Smarty_Pants's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/249534/comments http://seekingalpha.com/article/172916-congress-and-the-fed-an-epic-game-of-chicken?source=feed#comment-757041 757041
Who do you forsee as being the buyer of all that toxic junk when the time comes to raise interest rates???

Ain't gonna happen, I'm a-thinkin'.]]> Thu, 12 Nov 2009 10:15:32 -0500
Who do you forsee as being the buyer of all that toxic junk when the time comes to raise interest rates???

Ain't gonna happen, I'm a-thinkin'.]]> http://seekingalpha.com/article/172128-holiday-shopping-tips-for-gold-stocks?source=feed#comment-753350 753350
When the prices on your stocks go up, sell a few shares. When the price goes down, buy a few shares. Over time you will build the number of shares you own and if the stock is in an uptrend your account balance will grow too.

What price change you use is your choice, as is the amount you buy/sell each time. There are many different ways to proceed and none of them are 'wrong'.]]> Mon, 09 Nov 2009 23:10:47 -0500
When the prices on your stocks go up, sell a few shares. When the price goes down, buy a few shares. Over time you will build the number of shares you own and if the stock is in an uptrend your account balance will grow too.

What price change you use is your choice, as is the amount you buy/sell each time. There are many different ways to proceed and none of them are 'wrong'.]]> http://seekingalpha.com/article/172281-inflation-under-control-despite-the-rise-in-gold?source=feed#comment-753342 753342
The giant swirling black hole of bank insolvency is swallowing every dollar the gub'mint can borrow or print. That's why price inflation is minimal. All that extra money is given to the banks who in turn give it back to the FED as 'excess reserves'. That money is the only "asset" the banks can point at in order to maintain the minimum reserve levels required by law.

Does anyone actually think that it's simply a coincidence that the increase in the Adjusted Monetary Base is almost exactly matched by the increase in excess reserves? Check out the graphs from the St. Louis FED and see.

Adjusted Monetary Base:
research.stlouisfed.or...

Excess Reserves:
research.stlouisfed.or...

The true reality is that the FED is the "Bailer-Outer of Last Resort" for the insolvent big banks.]]> Mon, 09 Nov 2009 22:59:33 -0500
The giant swirling black hole of bank insolvency is swallowing every dollar the gub'mint can borrow or print. That's why price inflation is minimal. All that extra money is given to the banks who in turn give it back to the FED as 'excess reserves'. That money is the only "asset" the banks can point at in order to maintain the minimum reserve levels required by law.

Does anyone actually think that it's simply a coincidence that the increase in the Adjusted Monetary Base is almost exactly matched by the increase in excess reserves? Check out the graphs from the St. Louis FED and see.

Adjusted Monetary Base:
research.stlouisfed.or...

Excess Reserves:
research.stlouisfed.or...

The true reality is that the FED is the "Bailer-Outer of Last Resort" for the insolvent big banks.]]> http://seekingalpha.com/instablog/199165-sw-richmond/34732-economics-or-politics?source=feed#comment-751837 751837
Sadly a great majority of the American populace places more importance on college football scores and the latest Hollywood starlets than the destruction of their freedom by the political class.

It is for this reason that civilization cycles through its eight stages:

1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence; (Our current state)
8. From dependence back into bondage

For those who care enough to consider the effect of ideas on the world around us, it would seem the future doesn't paint a pretty picture.]]> Sun, 08 Nov 2009 22:08:36 -0500
Sadly a great majority of the American populace places more importance on college football scores and the latest Hollywood starlets than the destruction of their freedom by the political class.

It is for this reason that civilization cycles through its eight stages:

1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence; (Our current state)
8. From dependence back into bondage

For those who care enough to consider the effect of ideas on the world around us, it would seem the future doesn't paint a pretty picture.]]> http://seekingalpha.com/article/170147-how-and-when-will-the-fed-reverse-the-huge-addition-to-bank-reserves?source=feed#comment-737974 737974
This is the dirty little secret of the Keynesian camp. The only way the FED can really reduce their balance sheet now is to start writing the toxic MBS assets off as total losses.

Naturally the odds of the gub'mint bailing them out at that point are pretty good, so Joe Sixpack will be the one whose standard of living suffers as a result.]]> Fri, 30 Oct 2009 22:38:04 -0400
This is the dirty little secret of the Keynesian camp. The only way the FED can really reduce their balance sheet now is to start writing the toxic MBS assets off as total losses.

Naturally the odds of the gub'mint bailing them out at that point are pretty good, so Joe Sixpack will be the one whose standard of living suffers as a result.]]> http://seekingalpha.com/article/169103-how-to-play-the-gold-silver-ratio?source=feed#comment-737966 737966
When precious metals (PM) rise, silver usually gains more percentage-wise so you wind up selling silver and buying gold to rebalance. When PM prices fall, silver usually falls more so you wind up selling gold to buy silver.

Over time the number of ounces of both gold and silver you own increases.]]> Fri, 30 Oct 2009 22:22:30 -0400
When precious metals (PM) rise, silver usually gains more percentage-wise so you wind up selling silver and buying gold to rebalance. When PM prices fall, silver usually falls more so you wind up selling gold to buy silver.

Over time the number of ounces of both gold and silver you own increases.]]> http://seekingalpha.com/article/169941-what-would-gdp-be-without-the-fed?source=feed#comment-736563 736563 CFC) - loose translation: "Destroy perfectly good used vehicles so GM can build new replacement vehicles."

Anyone remember the book "Brave New World"?

"Ending is better than mending.* "

* A government slogan encouraging people to throw away old possessions and buy new ones, thus theoretically keeping the global economy strong.

Reality is even worse than the book. The gub'mint only handed out slogans in the book, not the money to spend like we with CFC.

If you want a forecast for future GDP try reading some predictions by Gerald Celente of the Trends Research Institute:

trendsresearch.com/for...

Look over his past predictions and see how amazingly well he has done at hitting the nail on the head, then read what he thinks about the near future.

www.infowars.com/celen...

The gub'mint can massage the numbers all they want. Until and unless they stop printing money to prevent failing businesses to go under, things will continue to worsen over time.

Count on it.]]> Fri, 30 Oct 2009 00:18:20 -0400 CFC) - loose translation: "Destroy perfectly good used vehicles so GM can build new replacement vehicles."

Anyone remember the book "Brave New World"?

"Ending is better than mending.* "

* A government slogan encouraging people to throw away old possessions and buy new ones, thus theoretically keeping the global economy strong.

Reality is even worse than the book. The gub'mint only handed out slogans in the book, not the money to spend like we with CFC.

If you want a forecast for future GDP try reading some predictions by Gerald Celente of the Trends Research Institute:

trendsresearch.com/for...

Look over his past predictions and see how amazingly well he has done at hitting the nail on the head, then read what he thinks about the near future.

www.infowars.com/celen...

The gub'mint can massage the numbers all they want. Until and unless they stop printing money to prevent failing businesses to go under, things will continue to worsen over time.

Count on it.]]> http://seekingalpha.com/article/168716-gold-how-the-mainstream-gets-it-so-wrong?source=feed#comment-730005 730005
Anyone who wants to point out the "if you bought gold in 1979" argument should also be giving fair play to the "if you bought the Nasdaq/Dow in 2000" or "if you bought the Nikkei in 1989" arguments.

Nasdaq peaked at 5048, currently trades at 2154 (down 57.4% after 9+ years).

Dow peaked at 11,727 in 2000, currently at 9,972, (down 15% in 9+ years.)

Nikkei peaked at 38,915, currently trades at 10,355 (down 73.4% after 20 years).

Also, if you want to compound dividends, don't forget to 'uncompound' the dividends you sent to Uncle Sam with your 1040 forms all those years. Dividends are taxed as regular income, so recalculate those gains assuming that 25% of the dividends issued aren't reinvested because the taxman took them.

It's not my intent to bash the gold nay-sayers or dividend re-investors. They make valid points. Not all investments are the same, nor are all investors the same.

Let's all try to learn something useful from what others know, even if we don't think it's our first choice for our own funds.

The one point the author makes that's carved in stone is that paper money will always lose value over time as more of it is printed.

"Paper money eventually returns to its intrinsic value - zero."
-- Voltaire (1694-1778)]]> Sun, 25 Oct 2009 21:55:58 -0400
Anyone who wants to point out the "if you bought gold in 1979" argument should also be giving fair play to the "if you bought the Nasdaq/Dow in 2000" or "if you bought the Nikkei in 1989" arguments.

Nasdaq peaked at 5048, currently trades at 2154 (down 57.4% after 9+ years).

Dow peaked at 11,727 in 2000, currently at 9,972, (down 15% in 9+ years.)

Nikkei peaked at 38,915, currently trades at 10,355 (down 73.4% after 20 years).

Also, if you want to compound dividends, don't forget to 'uncompound' the dividends you sent to Uncle Sam with your 1040 forms all those years. Dividends are taxed as regular income, so recalculate those gains assuming that 25% of the dividends issued aren't reinvested because the taxman took them.

It's not my intent to bash the gold nay-sayers or dividend re-investors. They make valid points. Not all investments are the same, nor are all investors the same.

Let's all try to learn something useful from what others know, even if we don't think it's our first choice for our own funds.

The one point the author makes that's carved in stone is that paper money will always lose value over time as more of it is printed.

"Paper money eventually returns to its intrinsic value - zero."
-- Voltaire (1694-1778)]]> http://seekingalpha.com/article/168683-we-re-living-through-the-best-of-times?source=feed#comment-729580 729580
It's called SAVINGS. We won't be seeing sizeable amounts of it for quite some time as the public needs to pay down their personal debt first, as the article notes.

Which leads to:
"Lending to small business, the real engine of job creation, is sadly decreasing each month."

At what point in recent history did growth of small business become dependent on borrowing?

There are other options for growing your business, like using profits or selling a piece of the business to someone with savings. These are the businesses forming the backbone of the economy. Profitable and debt free. Any business which REQUIRES borrowing to operate is probably going to have a tough row to hoe for quite some time.

"The psyche of the American consumer has been permanently seared. Consumption and savings habits are being changed as I write."

Or stated another way, 'sanity returns'.


"I can't imagine these people will recklessly monetize US debt."

And thus, the author undermines his own basis of authority. Did you ever imagine that they would run a $1.42 Trillion annual Federal deficit at any time before 2007 with an estimated additional $7.6 Trillion in deficits to follow over the next decade? Probably not.


"even so, the world will be better, far better, in 20 years, with far more opportunities than today."

I'll bet Roman Emperor Arcadius thought along similar lines in 390 AD., a mere 20 years before the Visigoths sacked Rome in 410 AD. After that things were so 'good' that the next 1100 years (ie. the Middle Ages) are widely known for their improved standard of living compared to the Romans (NOT).

Read history. Whenever the ruling class abandons equality before the law and respect for individual rights in order to sustain their rule, you can bet that it won't be long before society's standard of living starts slumping.

The last decade has seen America's rule of law dismantled piece by piece. Until that fact is reversed, the decline will continue.]]> Sun, 25 Oct 2009 14:52:51 -0400
It's called SAVINGS. We won't be seeing sizeable amounts of it for quite some time as the public needs to pay down their personal debt first, as the article notes.

Which leads to:
"Lending to small business, the real engine of job creation, is sadly decreasing each month."

At what point in recent history did growth of small business become dependent on borrowing?

There are other options for growing your business, like using profits or selling a piece of the business to someone with savings. These are the businesses forming the backbone of the economy. Profitable and debt free. Any business which REQUIRES borrowing to operate is probably going to have a tough row to hoe for quite some time.

"The psyche of the American consumer has been permanently seared. Consumption and savings habits are being changed as I write."

Or stated another way, 'sanity returns'.


"I can't imagine these people will recklessly monetize US debt."

And thus, the author undermines his own basis of authority. Did you ever imagine that they would run a $1.42 Trillion annual Federal deficit at any time before 2007 with an estimated additional $7.6 Trillion in deficits to follow over the next decade? Probably not.


"even so, the world will be better, far better, in 20 years, with far more opportunities than today."

I'll bet Roman Emperor Arcadius thought along similar lines in 390 AD., a mere 20 years before the Visigoths sacked Rome in 410 AD. After that things were so 'good' that the next 1100 years (ie. the Middle Ages) are widely known for their improved standard of living compared to the Romans (NOT).

Read history. Whenever the ruling class abandons equality before the law and respect for individual rights in order to sustain their rule, you can bet that it won't be long before society's standard of living starts slumping.

The last decade has seen America's rule of law dismantled piece by piece. Until that fact is reversed, the decline will continue.]]> http://seekingalpha.com/article/168241-ethics-laws-can-t-work?source=feed#comment-729473 729473
Here's a solution:
LET THEM FAIL!!!

Financial ruin and a lifetime of penury for the banksters will set the example for the rest of the 'too big to fail' crowd in DC and on Wall Street.]]> Sun, 25 Oct 2009 13:53:54 -0400
Here's a solution:
LET THEM FAIL!!!

Financial ruin and a lifetime of penury for the banksters will set the example for the rest of the 'too big to fail' crowd in DC and on Wall Street.]]> http://seekingalpha.com/article/168637-how-will-the-u-s-recover-from-the-debt-crisis?source=feed#comment-729207 729207 - Mogambo Guru]]> Sun, 25 Oct 2009 11:22:52 -0400 - Mogambo Guru]]> http://seekingalpha.com/article/166993-the-power-of-unintended-consequences-superfreakonomics-by-steven-d-levitt-and-stephen-j-dubner?source=feed#comment-720003 720003
As wyvern noted, the Austrian School of economics has utilized this approach for many decades. Those who are familiar with Austrian School economic thought are indeed thinking "nothing new here".

The term used in von Mises' book Human Action was "Praxeology", which was coined over a century ago.

From Wikipedia: en.wikipedia.org/wiki/...

"Praxeology is a framework for modeling human action. The term was coined and defined as "The science of human action" in 1890 by Alfred Espinas in the Revue Philosophique, but the most common use of the term is in connection with the work of Ludwig von Mises and the Austrian School of economics."

If you want to get a good understanding of economics, get a copy of von Mises' book Human Action and slug your way through it.

mises.org/resources/3250 (The Human Action homepage. It's FREE.)]]> Sun, 18 Oct 2009 21:42:00 -0400
As wyvern noted, the Austrian School of economics has utilized this approach for many decades. Those who are familiar with Austrian School economic thought are indeed thinking "nothing new here".

The term used in von Mises' book Human Action was "Praxeology", which was coined over a century ago.

From Wikipedia: en.wikipedia.org/wiki/...

"Praxeology is a framework for modeling human action. The term was coined and defined as "The science of human action" in 1890 by Alfred Espinas in the Revue Philosophique, but the most common use of the term is in connection with the work of Ludwig von Mises and the Austrian School of economics."

If you want to get a good understanding of economics, get a copy of von Mises' book Human Action and slug your way through it.

mises.org/resources/3250 (The Human Action homepage. It's FREE.)]]> http://seekingalpha.com/article/167140-is-the-fed-really-printing-money?source=feed#comment-719736 719736
Ah, that explains why President Robert Mugabe is having such a hard time making ends meet in Zimbabwe while his citizenry are living high on the hog.

Printing money helps the bankers and politicians because they get to use the new money FIRST, before its appearance drives up the prices of things in the economy. By the time the extra money 'trickles down' to the average Joe, prices have already been increased because the banksters and politicians bid them up while spending that 'extra' money.

The people who get the shaft from inflation are small savers and those who lend at fixed interest rates (not credit cards, whose rates float just above some index like the libor, which would rise during serious inflation).

A closer look at the M2 chart also shows an increase from around 7700 to around 8300 in the past year which works out to a 7.8% increase. Not exactly what one might call 'moderate' given that gub'mint COLAs were set to 0.0% recently.

Note that M2 has increased by over 31% (from 6300 to 8300) in the past 5 years or roughly a 5.7% annual rate of increase. (I don't recall hearing any sort of gub'mint report for CPI increasing anywhere near that rate.)

It also appears that the most recent part of the chart, while decreasing, is still above the straight line made by extending the data on the left of the chart. We're still working out the effects of the huge 'bubble' of money the gub'mint threw at the bank problem in the last two years, we haven't begun to address the long term accumulation of extra money we've been printing in the past decade.

There are more inflationary effects to come. Wait and see.]]> Sun, 18 Oct 2009 17:50:27 -0400
Ah, that explains why President Robert Mugabe is having such a hard time making ends meet in Zimbabwe while his citizenry are living high on the hog.

Printing money helps the bankers and politicians because they get to use the new money FIRST, before its appearance drives up the prices of things in the economy. By the time the extra money 'trickles down' to the average Joe, prices have already been increased because the banksters and politicians bid them up while spending that 'extra' money.

The people who get the shaft from inflation are small savers and those who lend at fixed interest rates (not credit cards, whose rates float just above some index like the libor, which would rise during serious inflation).

A closer look at the M2 chart also shows an increase from around 7700 to around 8300 in the past year which works out to a 7.8% increase. Not exactly what one might call 'moderate' given that gub'mint COLAs were set to 0.0% recently.

Note that M2 has increased by over 31% (from 6300 to 8300) in the past 5 years or roughly a 5.7% annual rate of increase. (I don't recall hearing any sort of gub'mint report for CPI increasing anywhere near that rate.)

It also appears that the most recent part of the chart, while decreasing, is still above the straight line made by extending the data on the left of the chart. We're still working out the effects of the huge 'bubble' of money the gub'mint threw at the bank problem in the last two years, we haven't begun to address the long term accumulation of extra money we've been printing in the past decade.

There are more inflationary effects to come. Wait and see.]]> http://seekingalpha.com/article/166969-fdic-forecasts-more-bad-loans-and-bank-failures?source=feed#comment-718287 718287
Alas, in the world of gub'mint nothing succeeds like failure. Surely the FDIC budget will multiply accordingly.]]> Fri, 16 Oct 2009 23:00:24 -0400
Alas, in the world of gub'mint nothing succeeds like failure. Surely the FDIC budget will multiply accordingly.]]> http://seekingalpha.com/article/167007-jobs-created-jobs-saved?source=feed#comment-718284 718284
That's supposed to be a good thing? We could have just given each employee whose job was 'saved' a tidy $100,000 in cash (tax free) and it would have cost less than $3.1 billion, a savings of over $12 billion for the taxpayers.

Even if we gave them that money and burned an additional $6 billion, we'd come out ahead of where we are today.]]> Fri, 16 Oct 2009 22:54:00 -0400
That's supposed to be a good thing? We could have just given each employee whose job was 'saved' a tidy $100,000 in cash (tax free) and it would have cost less than $3.1 billion, a savings of over $12 billion for the taxpayers.

Even if we gave them that money and burned an additional $6 billion, we'd come out ahead of where we are today.]]> http://seekingalpha.com/article/167010-volcker-fed-needs-to-start-draining-liquidity?source=feed#comment-718282 718282
I heard he was dead.]]> Fri, 16 Oct 2009 22:46:55 -0400
I heard he was dead.]]> http://seekingalpha.com/article/165948-beware-unquestionable-financial-beliefs?source=feed#comment-713410 713410
The median income level can remain unchanged even when half the workers are fired if the unemployed are ignored in the data. The chart may be depicting an apples vs. oranges comparison over time.]]> Mon, 12 Oct 2009 21:33:38 -0400
The median income level can remain unchanged even when half the workers are fired if the unemployed are ignored in the data. The chart may be depicting an apples vs. oranges comparison over time.]]> http://seekingalpha.com/news/market_currents/post/34016?source=feed#comment-713193 713193
{sarcasm on}
I couldn't imagine his opinion would be biased in asserting that the cost to taxpayers is small if his bonus was large.
{sarcasm off}]]> Mon, 12 Oct 2009 18:07:15 -0400
{sarcasm on}
I couldn't imagine his opinion would be biased in asserting that the cost to taxpayers is small if his bonus was large.
{sarcasm off}]]> http://seekingalpha.com/article/165326-the-10-best-u-s-dividend-stocks?source=feed#comment-712201 712201
The secret is to pick a put option at a strike price below the current price which expires in the next month or so. Sell that put and keep enough cash on hand to buy the stock if the put is exercised at the strike price.

If the price doesn't go down, the put expires and you get to keep the premium (kind of a dividend). If the price does go down and the put is exercised, you own the stock at the put's strike price (and you keep the premium too). As long as you're happy to buy at the strike price, you're buying a good dividend paying stock at a discount to a price you're OK with.

Example:

WMT is trading at $49.97 as of the close on 10/9/09. There are November 09 options which expire in about 6 weeks. If you think that WMT is a good buy at $47.50, you can sell the Nov $47.50 puts for about $42 each (1 option per 100 shares) by setting aside $4750 in cash in your account.

If WMT doesn't drop below $47.50 before it expires on Nov 20, you get to keep that $42 premium for nearly a 1% return (in 6 weeks) on the $4750 you set aside. You can then repeat the exercise with December puts.

If WMT drops to $47 near expiration on Nov 20. Your put may be exercised and you will buy 100 shares of WMT for $4750, but you get to keep the $42 premium, so your net cost is actually $4708 for 100 shares of a stock you decided would be a good buy at $47.50.

It takes a bit more work, but if the stock price just waffles around the same price, you can collect significant premium income waiting for the price to decline to your buy point.

The difficulty is finding a broker who will let you sell puts backed by enough cash to purchase the shares at the strike price. They are out there if you look.]]> Sat, 10 Oct 2009 23:05:24 -0400
The secret is to pick a put option at a strike price below the current price which expires in the next month or so. Sell that put and keep enough cash on hand to buy the stock if the put is exercised at the strike price.

If the price doesn't go down, the put expires and you get to keep the premium (kind of a dividend). If the price does go down and the put is exercised, you own the stock at the put's strike price (and you keep the premium too). As long as you're happy to buy at the strike price, you're buying a good dividend paying stock at a discount to a price you're OK with.

Example:

WMT is trading at $49.97 as of the close on 10/9/09. There are November 09 options which expire in about 6 weeks. If you think that WMT is a good buy at $47.50, you can sell the Nov $47.50 puts for about $42 each (1 option per 100 shares) by setting aside $4750 in cash in your account.

If WMT doesn't drop below $47.50 before it expires on Nov 20, you get to keep that $42 premium for nearly a 1% return (in 6 weeks) on the $4750 you set aside. You can then repeat the exercise with December puts.

If WMT drops to $47 near expiration on Nov 20. Your put may be exercised and you will buy 100 shares of WMT for $4750, but you get to keep the $42 premium, so your net cost is actually $4708 for 100 shares of a stock you decided would be a good buy at $47.50.

It takes a bit more work, but if the stock price just waffles around the same price, you can collect significant premium income waiting for the price to decline to your buy point.

The difficulty is finding a broker who will let you sell puts backed by enough cash to purchase the shares at the strike price. They are out there if you look.]]> http://seekingalpha.com/article/165815-corporate-bully-of-the-day-hertz?source=feed#comment-712173 712173
I guess it's profitable to impose bogus charges and worry about refunding money to the small percentage of customers who notice and protest.

I would suggest if you rent from Hertz that you check your receipt carefully.]]> Sat, 10 Oct 2009 22:05:52 -0400
I guess it's profitable to impose bogus charges and worry about refunding money to the small percentage of customers who notice and protest.

I would suggest if you rent from Hertz that you check your receipt carefully.]]> http://seekingalpha.com/article/165763-the-declining-dollar-is-there-a-government-solution?source=feed#comment-712040 712040
These are the only true choices. Everything the gub'mint is doing is simply an effort to postpone the day of reckoning, not eliminate it.]]> Sat, 10 Oct 2009 19:24:39 -0400
These are the only true choices. Everything the gub'mint is doing is simply an effort to postpone the day of reckoning, not eliminate it.]]> http://seekingalpha.com/news/market_currents/post/33982?source=feed#comment-711972 711972
Just curious. ]]> Sat, 10 Oct 2009 18:13:26 -0400
Just curious. ]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-711389 711389
I assume you meant to say global DGP growth would have to fall, but it's not true. The entire developed world ran on a gold standard for nearly 100 years in the 19th century. Did our nation's GDP growth stagnate that entire time? No. It grew faster than at any time in our history during that period, with paper money fully convertible to gold on demand.


"What makes you think that your income would remain constant if deflation was 2.5%? Think about it. You're suggesting that prices fall by 2.5% pa but wages remain the same nominal amount. Do you realize what that means for businesses? It means that pretty soon, they are loss making. So no, for business to continue, your wages have to fall by the same amount, or greater than prices." - chap08

Don't make the mistake of treating aggregate economic levels with case-by-case events.

Consider Ford Motor Co. Henry Ford started the company in 1902. In 1907 Ford sold the first 6 cylinder Model K at $2,800. In 1908 Ford introduced the Model T. In 1909 Ford produced about 18,000 Model Ts. In 1911 nearly 70,000 were built. Over 170,000 in 1912. 202,000 in 1913, 308,000 in 1914, 501,000 in 1915 and over 1 million by 1920.

This rapid growth in sales led to labor problems. The workers couldn't keep up, turnover increased, training costs increased, production slowed due to turnover and lack of training. In short the cost of building a car fell slowly during this period.

Quoting from Wikipedia Ford solved this problem BY DOUBLING WAGES and reducing the work week!! Oh, the Horror!!!!!

"In January 1914, Ford solved the employee turnover problem by doubling pay to $5 a day, cutting shifts from nine hours to an eight hour day for a 5 day work week (which also increased sales; a line worker could buy a T with less than four months' pay), and instituting hiring practices that identified the best workers, including disabled people considered unemployable by other firms. Employee turnover plunged, productivity soared, and with it, the cost per vehicle plummeted. Ford cut prices (of the cars sold) again and again." - Wikipedia

en.wikipedia.org/wiki/...

I'm sure you can find many similar stories behind IBM, Sears, Hewlett Packard, GE, and most big name corporate businesses today. For the businessman who can figure out how to increase worker productivity, raising pay isn't a problem as long as there is demand for the product.

Suppose I build widgets at a cost of $8 ($4 materials, $3 labor, $1 overhead) and sell them for $10. If there is a large demand for widgets and I figure out how to increase productivity (more widgets per worker) then my cost might drop to $6.50 per widget and my profit increases from $2 to $3.50 per widget sold at $10.

If I lower the price to $9.50, I can afford to pay my labor 33% more than before (from $3 per widget to $4 per widget) and my total profit will still increase due to the larger volume of sales.

Now the flip side of that coin is that another widget producer might not be so efficient and can't afford to sell at $9.50. They might go out of business (when was the last time you saw an auto manufactured by Western Auto company?) because they couldn't compete with my business.

But with my increased production I can hire some of those workers myself. Others might start widget repair shops or go into some other line of work in another growing business.

The unspoken benefit is that the remaining widget workers are making bigger wages and can now afford to buy more items and increase overall demand in the economy. That's extra demand in industries which the workers who were let go can find jobs in.

In aggregate, the GDP has increased and widget prices have gone down (more people can afford widgets now). While the number of people working in the widget building business might decrease, the money earned by workers remaining will probably increase.

Such is the nature of free markets. Purchasing demand sets the limit on how much can be profitably produced. After that, it's a competition to see who can supply the demand at the lowest cost and still profit. "Excess" workers will find jobs in other growing markets as demand increases with rising standards of income.

To say that fewer widget builders are working is a bad thing is the equivalent of saying we'd all be better off if we were still subsistence farming, because you're essentially saying that finding more efficient ways to meet demand is bad because a small number of workers have to find new jobs without considering that a very large number of workers are better off.

(If theoretical widgets are difficult to grasp, think cell phones, plasma TVs, playstations, or any other relatively recent widespread innovative product on the market today.)


"Once you enter a deflationary spiral like this, there is no way to fix it under a gold standard." - chap08

Again, don't confuse falling prices with 'deflation' as most modern keynesian economists do.

"The term "deflation" was used with an alternative meaning by the classical economists, to refer to a decrease in the money supply and credit; some economists, including many Austrian-school economists, still use the word in this sense." - Wikipedia

Recall that Milton Friedman argued that "inflation is always and everywhere a monetary phenomenon." The flip side of that coin is that deflation is also a monetary phenomenon.

Prices are simply the measure of the supply of money vs. the goods and services competing for that money. More money in circulation means higher prices for the same goods and services. Less money means lower prices. If the money supply is fixed (as on a gold standard) then prices over time will only shift due to the tastes of the purchasers and not how much money is "worth" at the moment.


"Fiat has the flexibility to fix either inflation or deflation." - chap08

I would argue that fiat is the root cause of inflation and deflation. It is interesting to see where all the fiat "fixes" in the past 30 years has led us ... to the biggest financial crises in 80 years. Perhaps the "fix" is worse than the presumed disease.


"You quote some figures and say that the value of money has dropped by 56% over 30 years. So what! Big deal! Who cares? That's 2.7% pa. Meanwhile, GDP, standards of living, stocks, bonds etc. etc. have all gained much more than that. If you're so hung up about the value of your money, just buy some gold." - chap08

Well, I care for one. Based on some of the responses to this article, others care as well. As for buying gold, I got mine at an average price of $805. How about you? Has the purchasing power of your savings increased by 30% in the past year?]]> Sat, 10 Oct 2009 00:51:27 -0400
I assume you meant to say global DGP growth would have to fall, but it's not true. The entire developed world ran on a gold standard for nearly 100 years in the 19th century. Did our nation's GDP growth stagnate that entire time? No. It grew faster than at any time in our history during that period, with paper money fully convertible to gold on demand.


"What makes you think that your income would remain constant if deflation was 2.5%? Think about it. You're suggesting that prices fall by 2.5% pa but wages remain the same nominal amount. Do you realize what that means for businesses? It means that pretty soon, they are loss making. So no, for business to continue, your wages have to fall by the same amount, or greater than prices." - chap08

Don't make the mistake of treating aggregate economic levels with case-by-case events.

Consider Ford Motor Co. Henry Ford started the company in 1902. In 1907 Ford sold the first 6 cylinder Model K at $2,800. In 1908 Ford introduced the Model T. In 1909 Ford produced about 18,000 Model Ts. In 1911 nearly 70,000 were built. Over 170,000 in 1912. 202,000 in 1913, 308,000 in 1914, 501,000 in 1915 and over 1 million by 1920.

This rapid growth in sales led to labor problems. The workers couldn't keep up, turnover increased, training costs increased, production slowed due to turnover and lack of training. In short the cost of building a car fell slowly during this period.

Quoting from Wikipedia Ford solved this problem BY DOUBLING WAGES and reducing the work week!! Oh, the Horror!!!!!

"In January 1914, Ford solved the employee turnover problem by doubling pay to $5 a day, cutting shifts from nine hours to an eight hour day for a 5 day work week (which also increased sales; a line worker could buy a T with less than four months' pay), and instituting hiring practices that identified the best workers, including disabled people considered unemployable by other firms. Employee turnover plunged, productivity soared, and with it, the cost per vehicle plummeted. Ford cut prices (of the cars sold) again and again." - Wikipedia

en.wikipedia.org/wiki/...

I'm sure you can find many similar stories behind IBM, Sears, Hewlett Packard, GE, and most big name corporate businesses today. For the businessman who can figure out how to increase worker productivity, raising pay isn't a problem as long as there is demand for the product.

Suppose I build widgets at a cost of $8 ($4 materials, $3 labor, $1 overhead) and sell them for $10. If there is a large demand for widgets and I figure out how to increase productivity (more widgets per worker) then my cost might drop to $6.50 per widget and my profit increases from $2 to $3.50 per widget sold at $10.

If I lower the price to $9.50, I can afford to pay my labor 33% more than before (from $3 per widget to $4 per widget) and my total profit will still increase due to the larger volume of sales.

Now the flip side of that coin is that another widget producer might not be so efficient and can't afford to sell at $9.50. They might go out of business (when was the last time you saw an auto manufactured by Western Auto company?) because they couldn't compete with my business.

But with my increased production I can hire some of those workers myself. Others might start widget repair shops or go into some other line of work in another growing business.

The unspoken benefit is that the remaining widget workers are making bigger wages and can now afford to buy more items and increase overall demand in the economy. That's extra demand in industries which the workers who were let go can find jobs in.

In aggregate, the GDP has increased and widget prices have gone down (more people can afford widgets now). While the number of people working in the widget building business might decrease, the money earned by workers remaining will probably increase.

Such is the nature of free markets. Purchasing demand sets the limit on how much can be profitably produced. After that, it's a competition to see who can supply the demand at the lowest cost and still profit. "Excess" workers will find jobs in other growing markets as demand increases with rising standards of income.

To say that fewer widget builders are working is a bad thing is the equivalent of saying we'd all be better off if we were still subsistence farming, because you're essentially saying that finding more efficient ways to meet demand is bad because a small number of workers have to find new jobs without considering that a very large number of workers are better off.

(If theoretical widgets are difficult to grasp, think cell phones, plasma TVs, playstations, or any other relatively recent widespread innovative product on the market today.)


"Once you enter a deflationary spiral like this, there is no way to fix it under a gold standard." - chap08

Again, don't confuse falling prices with 'deflation' as most modern keynesian economists do.

"The term "deflation" was used with an alternative meaning by the classical economists, to refer to a decrease in the money supply and credit; some economists, including many Austrian-school economists, still use the word in this sense." - Wikipedia

Recall that Milton Friedman argued that "inflation is always and everywhere a monetary phenomenon." The flip side of that coin is that deflation is also a monetary phenomenon.

Prices are simply the measure of the supply of money vs. the goods and services competing for that money. More money in circulation means higher prices for the same goods and services. Less money means lower prices. If the money supply is fixed (as on a gold standard) then prices over time will only shift due to the tastes of the purchasers and not how much money is "worth" at the moment.


"Fiat has the flexibility to fix either inflation or deflation." - chap08

I would argue that fiat is the root cause of inflation and deflation. It is interesting to see where all the fiat "fixes" in the past 30 years has led us ... to the biggest financial crises in 80 years. Perhaps the "fix" is worse than the presumed disease.


"You quote some figures and say that the value of money has dropped by 56% over 30 years. So what! Big deal! Who cares? That's 2.7% pa. Meanwhile, GDP, standards of living, stocks, bonds etc. etc. have all gained much more than that. If you're so hung up about the value of your money, just buy some gold." - chap08

Well, I care for one. Based on some of the responses to this article, others care as well. As for buying gold, I got mine at an average price of $805. How about you? Has the purchasing power of your savings increased by 30% in the past year?]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-703195 703195
In 1981 total money circulating was $0.5 Trillion.

In January of 2008 the annual cost of interest on the US debt was approaching $0.5 Trillion. Our interest payments on the national debt are the same as the entire money supply of 30 years ago.

2008 US GDP was $14.3 Trillion, US debt was approaching $11 Trillion. If we took all the money collected for everything produced in one year we could pay off the debt and maybe have enough left over to fund the breadlines necessary to feed us all for that year. Everything else we would have to do for free.

This is where the 'solution' of printing money leads. The poor house.

As for NickelMan's burger flipper. 80 years ago he didn't have a national debt of $11 Trillion to pay off. His share of today's debt would be approximately $37,000 per person in his household. That's nearly 4 years of total annual income per person.

Is he really as well off today as his analog from 80 years ago?
Even at a 1% rate, he owes nearly two weeks of income on national debt interest annually. Guess he's got to go without his beer, food, and ammunition those weeks, eh?]]> Mon, 05 Oct 2009 01:05:11 -0400
In 1981 total money circulating was $0.5 Trillion.

In January of 2008 the annual cost of interest on the US debt was approaching $0.5 Trillion. Our interest payments on the national debt are the same as the entire money supply of 30 years ago.

2008 US GDP was $14.3 Trillion, US debt was approaching $11 Trillion. If we took all the money collected for everything produced in one year we could pay off the debt and maybe have enough left over to fund the breadlines necessary to feed us all for that year. Everything else we would have to do for free.

This is where the 'solution' of printing money leads. The poor house.

As for NickelMan's burger flipper. 80 years ago he didn't have a national debt of $11 Trillion to pay off. His share of today's debt would be approximately $37,000 per person in his household. That's nearly 4 years of total annual income per person.

Is he really as well off today as his analog from 80 years ago?
Even at a 1% rate, he owes nearly two weeks of income on national debt interest annually. Guess he's got to go without his beer, food, and ammunition those weeks, eh?]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-703125 703125
Define "works" please. How well did it 'work' in Zimbabwe? They were printing $Z like crazy and eventually threw in the towel because it 'worked' so well.

They got to the point where they were printing $Z 100 Trillion notes, (worth about 1/3 of a US dollar). That got so cumbersome that they decided to 'revalue' the $Z by removing 12 zeroes from each denomination ($Z 1 Trillion = $Z 1 - still only worth 1/3 US cent).

edition.cnn.com/2009/W...

Eventually they abandoned the currency all together and allowed their people to use foreign currency instead.

news.bbc.co.uk/2/hi/78...

Here's a sample of how well printing money 'worked':

"A 40-year-old Zimbabwean primary school teacher from the capital Harare, told the BBC news website earlier this week it cost nearly US$2 a day to travel to work, but inflation had reduced the average teacher's wage to the equivalent of US$1 a month."

Take the bus to work, stay on the job two months, break even.

Good plan.]]> Sun, 04 Oct 2009 22:52:13 -0400
Define "works" please. How well did it 'work' in Zimbabwe? They were printing $Z like crazy and eventually threw in the towel because it 'worked' so well.

They got to the point where they were printing $Z 100 Trillion notes, (worth about 1/3 of a US dollar). That got so cumbersome that they decided to 'revalue' the $Z by removing 12 zeroes from each denomination ($Z 1 Trillion = $Z 1 - still only worth 1/3 US cent).

edition.cnn.com/2009/W...

Eventually they abandoned the currency all together and allowed their people to use foreign currency instead.

news.bbc.co.uk/2/hi/78...

Here's a sample of how well printing money 'worked':

"A 40-year-old Zimbabwean primary school teacher from the capital Harare, told the BBC news website earlier this week it cost nearly US$2 a day to travel to work, but inflation had reduced the average teacher's wage to the equivalent of US$1 a month."

Take the bus to work, stay on the job two months, break even.

Good plan.]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-703105 703105
Why do you operate under the assumption that stable prices are the best option?

If my income remains constant and prices on everything decline by 2.5%, am I not better off? Can I not buy 2.5% more "stuff" or save an extra 2.5% of my income without getting a raise or a second job? Don't my savings from prior years buy 2.5% more than they did last year, even if they don't earn interest? Isn't that a good thing for me?

One of the BENEFITS of a gold standard is that you must invest and/or work to add money to the circulating supply rather than type numbers on a computer or print colored numbers on paper. The cost of increasing the supply of gold is a significant barrier to doing so. People can generally be certain that the supply of money will remain relatively constant and can therefore make better predictions regarding capital investments for businesses.

Looking at the data, US GDP from 1981 to 2009 increased from $3 Trillion to $13 Trillion, while the money supply during that period increased from $0.5 Trillion to $5 Trillion. Production of "stuff" increased by a factor of 4.4 while the money supply increased by a factor of 10.

Using chap08's price stability methodology, the 'value' of our money has dropped by about 56% over the last 30 years (4.4x as much stuff with 10x as much money).

Even a cursory glance will tell you that you can't buy as much 'stuff' with the same income. The ratio of changes in GDP to money supply is 2.3 over this time span. If your income didn't increase by at least a factor of 2.3 in the past 30 years you are losing ground economically, even accounting for the increase in productivity. Take the growth in the taxes you pay into account and you're even farther behind.

90% of US money in circulation (as of 2006) was created since 1981 ($4.5 Trillion of $5 Trillion). The FED printed that money, either physically or electronically. They produced nothing of intrinsic value in exchange for printing it, nor for the interest they collected when they loaned it out. These days the effort to add $1 Trillion to the money supply probably requires less effort than I put into typing this comment.

+ $1,000,000,000,000 (there, another Trillion of new money, whew!)

The question is who got to use that new money first, before its appearance bid up prices on everything in the economy? Those are the parties which 'stole' the value of your savings and income, despite what the FED's defenders might believe.]]> Sun, 04 Oct 2009 22:15:06 -0400
Why do you operate under the assumption that stable prices are the best option?

If my income remains constant and prices on everything decline by 2.5%, am I not better off? Can I not buy 2.5% more "stuff" or save an extra 2.5% of my income without getting a raise or a second job? Don't my savings from prior years buy 2.5% more than they did last year, even if they don't earn interest? Isn't that a good thing for me?

One of the BENEFITS of a gold standard is that you must invest and/or work to add money to the circulating supply rather than type numbers on a computer or print colored numbers on paper. The cost of increasing the supply of gold is a significant barrier to doing so. People can generally be certain that the supply of money will remain relatively constant and can therefore make better predictions regarding capital investments for businesses.

Looking at the data, US GDP from 1981 to 2009 increased from $3 Trillion to $13 Trillion, while the money supply during that period increased from $0.5 Trillion to $5 Trillion. Production of "stuff" increased by a factor of 4.4 while the money supply increased by a factor of 10.

Using chap08's price stability methodology, the 'value' of our money has dropped by about 56% over the last 30 years (4.4x as much stuff with 10x as much money).

Even a cursory glance will tell you that you can't buy as much 'stuff' with the same income. The ratio of changes in GDP to money supply is 2.3 over this time span. If your income didn't increase by at least a factor of 2.3 in the past 30 years you are losing ground economically, even accounting for the increase in productivity. Take the growth in the taxes you pay into account and you're even farther behind.

90% of US money in circulation (as of 2006) was created since 1981 ($4.5 Trillion of $5 Trillion). The FED printed that money, either physically or electronically. They produced nothing of intrinsic value in exchange for printing it, nor for the interest they collected when they loaned it out. These days the effort to add $1 Trillion to the money supply probably requires less effort than I put into typing this comment.

+ $1,000,000,000,000 (there, another Trillion of new money, whew!)

The question is who got to use that new money first, before its appearance bid up prices on everything in the economy? Those are the parties which 'stole' the value of your savings and income, despite what the FED's defenders might believe.]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-702744 702744
The point is not to argue, but to present truth, and facts to back that truth, so those who are reading both and are not certain which to believe can judge between the two claims.

The battle is won a single mind at a time. Don't worry about the 'fools', you'll never change their minds. It's the fence-sitters that don't post you should worry about.

-=-=-=-=-=-=-=-=-=-=-=...
'Wise men speak because they have something to say. Fools speak because they have to say something.' - Plato

Answer a fool according to his folly, lest he be wise in his own conceit. - Prov. 26:5]]> Sun, 04 Oct 2009 14:42:14 -0400
The point is not to argue, but to present truth, and facts to back that truth, so those who are reading both and are not certain which to believe can judge between the two claims.

The battle is won a single mind at a time. Don't worry about the 'fools', you'll never change their minds. It's the fence-sitters that don't post you should worry about.

-=-=-=-=-=-=-=-=-=-=-=...
'Wise men speak because they have something to say. Fools speak because they have to say something.' - Plato

Answer a fool according to his folly, lest he be wise in his own conceit. - Prov. 26:5]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-702723 702723
Fractional reserve banking and excessive debt.

Before the FED was established banks routinely issued their own currency notes, each fully exchangeable for gold which they (presumably) held in their vaults. The exchangeability is what kept the bankers honest.

Most banks issued more notes than they had gold to exchange, but not by much. They could make loans of their notes beyond the gold they held as long as they kept the fraction of unbacked loans small compared to their gold reserves. Issuing an extra 20% this way usually wasn't discovered and rarely punished via a run on the bank (where all the depositors came in to exchange notes for gold).

If you look at prior financial panics, what happened is "irrational exuberance" in prior years led banks to take on a bigger gamble and issue loans in larger amounts. Call it historic fractional reserve lending.

Usually by the time the typical ratio of loans to gold got around 2 to 1 something would happen to spark a rush to collect one's savings in gold by the public at large (major business failure, crop loss, flood, war, etc.).

This was the cause behind the depression-like collapse of business, the excess lending by banks and the widespread attempt to call in those loans in gold, when there wasn't enough gold to cover everything. Actual money was hard to come by and nobody trusted the bank notes because they realized that the bank had loaned them out without any gold to back them.

The gold didn't cause the panic, the excessive lending did. If the banks had only loaned out as many notes as they had gold to cover, they didn't have to worry about a run. After redeeming all their notes, they would simply wait for depositors to bring the money back in to deposit again when the dust settled. Survive a panic or two, build a reputation for safety, and you never lacked for depositors. You were 'Good as Gold'.

Even given those prior panics, those were the "good old days" by comparison. Today's banks routinely make loans at ratios of 9 to 1. Some of the 'too big to fail' banks even borrow money to lend at ratios greater than 1:1. Some have leverage over 40 to 1. At those levels, a 3% drop in asset value wipes out the entire business value, leaving only debt to be paid off.

Fractional reserve banking is the root cause of financial boom-bust cycles. The FED has only enab;ed banks to play the game on a bigger level. When the music stops, the carnage will only be that much worse as a result.]]> Sun, 04 Oct 2009 14:30:12 -0400
Fractional reserve banking and excessive debt.

Before the FED was established banks routinely issued their own currency notes, each fully exchangeable for gold which they (presumably) held in their vaults. The exchangeability is what kept the bankers honest.

Most banks issued more notes than they had gold to exchange, but not by much. They could make loans of their notes beyond the gold they held as long as they kept the fraction of unbacked loans small compared to their gold reserves. Issuing an extra 20% this way usually wasn't discovered and rarely punished via a run on the bank (where all the depositors came in to exchange notes for gold).

If you look at prior financial panics, what happened is "irrational exuberance" in prior years led banks to take on a bigger gamble and issue loans in larger amounts. Call it historic fractional reserve lending.

Usually by the time the typical ratio of loans to gold got around 2 to 1 something would happen to spark a rush to collect one's savings in gold by the public at large (major business failure, crop loss, flood, war, etc.).

This was the cause behind the depression-like collapse of business, the excess lending by banks and the widespread attempt to call in those loans in gold, when there wasn't enough gold to cover everything. Actual money was hard to come by and nobody trusted the bank notes because they realized that the bank had loaned them out without any gold to back them.

The gold didn't cause the panic, the excessive lending did. If the banks had only loaned out as many notes as they had gold to cover, they didn't have to worry about a run. After redeeming all their notes, they would simply wait for depositors to bring the money back in to deposit again when the dust settled. Survive a panic or two, build a reputation for safety, and you never lacked for depositors. You were 'Good as Gold'.

Even given those prior panics, those were the "good old days" by comparison. Today's banks routinely make loans at ratios of 9 to 1. Some of the 'too big to fail' banks even borrow money to lend at ratios greater than 1:1. Some have leverage over 40 to 1. At those levels, a 3% drop in asset value wipes out the entire business value, leaving only debt to be paid off.

Fractional reserve banking is the root cause of financial boom-bust cycles. The FED has only enab;ed banks to play the game on a bigger level. When the music stops, the carnage will only be that much worse as a result.]]> http://seekingalpha.com/article/163500-the-dangers-of-fiat-money-end-the-fed-by-ron-paul?source=feed#comment-702689 702689
You can! Go to Grandfather's Economic Report website:

mwhodges.home.att.net/...

Page down about twice and there is a small chart of the US CPI from 1800 to 2005 or so.

You can also find raw data and Y/Y changes plotted here:

home.att.net/~rdavis2/cpi1800.html (lower chart)

Note that the CPI spent as much time in negative territory as positive before the FED was formed in 1913, however since about 1940 the CPI has very rarely been below 0. This coincides with the beginning of the upturn in CPI on the Grandfather chart (and it never looks back).

In 1850 the CPI was 25. In 1899 the CPI was 25. In 1913 the CPI was 29.7. In 1962 (same span of years) the CPI was 90.6. In 2006 (slightly shorter span from 1962) the CPI was 604.3. I'm pretty sure it's higher than that in 2009.

The charts are a bit more striking than just reading the numbers.]]> Sun, 04 Oct 2009 14:02:47 -0400
You can! Go to Grandfather's Economic Report website:

mwhodges.home.att.net/...

Page down about twice and there is a small chart of the US CPI from 1800 to 2005 or so.

You can also find raw data and Y/Y changes plotted here:

home.att.net/~rdavis2/cpi1800.html (lower chart)

Note that the CPI spent as much time in negative territory as positive before the FED was formed in 1913, however since about 1940 the CPI has very rarely been below 0. This coincides with the beginning of the upturn in CPI on the Grandfather chart (and it never looks back).

In 1850 the CPI was 25. In 1899 the CPI was 25. In 1913 the CPI was 29.7. In 1962 (same span of years) the CPI was 90.6. In 2006 (slightly shorter span from 1962) the CPI was 604.3. I'm pretty sure it's higher than that in 2009.

The charts are a bit more striking than just reading the numbers.]]> http://seekingalpha.com/article/163797-preserve-your-wealth-with-precious-metals?source=feed#comment-694806 694806
Notice that prior to the creation of the FED in 1913, the dow:gold ratio bounced around between 3 and 4 for years on end (hint: we were on the fully convertable gold standard at the time).

Only when the FED was established and undertook the printing of money and 'regulating' a systemic increase in leverage throughout the financial system did the "boom/bust" cycle really reach extremes.

As you note, the 'standard' FED response to every financial panic is to create more money in order to ease the crisis.

Now go back to the dow:gold chart and take another look. Each swing of the pendulum has gone to further extremes than the prior swings. This is the classic sign of an unstable system (trust me, I'm a control systems engineer).

Normal feedback mechanisms act to restrict motion to extremes more strongly as the motion becomes more extreme. Unstable systems are usually the kind which push systems motion further to the extreme the further along the move goes until it is too late to restrict the motion to prior limits.

The real problem with unstable systems is that they ALWAYS result in a completely broken system eventually. They will literally shake themselves apart.

Each extreme in the dow eventually brings a bigger correction, which requires more money to halt than the prior extreme. Eventually all the extra money creates higher highs and bigger corrections, requiring even MORE money to halt. Rinse and repeat endlessly and you find yourself right where we are today, borrowing and spending over 10% of the entire country's GDP just to stop the bleeding.

Next cycle will require even more money than what we're borrowing this time around......that is if there IS another cycle.]]> Mon, 28 Sep 2009 21:57:31 -0400
Notice that prior to the creation of the FED in 1913, the dow:gold ratio bounced around between 3 and 4 for years on end (hint: we were on the fully convertable gold standard at the time).

Only when the FED was established and undertook the printing of money and 'regulating' a systemic increase in leverage throughout the financial system did the "boom/bust" cycle really reach extremes.

As you note, the 'standard' FED response to every financial panic is to create more money in order to ease the crisis.

Now go back to the dow:gold chart and take another look. Each swing of the pendulum has gone to further extremes than the prior swings. This is the classic sign of an unstable system (trust me, I'm a control systems engineer).

Normal feedback mechanisms act to restrict motion to extremes more strongly as the motion becomes more extreme. Unstable systems are usually the kind which push systems motion further to the extreme the further along the move goes until it is too late to restrict the motion to prior limits.

The real problem with unstable systems is that they ALWAYS result in a completely broken system eventually. They will literally shake themselves apart.

Each extreme in the dow eventually brings a bigger correction, which requires more money to halt than the prior extreme. Eventually all the extra money creates higher highs and bigger corrections, requiring even MORE money to halt. Rinse and repeat endlessly and you find yourself right where we are today, borrowing and spending over 10% of the entire country's GDP just to stop the bleeding.

Next cycle will require even more money than what we're borrowing this time around......that is if there IS another cycle.]]>