honestscop

Watch for Yourself: 60 Minutes Oil Story Was Spot On

I'm going out on a limb here...but while reading this article and the comments, two things occurred to me:

1) Suppose I'm a speculator and it's January when I buy a contract for $40/bbl for March delivery. Then, price goes up 50% to where the spot price of oil is $60/bbl in February. Now because I don't want to take delivery, I can sell the March contract for $50/bbl in February and still make a profit. Wouldn't I be exerting downward rather than upward pressure on the price?

Some may ask, why would you sell for $50 when you can get $60? Well, okay, let's say I sell at $60 -- then I'm merely responding to the market as opposed to influencing it.

2) Despite my previous question I do believe generally that speculation can be unhealthy for the economy as a whole -- I don't want anyone to think I'm defending speculators -- I'm just not clear as to how they can exert such influence over one commodity while remaining entirely within that commodity.

But, I think there's something that many people seem to be missing...What about the role currency speculation played in the oil spike? If we look at the commodities boom, the dollar depreciated rather quickly while the euro gained against it. It seems to me that if one regards this boom as both a cause/effect of a depreciating dollar, one would eventually ask: why was the euro gaining? Wouldn't European companies need to change their currency into dollars in order to buy oil, copper, grain etc. -- thereby depreciating that currency as well?

It seems a likely hypothesis that dollars were converted to euros (perhaps as an inflation hedge) in such great quantities so as to buoy the currency against price fluctuations in the commodity markets. Does anyone know if this has been investigated?

The 'Great Slump' of 2008 (Part 1)

So, we were a decent size in 1997? Gov't was smaller then and taxes were higher -- but the budget was balanced. So that lends to my point that taxes contribute to civilization so long as the finances are balanced. I think we can agree on that.

Back to the monetarist points, I just wonder what the global economy would look like if we resorted back to some form of a gold standard or even bimetallist.

If we go back to the Greeks, all wealth started with land. Land was taken by force and aristocracies were built from subjects who found themselves in the king's favor -- thus receiving land as a gift. But each kingdom, in order to sustain itself, required resources that couldn't necessarily be provided in isolation. So trade developed.

Now, trade could only go so far because you couldn't trade an acre of land for a bushel of corn. Reason being that the corn is potable and land is not. So bartering came about but eventually that would break down as well. Example: If you produced wheat and you need corn, you can only get as much corn insofaras as your corn supplier has an equivalent need for wheat. So, what happens?

You develop some medium of exchange to secure the acquisition of the needed supplies. And the medium of exchange needs to be agreed upon by not only your kingdom's suppliers, but your suppliers' suppliers. It makes no difference what it is as long as there is agreement -- gold was one of the first forms to consolidate such a large contingency of agreement.

Then history moves on and we come to Rome -- one of the first civilizations to mint a currency. Who, incidentally, also fell victim to the world's first major credit crisis. In fact, it was so bad that we had to hit the reset button and start over -- this ushered in the age of feudalism that existed in medieval times. Land was once again the chief store of wealth.

I guess the point I'm trying to make in all of this is that the trend we seem to see historically is we are constantly uncovering mediums of exchange that are more available and more movable between buyers and sellers. All that is required to maintain this is that both parties agree on the value of the currency. Managing that agreement seems to me the fundamental function of monetary policy.

Now you can argue that it has been managed poorly, and I'd agree. But that is not to say that it can't be managed well. I think moving back to a gold standard is a pretty drastic response and would create a capital flight which could make the difference between facing a recession or a depression.

Unlike Rome, I think we have an opportunity to address the current situation without having to hit the reset button.

The 'Great Slump' of 2008 (Part 1)

BEP is the Bureau for Engraving and Printing -- the bureau under the Treasury Dept. responsible for printing money.

1) So are you saying that the main reason to abandon Fiat currency is because of the possibility of counterfeiting? It seems that counterfeiting would be possible with deeds to gold as well -- is that not the case?

2) Taxes: I find your points a little muddled here. You seem to claim that because of a corporation's need to make a profit, that contributes to higher prices paid by consumers in order to pay the taxes owed by that corporation.

On the surface, your point seems to make sense except that it hinges on a false assumption: that corporate tax is paid regardless of profit. Tax functions as a percentage of profit more so than a cost of doing business.

Now, I'm not denying that corp. tax is figured into the price of a product thereby moving along to the consumer -- I'm merely saying that paying tax is a result of rather than a barrier to making a profit. If a profit is not made, taxes are not paid. There is no such thing as a 100% tax rate.

Please elaborate.




On Dec 31 06:04 AM Jake Champion wrote:

> Dear honestscop -
>
> Appreciate your reply and thanks for the read. Although I am ignorant
> what BEP is, let me try to answer. I think its fair to mention in
> the original article (not here at SA) Part 2, I quoted Greenspan
> and Mises at length, might be worth a loo. Part 1 has my list of
> sources. www.nolanchart.com/art...
>
> OK, on intrinsic worth, I recommend this series I wrote, Part 4 covers
> what honest money is. You certainly hit upon the key difference btw
> fiat and commodity money - scarcity. All of the gold on the planet
> ever mined fits into a cube 20 meters on a side - it cant be counterfeited,
> which is what happens with fiat. Basically, what is at stake here
> is government control over money, so actually the case that needs
> to be really built is why it should continue to stay fiat. It is
> very obvious that governments abuse their "lord's right" (Part 5)
> and put the hurting on every man, woman, and child and business on
> the planet
>
> I recommend the link on Rothbards' "What Has the Govt Done with our
> Money?" and if you have time, "The Case Against the FED". Links in
> the below article. Part 1 has my world view, actually I got into
> economics only this year, previously I was a very unread antiwar
> author. Why economics? Because its the root of everything that is
> wrong with our world today (in my humble opinion).
> www.nolanchart.com/art...
>
> 2) you wrote "2. Taxes: This answer (from my perspective) is simple:
> You are paying for the privilege of living in a civilized nation.
> "
>
> Try my article "Rioting at the Gates of Thermopylae" on the banking
> system (link below). It has a link to the white house budget and
> you will find that total planned govt outlays was 2.9 trillion. (pg26/342).
> Total receipts 2.5 trillion, so the planned deficit was 0.4 trillion
> (add 0.8-1.0 due to this bailout nonsense) notice how the government
> has more than doubled over the past decade, which even outpaces inflation.
>
>
> 2008 Receipts (pg35/342) -
> 0.35 trillion from corporate income taxes
> 1.2 trillion from fed income taxes
> 0.9 trillion in soc sec/medicare/caid
>
> Adds up pretty much to 100% right?
>
> OK corporate taxes goes 100% to the military, and is actually limited
> this way via the Constitution - and is more or less still obeyed.
> However, the total cost of our foreign armies from reliable sources
> is very close to a trillion (deficit baby!). On pg65/342 you will
> see we spent $0.6 trillion, or 21% of outlays on the military.<br/>
>
> Now, the corporations need to make a profit, so 1) everyones salary
> is lowered, and 2) the consumer pays for it with the increased price
> of goods. That's you!! All to catch some dude in cave. (I've written
> extensively about this, but my point is:
>
> You are not paying for a "civilized" nation via corporate income
> taxes. You are hurting the economy, your own personal wealth to run
> wars. I am not OK with this.
>
> $0.9 trillion for SocSec/Medicare. Do some research. Bloody Madoff-Ponzi
> scheme, its all wasted, and the baby boomers are screwed. This happens
> in a couple of years. What if I dont feel like working to support
> them? Or if the job losses continue since our monetary and foreign
> policies hollowed out our nation.
>
> So you are left with $1.2 trillion in fed income taxes. I wont launch
> into a major tirade here, Look at what we spend it on, look at the
> size of the national debt and the interest on it. Decide for yourself
> how much you want to spend. The roads, libraries, fire dept, police,
> (are not federal) even Congress and the cabinet costs, dont cost
> much.
>
> My conclusion is you are not paying for a civilized nation - you
> are paying for an empire that is about to collapse on its own currency
> and debt.
>
> I recommend watching "America: Freedom to Fascism" - not because
> I wholeheartedly believe in everything it says, esp the end, but
> it will get you thinking more about the topic (taxes and control),
> possibly different from now. Zeitgeist is another freaky movie, same
> deal. just google it.
> www.nolanchart.com/art...
> www.whitehouse.gov/omb...
>
> If you want to continue discourse, I recommend writing in my nolan
> chart articles or shoot me an email, I havent figured out how to
> get email flags from SA, but not sure if I want to, there'd be a
> lot more than I am used to.
>
> I would very much like to hear back from you. Peace and happy new
> year!
> Jake

The 'Great Slump' of 2008 (Part 1)

First, GREAT ARTICLE. I wish the web had more content like this. But, I have a couple disagreements:

1. Fiat Currency: I'm not entirely a Friedmanite; however, in the tradition of Friedman, I wish to take issue with your claim that money must be something with "intrinsic worth." I find it naive to make a claim that "intrinsic worth" is in any way measurable. The closest we can come is by weighing the supply and demand.

Why make the assumption that the supply/demand coordinates for gold or silver are any more "correct" than those same coordinates for the US dollar in the exchange markets? Sure, there's probably more scarcity to gold and silver since dollars can be printed at will. But the printing of dollars (while the BEP has been running on fumes as of late), is still driven by the global demand for our currency less whatever debt is bought by foreign governments (aka China).

So, my question is: Why gold? It has no "intrinsic worth" only insomuchas it is demanded by consumers.

2. Taxes: This answer (from my perspective) is simple: You are paying for the privilege of living in a civilized nation.

If you have time, I'm anxious to hear your responses. I know you'll probably disagree -- but I'm sure your arguments will be compelling.

What's Best for the Economy: Monetary Policy, Government Spending or Tax Cuts?

Errol's comment stops far too short of the big picture. Following the logic: Recessions occur when people stop spending, people stop spending when they feel it more beneficial to hold onto cash rather than spend it -- a typical emotion in an uncertain job market.

But Errol seems to view recession as simply job loss -- what must be realized is that job loss is merely the symptom, not the disease. Therefore, simply stating that infrastructure spending is useless because workers will just go back into unemployment upon project completion -- conceptualizes labor as the only cost driver.

There are entire supply networks standing to benefit from infrastructure investment . For example, there are capital equipment purchases and raw material purchases -- each of which buy into their own supply chains. Also, these projects won't happen just one at a time -- they happen in several places at once.

If one accepts the definition of recession as economic contraction (of which job-loss is merely a result), than any econ. policy advocating further spend reductions (whether in private or public sectors) fails prima facie.