion in the developed nations, instead, it simply causes a plague of inflation that could threaten the viability of the entire currency system. Perhaps governments eventually return to a responsible course and a bottom is reached, perhaps they don’t. Why Americans will suffer more
The problem facing everyone is a loss of American demand. Americans don’t earn enough income, they have no savings and foreigners are refusing to lend them any more money. Americans are losing equity in their homes, their stocks and their pension funds. When Americans stop spending on domestic or foreign trinkets and automobiles, companies have the option to export those items somewhere else. When Americans stop spending on services, the companies close their doors. The majority of Americans work in the service sector. This is not the 1970′s, this is not the lost decade in Japan. When Americans stop spending and the service sector shuts down, unemployment will rise dramatically as the downward spiral is re-enforced. Gold makes a new… high?
Gold is making all time new highs against pretty much every major currency, except the US dollar and the Japanese Yen. Gold is not down, those currencies are up. So you have to ask yourself, is that sustainable? Is that move a result of a qualitative assessment regarding the relative performance of American assets compared to the world or a result of a technical condition (too many people borrowed too much money in those currencies to buy stuff abroad and are now liquidating their assets to pay back their obligations due to credit tightening). I have heard interesting arguments on both sides from people I respect, but over the long term does anybody really believe a dollar spent in America will yield the same growth prospects as a dollar spent in Asia? How much higher can the standard of living in the developed world rise relative to our financially challenged friends abroad? Just keep this in mind — one day dollars will be plentiful again, where will they be spent? Ceteris Paribus
I understand their logic – historic credit growth contraction will lead to deflationary pressures in the economy – but credit growth just barely went negative for the first time recently and was followed by an intense intervention from governments around the world. There is absolutely no evidence yet of any deflation, all the money supply figures are growing. That doesn’t mean it can’t happen, but given the events of the past few days in many capital cities I find it unlikely. The inflationist argument was always dependent on such intervention and now that circumstances have changed in their favor, deflationists must adjust their analysis. Price deflation thought experiment
If a house is purchased for $1 million using debt and the house value subsequently drops by 50% the dollars that were created and spent into circulation are not affected. In fact, the same $1 million can now buy two homes. In other words, relative to the value of stuff, money has become abundant, not scarce. There are way more dollars than stuff to buy with those dollars. Is that not the precise definition of inflation? It’s no different than selling $500,000 homes then doubling the money supply. The only caveat of course is the excess money in both cases is not required to be spent on housing. So we can have vicious price deflation for real estate and vicious price inflation for everything else, with no contradiction, with no new loans (for a while). Deflation and price deflation are two different animals. Thoughts? Marc Faber is wrong
I have a ton of respect for him, I read all his reports with great interest, his track record is as solid as they come, but I think on this issue he is wrong. Who, either Americans or foreigners, will feel the most pain as a result of our current global economic upheaval? Why I won’t sell despite the carnage
When economies collapse, the people don’t spontaneously combust and neither do their stuff. When trillions of dollars worth of paper fantasy money has evaporated, only the farms, mines, oil wells and factories that produce consumer staples will remain. Those are the places you want to keep your money and those are the things you want to buy when the price is right. We are approaching that point today, commodities can not drop below their cost of production for very long and that floor should also extend to stock prices. When you go to buy some shoes, are you upset when the price drops? Of course not, when you are a buyer you want the price as low as possible. I am not looking to retire in the next 6 months so I couldn’t care less what the market thinks these things are worth today, all I care is that the companies in which I invest and their industries survive. What I care about is profit — will these companies generate positive cash flow in an inflationary environment. The ones that make it through this mess will grow in market share and prosper. Let me make this clear, I won’t sell BECAUSE there is carnage. Update: Many people in my office who don’t invest are today discussing the crash. That’s a very bullish sign. |
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