Supporters of capitalism are crazy, says Harvard

Originally posted by vcwxvwligen
You clearly don't understand the concept of "backing." Backing means that if you decide to withdraw from US economy, you can cash in your dollar bills for something else that can be traded.

This is not the same as buying an ounce of gold with US dollars, because the cost of an ounce of gold always changes. Rather, this means that a $100 bill will always yield a standard portion of gold, determined by the government.

...I said in my posts

"Back currency= value determined by the government
Fiat currency= value determined by the market "

So how exactly does that at all contradict what you just said?

The value of the dollar is not determined by the price of gold.

No but it is a good indicator of where the currency stands in value. If government backs in gold, I'm using the markets gold value in dollars as a comparison. Technically, you could measure it in silver, platinum, you could even do it in grain. I just used gold as an example so people could get a sense of what it means when the market determines the value.

Obviously if the price of gold shot up and everything else stayed the same, you could infer that it has to do with gold, not the dollar itself. I didn't want to throw that curve ball at people, and wanted to keep it simple.

Actually, strong dollar = greater market for imported goods

...this is relevant to what I said because???

No, smart people greedy = money funnelled into tax havens

That is why we have law enforcement.

Originally posted by grimreaper797

"Back currency= value determined by the government
Fiat currency= value determined by the market "

You should probably clarify that. A fiat currency can held at both a fixed or floating exchange rate, and in that case can either be or not be determined any market force. Thailand had a fiat currency held at a fixed exchange rate during the Southeast Asia economic crisis in the 80's and 90's. The value of the U.S. dollar, however, is definitely determined by the foreign exchange market. It just so happens that it is fiat.

If you're talking about the intrinsic value of the currency then that's different. No one would accept what is essentially very expensive toilet paper as a currency if not for government enforcement. Interestingly, there are some remote areas of Central Asia that are still using old Soviet rubles as an exchange commodity merely out of habit. I guess if the market is a closed system, is small enough, and there is no inflation then there is no reason to abandon a good system. Just my $0.02.

Regarding gold, or some other basket of commodities used as a foundation for some currency; I find that highly unstable. The indexed currency would have to include commodities or other assets that are equally distributed across the planet. It would also have to change over time. I'd rather use productivity and employment as an indicator of a currency's value, and if that means inflation, albeit less political conflict and greater economic freedom, then I'm all for it. Had the Boer states been absent of gold and diamonds might have precluded the imperialistic ambitions of the British. Or are we too civilized for that kind of petty conflict now? Surely, we would engage in fair trade. To be honest, I think our "multinational" corporations would just find a way to get what they want, at the behest and inspiration of our governments of course.

Personally, I think we should just have one decentralized global fiat currency. Unfortunately, any attempt to introduce such a system would be taken advantage of by the banking system and some central authority would manage to take control. On the other hand, we could decentralize printing responsibilities based on appropriate geoeconomic or geopolitical regions. Countries could be used as an outline, but perhaps a better approach would be to divide the world into different production sectors, so that the proportion of minting occurring in any region represents the best overall interests of that population as a whole.

[edit on 23-3-2009 by cognoscente]

Originally posted by vcwxvwligen
The Great Depression happened because the banks simply stopped giving out loans. It was domestic terrorism before they even gave it a name.

Why did they stop? Because many people had already used up their credit. A credit boom is followed by a consumption failure in the market.

Every time you see a boom that is done on credit, you are going to see the consumption rate, at some point, dramatically fall. It's a matter of logic.

If I make 100 dollars a month, and I want an item for 500 dollars, I could save for X amount of months, after expenses, and that would lead to a normal consumption rate. Say I have a credit limit of 500 dollars though, and use that credit to buy that 500 dollar item at a 10% interest rate a month. Now let us assume the minimum payment is 1%. Now let us assume that my expenses a month are 55 dollars.

X+(.1X)-45=Y
Y+(.1Y)-45=Z
etc. etc.
X being the total, 45 being my maximum payment, and .1X being the total multiplied by 10%, representing the interest on my total. Y being the new total which next month payment is based on.

According to my math, On the third year and 11th month, I would fail to make the minimum 1% payment of the total.

So it would take me nearly 4 years to default on my credit. Nearly 4 years if I spent all my expendable income on paying my credit bill. Had I simply saved my money, on the 12th month, I would have been able to purchase that 500 dollar item, with 40 dollars to spare.

By using the credit, I killed my long term ability to purchase, and my credit score. I would crash into debt and lose almost everything.

Point being, credit kills long term market, and if out of control, can crash the market completely. Out of control credit doesn't just lead to a load of bankruptcies and people ending up out of all their possessions, but it kills consumption, thus kills imports, kills investing, etc. etc.

Lax credit is probably the single most damaging thing to a country and its economy.

In a perfect system that may happen, but what happens in the real world is that when a person's credit line is exhausted, his property is repossessed. A more terrifying scenario would simply be to horde the gold.

As I had shown above, it would take nearly 4 years before my went bankrupt and lost my stuff. Obviously if you blow through a credit line that was obnoxiously beyond what your ability to pay it back was, then yes, you will lose your stuff pretty quickly.

That often isn't the case though. As you saw above. Had my purchase been 400 instead of 500, I never would have went bankrupt. I would have slowly but surely paid off my debt. If my purchase was 450, I would have sat at 450 debt forever, A.K.A. the credit company hopes I make a purchase of 450. 450 is the best purchase I could make for the credit company. They pretty much just enslaved you. 400, you are very profitable. 500 and you go bankrupt.

A credit crisis caused by banks handling questionable "assets" as collateral.

No, the credit crisis I refer to is that of banks giving out slightly more credit than they should. The credit crisis you refer to is a specific aspect that I'm not referring to. You are referring to the mark to marketing aspect. I'm referring to the purchasing power aspect. The mark to marketing bit is what turn a strong asset into a questionable one almost overnight. A game of hot potato is what it was. It was assumed that these people wouldn't default and that even if they did, there would always be a market for the asset (property/housing market). But like all credit induced bubbles, the market quickly plummeted, so now when the defaults occurred there was no market for the asset, and mark to market acted accordingly. The value of the assets plummeted, and certain companies were left holding the hot potato.

Under a backed currency, people simply steal the reserves. Everyone playing fair would be able to claim his reserves and re-deposit them, whereby a new money system can then be instituted.

And if you have hoarders? In an idealistic system, the rich will continue to literally spend all their money via resources and investments, etc. Often times, in troubled markets especially, that may not be the case. They will save, waiting for the troubled times to pass, and more safe promising investments to hit the market. During that time, back runs may start to occur, spending will dramatically decrease, and hoarding will occur. Monkey see, monkey do. Little people will follow suit.

You bring currency circulation to a virtual stand still.

Or the government goes bankrupt since they have no resources on hand. If everyone trades in their cash for the governments gold, the government has no gold, thus its money is worthless, how is government going to pay its bills?

Of course the money exists. If the money doesn't exist then you can't collect any interest.

No, the money DOESN'T exist, and that is exactly my point. They can't possible collect the interest if you can't pay it because it doesn't exist. That means you are virtually bound to bankruptcy if you agree to that interest rate.

If the money doesn't exist, they just take the stuff you own. Interest goes under the assumption that there is this limitless flow of money out there, and the only restriction is your ability to get your hands on it. That is not the case, especially with a backed currency. The limit isn't only "can you get the money" but "does that money exist?"


I just decided to get to the rest of the post later. It has been a long day, I'm tired, so I'm just going to come back later when I'm not 3/4th asleep.

reply to post by grimreaper797



Exactly, the "credit boom" was bascially frivolous lending, which caused the value of money to become distorted. Such lending served as a foundation for others to build upon it (the "Roaring 20's"). When the lending itself disappeared, then everything above it crumbled. So, in a way, the banks actually engineered the Great Depression.

The scenario you provided doesn't describe how everybody uses credit. Good purchases are usually made with the hope that they will increase revenue which, even despite the cost of the loan, will still increase overall value. This certainly does not "kill the long-term market."

My point was that banks don't "give out credit like they should" because of over-speculation, due to the distorted value of money. In this last bust, there were nested derivatives based on "junk" investments, like so-called "high-yield bonds" and spread bets. Of course, only people who don't exercise common sense played with these kinds of investments, and ended up getting burned.

Unless such a rich person lives in his own sovereign state and wants for nothing, then he has to spend his money for something, even if it's only to pay taxes. The government then redistributes income from taxes to the rest of the population (which BTW is NOT socialism).

Gold reserves would belong to whomever helds the reserve notes. Government has its own reserves, just as private citizens have theirs. As soon as banks receive more gold, then they could print more money. The Federal Reserve has little to no gold, because it was given to the British Royal Crown. That was part of the reason for creating fiat currency.

Someone who cannot pay a debt doesn't have to declare bankruptcy. It's more advantageous for the lender to postpone repayment than to accept bankruptcy, or to throw the debtor in jail. The lender can only repossess whatever he has a right to own, which is usually the collateral.

The fact that this happened at harvard is not surprising at all. Most every public college sells this crap to it's students, just as "Rules for radicals" is required reading in the same places. Obama went to harvard and majored in economics, and he's an idiot when it comes to anything monetary.
I'd love to debate him, and I'd crap all over his Marxist / Socialists beliefs.