[tomder55]

regarding the gold standard... David Frum addresses the emails he got from the Ron Paul crowd .

Right now, the United States is in the midst of a huge rebalancing of its external accounts. A big current-account deficit has begun the inevitable and ineluctable shift to a correspondingly big current-account surplus. The mechanism by which this will occur is a decline in the trade-weighted value of the US dollar. As the dollar buys less abroad, Americans will be constrained to consume fewer foreign goods and services - and foreigners will be induced to buy more from Americans.

With luck, this process will occur without a recession. The pace of domestic economic activity will continue brisk, dollar-denominated incomes will remain stable or even rise, unemployment may even decline as exports accelerate. This is what happened in 1985-86, the last time we saw a big drop in the value of the dollar.

All holders of dollar assets lose some of their wealth - but the burden falls most heavily on those with the most wealth to lose, who also happen to be the people who enjoyed the biggest gains during the previous increase in the value of the dollar. The burden falls least heavily on those with nothing to sell but their labor. This approach is not only equitable, but also surprisingly painless. Since permanently abandoning gold convertibility in 1933, the US economy has experienced far less economic volatility. Recessions are fewer and shallower (if sometimes longer).

Of course, that's not the only way to balance accounts. There is another, the way Americans experienced in 1837, 1857, 1893, and 1930-33. In those years, the value of the dollar was fixed to gold. (One dollar = 1/20 of an ounce.) If something bad happened in the world or US economy, the dollar could not adjust. A recession was like a car accident without bumpers or crumple zones - the full pain was conveyed uncushioned to the riders in the cabin. Domestic asset values collapsed. Unemployment jumped overnight to 15% or 20%. Homes were lost, businesses disappeared.

That's why the 19th century was the golden age (if I may be excused the expression) of monetary cranks. From the Greenback party of the 1870s to the William Jennings Bryan crusade in 1896 for free, unlimited coinage of silver (meaning, under the circumstances of the time, a deliberate policy of inflation), Americans rebelled again and again against the gold standard's habit of hurling America off the economic cliff once in every generation.

In 1896, ironically, the gold standard got lucky. Bryan lost, McKinley won. Almost immediately after McKinley's elections, gold miners first in South Africa and then in Australia found huge new goldfields. America got the inflation it needed without silver, thanks to a geological accident. From 1896 to 1913, the world economy expanded in what is known to history as "La Belle Epoque." Because that expansion was immediately followed by the catastrophe of World War I, it shines even happier than it really was. (There are doubts for example how rapidly the personal incomes of ordinary people really rose over those two decades.) And that happy interval casts an undeserved retrospective glow on America's experience with gold.

What the gold standard really is, fundamentally, is a rule that the nation's monetary stock should be determined, not by central bankers, but by miners. Why that should be regarded as an improvement by anyone, I cannot understand.

Let me add one final note. Even to treat the gold standard as a live option is to utterly misunderstand modern finance. It can never be restored, even if anyone were foolish enough to try, for a reason brilliantly explained by John Maynard Keynes almost nine decades ago:

The gold standard was ultimately sustained by a near universal belief that gold was money - and that nothing else was. There's a story told about the socialist minister in the British Labour government of 1929-31, who was stunned when his more conservative successors took Britain off gold in 1931. "They never told us we could do that!"

Well, now we all know that "they can do that."

Suppose that the US were on the gold standard right now. Suppose the country headed to recession. We would all know that the president and Congress of the moment could mitigate the recession by going off gold. We, each of us, would have to anticipate that possibility in our financial planning. So what would we do? We'd trade our "gold" dollars for commodity gold, and we'd hoard that - thus transforming a looming recession into an instant financial panic.

And since the government of the moment would have to anticipate that reaction, it would have to move even faster, dumping gold at the first tremor of bad news.

So you and I would have to act even faster still, never accepting "gold" dollars in the first place...

Which is why the whole thing is so irrecoverably dead.

David Frum's Diary on National Review Online

[Dark_crow]

The most serious increase is in the price of a necessity…food.

[magprob]

How do the big fascist buzzards feed their little fascist chicks!
Regurgitation Regurgitation Regurgitation Regurgitation Regurgitation
David Frum is a former speechwriter for President George W. Bush and a scholar at the American Enterprise Institute. A contributing writer for a number of rightist outlets (including the National Review Online, the Weekly Standard, the Wall Street Journal, Canada's National Post, and Britain's Daily Telegraph), Frum's articles typically offer ad hominem critiques of liberals and Europeans, espouse conservative social views, and push hawkish foreign policies—or a combination of all of the above. His July 11, 2007, National Review Online blog entry ("David Frum's Diary"),


Now here is someone that knows what is really going on.

Was last week's interest-rate cut an act of desperation? Absolutely. Meanwhile, it's obvious that using an applause meter to run the central bank is a terrible idea. November 07, 2007 -- 15:30 ETBy

BillFleckenstein

No shortage of ink was spilled last week about the Fed's quarter-point rate cut. Yet none of it acknowledged the big elephant in the room: Why in the hell was the central bank easing the federal funds rate with (1) the dollar at a new low, (2) oil at $90, (3) gold at $800, (4) virtually every commodity on the planet going wild and (5), despite government statistics to the contrary, inflation raging? Author, and father, of 'The Age of Turbulence'

Of course, we know why the Fed eased: because it's worried about problems in the financial system. But nothing better illuminates the Fed's position -- between a rock and a hard place -- than its rate cut last week. The Fed cannot fight inflation. It cannot provide for a decent currency. (If there's any levity to be found in the state of the dollar, you'll find it at the end of my column.)
The Fed's policy is to print money, print money and print more money. That's because of what then-Fed chief Alan Greenspan did for nearly 20 years. He bailed out every problem that came along, so we never had a small forest fire. Now we're getting set to have a giant forest fire.
In addition, the deregulation that Greenspan routinely championed is part of the current predicament, as it allowed folks to push problems down the road for a long time. Well, down the road just might be here.
Lower rates on demand
It's been an unfortunate journey that has brought us about as far as we could have traveled since Paul Volcker was chairman of the Federal Reserve.
That's the only conclusion to draw from a story last Tuesday by Wall Street Journal reporter Greg Ip titled "Why rate cut isn't a sure thing: Bowing to market pressure could prolong dilemma for Fed's policymakers." (But the next day, the Fed ignored the current level of inflation to curry favor with the stock market via the quarter-point cut.)
When Volcker was the chief central banker, the Fed, not the market, was in control. Now it appears to be the reverse. As Ip wrote, the decision for policy makers was "between the quarter-point reduction and no cut at all." He then went on to illuminate who's the boss:
"Both courses of action have risks. Perhaps the biggest is that the market's certainty that rates will be cut creates a burden on the Fed to deliver. Ordinarily, meeting market expectations isn't a goal in itself for the Fed. But the current environment is more fragile than usual, and thus the consequences of disappointing the market are potentially more damaging."
Toadies 'R' us
What's clear from this article: At least somebody at the Fed had indicated to Ip that he was concerned about how the stock market would respond to the Federal Open Market Committee decision, which indicates how much the Fed is in the back pocket of speculators.
Running the Fed by trying to pick the right interest rate was never a good idea, but that's what Greenspan did and what Bernanke does now. An even worse way to run the Fed is to be 100% on the applause-meter standard, which seems to be the path we're going down.
The prestidigitation that minimizes inflation
Look at last Wednesday's report on third-quarter gross domestic product. Our government would have us believe that inflation was running at only 0.8%, which allowed the growth of real GDP to be 3.9%. If the government had calculated the annualized rate of inflation to be 3.9% (probably a low estimate), then real GDP growth would have been zero. One number cannot be incorrect without the other number being incorrect.
So while the government and the Fed pretend the U.S. doesn't have inflation problems, countries around the world are acknowledging their own and trying to deal with them. Of course, we have the weakest currency, so whatever problems the rest of the world has, we have in spades, though we've jiggered the statistics to mask that.
Introducing the xera
Thanks to the suggestion put forth by a reader of my daily column, I have come up with the new name for our currency. Henceforth, it shall be called the xera. That's a combination of Xerox, for the piece of Xerox paper that it is; lira, which in the past was one of the world's chronically weak currencies; and, most importantly, the fact that it sounds like zero. That is ultimately where the xera is headed.

[magprob]

By Bill Fleckenstein
"Gambler Mae" made its debut in my Aug. 13 column. That was my name for the fictional entity I proposed should be created to bail out all losing trades everywhere, be they stock losses, racetrack losses or losing lottery tickets.

I modeled "Gambler Mae" on proposals being floated by our comrades in Congress who seem to think that the entire mortgage and housing sectors are deserving of a bailout -- despite the reckless behavior on display there that has brought us to where we are today.

[magprob]

Arm-Waving: When people take fluffy, subjective information and treat it as fact, to justfy a viewpoint.. . That they want to justify.

Goldilocksters: The people who take up the cause of a "not-too-strong, not-too-weak" economy, ignoring evidence to the contrary.

Housing ATM: When homeowners take loans against the inflated values of their houses and artificially pump up the economy with profligate spending.

Bubbleonians: Individuals who believe we are in a perpetual bull market. Alternatively called "U4ians."

[Skell]

3) I don't know if the value of the dollar has been mentioned on this thread, but I suspect it has. Some people will argue that the decreasing value of the dollar is a main source of the price increase in oil. I happen to disagree. And for proof, I offer the fact that oil prices are increasing EVERYWHERE, regardless of what the value of a particular currency is. Nevertheless, the falling value of the dollar makes that increase more evident here in the USA than elsewhere.


Elliot

Ill agree with this based on my experience. Here in Australia our economy is flying. The Aus $ is at a 30 year or more high (above 90 US cents). But petrol (oil) prices have been steadily increasing. And it is because of demand! Demand is high, particularly in China and India. Demand in these countries has effected costs of pretty much everything. Steel costs have risen 30% in the past couple of years. Copper has more than doubled! It is on the back of a booming china.

I think we are in store for some very lean economic times ahead. Very poor. Inflation down under here is out of control. The Government has failed to keep a cap on it and interests rates have risen 6 times in the past 18 months. Howard will most likely lose the election on this and the Iraq war alone.

The Governments and regulators are pi$$ weak too. They sit by and are dictated to by the oil companies. The regulatory watch dogs do nothing and the Governments are happy to cop their sling from the oil mobs.

Despite what they want us to believe economic management has been poor for a long time. And I imagine this is why the US is in its current situation!!

[magprob]

We are fixing to go into deep recession or depression. Austraila just raise interest 2 days ago. Get ready!

[Skell]

We are fixing to go into deep recession or depression. Austraila just raise intrest 2 days ago. Get ready!

Was that sarcasm mag?

[ordinaryguy]

Our government would have us believe that inflation was running at only 0.8%, which allowed the growth of real GDP to be 3.9%. If the government had calculated the annualized rate of inflation to be 3.9% (probably a low estimate), then real GDP growth would have been zero.

So how does this Fleckenstein guy receive his oracular knowledge that the inflation rate is actually (at least) 3.9% instead of the 0.8% reported by the Commerce Department? Is he alleging that the method used to calculate the CPI is defective, or that the Commerce Department is lying about the results?

[magprob]

The gains on the part of business and the banks are called “stimulation of the economy.” The losses on the part of the common person, or middle class, are call “inflation.” In this way the government economist pretends that these are two different things. They think they can have the first without the second. But these are not two different things. If a bank can print money and get richer by it, then you and I are getting poorer by it. There is no way to have “stimulation” of the economy without inflation. If a thief steals your money, his gain is your loss. You cannot have one without the other. You cannot pull money out of thin air, give it a value and say no one loses anything. For every action, there is a reaction. It is a very basic law. But then, I don't make the laws, the bankers do.
They tell us how much the dollar is worth and how high the inflation rate is.

[ETWolverine]

The gains on the part of business and the banks are called “stimulation of the economy.” The losses on the part of the common person, or middle class, are call “inflation.” In this way the government economist pretends that these are two different things. They think they can have the first without the second. But these are not two different things. If a bank can print money and get richer by it, then you and I are getting poorer by it. There is no way to have “stimulation” of the economy without inflation. If a thief steals your money, his gain is your loss. You cannot have one without the other. You cannot pull money out of thin air, give it a value and say no one loses anything. For every action, there is a reaction. It is a very basic law. But then, I don't make the laws, the bankers do.
They tell us how much the dollar is worth and how high the inflation rate is.

This argument assumes that the economy must be a net-zero system. One person's gain must be another person's loss. Pure claptrap.

It is possible for EVERYONE to come out ahead. And it is possible for there to be economic growth without inflation.

By your argument, if I purchase a car from a dealer, the dealer has "gained" and I have "lost" in the deal. But that argument doesn't take into consideration the value of the car that I purchased. We BOTH gained in the transaction, and neither of us lost.

Similarly, when a "middle class" person spends money to purchase food, clothing, whatever, he gains because he is getting what he wants. The seller gains because he gets money. The government gains because of sales and income taxes. When prices go up (inflation), the middle class person has lost purchasing power, the seller sells less product, and the government gets less income. Everyone looses equally in that scenario. The result is that the seller lowers his prices to increase sales (deflation or a decrease in inflation), and/or the government lowers tax rates, thus increasing the purchasing power of the middle-class individual, and again, everyone gains. In the end, everyone gains or loses equally. The "gain" by one person does not result in the loss by another.

This idea that the economy has to have a net-zero outcome is simplistic and not based in reality. Sure, there are winners and losers in any economy. But the gains of one do not result in the losses of another. Gain does not result in loss.

Elliot

[magprob]

Bernake just said this morning that the economy will slow. What that means is that the dollars they have printed are so low in actual value and that prices are so high, the bubble has broke. I am not saying the dollar has no value at all, it has the value that the fed attaches to it. What you need to understand is actual value. Actual value of your labor and how the inflation of the dollar lowers that value. That is how they steal from you.
Now, we slide down, valuating the virtual inflated worth of the virtual inflated dollar towards the depression side. When the dollars value gets to the point that your actual wages, not the inflated aspect of your wages, makes you to expensive, you get laid off. Not you per se but many people will now be losing their jobs.
When prices go up, wages stay the same or maybe a slight increase over years. The inflated dollar causes prices to rise beyond your actual wage.
If you would look at it with an open mind instead of championing what you were told to be true, you would understand and see I am telling you the truth.
But, until you fully understand how money works, everything you state to be a fact is based on inaccurate information, making it mostly false.
Any government that steals their citizens labor is fascist. People that are brainwashed into thinking that is OK are fascist with them.
We are now on the downward swing of the fed system when in reality, we still have the same amount of product and services we had yesterday, minus the amount of oil we have used in the last 24 hours. Does that tell you something about manipulation?

[magprob]

Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.

None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest. The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothin' yet. A company in India has just announced plans to produce a $2500 automobile.

Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e., nearby) and foreign (i.e., distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.

NEW YORK - Lobbyists for what could be the first oil refinery built in the United States since the 1970s are seeking help from federal lawmakers to hasten the permitting process, a spokesman for the company hoping to build the plant said on Thursday.

The company, Arizona Clean Fuels, hopes to build a $2.5 billion, 150,000 barrels per day refinery on desert land southwest of Phoenix.

A lack of US refining capacity has been blamed as one reason for higher gasoline prices, which soared to a nationwide record of $2.28 per gallon earlier this month. President George W. Bush, who has seen his approval ratings decline as gasoline prices rise, on Wednesday proposed allowing oil companies to build new refineries at abandoned military bases.

A spokesman for Arizona Clean Fuels said the company was not interested in building on an old military base.

Arizona environmental regulators granted the company hard-sought air permitting earlier this month. This week the company visited Wall Street to seek investors.

Besides financing, the plant still faces many hurdles, including obtaining a permit from the State Department that would allow it to receive crude oil from Mexico by pipeline.

The company also must prepare an environmental impact statement that requires it to determine how the proposed refinery and its daily operation could affect everything from any endangered species to Native American cultural remains.

"We're not asking for special exemptions or variances; we simply ask... could we get some assistance in speeding up that process and streamlining so it doesn't take another five years just to get the permits," said Ian Calkins, spokesman for Arizona Clean Fuels.

[Dark_crow]

Bernake just said this morning that the economy will slow. What that means is that the dollars they have printed are so low in actual value and that prices are so high, the bubble has broke. I am not saying the dollar has no value at all, it has the value that the fed attaches to it. What you need to understand is actual value. Actual value of your labor and how the inflation of the dollar lowers that value. That is how they steal from you.
Now, we slide down, valuating the virtual inflated worth of the virtual inflated dollar towards the depression side. When the dollars value gets to the point that your actual wages, not the inflated aspect of your wages, makes you to expensive, you get laid off. Not you per se but many people will now be losing their jobs.
When prices go up, wages stay the same or maybe a slight increase over years. The inflated dollar causes prices to rise beyond your actual wage.
If you would look at it with an open mind instead of championing what you were told to be true, you would understand and see I am telling you the truth.
But, until you fully understand how money works, everything you state to be a fact is based on inaccurate information, making it mostly false.
Any government that steals their citizens labor is facist. People that are brainwashed into thinking that is ok are fascist with them.
We are now on the downward swing of the fed system when in reality, we still have the same amount of product and services we had yesterday, minus the amount of oil we have used in the last 24 hours. Does that tell you something about manipulation?

Does the fed arbitrarily choose a value to put on the dollar or do they base it on something concrete?

[magprob]

"Throw out all of the current valuation metrics."
That is what I just heard a market anaylist say on Bloomberg. Tell me, has everything we produce in the United States just become worthless? Or, could it be that all these dollars the fed prints are really what is worthless?
I still think the best products in the world are produced here in the U.S. So why does the value suddenly devaluate to the point of recession?
Because someone is squeezing the real value out and putting it in their pockets. That's all I can come up with. If you can give me a better reason then I will consider it. If you really understand how the ecocomy works I will consider it. If you are right I will be thrilled to know that the fed and the government are really looking out for our best interest.

[magprob]

They base it on their own interest. Interest. Pure profit from nothing. If the dollar was backed by gold, they would still print more dollars than gold in the belief that not everyone will redeem them for gold at the same moment. The legal tender laws gave them the right to place a value on a piece of paper. Regardless of what they say is backing it. The corporations own the oil. What does that tell you about politicians and huge corporations?

[Dark_crow]

They base it on their own intrest. Intrest. Pure profit from nothing. If the dollar was backed by gold, they would still print more dollars than gold in the belief that not everyone will redeem them for gold at the same moment. the legal tender laws gave them the right to place a value on a piece of paper. Regardless of what they say is backing it. The corporations own the oil. What does that tell you about politicians and huge corporations?

I see, and how do they convince the rest of the world to accept that value? For instance, how do they convince Japan to accept that dollar value for the automobiles imported?

[magprob]

Don't trifle with me son. You figure it out if you really want to. Otherwise, keep giving everyone your limited view of the world.

[tomder55]

The Japanese are in on the conspiracy.

[ordinaryguy]

Don't trifle with me son. You figure it out if you really want to. Otherwise, keep giving everyone your limited view of the world.

What your case lacks in the way of analysis and reasoning, it makes up for in it's vitriol and contempt for any explanation of economic reality that doesn't have a monetary conspiracy as its centerpiece.

Because someone is squeezing the real value out and putting it in their pockets. That's all I can come up with. If you can give me a better reason then I will consider it. If you really understand how the ecocomy works I will consider it. If you are right I will be thrilled to know that the fed and the government are really looking out for our best intrest.

Will you believe that I really understand how the economy works if I disagree with you? If I tell you I have more than one university degree in Economics, will you dismiss my ideas as elitist propaganda? If I tell you that there are good and sufficient reasons for most of what happens in the world of money and banking, and that the role and function of a central monetary authority is necessary and essential, will you take it as evidence that I've been brainwashed?

You give national governments and central banks way too much credit (no pun intended) for being able to directly influence, much less completely control worldwide economic activity. They're kind of like the Corps of Engineers, building levees and breakwaters in a sometimes desperate and often unsuccessful attempt to protect their shoreline from economic hurricanes and tsunamis that occur frequently, though unpredictably. It's not that they are entirely powerless or that their efforts to influence markets are never successful in the short run. But they are so far from being able to really control everything that the whole idea is laughable. The relative exchange values that are negotiated daily in all kinds of markets--products, services, credit, and currency--are simply the cumulative result of the billions of buying, selling, saving and spending decisions made by billions of ordinary people going about their daily business.

I know, it just doesn't get the juices flowing like a good conspiracy riff, but the truth of how things work isn't necessarily good movie script material.