Next Bill will suggest that Osama Bin Laden could attack America by flooding the country with leggy Ukrainian blondes.
The horror, the horror...
The problem with paper money is this. The article specifically talks about reducing the defense budget but in the end it's no different the the entire budget. Fiat money always fails because:
"From a Clausewitzian perspective, specific political interests/objective politics runs what passes for US policy today, what Max Weber would have called political or adventure capitalism. Also the character of the state defines the character of its policies. Thus reducing the defense budget is definitely not in the cards. Rather the tendency will be to muddle through until the collapse, much as Spain did in the 17th Century"
http://www.d-n-i.net/dni/2008/04...-down/#more-
166
chirp - chirp.
Luke.
I for one would welcome our new Ukranian overlords.
And, if some country does flood us with gold they can start with me. Just to clarify, I want a golden flood NOT a golden shower.
I have some questions for y'all who get this better than I do.
For months I've been paying attention to all the talk about the economy(here and elsewhere) and although I don't understand much deeper than the surface, some things are pretty clear. The dollar is inflating at a ridiculous rate, such that it's not possible to simply save money. Investing in the stock market is a crapshoot, and beyond my ability to manage effectively.
I finally have enough money that I can save some instead of living from week to week. I have long wanted to buy some silver (don't have enough money to buy a significant quantity of gold) but now the price is near its highest level in the past 100 years. Some say it's better to wait for the "correction" so as not to lose money, and others say buy before the price goes higher. What do y'all think?
Also, a friend of mine says not to invest any money I might need (like my rainy-day fund) in silver, because if I need it, I might have to sell at a loss. That makes sense.
That friend suggests a system for money I might need in the short-term: invest in three CDs that last for three months and start them one month apart, so that I have no risk, (at least until the SHTF) and in case of job loss or whatnot, I'd never be more than a month away from my rainy-day money. But I kinda doubt whether the CDs can keep pace with inflation, and I can't even find a number for the current level of inflation, to compare. Apparently it depends who you talk to.
Any comments on the CD plan, or suggestions for how to protect my rainy-day fund from losing value?
Thanks in advance.
Kiwi
The Rainy Day fund you're talking about is not a savings account. Its objective is entirely different. Savings are about accumulation and wealth building.
Rainy Day Funds are about purchasing power.
They exist to provide enough purchasing power to get you through the hard times.
You can either keep cash in your rainy day fund.. and periodicly raise the amount in it to combat the loss of power due to inflation...
or you can take the money and put it in silver... or anything else that will hold value reasonably well.
If you go the silver route... talk to local shops and figure out how easy it is to sell to them. If selling the coins is not significantly harder than taking cash out of the bank... why not?
I suggest the motivation behind your inaction is not tactical uncertainty... but fear. You're afraid things aren't as bad as you think they are, and as soon as you buy your silver... the dollar will spike up in value and you'll lose a bunch of money.
Only a trillion times better, Nate?
i was in a hurry and needed to wrap things up.
Savings are about accumulation and wealth building.
Then savings don't belong in a bank, earning a piddly rate of interest.
You can either keep cash in your rainy day fund.. and periodicly raise the amount in it to combat the loss of power due to inflation...
But if the rainy day doesn't come for a long time, all that cash, which is a significant amount by my standards, has lost a lot of purchasing power over the years. By comparison, the three CD's would have been better, since the interest would at least partially offset inflation. I'd keep enough cash on hand to get me through a few weeks if need be.
or you can take the money and put it in silver... or anything else that will hold value reasonably well.
And OTOH, if a rainy day happens in six months, the silver I bought at $17/oz might not have increased enough to cover the difference between what I paid and what I'll be able to sell it for. (spread, I think it's called?) In that case, I've lost value.
I certainly don't believe the dollar will make a drastic recovery. But it seems reasonable to believe that the increase in silver price from $5/oz to $17/oz over 5 years is only partly caused by inflation, and is also caused by speculation and dire expectations such as we discuss regularly around here. It's possible that the economy will fluctuate for some period of time before the SHTF, and at times, maybe silver will temporarily fall by a few dollars. If I have a rainy day during that time and need to cash out some silver, I'd be taking a loss.
(However, I have no qualms about investing money in silver that I intend to sit on for many years, such as a retirement fund or child's college fund.)
You're right about the fear, but not about the reason. I believe things are bad, I'm just unsure of how fast they're going to get worse. And I don't feel I understand the factors involved well enough,so I'm afraid of making bad decisions, which is why I'm seeking advice from people I agree with in principle. I figure if I understood better, my well-informed decisions would be similar to yours/theirs.
Nate,
Come on. I've never been a Keynesian, the closest to me being any type of economic interventionist might be slight supply side monetarist leanings that I had almost 20 years ago. If your going to blast me for something, make it over something I've said not over something you think I'm saying.
I have no problem with a gold standard, as such. Which one are you advocating? 100% tied to the dollar, 50% 10%? How do you plan to enact it? Who are you willing to screw over in your pursuit of this goal? You've mentioned that a fiscally responsibly government is akin to a fairy tale, what difference would having a gold standard and a fiscally irresponsibly government make? Taxes would be higher, thats the difference.
Since you've solved the greatest libertarian economic issue of all time, please enlighten us fools who believe that its not as easy as snapping ones fingers and saying "let there be a gold standard".
Kiwi,
How big a rainy day fund are we talking about?
I say 3 months livin expenses. That's not a huge amount.
I just don't think the interest is enough to worry about. And CD's don't pay enough to even bother with. You may as well leave it in cash.
You need to think of that fund completely differently than your savings.
Your rainy day fund is about purchasing power and therefore needs to be pretty liquid.
Remember its not about investing. Its about reserves.
As for your savings... get them the hell away from America. Buy and horde gold and silver... or find a good company that invests in foriegn markets... after all.. its a bull market somewhere!
Three months living expenses is exactly what I'm planning. But for me at this point, that's by far the biggest chunk of my money. As I said, I'm just now getting past living paycheck to paycheck.
I'm definitely partial to metals for the long-term.
Anybody else have an opinion? I'll be hanging around.
Kiwi,
You want a direction to go?
http://
www.biorationalinstitute....ha_strategy.pdf
Read that.
Res,
It sounds like you're advocating the unmerited salvation of every imprudent investor. Do you really want to save everyone despite their own bad choices? How will they learn anything unless we let them fail? Actions have consequences. You can't shield people from their poor choices forever.
Another way to put it is, it wouldn't matter what we say. You can always counter with, "But what will you do to bring about utopia? You can't bring about utopia, nobody can. You should shut up because you can't offer utopia. Your prescriptions are completely unworkable because nothing mankind ever does is workable for very long. You should just give up."
That's what I hear you saying. We point out what the Bible has to say on the matter of trade. We point out what history has shown in matters of trade. We point out rational solutions considering the previous information. And yet you disbelieve any change is possible or warranted or desirable. It's almost as if you like the status quo, as if you like the evil being perpetrated on the world's population. It's like you're an advocate for the freakin' devil.
Nicely done, Nate. I like most, fell for the belief that the old greenback was actually worth a lot.
Now I'm coming out of that fog.
Res' comment is from the other thread.
""Price deflation" means an increase in the purchasing power of the monetary unit, does it not? How is that to be feared?"
Borrow $100,000 on a house, 20% down 80% mortgage. Say the payment is $500/month for several years. You are paid in gold and the debt is in gold. Currently you make $1,500 per month. Price deflation occurs throughout the economy, it effects everything including wages. Your employer now pays you $800/month.
Are you better off?
Inflation is the same situation in reverse.
Res Ipsa | Homepage | 04.08.08 - 8:46 pm "
The salary and the debt is in gold? And there's deflation? Since the debt is gold then it also deflates. Therefore the situation you present is not a problem. The percentage of your salary going to service the debt stays the same. You imply that the debt dollar amount doesn't change when in your example it definitely would.
Damn Res, I didn't think you'd be dishonest.
You're spreading FUD and you know it. For those that don't know what FUD is, it's fear uncertainty and doubt and it's how Microsoft keeps many of it's competitors slowed down.
What the hell Res???? You get more keynsian by the comment. "price deflation" occurs you say?
how?
How does economy wide price deflation occur?
it doens't. it can't. The basis for the claim that it can is the pure keynsian assumption that shocks cause a "business cycle" of inflation and deflation.
Its' Bullshit.
inflation doesn't just happen. neither does deflation. its caused by men.
I've been thinking this through. I did not think it all the way through before I posted my reply to Res's explanation of deflation. I sincerely apologize for calling you dishonest Res.
I'm gonna start again.
Instead of thinking of the debt and the salary as something denominated in dollars, I began to think of them as being in measured weights of gold. In this situation Res's example is spot on. There are still problems with the details of Res's example but the borrower puts himself in a bind in a deflationary economy. The squeeze is real.
The details.
A normal person living in such an environment would not put himself in such a bind unless he expected to be making the required weight of gold in the future. If he expected his gold to buy more goods in the future he could save with the reasonable expectation of buying more in the future with his accumulated savings. Unlike today where saving is punished by inflation. He would have much less motivation to borrow.
Basically deflation discourages borrowing.
Another thing is the severity of the deflation in Res's example. I doubt the rate suggested would be the actual rate of change in the real world if we were to adopt a metallic standard for trade.
Another question to ask is what is causing the deflation? In a gold standard economy it could only be one of two things, maybe some of both. It could be the decrease in the supply of gold or it could be the increase of goods, meaning things man builds or harvests. It would more than likely be the increase in produced goods that is the cause. And since we're talking about the real world we should also expect the supply of gold to increase thereby cancelling out of at least some of the deflation caused by the increase in produced goods.
One other thing bothers me about the example, the change in the pay rate for the worker. What worker would take such a pay cut, almost 47%? If he contracted to work for a certain weight of gold then he would tend to continue to work for that weight of gold. Sure, he could be forced to renegotiate or he could be fired. But wouldn't he see it coming? Wouldn't he get a job that was worth more?
You've got to ask yourself why wages would drop so drastically in such a short amount of time, the lifespan of a mortage. Since we've already seen that an increase in the goods being offered is most likely at fault for causing the deflation then we could easily see that labor is costing less as well. Why? It seems the worker has competition. Maybe in the form of increased population but more likely in the form of more automation. It's the natural consequence of industrialization, which raises the standard of living for everyone.
But why or how did Henry Ford pay his workers so much compared to the prevailing wage rate at the time? He brought the prices of cars down considerably anyway. What was going on?
.
Because of these things the example just doesn't ring tr
Word limit reached again. To continue>
Because of these things the example just doesn't ring true. Res's example is somewhat disingenuous, just not for the incorrect reason given in my previous comment. The behavior of the main actor isn't consistent with observed reality. Normal people wouldn't act that way. At least I wouldn't. A stupid person might do it but I hope we're not talking about stupid people.
Thanks AP. I'm downloading it.
I'm only on the second chapter, but this e-book AP posted is turning out to be one of those that everybody oughta read.
The Ford example was simple economy of scale.
He paid higher wages cuz either he or his bean counters figured it cost too much to constantly train new employees with the high turnover rate his factory had.
It was actually cheaper to pay double the wage than constantly deal with the turnover.
At least that's the way I remember reading it. The article was demonstrating that it was NOT at all to do with altruism or concern for Ford's workers. It was still his bottom line that caused his actions. It just happened to benefit everyone all around.
Kiwi,
Yea, even if you don't follow the guy's advice to the letter or at all there are useful things in the book that everybody should at least know about.
Bill: Most Moronic Comment of the Decade? You should be proud. That's kinda like Vox's "Award-winning Cruelty Artist" recognition.
Well-done!
I am surprised to see Nate give out the esteemed MMCotD to Bill for that particular comment. I am almost positive that at least once this decade, Nate has seen somebody write:
The North was right.
...and to my recollection, Bill wasn't one of 'em.
it could be the increase of goods, meaning things man builds or harvests.
It would be better to say: a decrease in demand of available goods. A high jobless rate can lead to price deflation simply because goods cannot be bought and people, seeing the economic turmoil around them, decide instead to save. Interestingly, the savers can cause additional economic problems when taken as a whole because they stop putting money into the consumer machine. However, I still recommend it as it benefits the individual who saves.
Instituting a gold standard would be a difficult thing. Our current (estimated) gold reserves, are 147.3 million ounces. Our current GDP is 13 Trillion. To make these numbers even out a dollar would be worth 1/90,000th an ounce of gold. This would devalue our dollar, but then it might not be too long before they inflate our dollar to that point anyways.
Perhaps a better solution would be to simply legalize competing currencies. This would have a very similar affect to a gold standard in that it would prevent the Gov from allowing further deflation because as the money is devalued people will flee from it, therefore no longer purchasing the debt of the government. This would be a very simple change, and perhaps the most profound change available to us.
Kiwi,
Silver is an interesting metal. Unlike gold which stays around in one form or another, silver is a consumable. In other words, all the gold that has ever been mined is still around, but the silver gets used in ways that keep it from ever being used again.
This makes silver a unique metals investment. It has greater growth potential than does gold because of its consumability. Because of its use in film and photography, manufacture of electronic boards and it's anti-microbial properties which are being continually exploited (to now include use in clothing, toilets and bandages) silver levels continue to deplete. Unless another "Stockton Lode" is found, I think we can expect silver to continue rising in value even without inflation.
Athor Pel,
"I've been thinking this through. I did not think it all the way through before I posted my reply to Res's explanation of deflation. I sincerely apologize for calling you dishonest Res."
Thanks. I intentionally dropped out of the thread because I assumed it was going nowhere and I wasn't going to respond in kind.
Deflation in its broadest meaning is a decrease in price, but not necessarily a decrease in value. The term is purely an observation of whats happening in the market place.
Monetary deflation and monetary inflation is either a decrease in or an increase in the money supply. In in of its self fluctuations in the money supply may be a normal event. I say may be because I don't think anyone has any data on this in a free market industrial economy, since no large modern economy, including the US has a market free of governmental "adjustments".
The economic data we have in the US and Britain pre 1913, as well as other equally advanced nations of the times, indicates that deflation in prices occurs in various sectors of the economy, especially in industrialized nations. Example: Ford and the model T. Ford found a cheaper way to build a car he sold his cars for $200. This brought price deflation to the auto industry.
The great depression was an example of nearly world wide deflation of prices. The Great Depression is also a perfect example of why you are arguing against government manipulation of the money supply. There are good reasons to believe that the depression would have been shorter, and less devastating if the banks would have been allowed to fail, and the whole mess would have been worked out in the courts on an individual basis.
But back to the main point:
The government and the banking system work together to insure that the money flows regardless of the cost to the economy. We can talk all day about fiat currency but the truth is that most money is digital. The government prints a stack of bonds, the FED takes the bonds and credits credits in the governments accounts.
I'm opposed to this system of payments as much as the rest of you. The real life effect of this on the economy is that the gov has been able to do as it wants without working inside the restraints of sound business practices.
Would gold have saved us from this?
Maybe. Despite popular opinion around here, I don't believe Nixon took us off gold to devalue the dollar. Brenton Woods was flawed as an monetary policy AND other nations were cheating. Which meant that the US stood to loose out big time since we were the last nation still redeeming paper for gold. So tricky Dick bluffed the world and screwed everyone that was planning on screwing us. We held onto most of our pre 1972 gold reserves.
Dishonest? Yes this is Nixon were talking about. However, he saw his job as keeping Fort Knox stocked, and not letting every other nation fly in plane fulls of our post WWII greenbacks into the US and taking off with our gold. In the FWIW department we probably didn't have enough gold to back the offshore dollars in 1972 anyway.
In the meantime domestically a floating dollar did just that, it inflated. The government has followed a policy of inflation/debt to subsidize spending ever since.
Would returning to gold save us from an irresponsible government? I don't think so. The problem isn't what monetary unit we use to denote value. The problem is that government income (taxes)are around 26.8% (2005)of GDP and liabilities are $8.993 Trillion and GDP is only $12,433.9 Billion. That makes our national DTI something like 140%. We're broke and right now we're close to if not already cash advancing credit cards to float the debt.
Gold can't save us now, if it ever could have.
So what can we do?
1. Let Dave Ramsey have the governments checkbook.
2. Prepare for the day when this house of cards falls.
2b. In the mean time pray that a committee of politicians all seeking a personal agenda that puts power ahead of principle, none of whom could actually earn $50,000 a year if they were working in the private sector as business managers, can somehow collectively manage our economy.
1. Let Dave Ramsey have the governments checkbook.
Getting the budget under control is incredibly simple. So simple that a child could figure it out. All that needs to happen is to freeze spending. Freeze it for ten years and (due to inflation) the money coming in will be tremendously greater than what is being spent. This wouldn't really "fix" the problem but it sure would balance the budget and pay down the debt, which in turn would make it even easier to balance the budget.
During the so-called "decade of greed" the budget was 4 years ahead of the revenues. This caused massive debt accumulation and I think when we look at the historical numbers we will find a similar trend still alive today.
You mean the "Decade of cattle futures"? You could also use the Russian model: Any bill printed in 2000 or before is now worthless. You could then go thru your pocket and start a fire with any bill having those dates. Thats the fastest way of curing inflation. It might not work to well on an armed population though.
I've been a longtime reader/fan of scary Gary. The only thing this guy (link above) seems to be missing is a "next level." In other words, If it all goes to pieces, one is going to need some initial investment (already made or to be made)... let's call it capital... that would take the person to the next level.
In other words, if the dollar looses, say ½ of its value, you are going to need to be able to earn/make something other than dollars. The only likely way to be able to do that is if you provide an indispensable service or make a good that retains its value more than twice as well as the dollar. This text recommends getting some sort of education and stockpiling tools, which are both good options.
However, if you think this is going to happen soon; if you really want to short the US economy, you should be buying and building the infrastructure to have a business providing OTHER people with the capital to make necessary goods/services. In other words, to be lords after the fall of Rome, sell your scarlet making business and buy land and a castle.
Of course, if you just want to short the USD, borrow it. That’s what shorting a stock is… borrowing it today, selling it today, later buying it back (at lower prices) and returning it to the lender – after paying transaction fees. If you want to do that to the USD, just borrow it at the best terms possible.
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