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Why the US Govt owes $8 trillion

Iriemon

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Total US Government debt now stands at $7.93 trillion, according to the Treasury Department. The debt has increased by $553 billion so far this fiscal year ending 9/30/05. About $2.3 trillion has been borrowed since 2000, a 40% increase in the total debt. Approximately $750 billion of that amount is money that is supposed to be building up in our SS trust fund, but has been stolen by the politicians to fund their deficits instead.

http://www.publicdebt.treas.gov/opd/opdpdodt.htm

We are funding our tax cuts, our benefits, and our wars by borrowing massive amounts of money (roughly 25% of what we spend) each year from the next generations -- our children and grandchildren. On top of this massive and growing burden, they have to deal with boomers' retirement and health care costs, and whatever else the world throws at them.

We are failing our children, our grandchildren, and ourselves.

Why is this happening?

According to a recent Associated Press/Ipsos poll:

Only 35% would be willing cut government spending to balance the budget.

Only 18% would be willing to raise taxes to balance the budget.

Only 1% would be willing to raise taxes and cut spending.

http://www.kentucky.com/mld/kentucky/business/12491038.htm

Shame on us. And shame on the leaders of our government, who tell us noble sounding things like "This country has many challenges. We will not deny, we will not ignore, we will not pass along our problems to other Congresses, to other presidents, and other generations" -- while pandering to our greed and doing just that.

We truly are the pass the buck generation.
 

128shot

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Welcome to war.

the next president better have a plan to fix this..
 

MrFungus420

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It's very short-sighted to blame this on the war.

This is an ongoing problem with the government. Our government has become a bloated money-wasting thing.

The further the government has gotten away from the limits imposed by the Constitution, the worse the probelm gets.

The government spends far too much money on things that it has no right being a part of. Read the Constitution. It specifically says what the federal government's powers and responsibilities are. If it isn't deliniated in the Constitution, the federal government has no right being involved in it.
 

Iriemon

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The Iraq war has been far longer and costlier than the Admin represented to us would be the case, but in total, the war in Iraq has cost approximatley $250B, which represents just a small portion of the $2.3 trillion borrowed over the last 4 years.
 

zero18

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MrFungus420 said:
It's very short-sighted to blame this on the war.

This is an ongoing problem with the government. Our government has become a bloated money-wasting thing.

The further the government has gotten away from the limits imposed by the Constitution, the worse the probelm gets.

The government spends far too much money on things that it has no right being a part of. Read the Constitution. It specifically says what the federal government's powers and responsibilities are. If it isn't deliniated in the Constitution, the federal government has no right being involved in it.
Exactly. Personally, though, I think the root of the problem is the Federal Reserve. It has allowed government to grow exponentially and led to our huge debt.
 

zero18

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Iriemon said:
The Iraq war has been far longer and costlier than the Admin represented to us would be the case, but in total, the war in Iraq has cost approximatley $250B, which represents just a small portion of the $2.3 trillion borrowed over the last 4 years.
It was recently calculated that the war may cost over 1.3 trillion dollars in 5 years. http://www.warprofiteers.com/article.php?id=12573 :doh
 

Iriemon

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zero18 said:
Exactly. Personally, though, I think the root of the problem is the Federal Reserve. It has allowed government to grow exponentially and led to our huge debt.
The federal reserve (Fed) has nothing to do with the debt or government growth. The Fed has one function: it controls the amount of money available in the system. The Fed does not control taxing or spending or how big government is. Congress and the president do that.

The root problem is that Congress and the President spend more than they take in through tax revenue.
 

Arch Enemy

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Who the hell did we borrow all this money from? I could have sworn most, if not all, rich countries were indebt with us.
 

zero18

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Iriemon said:
The federal reserve (Fed) has nothing to do with the debt or government growth. The Fed has one function: it controls the amount of money available in the system. The Fed does not control taxing or spending or how big government is. Congress and the president do that.

The root problem is that Congress and the President spend more than they take in through tax revenue.
I highly suggest reading this speech by congressman Ron Paul (one of the few respectable Republican congressmen).

http://www.house.gov/paul/congrec/congrec2002/cr091002b.htm

And here's a quote from Woodrow Wilson's memoirs referring to the Federal Reserve: I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson
 

Iriemon

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Arch Enemy said:
Who the hell did we borrow all this money from? I could have sworn most, if not all, rich countries were indebt with us.
From Wiki: http://en.wikipedia.org/wiki/U.S._National_Debt

===

The Bureau of the Public Debt divides the national debt into two main categories: debt held by the public, and intragovernmental holdings. Intragovernmental debt includes money for government trust funds, such as pension plans and the debt for social security which is about $1.7 trillion as of May 2005. Overall, intragovernmental holdings account for over $3.1 trillion of the total debt at this time.

The remaining $4.6 trillion or so has been purchased by the public, including foreign entities. This largely comes from the issuance of Treasury securities. Nearly half ($2.2 trillion) is composed of Treasury notes (aka T-notes), while T-bills and T-bonds (savings bonds) cover most of the remaining public portion of the debt. Bonds sold for infrastructure projects are also part of the national debt.

It is common for individual Americans and businesses to buy bonds and other securities, though much of the debt is now held overseas. At the end of 2004, foreign holdings of Treasury debt were $1,886 billion, which was 44 percent of the total debt held by the public. Foreign central banks owned 64 percent of the Federal debt held by foreign residents; private investors owned nearly all the rest (figures are from the Analytical Perspectives of the 2006 U.S. Budget, page 257 [1]). The country holding by far the most debt is Japan which held $679 billion at the end of March, 2005. In recent years the People's Republic of China has also become a major holder of Treasury debt, holding $223.5 billion at that time.

===

The $1.7 trillion debt for social security represents excess SS taxes that we have paid in over the last couple decades (last year it was about $150 billion) that were supposed to be built up into a SS trust fund to pay the boomers' retirment. Instead, the politicians have stolen the funds from *our* SS trust fund and used them for general spending, replacing them with IOUs, which are really about worthless, because the Govt has to pay SS benefits anyway. The trust fund was supposed to be extra money to help cover the costs.

Having spent the $1.7 trillion that was supposed to be in *our* SS trust fund to cover their deficits, the politicians now have the gall to tell us that SS is in a "crisis." Well, yeah, because they stole the money with their deficits! :mad:
 

Iriemon

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zero18 said:
I highly suggest reading this speech by congressman Ron Paul (one of the few respectable Republican congressmen).

http://www.house.gov/paul/congrec/congrec2002/cr091002b.htm

And here's a quote from Woodrow Wilson's memoirs referring to the Federal Reserve: I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson
This site you cite proposes going back to a gold standard, which IMO is a very bad idea for many reasons. And still wouldn't solve the problem of Congress spending more than it takes in.

And I think, tho' am not sure, that the Fed system was created after Wilson was pres.

IMO, creating the Fed system, and taking the power to create money out of the hands of the people who could spend it (ie Congress) was one of the smartest things our government has ever done.

Bad fiscal policy -- taxes and spending -- can create serious problems. But you can really screw things up fast with bad monetary policy.
 
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zero18

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Iriemon said:
This site you cite proposes going back to a gold standard, which IMO is a very bad idea for many reasons. And still wouldn't solve the problem of Congress spending more than it takes in.
Yes it definitely would solve the spending problem since we would be basing our notes on something of value. Right now we base our currency on faith in the Federal Reserve. Inflation and deficit spending opened the doors for more government programs (FDR wouldn't have his New Deal socialism without the Fed).


And I think, tho' am not sure, that the Fed system was created after Wilson was pres.
The Federal Reserve Act was passed by Wilson in 1913. http://www.historychannel.com/thcsearch/thc_resourcedetail.do?encyc_id=209117


IMO, creating the Fed system, and taking the power to create money out of the hands of the people who could spend it (ie Congress) was one of the smartest things our government has ever done.
Now its in the hands of the most powerful bankers in the world. They are almost completely unaudited and do not answer to the American ppl. Yeah, real smart move.:roll:


Bad fiscal policy -- taxes and spending -- can create serious problems. But you can really screw things up fast with bad monetary policy.
Please explain to me how the Federal Reserve has kept spending in check. Our government's spending was in check before the Fed. Now its out of control. The citizens are in debt to them as long as we keep them in power.
http://100777.com/node/789
 

Iriemon

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zero18 said:
Yes it definitely would solve the spending problem since we would be basing our notes on something of value. Right now we base our currency on faith in the Federal Reserve. Inflation and deficit spending opened the doors for more government programs (FDR wouldn't have his New Deal socialism without the Fed).
The problem with Govt spending has nothing to do with the money supply and whether it is based on gold or something of value or whatever form of currency we have. The problem is that the Govt spends more than it receives in revenues from taxes. If we are on a gold standard, and the Govt continues to spend more than it receives in tax revenue, we will continue having deficits and debt growth.

OK

Now its in the hands of the most powerful bankers in the world. They are almost completely unaudited and do not answer to the American ppl. Yeah, real smart move.:roll:
The people who run the Fed are appointed by the Pres for limited terms; they are not appointed by bankers, so there is at least some political responsibility in the system.

But what is of crucial importance (IMO) is that the people who control the money supply are not the same people who control Govt spending. If Congress controlled the Fed, it could (would) create money to fund its spending, which would be disaster.

I agree that a gold standard would eliminate this specific issue, because Congress cannot create more gold. But a gold (or any other) standard creates lots of problems precisely because we cannot control the money supply. This is exactly why we went off the gold standard in the first place. Our money supply is effectively control by the gold producers in the world. Do you think it would be better than our money supply was controlled by the likes of South Africa and Russia, two of the major gold producers that come to mind.

With a Gold standard, if money becomes too tight, interest rates skyrocket, and production comes to a halt, the money supply cannot be increased to get more capital into the economy. Conversely, if the gold producers produce too much gold, inflation results, we cannot decrease the money supply to control it.

Actually, there are some ways Govt's used to try to maintain currencies against a gold standard -- they could buy gold if there was too much or sell reserves if there was too little -- or devalue the currency. But these were clumsy controls that did not work well against speculators who made huge fortunes hedging against the Govt as it tried to maintain a currency, making the matters worse.

Also, a "gold" standard still has paper currency and credit, and the Govt still controls how much paper is out of there, so you still have the same problem of who is responsible for maintaining the money supply.

These are a few of the major problems we had with a gold standard and why it was abandoned.

Actually, in general, the economy has worked much better without a gold standard. Boom and bust cycles are not as severe as they had been in the past. The folks who run the Fed, even assuming the represent banking interests, have an interest in a sound dollar and keeping inflation in check, something that benefits everyone.

Please explain to me how the Federal Reserve has kept spending in check. Our government's spending was in check before the Fed. Now its out of control. The citizens are in debt to them as long as we keep them in power.
http://100777.com/node/789

It is not true there was never a spending problem -- why do you think they created taxes in the first place? Because of spending problems. Furthermore, we have had Govt spending "in check" since the Fed was created -- in 1999-2000 when we had a balanced budget.

But none of that has anything to do with the money supply or the Fed. It is not the Fed's responsibilty to keep Govt spending in check at all. If Govt spending was generally in check before the Fed, it was because we had representatives in Govt who valued fiscal responsibility, as opposed to the borrow-n-spend pass the buck gutless wonders running our Govt today.
 

Ether

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But what is of crucial importance (IMO) is that the people who control the money supply are not the same people who control Govt spending. If Congress controlled the Fed, it could (would) create money to fund its spending, which would be disaster.
It makes no difference whether money is monopolized by a private, state-backed cartel, or by a blatant state monopoly. The crucial problem with the Fed is that it is given exclusive government support to expand the credit supply. How the decisions at the Fed are arrived to, whether by voters or by "private citizens", makes no difference.


But what is of crucial importance (IMO) is that the people who control the money supply are not the same people who control Govt spending. If Congress controlled the Fed, it could (would) create money to fund its spending, which would be disaster.
This already happens. It's not as simple as Alan Greenspan switching on the printing presses and sending a briefcase of money to Congress. But the Fed already creates money out of thin air and lends it to the government.

I agree that a gold standard would eliminate this specific issue, because Congress cannot create more gold. But a gold (or any other) standard creates lots of problems precisely because we cannot control the money supply. This is exactly why we went off the gold standard in the first place. Our money supply is effectively control by the gold producers in the world. Do you think it would be better than our money supply was controlled by the likes of South Africa and Russia, two of the major gold producers that come to mind.
In a sense, you are absolutely correct. With the gold standard set in place, it is very difficult for the government to control the money supply. The question then is, whether we want the government to expand and contract at its political will. The supply of gold is limited by the profitability of gold production. Capitalists are not going to create more gold just for the fun of it. They do it because of the consumer demand for the nonmonetary uses of gold. This demand has been relatively stable throughout the past few centuries.

With a Gold standard, if money becomes too tight, interest rates skyrocket, and production comes to a halt, the money supply cannot be increased to get more capital into the economy. Conversely, if the gold producers produce too much gold, inflation results, we cannot decrease the money supply to control it.
This is the old mistake that the money supply and the interest rate are inherently connected. On the free market, the interest rate is independent of changes in the money supply (though a purchasing power component may be tacked on to the interest rate). But when government intervenes and expands the credit supply, the interest rate is artificially lowered. The key word is "artificially". This rate cannot be maintained and that's how we get busts and depressions.

Also, a "gold" standard still has paper currency and credit, and the Govt still controls how much paper is out of there, so you still have the same problem of who is responsible for maintaining the money supply.
I fail to see why the Government needs to be controlling the paper currency? Banks can certainly supply their own paper - warehouse receipts and money substitutes.

Actually, in general, the economy has worked much better without a gold standard. Boom and bust cycles are not as severe as they had been in the past. The folks who run the Fed, even assuming the represent banking interests, have an interest in a sound dollar and keeping inflation in check, something that benefits everyone.
How can the Fed keep inflation in check if it is the very entity which creates inflation? Inflation here being defined as an expansion in the money supply not matched by increased goods and services or specie. But you are right... from the point of view of an inflationist who supports the banking cartel, the gold standard was a terrible obstacle to credit expansion.
 

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Iriemon said:
But what is of crucial importance (IMO) is that the people who control the money supply are not the same people who control Govt spending. If Congress controlled the Fed, it could (would) create money to fund its spending, which would be disaster.
Ether said:
This already happens. It's not as simple as Alan Greenspan switching on the printing presses and sending a briefcase of money to Congress. But the Fed already creates money out of thin air and lends it to the government.
True -- and to some extent it is necessary to create more money to help keep up with the growth of the economy. A money supply that is too restrictive reduces credit availability which short term increases the cost of borrowing money -- ie interest, and long terms can be deflationary.

Too much money creation is not good either, it creates inflation.

But the important point is that the entity that creates the money -- the Fed -- is not the same entity that loves to spend everything that can get its hands on, and then some. It's bad enough the Govt is borrowing 1/2 a trillion a year, if it had control of the money supply it would simply create more money to support its spending habits, and we'd end up like Argentina.

In a sense, you are absolutely correct. With the gold standard set in place, it is very difficult for the government to control the money supply. The question then is, whether we want the government to expand and contract at its political will. The supply of gold is limited by the profitability of gold production. Capitalists are not going to create more gold just for the fun of it. They do it because of the consumer demand for the nonmonetary uses of gold. This demand has been relatively stable throughout the past few centuries.
Exactly. Why should our monetary policy be determined at the whim of demand for a yellow colored metal used for jewelry?

This is the old mistake that the money supply and the interest rate are inherently connected. On the free market, the interest rate is independent of changes in the money supply (though a purchasing power component may be tacked on to the interest rate). But when government intervenes and expands the credit supply, the interest rate is artificially lowered. The key word is "artificially". This rate cannot be maintained and that's how we get busts and depressions.
Hmmmm. That seems counterintuitive. If the money supply was restricted, you would have the same demand for credit, but less money would be available to lend. Classic enconomics -- if the supply decreases and demand is constant, the price of the item (interest) increases. Perhaps this is a difference between the supply of money as an absolute number and the supply of money as a function of expanding the credit supply. Not exactly the same; tho' expanding the credit supply has the effect of increasing the monetary supply, does it not?

I fail to see why the Government needs to be controlling the paper currency? Banks can certainly supply their own paper - warehouse receipts and money substitutes.
I think there is a value to having a single, unified currency, instead of dealing with notes from different banks, all of which have different values based on risk.

How can the Fed keep inflation in check if it is the very entity which creates inflation? Inflation here being defined as an expansion in the money supply not matched by increased goods and services or specie. But you are right... from the point of view of an inflationist who supports the banking cartel, the gold standard was a terrible obstacle to credit expansion.
The Fed keeps inflation in check by controlling the growth of the money supply. It seems to have done a pretty good job of it since the late 70s.
 
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Ether

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True -- and to some extent it is necessary to create more money to help keep up with the growth of the economy. A money supply that is too restrictive reduces credit availability which short term increases the cost of borrowing money -- ie interest, and long terms can be deflationary.

Too much money creation is not good either, it creates inflation.
Um, why is it necessary to create more money to keep up with the growth of the economy? This is the old fallacious quantity theory of money, which is more or less rejected by economists. Money is nothing more than a medium of exchange, and it's purchasing power is constantly adjusted by the free market according to the range of goods and services and their prices.

Second, you are again repeating the fallacy that the interest rate is somehow determined the money supply. This is only true in the immediate term, when credit expansion can artifically lower the interest rate. But this rate is not reflective of the real investment-consumption ratios of the economy, and for that reason it cannot last. Thus, this "decreased cost of borrowing money" is an illusion and will be revealed as such once the boom ends.

But the important point is that the entity that creates the money -- the Fed -- is not the same entity that loves to spend everything that can get its hands on, and then some. It's bad enough the Govt is borrowing 1/2 a trillion a year, if it had control of the money supply it would simply create more money to support its spending habits, and we'd end up like Argentina.[/qupte]

I guess I can concede that point. Nevertheless, the Federal Reserve is a disastorous institution and while direct control of the money supply by Congress might make things worse, I do not think there will be a huge difference.

Exactly. Why should our monetary policy be determined at the whim of demand for a yellow colored metal used for jewelry?
First of all, it does not make a huge difference as to whether or not the supply of money increases. Purchasing power will be adjusted accordingly, and the economy as a whole will not suffer. There will be gainers and losers, but they will cancel each other out. There is a limit to this effect, mainly the profitability of gold production. No such limit exists with the Federal Reserve. History has shown that the supply of gold has not increased much... in fact, we have less gold now than we did a couple centuries ago.

Hmmmm. That seems counterintuitive. If the money supply was restricted, you would have the same demand for credit, but less money would be available to lend. Classic enconomics -- if the supply decreases and demand is constant, the price of the item (interest) increases. Perhaps this is a difference between the supply of money as an absolute number and the supply of money as a function of expanding the credit supply. Not exactly the same; tho' expanding the credit supply has the effect of increasing the monetary supply, does it not?
Classic economics... now I see where you're getting all these fallacies. While classical economists are paid their dues for starting the profession, a lot of their work has been thrown in the rubbish bin. I should not have to repeat that the money supply is NOT connected to the interest rate. The interest rate is the price of time. The price of money is purchasing power.

I think there is a value to having a single, unified currency, instead of dealing with notes from different banks, all of which have different values based on risk.

The Fed keeps inflation in check by controlling the growth of the money supply. It seems to have done a pretty good job of it since the late 70s.
You need to take a look at growth of the money supply since Greenspans been in charge. That's a ridiculous statement.

And there is a value to having a single unified currency, because then there is no limit to credit expansion and the Federal Reserve can inflate as it pleases.
 

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Ether said:
Um, why is it necessary to create more money to keep up with the growth of the economy? This is the old fallacious quantity theory of money, which is more or less rejected by economists. Money is nothing more than a medium of exchange, and it's purchasing power is constantly adjusted by the free market according to the range of goods and services and their prices.
Could be ... but if the economy produces more goods and more jobs and the money supply is constant, there must be deflation. If you hire another worker, with what is he paid? If there is no increase in the money supply, his salary can come only from the decrease in salary of others. Same with the price of goods.

Second, you are again repeating the fallacy that the interest rate is somehow determined the money supply. This is only true in the immediate term, when credit expansion can artifically lower the interest rate. But this rate is not reflective of the real investment-consumption ratios of the economy, and for that reason it cannot last. Thus, this "decreased cost of borrowing money" is an illusion and will be revealed as such once the boom ends.
OK, I'll accept that.

But the important point is that the entity that creates the money -- the Fed -- is not the same entity that loves to spend everything that can get its hands on, and then some. It's bad enough the Govt is borrowing 1/2 a trillion a year, if it had control of the money supply it would simply create more money to support its spending habits, and we'd end up like Argentina.[/qupte]

I guess I can concede that point. Nevertheless, the Federal Reserve is a disastorous institution and while direct control of the money supply by Congress might make things worse, I do not think there will be a huge difference.
Why has the Fed been a disasterous institution? What policies has it done since 1980 that have been wrong? I think it has done a pretty good just controlling inflation through the money supply.

I completely disagree with your view that it would be no worse if Congress controlled the money supply. Congress has incentive to spend spend spend because it the people who contribute to their campaigns and the folks back home happy. It Congress could just create more money to spend spend spend more more more, we'd really see the results of an over expansion of the money supply. Take a look at Argentina or Chile if you want to see the results of that, among others.

First of all, it does not make a huge difference as to whether or not the supply of money increases. Purchasing power will be adjusted accordingly, and the economy as a whole will not suffer. There will be gainers and losers, but they will cancel each other out.
Disagree. An overincrease in the money supply results in inflation. Purchasing power can be adjusted only if your income can increase with the increase in prices. For folks on a fixed income it is devastating. The rise in prices creates uncertainty for business planning and purchasing (as if we need more incentive for that).

If you are arguing that high inflation in the economy is not a negative factor, I think you are with a small minority on that point.

The opposite is true in a deflationary economy. Great for those on fixed incomes. Not fun to get your salary cut. But in the meantime, until those salaries are cut, there's not enough money in the system.

There is a limit to this effect, mainly the profitability of gold production. No such limit exists with the Federal Reserve. History has shown that the supply of gold has not increased much... in fact, we have less gold now than we did a couple centuries ago.
But we have several hundred million more people, all who need to get paid and buy stuff with that same limited supply of gold. What happens to salaries, in terms of gold? Or prices of goods?

Classic economics... now I see where you're getting all these fallacies. While classical economists are paid their dues for starting the profession, a lot of their work has been thrown in the rubbish bin. I should not have to repeat that the money supply is NOT connected to the interest rate. The interest rate is the price of time. The price of money is purchasing power.
You agreed that a change in the money supply has at least a short term effect on interest rates. I agree that if money supply is stable, there is no long term effect.

What happens to interest rates if the supply of money is decreasing over time? Or stable with a growing economy and population?

It is true it has been a couple decades since I took classes in econ, but I think laws of supply and demand still apply. But if not, that's OK, I am always eager to learn.

Iriemon: The Fed keeps inflation in check by controlling the growth of the money supply. It seems to have done a pretty good job of it since the late 70s.
You need to take a look at growth of the money supply since Greenspans been in charge. That's a ridiculous statement.
Wait a minute, a moment ago you say: First of all, it does not make a huge difference as to whether or not the supply of money increases. But me saying that the Fed has done a decent job controlling the money supply is a ridulous statement because of how much the money supply has increased?

Putting that aside, inflation has been around 3% since 1980. What have been the negative economic consequences of Fed policy since then? Your point is they should have restricted money growth more? OK, how has this hurt the economy, in light of your view that the supply of money has little effect on the economy because purchasing power adjusts?

And there is a value to having a single unified currency, because then there is no limit to credit expansion and the Federal Reserve can inflate as it pleases.
I cannot believe you are seriously proposing a system where US currency is abolished and we all walk around with notes from different banks in our pocket.
 

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Could be ... but if the economy produces more goods and more jobs and the money supply is constant, there must be deflation. If you hire another worker, with what is he paid? If there is no increase in the money supply, his salary can come only from the decrease in salary of others. Same with the price of goods.
Why is "deflation" (here defined as a general decline in prices rather than any change in money stock) a bad thing? Falling prices are the mark of industrial progress. Even if the money supply is constant, the purchasing power of each unit is increased or decreased in accordance with the goods in society. Again, the quantity theory of money which you are basing your entire analysis on is completely fallacious.

But the important point is that the entity that creates the money -- the Fed -- is not the same entity that loves to spend everything that can get its hands on, and then some. It's bad enough the Govt is borrowing 1/2 a trillion a year, if it had control of the money supply it would simply create more money to support its spending habits, and we'd end up like Argentina.

Why has the Fed been a disasterous institution? What policies has it done since 1980 that have been wrong? I think it has done a pretty good just controlling inflation through the money supply.

I completely disagree with your view that it would be no worse if Congress controlled the money supply. Congress has incentive to spend spend spend because it the people who contribute to their campaigns and the folks back home happy. It Congress could just create more money to spend spend spend more more more, we'd really see the results of an over expansion of the money supply. Take a look at Argentina or Chile if you want to see the results of that, among others.
I'll concede that point. It makes sense to me ;) Again, however, the current situation isn't much better. If you understand the intricate workings of central banking (the intricacy specifically designed to confuse the average joe), then you'd know that the Fed already creates money out of thin air and lends it to the government.

Disagree. An overincrease in the money supply results in inflation. Purchasing power can be adjusted only if your income can increase with the increase in prices. For folks on a fixed income it is devastating. The rise in prices creates uncertainty for business planning and purchasing (as if we need more incentive for that).

If you are arguing that high inflation in the economy is not a negative factor, I think you are with a small minority on that point.

The opposite is true in a deflationary economy. Great for those on fixed incomes. Not fun to get your salary cut. But in the meantime, until those salaries are cut, there's not enough money in the system.

But we have several hundred million more people, all who need to get paid and buy stuff with that same limited supply of gold. What happens to salaries, in terms of gold? Or prices of goods?
We misunderstand each other. I'm not arguing that high inflation is a bad thing. My point is that high inflation is only possible under a regime of fiat money. Under the gold standard, there is a market-imposed limit upon how much the gold stock will increase. The profitability of gold production is the limit. With a banking cartel that can create money out of thin air, there is no such limit.

As long as the PPM changes due to market forces (supply and demand of money, as well as the supply and demand of goods), there is nothing wrong with a little inflation.

You agreed that a change in the money supply has at least a short term effect on interest rates. I agree that if money supply is stable, there is no long term effect.

What happens to interest rates if the supply of money is decreasing over time? Or stable with a growing economy and population?

It is true it has been a couple decades since I took classes in econ, but I think laws of supply and demand still apply. But if not, that's OK, I am always eager to learn.
Let me repeat, this short term effect is artificial. The real interest rate, or the social investment-consumption ratio, still holds throughout any credit expansion. It is in fact when this ratio is re-asserted that we enter a depression.

Credit expansion is merely a unique form of monetary inflation. It is the only one which will artifically lower the interest rate. A change in the stock of specie will not affect the social interest rate (though individual time preferences may change due to losses in income from inflation, these losses will be offset by gains elsewhere).

The laws of supply and demand always apply. But your biggest mistake is tying the money supply and interest rate together. I'd be willing to guess that you're econ professor was a Keynesian. Only Keynesians believe the money supply and interest rate are some strange, unnatural forces which need to be manipulated by the government.

Wait a minute, a moment ago you say: First of all, it does not make a huge difference as to whether or not the supply of money increases. But me saying that the Fed has done a decent job controlling the money supply is a ridulous statement because of how much the money supply has increased?
Sorry, I have to clarify that statement. See above for the differences between credit expansion and increases in the stock of specie. Increases in gold supply cannot lead to the boom-bust cycle; it cannot be perpetual or extremely high because of the limit of profitability; and the increase is not a total waste asset, whereas with credit expansion the government gets plenty of brand new fiat dollars to spend and "inflate" with. Those gains the politicians enjoy are offset by the general population. Unlike with the gold standard, this is not a voluntary arrangement.

Putting that aside, inflation has been around 3% since 1980. What have been the negative economic consequences of Fed policy since then? Your point is they should have restricted money growth more? OK, how has this hurt the economy, in light of your view that the supply of money has little effect on the economy because purchasing power adjusts?
Relying on the consumer price index is probably the worst way to determine the effects of monetary inflation. It is almost never the "housewives' basket" of consumer goods which go up in price due to credit expansion. We must look to the capital goods' markets (housing, stocks, bonds, etc), and once we do we'll see that there have been several inflationary bubbles since 1980, all leading to the same result. That's why economists always preach about the "new era of prosperity" and point to low inflation and high growth rates as evidence, and then have egg on their faces when the crisis hits.

I cannot believe you are seriously proposing a system where US currency is abolished and we all walk around with notes from different banks in our pocket.
What a ridiculous system! How on earth could the banking cartel inflate the money supply and expand credit if there is no fiat currency.... oh wait :lol:
 

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Ether said:
Why is "deflation" (here defined as a general decline in prices rather than any change in money stock) a bad thing? Falling prices are the mark of industrial progress. Even if the money supply is constant, the purchasing power of each unit is increased or decreased in accordance with the goods in society. Again, the quantity theory of money which you are basing your entire analysis on is completely fallacious.
You are making the fallacious statements not. The purchasing power of each "unit" is not increased or decreased. Those with fixed sources of income experience a relative increase in their PP as prices drop. Those paying fixed rates for loans will find themselves paying more in real terms. Those without fixed incomes, ie on salaries, will see their salaries drop. And eventually, their real salaries drop relative to the fact that those on fixed incomes do not drop and acquire a greater proporation of the income.

I will agree that small changes are not particularly harmful, although no one likes to see their salaries cut. Even though inflation has been about 3%, it does not appear to be harmful because the change is gradual over time. More rapid changes -- inflationary or deflationary, are more harmful because the impact of the change is greater.

I'll concede that point. It makes sense to me ;) Again, however, the current situation isn't much better. If you understand the intricate workings of central banking (the intricacy specifically designed to confuse the average joe), then you'd know that the Fed already creates money out of thin air and lends it to the government.
I never said the Fed did not create money. That is its function in controlling the money supply. The question is whether that function should be controlled by the Fed, Congress, some other entity, or left to the whim of the supply of some commodity.

You say the current situation "isn't much better." I disagree. The current situation could be much worse with poor monetary policy. Again, look at the histories of Argentina an Chile for examples of what poor monetary policy can cause. Hyperinflation.

We misunderstand each other. I'm not arguing that high inflation is a bad thing. My point is that high inflation is only possible under a regime of fiat money. Under the gold standard, there is a market-imposed limit upon how much the gold stock will increase. The profitability of gold production is the limit. With a banking cartel that can create money out of thin air, there is no such limit.
I agree that with a commodity based currency, some institution cannot create high inflation by printing money. However, I disagree that commodity supply is stead over time. The production of gold can decrease or increase. And remember when the Hunt brothers tried to corner the silver market a couple decades ago?

I disagree there "is not limit" having the money supply under the control of an quasi-independent entity like the Fed makes sense too. True, there is not fixed supply limit, why would the Fed want to create an environment of high inflation? What incentive is there for it to do that? That is just as much of a "limit" as market factors "limiting" gold producers from "oversupplying" the market.

As long as the PPM changes due to market forces (supply and demand of money, as well as the supply and demand of goods), there is nothing wrong with a little inflation.
Which has been the status quo since the late 70s.

Let me repeat, this short term effect is artificial. The real interest rate, or the social investment-consumption ratio, still holds throughout any credit expansion. It is in fact when this ratio is re-asserted that we enter a depression.

Credit expansion is merely a unique form of monetary inflation. It is the only one which will artifically lower the interest rate. A change in the stock of specie will not affect the social interest rate (though individual time preferences may change due to losses in income from inflation, these losses will be offset by gains elsewhere).

The laws of supply and demand always apply. But your biggest mistake is tying the money supply and interest rate together. I'd be willing to guess that you're econ professor was a Keynesian. Only Keynesians believe the money supply and interest rate are some strange, unnatural forces which need to be manipulated by the government.
You misunderstood my question. I do not disagree with you -- I agree that if there is a change in the money supply, after the "artificial," short term affect on interest rates, the rates will go back to their "normal" level.

I certainly do not believe or suggest that interest rates need to be manipulated by the Govt. I do suggest that the money supply needs to be manipulated to control general inflation/deflation (which is what the Fed has done since 1979), and that it is better to have a quasi-independent central bank do this that basing it on some commodity.

My question was: what happens to interest rates in a constantly deflationary environment, or, similarly, in an environment where the population and economy is growing, but the money supply does not? In both situations, you will have, until the PP effects are transferred throughout the economy, short term increased demands for available money. Supply and demand dictate that demand will cause an interest rate to "artificially" rise.

Eventually, salaries will be cut, as a result of higher interest rates, production may decrease, prices will fall, and there will be more money available, and interest rates would stabilize back to their "normal" levels.

What happens if the money supply marginally contracts again?

Sorry, I have to clarify that statement. See above for the differences between credit expansion and increases in the stock of specie. Increases in gold supply cannot lead to the boom-bust cycle; it cannot be perpetual or extremely high because of the limit of profitability; and the increase is not a total waste asset, whereas with credit expansion the government gets plenty of brand new fiat dollars to spend and "inflate" with. Those gains the politicians enjoy are offset by the general population. Unlike with the gold standard, this is not a voluntary arrangement.
The Fed, in expanding the money supply, lends some of it to the Govt (which then has more money to spend), only if the Govt is borrowing money, which it has done to a sickening degree in the last four years. Which is the point of this whole thread. But it still represents a debt of the Govt.

You are suggesting that under a gold standard, the Govt cannot borrow money?

Relying on the consumer price index is probably the worst way to determine the effects of monetary inflation. It is almost never the "housewives' basket" of consumer goods which go up in price due to credit expansion. We must look to the capital goods' markets (housing, stocks, bonds, etc), and once we do we'll see that there have been several inflationary bubbles since 1980, all leading to the same result.
But these things (housing, stocks) have always had "inflationary bubbles", that has nothing to do with the money supply or what standard we are on. There were huge "inflationary bubbles" (and bursts) in stocks before we left the gold standard. It has to do with market demand speculation, greed and fear, more than money supply.

That's why economists always preach about the "new era of prosperity" and point to low inflation and high growth rates as evidence, and then have egg on their faces when the crisis hits.
I certainly do not suggests that the Fed or economists are able to perfectly control the economy. I would certainly disagree with anyone who suggests that. There are too many other factors that affect the economy and markets other than the money supply.

What a ridiculous system! How on earth could the banking cartel inflate the money supply and expand credit if there is no fiat currency.... oh wait :lol
I am still waiting for you to explain to us how the Fed's managment of the money supply since 1980 has caused problems that being on a gold standard would have solved. Or otherwise. The only thing you have hinted at so far is the stock market and (apparently) more recent housing "inflationary bubbles." Are you suggesting that the dot-com over-speculation in the stock markets was caused by over-expansion of the money supply by the Fed? Are you suggesting that the fiscal irresponsibility of the Govt in running 1/2 trillion dollar deficits since Bush got elected is because of an over-expansion of the money supply?

What problems have been caused by the Fed's mis-managment of the money supply you are suggesting? Inflation? If so, you are again making inconsistent statements. In this same thread you have again stated that there is nothing wrong with a little inflation and then imply that the "banking cartel" (?) inflating the money supply is a big problem.

What exactly has the big problem with the money supply since 1980?
 

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Iriemon said:
You are making the fallacious statements not.
s.b. "now". There are numerous other typos, sorry, I overran the 10 minute edit limit, and don't feel like spending another 1/2 hour to re-edit this.

Another point -- your last comment was a cute little conclusory statment, but you did not answer my question of what we will use as the medium of exchange if we remove federal notes as that vehicle.

I am not sure, are you really suggesting removal of Federal Reserve notes as currency and replacing them with something else like notes from different banks that are based on a commodity standard? Or are you suggesting that there by US paper currency based on a commondity standard?
 
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Ether

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Iriemon said:
You are making the fallacious statements not. The purchasing power of each "unit" is not increased or decreased. Those with fixed sources of income experience a relative increase in their PP as prices drop. Those paying fixed rates for loans will find themselves paying more in real terms. Those without fixed incomes, ie on salaries, will see their salaries drop. And eventually, their real salaries drop relative to the fact that those on fixed incomes do not drop and acquire a greater proporation of the income.
With regards to loans, any entrepeneur knows that he needs to take into account inflation and perhaps attach a purchasing power component to the interest rate. Both of us agree that inflation harms fixed-income groups like widows and retirees (on the flipside, deflation benefits them). In that capacity, there is also a speculative element which people must take into account.

I will agree that small changes are not particularly harmful, although no one likes to see their salaries cut. Even though inflation has been about 3%, it does not appear to be harmful because the change is gradual over time. More rapid changes -- inflationary or deflationary, are more harmful because the impact of the change is greater.
3% per annum over 20 years time is not a small change. Furthermore, the Federal Reserve never allows deflation, which like I said is the mark of industrial progress, when productivity gains are passed onto the consumer and real wages increase.

I never said the Fed did not create money. That is its function in controlling the money supply. The question is whether that function should be controlled by the Fed, Congress, some other entity, or left to the whim of the supply of some commodity.
Under a commodity standard, money is not created out of thin air. The total stock of gold is limited by the rate of return in gold production (which will tend to equalize rates of return in the rest of the economy). No such limit exists with the Fed, it can issue as many fiat notes as it wants.

You say the current situation "isn't much better." I disagree. The current situation could be much worse with poor monetary policy. Again, look at the histories of Argentina an Chile for examples of what poor monetary policy can cause. Hyperinflation.
Alright, I'll concede that.

I agree that with a commodity based currency, some institution cannot create high inflation by printing money. However, I disagree that commodity supply is stead over time. The production of gold can decrease or increase. And remember when the Hunt brothers tried to corner the silver market a couple decades ago?
I've never claimed claimed that the commdotiy supply is completely steady over time. The purchasing power of money is affected by four factors. The laws of supply and demand apply here. The factors of increase are the reservation demand for money, and the supply of goods. The factors of decrease are the stock of gold, and the reservation demand for goods. Increases in the stock of gold tend to be offset by an increase in the supply of goods. This is evident in any progressive economy, since in the long run the rates of return in gold production must be equalized with other industries.

I disagree there "is not limit" having the money supply under the control of an quasi-independent entity like the Fed makes sense too. True, there is not fixed supply limit, why would the Fed want to create an environment of high inflation? What incentive is there for it to do that? That is just as much of a "limit" as market factors "limiting" gold producers from "oversupplying" the market.
It doesn't want to create high inflation. But the Federal Reserve is inherently an inflationist institution. It never allows deflation, always trying to meet some target of inflation. Anytime you create money out of thin air, you are expanding the money supply.

You misunderstood my question. I do not disagree with you -- I agree that if there is a change in the money supply, after the "artificial," short term affect on interest rates, the rates will go back to their "normal" level.

I certainly do not believe or suggest that interest rates need to be manipulated by the Govt. I do suggest that the money supply needs to be manipulated to control general inflation/deflation (which is what the Fed has done since 1979), and that it is better to have a quasi-independent central bank do this that basing it on some commodity.
By endorsing the Federal Reserve and credit expansion, you are unknowingly supporting their manipulation of the interest rate. That is the effect this type of monetary inflation has on the economy. Turning on the printing presses would not have that effect, for example.

My question was: what happens to interest rates in a constantly deflationary environment, or, similarly, in an environment where the population and economy is growing, but the money supply does not? In both situations, you will have, until the PP effects are transferred throughout the economy, short term increased demands for available money. Supply and demand dictate that demand will cause an interest rate to "artificially" rise.

Eventually, salaries will be cut, as a result of higher interest rates, production may decrease, prices will fall, and there will be more money available, and interest rates would stabilize back to their "normal" levels.

What happens if the money supply marginally contracts again?
Ummm, nothing will happen to the interest rate. The interest rate and the money supply are not tied together. The existing investment-consumption ratios will remain regardless of the stock of gold. I think the confusion here is that I've claimed the interest rate is artificially affected by credit expansion. But mind you, credit expansion is the only type of monetary inflation which will have that effect. Even switching on the printing presses will not touch the interest rate.

The Fed, in expanding the money supply, lends some of it to the Govt (which then has more money to spend), only if the Govt is borrowing money, which it has done to a sickening degree in the last four years. Which is the point of this whole thread. But it still represents a debt of the Govt.

You are suggesting that under a gold standard, the Govt cannot borrow money?
No I'm not, I know debt is the topic of this thread but that's not really what I'm discussing right now.

But these things (housing, stocks) have always had "inflationary bubbles", that has nothing to do with the money supply or what standard we are on. There were huge "inflationary bubbles" (and bursts) in stocks before we left the gold standard. It has to do with market demand speculation, greed and fear, more than money supply.


I am still waiting for you to explain to us how the Fed's managment of the money supply since 1980 has caused problems that being on a gold standard would have solved. Or otherwise. The only thing you have hinted at so far is the stock market and (apparently) more recent housing "inflationary bubbles." Are you suggesting that the dot-com over-speculation in the stock markets was caused by over-expansion of the money supply by the Fed? Are you suggesting that the fiscal irresponsibility of the Govt in running 1/2 trillion dollar deficits since Bush got elected is because of an over-expansion of the money supply?
First of all, we were never on a pure gold standard. Second, you must not read financial newspapers. The Federal Reserve is always worrying about creating inflationary bubbles, and always tries to set its policy according to the current financial markets. It is not normal for us to be having this bubbles bursting everywhere. It is purely a product of an artificially low interest rate, stimulated by credit expansion. You took econ 101, you should understand that.

What problems have been caused by the Fed's mis-managment of the money supply you are suggesting? Inflation? If so, you are again making inconsistent statements. In this same thread you have again stated that there is nothing wrong with a little inflation and then imply that the "banking cartel" (?) inflating the money supply is a big problem.
Inflation under a commodity standard is strictly limited. Under a fiat money standard, there is no limit. That is the essential difference, I don't mean to be inconsistent.
 
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Kandahar

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Here are some simple solutions to our current debt nightmare:

1. Cut government spending...a lot. There is no reason our federal government should even be involved in social security and medicare, and there is no reason our federal government should spend half of the world's total defense budget. There are very few things our government needs to spend as much money on as it currently does.

2. Pay off the national debt. Our country is so indebted that it is absolutely crippling our future economic power. The debt MUST be paid off as soon as possible.

3. Eliminate corporate income taxes, and flatten personal income taxes. I know that this one is counterintuitive, but in the long term this will actually provide more revenue than the current system. Since corporations are, after all, simply groups of people, there will be much more room for economic growth if the entrepreneurs are not taxed twice for the same income. Also, enormous amounts of money go to waste every year for businesses and individuals to comply with the federal tax code. By simplifying the tax code, this money could instead be used on more worthwhile projects, such as investment or hiring new workers. Obviously, an improved economy will generate more taxable income.

4. Most importantly, STOP ACCUMULATING MORE DEBT! Our government owes it to American citizens to pass a balanced budget amendment to the Constitution. If there's a deficit, too bad; spending must be cut until the budget is balanced. If there's a surplus, it should automatically be returned to the taxpayers. If our government wants to provide us with some federal program, it should be forced to give us the bill NOW instead of after the next election.
 
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Kandahar said:
Here are some simple solutions to our current debt nightmare:

1. Cut government spending...a lot. There is no reason our federal government should even be involved in social security and medicare, and there is no reason our federal government should spend half of the world's total defense budget. There are very few things our government needs to spend as much money on as it currently does.

2. Pay off the national debt. Our country is so indebted that it is absolutely crippling our future economic power. The debt MUST be paid off as soon as possible.

3. Eliminate corporate income taxes, and flatten personal income taxes. I know that this one is counterintuitive, but in the long term this will actually provide more revenue than the current system. Since corporations are, after all, simply groups of people, there will be much more room for economic growth if the entrepreneurs are not taxed twice for the same income. Also, enormous amounts of money go to waste every year for businesses and individuals to comply with the federal tax code. By simplifying the tax code, this money could instead be used on more worthwhile projects, such as investment or hiring new workers. Obviously, an improved economy will generate more taxable income.

4. Most importantly, STOP ACCUMULATING MORE DEBT! Our government owes it to American citizens to pass a balanced budget amendment to the Constitution. If there's a deficit, too bad; spending must be cut until the budget is balanced. If there's a surplus, it should automatically be returned to the taxpayers. If our government wants to provide us with some federal program, it should be forced to give us the bill NOW instead of after the next election.
I strongly agree in principle.

I think you are a little inconsistent to say, though, on the one hand we must pay down the debt, and on the other, if there is a surplus it should automatically be returned to taxpayers. You cannot pay down the debt unless you first have a surplus; it is the surplus that pays down the debt.

I also think that our economy grew just fine with the tax rates at the levels they were at in the 90s -- it would be producing an extra tax revenue of about $400 billion annually, which would go a long way towards achieving a balanced budget.

I agree the corporate tax should be eliminated. This only produces about 10% of the revenues, creates a lot of disincentives and costs, and the effect is to make goods and services cost more. The individuals who benefit from the corporation -- the shareholders, employees and management, are the ones who should be taxed.

I don't see how a flatter tax will help balance the budget. It would give tax breaks to the richer and put more tax burden on the poorer, which some may prefer.
 

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Ether said:
Under a commodity standard, money is not created out of thin air. The total stock of gold is limited by the rate of return in gold production (which will tend to equalize rates of return in the rest of the economy). No such limit exists with the Fed, it can issue as many fiat notes as it wants.
Agree. Though there is no incentive for the Fed to create hyper inflation by just printing lots of $$.

Increases in the stock of gold tend to be offset by an increase in the supply of goods. This is evident in any progressive economy, since in the long run the rates of return in gold production must be equalized with other industries.
Can you explain? How is the production of gold in S.A. and Russia offset by an increase in the supply of good? The supply of gold depends upon how much they can find and how much they want to sale.

We have a hard enough time with cartels like OPEC, why should we put control of our money supply in the hands of a gold cartel?

By endorsing the Federal Reserve and credit expansion, you are unknowingly supporting their manipulation of the interest rate. That is the effect this type of monetary inflation has on the economy. Turning on the printing presses would not have that effect, for example.
I though you said the money supply does not affect the interest rates? Or are you basing in upon the technique of controlling the money supply through credit (fed funds) rate?

Ummm, nothing will happen to the interest rate. The interest rate and the money supply are not tied together.
Ummm, I thought you had agreed there was a short term affect?

The existing investment-consumption ratios will remain regardless of the stock of gold. I think the confusion here is that I've claimed the interest rate is artificially affected by credit expansion. But mind you, credit expansion is the only type of monetary inflation which will have that effect. Even switching on the printing presses will not touch the interest rate.
I suppose that might depend on who get the new money. If it is distributed to banks, they would have more money to lend, or more supply of loans. What would be the short term effect of that? Even if it was distributed to the Govt, who put it into the economy through tax cuts or spending. In both cases, won't there be a short term effect where, because there is more money available to the entities that use credit, there will be less demand for credit?

Isn't that indirectly how the fed fine tunes the money supply anyway? By how much it charges (fed rate) for money it lends to participating banks?

No I'm not, I know debt is the topic of this thread but that's not really what I'm discussing right now.
OK -- the point is, I think we agree, is that a gold standard won't solve the problem of the Govt spending more that it takes in thru taxes, which again was the topic of this thread. Since the debate over a gold standard is a different issue, perhaps we should start a new thread.

First of all, we were never on a pure gold standard. Second, you must not read financial newspapers. The Federal Reserve is always worrying about creating inflationary bubbles, and always tries to set its policy according to the current financial markets. It is not normal for us to be having this bubbles bursting everywhere. It is purely a product of an artificially low interest rate, stimulated by credit expansion. You took econ 101, you should understand that.
What "bubbles bursting everywhere" are you talking about? I agree the Fed is worried about inflation, that is its job; that is what it is supposed to do.

If your point is that have a pure gold standard where we are all spending pieces of eight will end speculation in the markets, however, I see no basis for that contention. The run up in the market is because people are greedy and think they can make money in the stock market, not because of over expansion of the money supply. I see no reason why monetary supply should have caused the market bubble in the 90s, which most folks agree was the result of over speculation. Are you suggesting a pure gold standard will stop speculation in stocks? Come on.

As for now, the fed has increased the interest rate for 8 straight quarters, but as long as inflation is not presenting a serios problem, there is no need to raise the interest rates. If it does, the Fed raises the fed fund rates, effectively constricting the money supply.

Inflation under a commodity standard is strictly limited. Under a fiat money standard, there is no limit. That is the essential difference, I don't mean to be inconsistent.
OK. I agree. Again

What have been the economic problems caused by the monetary policy under the control of the Fed?

If we don't have federal notes to use as a medium of transaction, who do you propose instead? Pieces of eight? (Can you imagine the size of the coinage based on pure gold? "Let me find my $.25 gold coin for that piece of gum ... hold on, I had it here a minute ago ... anyone have a magnifying glass on them?") Commercial paper?

We don't have enough gold to make gold the coinage of transaction. Do you disagree? We will have to have some type of substitute currency. What should that be?
 
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Iriemon said:
I strongly agree in principle.

I think you are a little inconsistent to say, though, on the one hand we must pay down the debt, and on the other, if there is a surplus it should automatically be returned to taxpayers. You cannot pay down the debt unless you first have a surplus; it is the surplus that pays down the debt.
That's the way the government currently pays off the debt, but there's no reason that debt repayments couldn't be written in to the federal budget. I think this would be preferable because it wouldn't mislead the taxpayers who think the government is only spending $X per year, when in fact it is spending $X + debt repayments per year.

Iriemon said:
I also think that our economy grew just fine with the tax rates at the levels they were at in the 90s -- it would be producing an extra tax revenue of about $400 billion annually, which would go a long way towards achieving a balanced budget.
I don't think we can assume that restoring the tax rates of the 1990s will restore the economy of the 1990s. In fact, doing so would probably have just the opposite effect; people would have to pay more taxes, so they'd have less incentive to earn more and the economy would suffer.

Iriemon said:
I agree the corporate tax should be eliminated. This only produces about 10% of the revenues, creates a lot of disincentives and costs, and the effect is to make goods and services cost more. The individuals who benefit from the corporation -- the shareholders, employees and management, are the ones who should be taxed.
I agree. It seems like people who want to tax corporations more heavily are simply interested in punishing others for their success. What they often don't realize is that corporations pass those expenses off to consumers, employees, or shareholders. As you said, we should just cut out the middleman and tax those who benefit from the corporation.

Iriemon said:
I don't see how a flatter tax will help balance the budget. It would give tax breaks to the richer and put more tax burden on the poorer, which some may prefer.
American businesses and taxpayers spend three billion hours and a whopping 85 billion dollars annually just to be in compliance with the tax code. To give an idea how much money $85 billion is, the entire Department of Education budget is only $56 billion. If the tax were flat and simple and didn't allow for millions of deductions, this would free up an enormous amount of capital and labor to be better spent on more productive endeavors. This would, in turn, help the economy and (in the long term) generate more tax revenue.

You're right that it would give tax breaks to the rich, but this doesn't have to translate into putting more of a burden on the poor. By allowing for a few generous personal deductions, and nothing else, almost ALL taxpayers would save more money with a flat tax.
 
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