stevehopwoodforex.com • Economics - Page 3 • Print view

Author:

nanningbob [ Sun Jan 26, 2014 7:51 am ]

Post subject:

Re: Economics

Lets talk about the basics of money. There is a great deal of misinformation about it and how it works. One of the driving forces is the so called argument, "They are just printing money". It is presented as some kind of evil or bad thing along with inflation. Most of this information comes from the Gold crowd. If we just use gold all these problems would not exist. Except they ignore the problems of gold based currencies have had in history. It is why it is not used anymore. (sorry conspiracy theorists). Let me try to explain and this will cause a big whirlwind but so be it.

Gold/silver based currencies have a major problem. They always lead to a few having the gold and the rest being peasants. Let me explain and this is simplistic but it is how people get to understand the basics:

Lets pretend you have a country of 100 people and you have in circulation 100 ounces of gold.So if the gold was evenly spread everyone would have 1 ounce of gold. People buy, sell, work, produce, etc. and exchange the gold. After a while some will have more some will have less and some will have none. You also have babies and a growing population. If your country grows to 200 people and the gold was evenly spread then everyone has a 1/2 ounce or what we would call a depression. Populations have always grown faster than gold can be mined so you always guarantee that the majority of the population would live in poverty or be peasants, serfs, etc. Those that get hold of gold then hoard it because to spend it and not get it back would lead you to becoming part of the lower classes.

The second problem with gold currencies is the lack of economic growth. Since the amount in circulation is limited and those that have it tend to hoard it. Economic growth becomes limited because you cant sell and buy more than what funds are in circulation. Just like each human in our make believe country has less gold available to them as the population grows. So does each business have a smaller pie as it grows. If you have two bakers and now there is a third, without the growth of the money supply each one gets less. Gold and silver based economies have always had this problem. So off on ships they go to find new lands and new sources of gold and silver. Temporary prosperity happens as new land's gold and silver is brought back to the old countries. But once economic growth and/or population catches up to the new supply or gold, you have economic collapse, the haves group gets smaller and the have not group gets bigger. Peasants with pitchforks can be a nasty group.

As the group that has more collects more and that group becomes smaller. The group that has less end up with even less and gets bigger. This is exactly what has happened in history. The group that has more becomes the Kings, queens, nobles, barons, princes, and princess. Basically the history of Europe through out the Middle ages. In other areas of the world you have Emperors, Pharaohs, etc. etc. Doesnt matter what you call them you have a ruling class who has the gold, sometimes a middle class of merchants, and the large peasant class or serfs, slaves, peasant farmers, etc.

stevehopwoodforex.com https://www.stevehopwoodforex.com/phpBB3/ Print view

Economics https://www.stevehopwoodforex.com/phpBB3/viewtopic.php?t=3398	Page 3 of 13

Author:	SpiderX [ Sun Jan 26, 2014 3:52 am ]
Post subject:	Re: Economics
Continuation of the first story: http://www.bloomberg.com/news/2014-01-2 ... ities.html Wonder if there is a limit to how much bailout there can be....would there be anything stopping China from printing money indefinitely ? Cheers

Author:	nanningbob [ Sun Jan 26, 2014 8:08 am ]
Post subject:	Re: Economics
Another favorite argument of the gold crowd is if you have gold based currency you wont have debt or it will be limited. Nothing could be further from the truth. Debt has always been an issue and paper money has nothing to do with it. In the Roman Empire to protect your wealth you had your own personal army. We have listen to the story of Ceasar, Pompeii, Antony, Octavian, Etc. These were the richest and most powerful men of the empire. If you were rich and were not a good general then you paid one that was to protect you. All sorts of alliances were made and remade based on the wealth of certain individuals. You make bad business decisions, your army disappears unless you borrow money to continue to pay them. Debt piles up and you start getting desperate. What are your best chances, well Senator so and so looks like easy pickings and off to war they went. King/noble/baron A borrow money form King/noble/baron B and later he cannot repay his debt. King B decides to get his money back but King A says he can if he attacks King C and then pays off King B. King C gets nervous and forms an alliance with Kings C and D. Which makes King B nervous so he decides to attack King A anyways but King B convinces King C if they join forces with D&E they all can enjoy the spoils of war. So the history books are filled with century after century of plots, backstabbing, palace intrigue, Robin Hood, the stuff empires rise and fall on. Gold never stopped debt from happening or of being a problem. In fact it was usually the center of the problem. I said all this before I get to paper or (fiat) currency.

Author:	nanningbob [ Sun Jan 26, 2014 8:27 am ]
Post subject:	Re: Economics
So how do you solve the problem; of having enough currency to have a rich class, middle class, and a hope that if you are poor to move up. You have to increase the money supply ie. inflation. China is the best modern example of this happening. When Deng Xiao Peng took over after Mao he began a series of reforms. China has no rich class of middle class to speak of. They had a privelaged ruling class and a nation full of peasants and shopkeepers. Everyone was poor including most govt. officials. China opened its doors and foreign investment poured in. People got better paying jobs than what they got from farming or as shopkeepers. labor was cheap and the world was its marketplace. Soon exports went all over the world and money flowed in. RMB were printed by the bucket load. The average person could now buy a house (small apartment), clothes, jewelry, automobiles and the super charged Chinese economy was born. China had its first millionaires and a middle class began to develop. The dream of owning your own house, car, and being able to travel filled their dreams. A true Keynesian economic success story. Now in the last 10 years China has developed Billionaires and huge corporations and banks that are just as big or bigger than their Western counterparts. The new kids on the block ready to show the good old boys of the West how it is done. None of this could happen on a gold based currency. You have to have money supplies to grow so more people have spendable income. The rich dont hoard but continue to invest and make their stash grow. The middle class grows with hopes of becoming rich and the poor think they have a chance as the upper class gets bigger, the middle class gets bigger, and the poor class gets smaller. Everything is coming up roses. This is economic growth and this is inflation. Instead of the amount of gold per person getting smaller the amount of cash per person gets bigger. Many get to join in and enjoy a piece of the pie. Everyone is better off than they were 10 years ago, just some more than others. Even poor peasant farmers have computers and cell phones. Cars now are filling the villages. I just went this weekend to a new park built on some lake out side of town. The roads were horrid, dirty, dusty, holes, bouncing all over the place but every village I went through I saw people with cars. Even some dirt farmers now had a car.

Author:	nanningbob [ Sun Jan 26, 2014 9:03 am ]
Post subject:	Re: Economics
People rail against paper currency and its so called evils. I dont want a gold based currency. I know and understand its limits. Does that mean paper currency is perfect? hardly. It can be and has been abused by governments. Just ask any German about their 20th century history and its abuse. But it is not the fault of paper currency. It is the ability to control how it used and put into circulation. I have to take some time to talk about USA history here. I will have to talk about some unpleasant subjects to explain it. I am not going to promote or defend USA govt. policy. That is for another discussion. However, you cant discuss USA economics without mentioning certain events of history. I promise I will try my best to stay out of the political arena here but it will be difficult. Since I was a High School American History/Economics teacher for a while I can cover some things that has happened during my lifetime and try to get you caught up on what has happened. During the Carter years the economy went bad. There were some reasons for that but Carter was just the wrong President at the wrong time. When he left office we had high unemployment, high inflation, and the greatness of America was highly questioned (sound familiar). Enter Reagan and Reaganomics. (Voodoo economics) Reagan basically said its not over, America can be great again. (Yes I see all the Europeans rolling their eyes, sorry) But what he did was just Keysnian economics. Cut taxes, borrow money, and invest in future growth. Small business start-ups was his forte, savings accounts (IRAs, Keough, etc were promoted), investments went up and America lurched forward and economically recovered. Then he did something that would be aghast to the present Republicans, he pushed through the biggest tax increase in USA history. Gee imagine if he tried that today, he would be fried by his own party. But he believed in paying the bills. Bush 1 took over and we had 4 years of him and then we got to Clinton. Clinton came in and after getting his head bashed in on universal health care and gun control, he began a series of govt. reforms. The day of big govt. is over he pronounced. By the end of his presidency the debt to GDP ratio was down close to 30% and some were predicting the govt debt could be paid off in 10 years or less. It was a great way for govt. to work. Borrow, invest, grow, raise taxes to pay down the deficit, reform govt. spending to match revenues. By the time Clinton left office America was producing small budget surpluses. We had an economic downturn. Enter Bush 2.

Author:	nanningbob [ Sun Jan 26, 2014 9:26 am ]
Post subject:	Re: Economics
Bush convinces us to do it again. Cut taxes and have economic activity. But things were different this time. Yes the economy grew but there were underlying fundamental problems. American business were going overseas where labor was cheaper (Hello China), the money being borrowed wasnt being invested in savings and long term business growth. Govt. spending was increased on two wars (Please dont get into justification/non-justification of these wars, I just want to talk about their economic impact) Instead of cutting govt. expenses they were increased. Cutting govt. income (taxes) and increase govt. spending on non-assets (war material) was a disaster waiting to happen. The deficits ballooned to a trillion a year. Instead of increasing taxes when you go to war, to pay for the war we borrowed the money instead. The money that should have been collected in taxes now went to risky investing (not investments) The stock market went sky high, property values went way beyond average income, and the fundamental base of our economy went overseas at a faster and faster rate. Enter Obama. So his economic solution was, lets have a bigger govt. and another big govt. program (Obamacare) It was exactly what we didnt need, from an economic point of view. What we needed first was a bi-partisan economic recovery package to get the USA and the world back on its feet. Instead we have the most divided our country has been probably since the Civil War. And so we languish. To get out of this mess we had QE1, QE2, and QE3. Yes they stopped us from sliding into a deep depression but they havent solved fundamental economic problems. They did not cause hyper-inflation as predicted by the gold crowd who expected gold to be 3-4-5 and sometimes even 6000 an ounce by now. It has a good chance of going back under a 1000 which all you gold bugs better think twice about your theories of economics. The reality did not match the predictions of the gold salesman or their followers. However, they did stop, at least for now deflation, (which by the way is still a possibility). So without writing a book, which this would be a summary, is what we are facing. Paper currency does have its value in economics. It works better than golf/silver if not abused. Even when abused its solution of printing more money is much better than the wars of previous centuries. So to answer your question, yes China will continue to print more money. They still have over 60% of its population to pull out of the lower class. It will take more money than they have now in circulation to accomplish that goal. Too fast and you have bubble bursts, too slow and economic growth becomes anemic. There is a balance to properly inflate a nation's currency supply. I am glad I dont have to make those decisions.

Author:	Jollyroger [ Sun Jan 26, 2014 12:59 pm ]
Post subject:	Re: Economics
Bob: The previous few posts are probably the best brief summation of economic development I have ever read. The temptation to reply and expand on the economic damage caused by the current administration in the USA and the population re-electing same is overwhelming. I will refrain however but request your views on what needs to be done globally to restore economic health in the world today. This would encompass both China and the USA as well as the European Union etc. Hope that doesn't get outside the scope of your economic thread but I think it is well within the scope of your intellect to express a cogent view. Thanks so much for starting this thread. Roger

Author:	SpiderX [ Sun Jan 26, 2014 3:05 pm ]
Post subject:	Re: Economics
Wonder if this is related to earlier: Fears of bank run on HSBC http://www.zerohedge.com/news/2014-01-2 ... ithdrawals Have been searching around, but cant find anything substantial to prove that this is true. Cheers

Author:	garyfritz [ Sun Jan 26, 2014 5:56 pm ]
Post subject:	Re: Economics
Outstanding summary, Bob. I agree a gold standard isn't the answer -- it limits economic growth. The inability to grow the money base is what caused a lot of the panics, deflations, and depressions in the 1800's and early 1900's. As you said, countries would send ships to mine/loot/steal gold wherever they could, because that was the only way they could expand their economies. But fiat currencies are fraught with problems too. They can grow and shrink as required by the economy, and that's good. But the biggest problem is that the politicians treat the printing press like their own private piggy bank, using it to promise things (be it wars or healthcare) that we can't afford. Politicians don't know how to manage our economy, so they just promise voters the moon (bread and circuses) to get re-elected. And we go deeper and deeper into debt. Soon nobody will buy our debt. We pay it back by printing more funny money, and because we keep expanding the money supply a trillion at a whack, the "dollars" we pay back are worth a lot less than the "dollars" we borrowed. (Basic supply and demand. When there are more dollars chasing the same amount of goods/services, there is an oversupply of dollars, and the dollars become worth less.) I don't know how we get out of this. The US has had a free ride since WW2, since our status as the world reserve currency gave us abilities (like being able to print new money to pay off our debts) that no one else had. But we've squandered that privileged position, and the USD is in danger of being replaced as the reserve currency. If that happens, the US is well and truly screwed. If we don't kill ourselves before then.

Author:	nanningbob [ Sun Jan 26, 2014 11:59 pm ]
Post subject:	Re: Economics
Yup. To me the key is controlling debt. People, whether in their personal lives, business/corporate lives, or govt. do not control their credit/debt they are asking for trouble. We are no longer a nation that believes debt is wrong and not paying your bills is wrong. Credit has its place, especially in the purchases of assets or business investment but we are no longer doing that and havent in a long time. So to me it matters not what currency form we use, debt will always destroy the economic well-being of individuals, businesses, and governments. I hate the current Republican Party economic philosophy that growth will overcome/outpace debt. Democrats are following it too. Just making money available growth automatically happens. Simply not true. There are other major factors. I will try to point out some solutions. I feel sorry for my kids, I have had a good life and dont have many complaints about the life I have lived. But I would not want to be young and facing this future. Either we go through a period of tightening and getting things back under control or it all blows up and we know what happened the last time that happened. I dont see people voting for the first option. However, you will get the first option either by choice or by economic blowup or severe downturn.

All times are UTC	Page 3 of 13
Powered by phpBB® Forum Software © phpBB Limited