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5 Trillion Dollars - Page 5

Forum Index > General Forum
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fight_or_flight
Profile Blog Joined June 2007
United States3988 Posts
September 18 2008 09:35 GMT
#81


Wow, this guy is dead fucking serious.
Do you really want chat rooms?
Scorch
Profile Blog Joined March 2008
Austria3371 Posts
Last Edited: 2008-09-18 10:48:29
September 18 2008 10:43 GMT
#82
Not that I understand much of unrestrained capitalism, stock exchange systems, speculations and financial markets, but i do believe the following:
The quest of building a financial perpetuum mobile without the actual creation of value was doomed to fail from the very beginning. These shares and stuff those guys are trading with, their "value" is based solely on a dynamic of trust, expectations and fear, and doesn't actually exist. It's no surprise to me that the gamblers' fortune has to burst like a bubble at some point, and it serves them right.
Unfortunately, the price for this lesson is that we are all screwed.
gchan
Profile Joined October 2007
United States654 Posts
September 18 2008 10:57 GMT
#83
On September 18 2008 18:31 kemoryan wrote:
When willl people stop letting private institutions manage the monetary system and let a public one do it instead.


1917, Russia.
Polis
Profile Joined January 2005
Poland1292 Posts
Last Edited: 2008-09-18 11:09:02
September 18 2008 11:07 GMT
#84
Stocks represent owning of assets, the problem is that money have no cover in assets (some gold is stored but not nearly enough), and the banks can borrow money that they have no assets for (little more complex but in big part true) so they generate more money in the market causing inflation. Government can also decide to print more money causing inflation. Also If there would be gold standard for example, then starting war for country like USA would be almost impossible since people would have to allow government for big tax increase, now the cost are hidden.

Private institutions only do what government allow them to. Private banks are not the problem, the problem is that they are allowed to make money from air.
gchan
Profile Joined October 2007
United States654 Posts
September 18 2008 11:19 GMT
#85
On September 18 2008 20:07 Polis wrote:
Also If there would be gold standard for example, then starting war for country like USA would be almost impossible since people would have to allow government for big tax increase, now the cost are hidden.


Yeah, no wars on gold standard. Except that really big one called World War I.
Polis
Profile Joined January 2005
Poland1292 Posts
September 18 2008 11:30 GMT
#86
On September 18 2008 20:19 gchan wrote:
Show nested quote +
On September 18 2008 20:07 Polis wrote:
Also If there would be gold standard for example, then starting war for country like USA would be almost impossible since people would have to allow government for big tax increase, now the cost are hidden.


Yeah, no wars on gold standard. Except that really big one called World War I.


Completely diferent situation, you think that USA citizens would allow war whit Iraq to happen if they taxed would be increased by 50% becouse of it? Definitly less likely.
gchan
Profile Joined October 2007
United States654 Posts
Last Edited: 2008-09-18 11:57:11
September 18 2008 11:46 GMT
#87
On September 18 2008 20:30 Polis wrote:
Show nested quote +
On September 18 2008 20:19 gchan wrote:
On September 18 2008 20:07 Polis wrote:
Also If there would be gold standard for example, then starting war for country like USA would be almost impossible since people would have to allow government for big tax increase, now the cost are hidden.


Yeah, no wars on gold standard. Except that really big one called World War I.


Completely diferent situation, you think that USA citizens would allow war whit Iraq to happen if they taxed would be increased by 50% becouse of it? Definitly less likely.


No, it's exactly the same situation. It's because all the European currencies were pegged to the gold sterling, that when WWI broke out/finished, all the countries were massively in debt and had rampant inflation. To try to fix this, the governments, in a very Keynesian way, taxed the corporations (90%+ on corporate profits) and the rich and redistributed it to the poor. With no corporate incentive, the US and Europe was stuck in depression for more than a decade. It took another World War to revive the economies. Reality is that nations declare war first, pay for it second. Unpegged floating exchange rate allow central banks and private banks to mediate excess spending and inflation a hell lot better than a pegged exchange rate could.
kemoryan
Profile Blog Joined December 2007
Spain1506 Posts
Last Edited: 2008-09-18 12:17:17
September 18 2008 12:01 GMT
#88
On September 18 2008 19:57 gchan wrote:
Show nested quote +
On September 18 2008 18:31 kemoryan wrote:
When willl people stop letting private institutions manage the monetary system and let a public one do it instead.


1917, Russia.


There's a difference between a communist country were all goods are managed by the centralized State (Russia), and a capitalist country were government controls the economy (inflation, deflation, etc.) and actually prints the money (instead of private central banks). And no, I'm not saying that no banks should exist, I'm saying that Federal Reserve should not exist because it's private!

Think about it. It is far more logical that the government itself prints the dollars and makes the decisions about the country's economy, since its the only institution that works trully for the benefit of citizens and not for their own benefit such as the Fed Reserve, etc.

The huge US public debt is just one of the consequences of having a private institution manage the monetary system.
Freedom is a stranger
jello_biafra
Profile Blog Joined September 2004
United Kingdom6635 Posts
September 18 2008 12:02 GMT
#89
On September 18 2008 19:57 gchan wrote:
Show nested quote +
On September 18 2008 18:31 kemoryan wrote:
When willl people stop letting private institutions manage the monetary system and let a public one do it instead.


1917, Russia.

And we all know how well that worked out.
The road to hell is paved with good intentions | aka Probert[PaiN] @ iccup / godlikeparagon @ twitch | my BW stream: http://www.teamliquid.net/video/streams/jello_biafra
kemoryan
Profile Blog Joined December 2007
Spain1506 Posts
Last Edited: 2008-09-18 12:11:52
September 18 2008 12:03 GMT
#90
On September 18 2008 21:02 jello_biafra wrote:
Show nested quote +
On September 18 2008 19:57 gchan wrote:
On September 18 2008 18:31 kemoryan wrote:
When willl people stop letting private institutions manage the monetary system and let a public one do it instead.


1917, Russia.

And we all know how well that worked out.


Did you just read what I replied to that? (hint: two posts upwards).

I mean guys, Ron Paul is also against FEderal Reserve and lol, he's not a communist right?
Freedom is a stranger
JohnColtrane
Profile Blog Joined July 2008
Australia4813 Posts
Last Edited: 2008-09-18 12:39:56
September 18 2008 12:39 GMT
#91
how badly is this going to affect other nations? will i have to throw in the towel on my education and get out there and start planting potatos and beans?

edit: i have pretty elementary knowledge of economics
HEY MEYT
gussy
Profile Blog Joined April 2008
Australia19 Posts
Last Edited: 2008-09-18 13:11:20
September 18 2008 13:05 GMT
#92
Um, my god. I'm no economics expert, but holy hell, if anyone believes half the crap in this thread, Sharpe's assumption that "investors are rational" is so far wrong we may as well start buying gold.

Starting from the bottom up: "I'm saying that Federal Reserve should not exist because it's private!"
Fed Reserve is a government department essentially. It is not for profit, and controls the money supply. Not quite sure how you can suggest that's private. (This is just nitpicking)
The idea of having semi private organisations fannie and freddie is admittedly a little less justifiable.

dybydx, starting from your initial reasoning for why to buy gold, ie purchasing power parity. This is fundamentaly incorrect. The reasoning that someone used with the Vietnamese economy is also flawed, because the issues are completely different. In an environment of high inflation then yes, actual physical goods are worth holding so as to maintain real value (or indeed other, stable countries. south east Asian third world countries use mainly USD because their own currencies inflate so much). The reason why people tell you to buy gold STOCKS (not gold physical) is because it acts as a hedge to market fluctuations. The co-variance on gold stocks is very low compared to that of the market wide movements, so will help to lessen the risk on any portfolio. This is the theory behind markowitz's nobel prize winning thesis (which has been criticised, but whatever).

Home owners weren't screwed over by bernanke ("blame it on bernanke. many of homeowners suddently had to pay 5% more than they originally might have guessed. they got raped bad.") This was dodgy lending practices from third party lenders that subsequently securitised bad debt and sold it on to credit markets. The rates started at a fixed low, such that people were able to service them initially and then jumped after a few years to rates which were totally unpayable by these individuals. The real issue is the "sub-prime" mortage market which began the spiral of debt underwriting in the US market (brought on in part by falling house prices due to slight cool off. incidentally that comic someone posted gets the idea across pretty well), and the lack of regulation on how and to whom these loans were made.

The real answer to the main issue at the moment is don't be skittish. Non-banking stocks are for the most part still the same companies they were 6 months ago, and unless they are highly geared, the effect on their actual business model is not that considerable (on their actual business, certainly macroeconomic factors are an effect, but the US economy is continuing to grow last i heard...). Dont dump all your money from stocks into plutonium to maintain "real" value. That sort of herding behaviour causes faster drops in the stock market (like say the 26 billion odd wiped from the australian market today, or the 20% wiped from one of our investment banks because of short selling).

oh lastly, liquidity isnt "cash flow" its how quickly your assets can be realized as cash, and at what cost. So cash is perfectly liquid, government bonds are nearly perfectly liquid, bank deposits are perfectly liquid. Mortgages (as the asset that the bank holds over your house) is highly illiquid, for the same reason your house is highly illiquid, its hard to sell it.

Edit: more lastly: as the hitch-hikers guide to the galaxy says: DONT PANIC. I lost nearly 4k today from stock market losses. BUT, its 4k i wasnt going to see for 20 years anyway, and in the grand scheme of 20 years the short run fluctuations (which is what this is) is DWARFED by the long run growth. We go through these fluctuations all the time. The dot com bust was (i dont know exact figures, so im widely speculating) probably just as bad. It was a similar situation in that companies (now stocks) were vastly overpriced (now over-credit rated) which led to huge losses when those stocks corrected and/or the business models of the companies failed (now, as the debt was defaulted on). We recovered fine from the dot com. Short term, yes those running closer to the line and/or highly geared will suffer. Long term, shit be easy.
~OpZ~
Profile Blog Joined May 2005
United States3652 Posts
September 18 2008 13:36 GMT
#93
On September 18 2008 10:16 kpcrew wrote:
its insane how the executives still pull away with huge bonuses after they presided over what could have been a complete destruction of their respective companies, which could have dragged down the entire economy. some people have called this this worst financial disaster since the great depression


Like Obama....He called it that....

He also said that in 2001...and some other things in that speech he claimed to be fact, even though there is no real knowledge of the issue he was talking about...
+ Show Spoiler +

washingtonpost.com
Quit Doling Out That Bad-Economy Line
By Donald Luskin
Sunday, September 14, 2008; B01

"It was the worst of times, and it was the worst of times."

I imagine that's what Charles Dickens would conclude about the current condition of the U.S. economy, based on the relentless drumbeat of pessimism in the media and on the campaign trail. In the past two months, this newspaper alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they've been "since the Great Depression." That diagnosis has been applied twice to the housing "slump" and once to the housing "crisis," to the "severe" decline in home prices, to the "spike" in mortgage foreclosures, to the "change" in the mortgage market and the "turmoil" in debt markets, and to the "crisis" or "meltdown" in financial markets.

It's a virus -- and it's spreading. Do a Google News search for "since the Great Depression," and you come up with more than 4,500 examples of the phrase's use in just the past month."

Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That's virtually the same as the 3.4 percent average growth rate since -- yes -- the Great Depression.

Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that "the entire world is either now locked in a global economic recession or soon will be." Actually, that's a major clue to what started this thought-contagion about everything being the worst it has been "since the Great Depression": Politics.

Patient zero in this epidemic is the Democratic candidate for president. As it would be for any challenger, it's in his interest to portray the incumbent party's economic performance in the grimmest possible terms. Barack Obama has frequently used the Depression exaggeration, including during a campaign speech in June, when he said that the "percentage of homes in foreclosure and late mortgage payments is the highest since the Great Depression." At best, this statement is a good guess. To be really true, it would have to be heavily qualified with words such as "maybe" or "probably." According to economist David C. Wheelock of the Federal Reserve Bank of St. Louis, who has studied the history of mortgage markets for the Fed, "there are no consistent data on foreclosure or delinquency going all the way back to the Depression."

The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today's delinquency rate is only a little higher than the level seen in 1985. As to the foreclosure rate, it was setting records for the day -- the highest since the Great Depression, one supposes -- in 1999, at the peak of the Clinton-era prosperity that Obama celebrated in his acceptance speech at the Democratic National Convention late last month. I don't recall hearing any Democratic politicians complaining back then.

Even if Obama is right that the foreclosure rate is the worst since the Great Depression, it's spurious to evoke memories of that great national calamity when talking about today -- it's akin to equating a sore throat with stomach cancer. According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure. During the Great Depression, according to Wheelock's research, more than 50 percent of home loans were in default.

Moreover, MBA data show that today's foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures. This suggests that today's mortgage difficulties are probably a side effect of the otherwise happy fact that, over the past several years, millions of Americans of modest means have come to own their own homes for the first time.

Here's another one not to be too alarmed about: Obama is flat-out wrong when he frets on his campaign Web site that "the personal savings rate is now the lowest it's been since the Great Depression." The latest rate, for the second quarter of 2008, is 2.6 percent -- higher than the 1.9 percent rate that prevailed in the last quarter of Bill Clinton's presidency.

Full disclosure: I'm an adviser to John McCain's campaign, though as far as I know, the senator has never taken one word of my advice. He's been sounding a little pessimistic on the economy of late, too. And to be fair, he isn't immune to the Depression-exaggeration virus, either. At a campaign news conference in July, my fellow adviser Steve Forbes warned that Obama was seeking "the biggest tax increase since Herbert Hoover and the Great Depression." Factual? Almost certainly not.

But at least Forbes wasn't dissing the economy -- he was dissing Obama. And Obama's infection by the Depression-exaggeration bug goes way back. His first outbreak came on Oct. 2, 2002, in his famous speech opposing the invasion of Iraq, delivered when he was an Illinois state senator. He said that the invasion was "the attempt by political hacks like Karl Rove to distract us from" a litany of economic troubles including "a stock market that has just gone through the worst month since the Great Depression."

Quite an exaggeration. When state senator Obama made that remark, the Standard & Poor's 500 had just dropped 11 percent for the month of September 2002. But stocks dropped twice that much in October 1987. Since the Great Depression, the stock market has had bigger one-month drops on four occasions. Obama's pessimism on stocks then happened to be as ineptly timed as it was factually incorrect. Exactly one week later, stocks hit bottom, and over the next five years the S&P 500 more than doubled, surging to new all-time highs.

So much for Obama's hyperbole about our terrible economy. But what about the media's?

A housing "slump," a housing "crisis"? A "severe" price decline? According to the latest report from the National Association of Realtors, the median price of an existing home is up 8.5 percent from the low of last February. And according to the U.S. Census Bureau, the median price of a new home is up 1.3 percent from the low of last December. Home prices may not be at all-time highs -- and there are pockets of continuing decline in some urban areas -- but overall they've clearly stopped going down and have started to recover. So why keep proclaiming a "crisis" after it's over?

"Turmoil" in the debt markets? Sure, but we've seen plenty worse. According to the FDIC, there have been a total of 13 bank failures in 2007 and so far into 2008. There were 15 in 1999-2000, the climax of the Obama-celebrated era of Clintonian prosperity. And in recession-free 1988-89, there were 1,004 failures -- almost an order of magnitude more than today. Since the Great Depression, the average number of bank failures each year has been 94.

Despite highly publicized losses in subprime mortgage lending, bank equity capital -- the best measure of core financial strength -- is now $1.35 trillion, more than the $1.28 trillion level of mid-2007, before the "turmoil" even began.

Financial market "crisis" and "meltdown"? Yes, from all-time highs last October, the S&P 500 has fallen 20 percent. But that's nothing by historical standards. Stocks have often fallen more than that over comparable spans of time. They fell more than twice that much in 1974 -- which was truly the worst drop since the Great Depression. Even the present 20-percent loss isn't what it seems. The damage has been heavily concentrated in the financial sector -- banks, investment firms and mortgage companies. If you exclude that sector, stocks are off 14.8 percent.

Some economic indicators -- export growth and non-defense capital goods orders such as industrial machinery, for example -- are running at levels associated with brisk expansion. Others are running at middling levels, such as the closely followed Institute for Supply Management manufacturing index. But it's actually difficult to find many that are running at truly recessionary levels.

There have been 11 recessions since the Great Depression. And we're nowhere close to being in the 12th one now. This isn't just a matter of opinion. Words -- even words as seemingly subjective as "recession" -- have meaning.

In a new working paper, economist Edward Leamer of UCLA's Anderson School of Management shows that changes in the unemployment rate, payroll jobs and industrial production almost precisely explain every recession as officially determined by the National Bureau of Economic Research. At present, only the unemployment rate exceeds the recession threshold. The other two factors are far from it. According to Leamer's paper, we'll only fall into recession "if things get much worse."

This would suggest that anyone who says we're in a recession, or heading into one -- especially the worst one since the Great Depression -- is making up his own private definition of "recession." And probably for his own political purposes.

McCain campaign adviser and former U.S. senator Phil Gramm was right in July when he said that our current state "is a mental recession." Maybe he was out of line when he added that the United States has become "a nation of whiners." But when it comes to the economy, we have surely become a nation of exaggerators.



Granted....given that, my point isn't that the U.S. economy is headed in a good direction. Baby boomers are retiring....Entitlement spending will be higher than ever...and that isn't reported on the GDP of the U.S. because it isn't considered government spending for some weird reason.

Ah well.
Maybe I could teach Osama that using a plane as a wraith or dropship would be 10x better than using it as a scourge..... ^^; -Flex
kemoryan
Profile Blog Joined December 2007
Spain1506 Posts
Last Edited: 2008-09-18 14:31:26
September 18 2008 14:13 GMT
#94
On September 18 2008 22:05 gussy wrote:

Starting from the bottom up: "I'm saying that Federal Reserve should not exist because it's private!"
Fed Reserve is a government department essentially. It is not for profit, and controls the money supply. Not quite sure how you can suggest that's private. (This is just nitpicking)
The idea of having semi private organisations fannie and freddie is admittedly a little less justifiable.


Ok, maybe you're right or maybe not.
I think it's quite interesting so I'd really like to know more about it, and since you seem to have some knowledge then I'd like you to read this: It's another point of view of whether it's private or not:
http://www.globalresearch.ca/index.php?context=va&aid=8518
http://www.the7thfire.com/Politics and History/Federal-Reserve.html

Would you mind reading it and comment something about it?
Freedom is a stranger
QuanticHawk
Profile Blog Joined May 2007
United States32051 Posts
September 18 2008 14:21 GMT
#95
On September 18 2008 09:08 dybydx wrote:
Show nested quote +
On September 18 2008 08:59 statix wrote:
On September 18 2008 08:54 Caller wrote:
buy gold and silver


people have been saying to buy gold for some time now but ive never quite understood why. can you or someone else explain please?

gold and silver are the universally accepted currency. the US dollar is backed by the US econ, when the US econ fails, US dollar is just paper money. gold and silver is different. the price of gold relative to US dollar changes each year due to strenght of US econ, but if you compare gold to bread and butter, you will see that the value of gold always raises consistently or stay about the same. 1 once of gold can buy u 100 loaf of bread in 1900, it can still buy you 100 loaf of bread today. in contrast, 1 us dollar buy you 10 loaf of bread in 1900, it buy you 1/2 of a loaf of bread today. thus, when in doubt, covert you cash to gold.

thus, unlike paper money (ie US dollar), gold is a hard asset. gold also has alot of industrial and commercial use, so the value of gold never plumets in real term.


more or less, this is correct. If you're gonna buy gold or silver (and unless any of you have like 50k you're willing to dump away, you should by silver. $1,000 in silver will get you money much faster than $1,000 in gold will) you need to do it ASAP.

A day or two ago, gold hit the lowest mark it's been at in nearly a year. Silver plummeted too; it was up to $20 a few months ago and hit as low as 10.50 this week. (I wanted to shoot myself, because I've been investing in silver, as high as 16 and as low as 9.5, so I've lost all my profit and then some)

Yesterday, it jumped up and recovered a bit (kitco.com for prices; it raised exactly cuz what the guy i quoted said.) When we get our president situation solidified, it will jump again. Also, the holiday season, especially X-mas and such, is prime jewelry time, so the prices spike again (there's lots of other uses for precious metals, but this is still one of the biggest)

buy buy buy buyyyyy
PROFESSIONAL GAMER - SEND ME OFFERS TO JOIN YOUR TEAM - USA USA USA
Milton Friedman
Profile Blog Joined June 2006
98 Posts
Last Edited: 2008-09-18 15:36:06
September 18 2008 14:38 GMT
#96
Some interesting discussion here. I'll just respond to this though:

On September 18 2008 14:57 gchan wrote:+ Show Spoiler +

On September 18 2008 13:26 ahrara_ wrote:
Show nested quote +
On September 18 2008 12:37 gchan wrote:
On September 18 2008 09:08 dybydx wrote:
On September 18 2008 08:59 statix wrote:
On September 18 2008 08:54 Caller wrote:
buy gold and silver


people have been saying to buy gold for some time now but ive never quite understood why. can you or someone else explain please?

gold and silver are the universally accepted currency. the US dollar is backed by the US econ, when the US econ fails, US dollar is just paper money. gold and silver is different. the price of gold relative to US dollar changes each year due to strenght of US econ, but if you compare gold to bread and butter, you will see that the value of gold always raises consistently or stay about the same. 1 once of gold can buy u 100 loaf of bread in 1900, it can still buy you 100 loaf of bread today. in contrast, 1 us dollar buy you 10 loaf of bread in 1900, it buy you 1/2 of a loaf of bread today. thus, when in doubt, covert you cash to gold.

thus, unlike paper money (ie US dollar), gold is a hard asset. gold also has alot of industrial and commercial use, so the value of gold never plumets in real term.


This is the psychological belief people have behind purchasing gold and silver, but for all intents and purposes, the USD is not just a piece of paper. If the US econ fails and the USD becomes worthless, you will have a lot more to be worried about than just the little hoard of gold you have...which leads to my next point. When you buy gold, you're not actually buying physical gold but a contract that says you own a portion of gold--on the market. If the US economy fails, you can pretty much kiss your contract goodbye as the whole financial system would go down with it.

In the larger picture, "buying" gold and silver doesn't really hedge against stock (or other assets). The US, EU, and other players have been pumping so much liquidity into the market the last couple decades that even physical assets and commodities have become as easy to buy and sell as cash. That's kind of what happened with the housing market--because mortgages (which are traditionally long term assets) were so liquid, people swapped and over speculated their actual value.

hey so I have a couple of questions. Monetary theory confuses the shit out of me. Can you explain exactly how the performance of the economy and the value of currency is linked? Why was the dollar on the decline for so long? Why is it going up again?

What do you mean by pumping liquidity into the market? is that the same as having lots of very liquid assets? How are mortgages liquid? How does that liquidity lead to overspeculation?


Well, the first few questions are actually contest in academic economics because in theory, if an economy is doing well relative to others, the value of its currency goes up. The problem is that this applies only to the real exchange rate (the true value of the currency), but measuring real exchange rates is near impossible to do and what is actually reflected in the markets is the nominal value. The data on nominal exchange rates doesn't really match the theory so macroeconomists don't really know what to do; some economists like Milton Friedman and others mathematically showed that monetary policy is neutral and doesn't really affect the real exchange rate (I tend to follow this school of thought). As for why the USD was on decline for a while, it was mainly because the Fed cut interest rates and the mini commodity bubble. Back in January/February, the Fed cut interest rate by a considerable amount and this increased the money supply a ton (which lowered it's relative value). That plus lots of people put their USDs into commodities which decreased the demand for the USD. Increasing supply + decreasing demand = drastic drop in price. But of course, this was purely nominal as the USD economy didn't really decline that much (unemployment increased only about half a percent in the period--not really enough to account for a 20%+ loss in exchange rate). When people realized this, people rebought USDs so demand went up for it (that and the commodity bubble burst).


I agree with the classical stand point of money neutrality on real variables in the long run, however, I think there can be short term effects. Besides, I think ahrara is asking about the nominal exchange rate. The theory of international economics and trade has never been a strong point for me, but I would attribute economic expansion to changes in productivity. If you look up the Balassa-Samuelson effect you can read how this links to movements in the nominal exchange rate. The theory itself is a way to explain how inflation differentials between countries cannot entirely explain movements in exchange rates. I've assumed expansion caused by increased productivity but it depends on how the expansion occurs (e.g. expansionary fiscal policy decreasing national saving) and whether you're looking at the short run or long run.

Anyway. most importantly I think it should remember that while the Fed probably is under political pressure to print money to accommodate fiscal recklessness, the main reason money is printed is to prevent deflation in a growing economy. The high government spending now is most likely to be financed out of higher future tax rates rather than spirally inflation both of which are damaging but higher taxes probably less so. Also, remember that the absolute value of debt does not matter, but only the ratio of debt to GDP and how that changes over time. Sad to say, the debt ratio doesn't look like it will be improving in the near term.

As for the issue of moral hazard - the risks have already been taken and like the necessary government welfare after the Great Depression government action is again necessary in this current situation. What the government should say after this turmoil though, is that from some date onwards, no bailouts will be made. If a large bank is on the verge of bankruptcy then so be it. Of course, we then get the problem of credibility and time inconsistency.

Addition: Samuelson put it very nicely when he said we get recessions not because we can't produce enough, but because we can produce too much. The business cycle is linked to the credit cycle, but unlike Austrian economists I don't believe this to be the underlying cause, only an exacberating factor. When interest rates were low, risk was underpriced, assets and earnings were overpriced and as has been said everywhere mortgage lending was highly suspect. Now on the downturn of the credit cycle risk is overpriced and investors are too scared. Not because they don't believe that things will recover eventually but because many positions are relatively short term and taking too optimistic a view might lead you to insolvency before things recover. There's been a lot of anger at Wall Street traders but to me it is unjust. I can't remember which CEO said this after losing his job at the start of the credit crisis but "while the music's playing you have to keep dancing". If various fund managers are asking you for business you can't tell them you think they're taking too much risk and they should not engage in such a transaction. Given the competition between banks for clients this would've been commerically unfeasible.

EDIT: Rogoff writing in the FT:
+ Show Spoiler +

It may prove to be possible to fix the system for far less than $1,000bn- $2,000bn. The tough stance taken by regulators this past weekend with the investment banks Lehman and Merrill Lynch certainly helps.

Yet I fear that the American political system will ultimately drive the cost of saving the financial system well up into that higher territory.

A large expansion in debt will impose enormous fiscal costs on the US, ultimately hitting growth through a combination of higher taxes and lower spending. It will certainly make it harder for the US to maintain its military dominance, which has been one of the linchpins of the dollar.

The shrinking financial system will also undermine another central foundation of the strength of the US economy. And it is hard to see how the central bank will be able to resist a period of allowing elevated levels of inflation, as this offers a convenient way for the US to deflate the mounting cost of its private and public debts.

It is a very good thing that the rest of the world retains such confidence in America’s ability to manage its problems, otherwise the financial crisis would be far worse.

Let us hope the US political and regulatory response continues to inspire this optimism. Otherwise, sharply rising interest rates and a rapidly declining dollar could put the US in a bind that many emerging markets are all too familiar with.
dybydx
Profile Blog Joined December 2007
Canada1764 Posts
September 18 2008 20:18 GMT
#97
i wanna blame some of this on greenspan.

during the early terms of bush, he should have just let the US econ go into a mild recession. the US econ needs some time to adjust to the world wide competition and reflect on what they can do to regain a competitive advantage. instead, greenspan just lowered the interest rate, allowing poor businesses that should have went bankrupt to continue. this is essentially providing a financial subsidie by giving away low interest loans. but since those companies are not competitive anyways, the economic output cant keep up with the flood of money.

once inflation exceeds the overnight rate, the overnight rate ceases to lower lending rates, instead it works in reverse and INCREASE then nominal interest rate. greenspan fucked up imo.
...from the land of imba
mahnini
Profile Blog Joined October 2005
United States6862 Posts
Last Edited: 2008-09-18 20:49:22
September 18 2008 20:47 GMT
#98
On September 18 2008 21:01 kemoryan wrote:
Show nested quote +
On September 18 2008 19:57 gchan wrote:
On September 18 2008 18:31 kemoryan wrote:
When willl people stop letting private institutions manage the monetary system and let a public one do it instead.


1917, Russia.


There's a difference between a communist country were all goods are managed by the centralized State (Russia), and a capitalist country were government controls the economy (inflation, deflation, etc.) and actually prints the money (instead of private central banks). And no, I'm not saying that no banks should exist, I'm saying that Federal Reserve should not exist because it's private!

Think about it. It is far more logical that the government itself prints the dollars and makes the decisions about the country's economy, since its the only institution that works trully for the benefit of citizens and not for their own benefit such as the Fed Reserve, etc.

The huge US public debt is just one of the consequences of having a private institution manage the monetary system.

I'll bet you no one in Congress knows anything about how to run the economy. By public institution, I'm guessing that you mean publicly elected officials. Judging by this thread, however, you can understand why you wouldn't want something as delicate as the nation's economy to be, essentially, dictated by a bunch of retards. Also, can you explain how the fed is working for it's own benefit here? What good is the secret fed stash of a bazillion dollars if the us economy crashes?
the world's a playground. you know that when you're a kid, but somewhere along the way everyone forgets it.
Mindcrime
Profile Joined July 2004
United States6899 Posts
September 18 2008 21:12 GMT
#99
On September 18 2008 20:46 gchan wrote:
Show nested quote +
On September 18 2008 20:30 Polis wrote:
On September 18 2008 20:19 gchan wrote:
On September 18 2008 20:07 Polis wrote:
Also If there would be gold standard for example, then starting war for country like USA would be almost impossible since people would have to allow government for big tax increase, now the cost are hidden.


Yeah, no wars on gold standard. Except that really big one called World War I.


Completely diferent situation, you think that USA citizens would allow war whit Iraq to happen if they taxed would be increased by 50% becouse of it? Definitly less likely.


No, it's exactly the same situation. It's because all the European currencies were pegged to the gold sterling, that when WWI broke out/finished, all the countries were massively in debt and had rampant inflation. To try to fix this, the governments, in a very Keynesian way, taxed the corporations (90%+ on corporate profits) and the rich and redistributed it to the poor. With no corporate incentive, the US and Europe was stuck in depression for more than a decade. It took another World War to revive the economies. Reality is that nations declare war first, pay for it second. Unpegged floating exchange rate allow central banks and private banks to mediate excess spending and inflation a hell lot better than a pegged exchange rate could.


huh?

You're ignoring the economic prosperity of the twenties and getting the cause of the Great Depression wrong.
That wasn't any act of God. That was an act of pure human fuckery.
InfeSteD
Profile Blog Joined December 2006
United States4658 Posts
September 18 2008 21:20 GMT
#100
[image loading]

Wells looking really good lately, we aint struggling at all; maybe just a little bit =)
w/e
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