Comments on Market Skeptics: *California's Rapid Descent Into The Abyss...

That's no different than what I've been saying abo...

2009-07-11T18:30:31.694-07:00

That's no different than what I've been saying about creating larger bills. Doing that is no different than creating a $1 billion bill. Just because you call that $1 billion bill 1 Amero makes no difference. But as I said this will fail because at some point the money is going to be based on it's commodity value and a $1 billion bill will be worth just as much as a $1 bill. Plus creating so many large bills and not enough small bills will cause transaction problems and more defaults. What you're suggesting is no different than what is happening in Zimbabwe and look how well it is working out for them.

And i know it's just an example but it's not practical since we already have bills that are worth 5 federal reserve note bills. Our largest bill is worth 100 Federal Reserve Note bills. Like I said before the bill that will need to be created to stop defaults will have to be allot larger(i.e $1 billion bills).

Also the suggestion that the price of gold would stay the same as the money increased in size is rediculous and shows a lack of understanding of supply and demand fundamentals.

If $1 billion bills were floating all around the economy I'm sure gold wouldn't remain at $900/oz.

No, the game is over and there is no way around it.

OK, seems I'm not able to express myself so I goog...

2009-07-11T15:17:59.487-07:00

OK, seems I'm not able to express myself so I googled a bit to paste quite appropriate sentence:

So how can “devaluation” take place?

Simple. Government could announce the imposition of a brand new currency (say, the Amero, or maybe United States Notes or some kind of “pink” or “brown” currency) each one of which would be declared to be worth, say, five (or maybe, ten) of our current Federal Reserve Notes. If the gov-co suddenly imposed a new currency (say, U.S. Notes) with a value of five FRNs to one unit of the new currency, the new price of gold in terms of the new currency would be one-fifth the current price of gold as denominated in Federal Reserve Notes.

"stibot said... How can we erase all this debt an...

2009-07-11T14:33:54.126-07:00

"stibot said...
How can we erase all this debt and save the currency at the same time?

I'm not suggesting that, dollar is past..

Since US (UK) have their own currency, they have ability to devalue (rather than default or hyperinflate). I imagined devaluation like 1 till 5 new dollars for 100 old ones."

I have no idea what you just said here. I really can't understand what you're saying here.

How can we erase all this debt and save the curren...

2009-07-11T11:04:14.790-07:00

How can we erase all this debt and save the currency at the same time?

I'm not suggesting that, dollar is past..

Since US (UK) have their own currency, they have ability to devalue (rather than default or hyperinflate). I imagined devaluation like 1 till 5 new dollars for 100 old ones.

Oh and as far as the work to get gold for food. I...

2009-07-11T10:39:54.061-07:00

Oh and as far as the work to get gold for food. It will become easier and easier as gold is more rare than food and will be rising in value. The video is only the start of the move to demand gold for food and as time goes on because of gold's rarity, less gold will have to be panned and less gold will get you more.

Stibot, what is this "reset button" you speak of? ...

2009-07-11T10:24:43.207-07:00

Stibot, what is this "reset button" you speak of? How can we we erase all this debt and save the currency at the same time as you are suggesting?

"Devaluation compared to hyperinflation..."

It seems you assume that we must only devalue our currency a little to solve our debt problem. That's totally wrong. To stop this deleveraging, we are going to have to print bills larger than those in Zimbabwe and prices will have to rise more than in those in Zimbabwe. The devaluation that needs to come to wipe out the debt is far more than it seems you think it is.

"mr pinnion said...
Yes i have seen the video you refare to.
Spending all day panning for gold for a loaf of bread is working for next to nothing in my book.Anyway, where the hell are a big city full of people going to pan for gold?
What will happen in USSA is food rationing soviet style.And to get your ration you ll need crappy state paper"

You don't get it. Rationing will come to an end. Credit is Rationing. There will not be enough food to fix the price. people are not stupid, they will not give away their last piece of food for the same price as the rest of their food. Proof that this won't happen is in the rise in prices. Prices rise because people demand more for their goods and services. So people will already be in the mind state of survival, they will already be in the process of demanding more for their goods and services and the step of moving to demanding gold/silver is no different. Raising prices on goods and demanding gold/silver for goods is the same thing. If the first thing is happening the second thing will follow. The fact that prices are rising is proof that people are choosing to destroy the dollar over starvation. You seem to not understand that rationing is proof of price fixing and price fixing leads to shortages. To assume that there will continue to be rationing/price fixing is to assume that people will choose to give away their last piece of food easily(buy selling it cheap) effectively starving themselves. The action of raising prices and rationing contradict each other. Prices would not be rising if people were choosing to ration/price fix. You either have price fixing/rationing and starvation or you have prices rising no rationing/price fixing and no starvation. I'm not going to sell you my item which is in shortage for cheap just to help maintain the value in a piece of paper with writing on it. Again i ask what is the point of selling food for cheap if there is a shortage of food or no food to eat? You are basically choosing to starve just to say the piece of paper you are holding has value. No one is stupid enough to do that. When starvation hits, starvation will take over and people will choose to NOT starve to death than help maintain the value in the pieces of paper the govt. calls the currency. And a move to gold/silver as money is just the next step in that. In fact rising unemployment is the same. Rising unemployment, rising prices and a move to demanding gold and silver as payment is all to meet the same goal. Survival. Layoffs are a mechanism to cut costs in order to have enough money to survive and so is raising prices and demanding gold/silver as payment. First we'll have massive layoffs and when that is not enough, then we'll have rising prices and when that is not enough then we'll have the govt. print larger bills and then when that is not enough then we'll have demand for gold and silver as payment. All of these actions are to raise enough money to survive.

I was thinking it about and believe elitists alrea...

2009-07-11T09:07:29.035-07:00

I was thinking it about and believe elitists already considered risk of loosing the faith in govt./money because of hyperinflation consequences as numonic suggested.

They will not allow such precarious situation and they will rather press reset button before hyperinflation takes the ride. Many US citizens will welcome devaluation due to their mortgages/debts or simply they are poor, the others will be convinced in the name of social peace (anyway why to care much about the others).

For China nothing changes, Chineses know dollar is already useless.

Devaluation compared to hyperinflation gives govt. more power. They will call slogans like transition to new fair banking, more regulations, pension/health care system and so on.

Banksters are happy, they can start again with clear sheets.

Yes i have seen the video you refare to. Spending ...

2009-07-11T05:06:24.658-07:00

Yes i have seen the video you refare to.
Spending all day panning for gold for a loaf of bread is working for next to nothing in my book.Anyway, where the hell are a big city full of people going to pan for gold?
What will happen in USSA is food rationing soviet style.And to get your ration you ll need crappy state paper

Deleted and reposted this comment. Links were bre...

2009-07-10T19:54:17.849-07:00

Deleted and reposted this comment. Links were breaking layout.

Numonic said...
Here are a couple articles that support what i was saying:

May wholesale inventories fall, 9th straight drop

http://www.philly.com/...inventoriesfall9thstraightdrop.html

Debt deleveraging beast eating up supplies just as massive dollars flooding the economy would.

Small businesses forgoing raises again

http://www.azcentral.com/...20090708biz-SmallBizTalk0708.html

Wage cuts to cut costs and save money to pay borrowing costs. Rising unemployment rate shows this is not enough, money must be made other ways and the only other way is raising prices wiping out those that can still afford non-necessities and printing larger bills when we're all reduced to only necessities.

Oh and

California Can't Even Deliver Its IOUs

http://www.businessinsider.com/california-cant-even-deliver-its-ious-2009-7

Eric, can you fix this page, the margin is cutting...

2009-07-10T17:57:46.867-07:00

Eric, can you fix this page, the margin is cutting off the replies.

mr. pinnion I take it you haven't seen the Zimbab...

2009-07-10T15:55:00.014-07:00

mr. pinnion I take it you haven't seen the Zimbabwe gold for food video.

http://www.youtube.com/watch?v=7ubJp6rmUYM

"@numonic
i m not saying people will work for nothing.I am saying they will work for a lot lot less than they do now. Just like they did in germany, just like they do in zimbabwa.
they will have no option (other than starvation)

regards oscar
"

So you're saying working for Zimbabwe dollars is not the same as working for nothing. What work is actually worth the Zimbabwe dollars? Come on man, people are not stupid. They will not do work that is not worth the pay. Why do you conclude that the only options are getting paid with worthless paper or starving? That's silly. In fact the reason the paper is worthless is because people demanded more of it for their work. The very action of rising prices is proof that people want to get paid fairly for their work. So people will demand to get paid fairly for their world as they will already be doing it by raising prices. The move to demanding gold/silver is no different than raising prices on what they sell. It's all to get paid fairly for their work. Now we have instances where the people of Zimbabwe are demanding gold for their work, I'm sure you'll find the same happened in Germany.

"Anonymous said... @Numonic " True Full Reserve B...

2009-07-10T15:24:04.457-07:00

"Anonymous said...
@Numonic
" True Full Reserve Banking is hoarding."

I see your point, and I agree.

But one problem of hoarding is the risk of violent theft, which is quite a certitude for the times ahead. It may be worst to have your savings violently stolen by a theft than quietly by a bank.

I'm French, and throughout all French history violent theft of private gold hoards accured at each time the central state has been into big financial/political troubles.

I wonder what our "modern" societies would become if precious metal hoarding should spread among middle classes. No matter how many guns you may have in your home, it will never be enough to stop all these future starving unemployed thieves. Especially when the state and its police go bankrupt, and moral values are disregarded by all.

Therefore for this very simple reason, widespread hoarding just seems impossible to implement.

And how would companies do for international payments ?

Banking really seems to be necessary. A full reserve banking strictly controlled by the state being maybe the 'least bad' form of banking.
Matthieu."

If there was a great number of private gold hoards stolen then that gold hoard was never private to begin with.

I disagree that riots and looting will last much long, first of all it will be the deposed govt.'s and banks that will be inciting riots and looting. The deposed govt.s and banks want you to believe that the end of credit is the end of the world when nothing could be further from the truth. The end of credit is the ressurection of the world, a world held from growing due to credit. The end of credit will be the beginning of prosperity for the world. Credit is riot and looting as all credit is is taking what you didn't work for. The end of credit will not cause rioting and looting, it will end it. There will be some spark and propaganda of rioting and looting by the deposed govt.'s and banks but in truth people will realize that they have to buckle down and work for what they want. Rioting and looting only leads to shortages and one can't steal what is not there. And this is where credit has brought us, to a world in shortage, not internal shortage but external shortage where all the above ground supply is depleted and there is no one willing to work to get the supply underground. When credit ends, there will be more people willing to do this because they will be forced to as there will be nothing to loot unless it is brought up out of the earth first.

"And how would companies do for international payments ? "

The same way we ship things from one country to another.

" Martijn said... @Numonic In fact the debt dele...

2009-07-10T15:23:50.650-07:00

" Martijn said...
@Numonic

In fact the debt deleveraging would eat up supply in a greater quicker fashion than printing massive dollars would because the debt deleveraging is electronic while the printing is tangible and electronic moves faster than the printing press

Do you really believe all stimulus dollars are created on paper? None digital?

Come on, use your head.

"

Martijn, i ask you what is the point of a bailout? Why is credit contracting? The point of a bailout is to stop a default. A default is an inability to give out promised money. And what would cause a default? The answer is an inability to give out physical cash. One can't default on digital money because all that is needed to give out digital money is to type the number in to the computer and the only way there can be a failure to do that is if the banks couldn't find someone that was capable of using a keyboard. The banks are not short of people who are capable of using a keyboard they are short of physical cash. I know physical cash is only used in a minor part of daily transactions but because credit expanded so much, that 1% of 100 people that use cash turned in to 1% of 1,000,000,000 people and greater. So even though the percentage of daily transactions stayed the same, the number of those transactions grew stretching the dollar thin. Maybe I'm just not a big spender but i use physical cash allot, allot more than credit/debit.

But it makes no sense to say some of the bailouts are deigital/electronic. How can you even explain that? Does someone from the Fed come in to the commercial bank and press the 0 key a few times to add to the banks balance? First of all why can't someone at the bank just do that and second how does adding money digitally to banks account make the bank go from insolvency to solvency? What was the bank insolvent of? people who can use a keyboard? No the banks are insolvent of physical cash and that's what the bailouts are physical cash.

@numonic i m not saying people will work for nothi...

2009-07-10T15:15:56.711-07:00

@numonic
i m not saying people will work for nothing.I am saying they will work for a lot lot less than they do now. Just like they did in germany, just like they do in zimbabwa.
they will have no option (other than starvation)

regards oscar

@Numonic In fact the debt deleveraging would eat ...

2009-07-10T06:27:51.151-07:00

@Numonic

In fact the debt deleveraging would eat up supply in a greater quicker fashion than printing massive dollars would because the debt deleveraging is electronic while the printing is tangible and electronic moves faster than the printing press

Do you really believe all stimulus dollars are created on paper? None digital?

Come on, use your head.

I think the middle class already hoards precious m...

2009-07-10T06:14:47.786-07:00

I think the middle class already hoards precious metals. I saw a stat somewhere saying that there are over 2,000 small silver investors with over 1,000 ounces of silver.

@Numonic " True Full Reserve Banking is hoarding."...

2009-07-10T06:08:32.911-07:00

@Numonic
" True Full Reserve Banking is hoarding."

I see your point, and I agree.

But one problem of hoarding is the risk of violent theft, which is quite a certitude for the times ahead. It may be worst to have your savings violently stolen by a theft than quietly by a bank.

I'm French, and throughout all French history violent theft of private gold hoards accured at each time the central state has been into big financial/political troubles.

I wonder what our "modern" societies would become if precious metal hoarding should spread among middle classes. No matter how many guns you may have in your home, it will never be enough to stop all these future starving unemployed thieves. Especially when the state and its police go bankrupt, and moral values are disregarded by all.

Therefore for this very simple reason, widespread hoarding just seems impossible to implement.

And how would companies do for international payments ?

Banking really seems to be necessary. A full reserve banking strictly controlled by the state being maybe the 'least bad' form of banking.
Matthieu.

"Anonymous said... Numonic. Thanks for this very...

2009-07-09T19:58:50.725-07:00

"Anonymous said...
Numonic.

Thanks for this very interesting analysis.

What do you think of hoarding versus banking ? Don't you think that a full reserve banking is better than hoarding, for it allows the real money to be better allocated than just hoarding ?

Matthieu.
"

This is another false idea. The problem is not that loans were made to uncredit worthy borrowers, the problem is credit period. And Full Reserve Banking is an oxymoron. When you put money in a bank even if that bank is practicing full reserve banking, you've just created credit(Fractional Reserve Banking) because now "your" money is in more than one possession. "Your" money is supposedly in your possession and also in the possession of the people in the bank who can touch and hold your money in their hands. Possession is 9/10ths of the law. Who really owns the money? You or all the employees in the bank who can get their hands on your money? So common definition of Full Reserve Banking is an oxymoron. True Full Reserve Banking is hoarding.

You have to understand that the debt deleveraging ...

2009-07-09T19:24:51.765-07:00

You have to understand that the debt deleveraging is/will be eating up supply just as much as trillions of trillion dollar bills circulating the economy would. In fact the debt deleveraging would eat up supply in a greater quicker fashion than printing massive dollars would because the debt deleveraging is electronic while the printing is tangible and electronic moves faster than the printing press even if you are increasing the denominations of the bills massively because if the majority of the bills in circulation are these extremely large bills it will make it hard to do transactions and this means more defaults(Unless prices are risen so that the demand for unavailable change for those large bills is decreased). And we can't continue to print these small denominated bills because we can't print them fast enough to stop the massive deleveraging and we can't print a boat load of larger bills or what I just said about transaction problems and defaults would happen. So massive defaults are inevitable unless larger bills are created and unless prices rise.

In fact our self preservation mechanism is running...

2009-07-09T19:24:26.928-07:00

In fact our self preservation mechanism is running and has been running. The act of laying off employees to cut the cost of paying those employees as a means to try to have enough money to pay the rising borrowing costs is the same as raising consumer prices because both are a means to the same end which is to try to have enough money to pay rising borrowing costs to stay in business. As soon as enough people realize that the means that they are using to reach that end is failing(layoffs) they will include other means(raising consumer prices). If we didn't have the self preservation mechanism, we wouldn't be doing these layoffs or printing dollars to stop defaults we would allow the defaults to happen unabated and wouldn't care if someone defaulted on their payments. If we didn't have this self preservation mechanism, we wouldn't care if the banks refused to pay out our deposits. We would allow them to default and continue to do business with that bank that just defaulted on us. We wouldn't care if we didn't get paid for working and would starve because we would allow inventories to be wiped out without doing what is needed to restore inventories. But like I've said, everything happening suggests the opposite and our self preservation mechanism is still very much intact.

"mr pinnion said... dont think people will start ...

2009-07-09T19:24:05.978-07:00

"mr pinnion said...
dont think people will start getting paid in things with real value as numonic said.
what is a large employer supposed to do on pay day? , give out gold? silver?, chickens?
if it got that bad such things would be to hard to get in bulk.
anyway , what would be the going rate of pay? , three chickens per hour?
employers will allways have to pay in paper money.
It s hyperinflation all the way in the USSA"

This is silly. How many people do you know getting paid with things that are not exchangable for anything? If it takes massive amounts of dollars to buy a very small amount of things and wages are falling do you really think people will continue to work for these worthless dollars? It's just dumb to think that people will continue to accept getting paid with something that will not get them anything, you're basically saying that people will start working for free.

Allot of people are still stuck on the false belief that the only way consumer prices can rise is if loans are made and credit is expanded and money circulates the economy. Totally unaware of the effects of extremely tight credit on consumer prices. That effect being rising borrowing costs which in order for borrowers to meet those rising borrowing costs, they must get the money from somewhere. Inability to pay these rising borrowing costs will cause companies and projects to be forced to close down. So far companies are trying to get the money by cutting the cost of having employees which is why we are having so many layoffs, but the fact that we are having so many layoffs and the deleveraging is still continuing and no where near over is proof that laying off employees to cut costs to be able to have enough to pay rising borrowing costs are not enough and that other means must be taken to garner enough money to pay rising borrowing costs. I can't think of any other arsenal in companies holding to do this other than to raise prices. This hasn't been realized yet but it will be when people realize that it makes no sense to keep the dollar price of neccessities down when neccessities are in shortage. There is no point in keeping food cheap when there is no food to eat. The deleveraging will remove the supply of our inventories and people will wake up and realize that it makes no sense to keep things that are in shortage cheap. To believe otherwise, to believe that people will not come to this realization is to believe that people will lose their self preservation mechanism and that they will instead of raising prices to make it more difficult for inventories to be engulfed, will instead sit and watch inventories disapear effectivly starving themselves. There is no such evidence suggesting that this will happen so the self preservation mechanism is still very intact in most human beings and they will do what they have to to survive.

To answer some questions above Here for credit re...

2009-07-09T18:10:28.936-07:00

To answer some questions above

Here for credit reduction I mean the lower lending activity as well as loan and bond issuance, rather than the asset writedowns. Money supply from credit is created when the money is being lended, a bond being issued, or an ABS/MBS being structured.

Banks don't lend because yields are not high enough as collateral prices continue to drop (besides that they don't have sufficient capital and that they are deleveraging). Same for bond/debt issuance. Fed print against the drop in money supply by this credit reduction, as well as the drop in money velocity during the recession.

Inflation is their long term goal, because Feds want to 1. dilute US liabilities 2. benefit their Wall Street buddies as the first inline for purchase power, but deflation is what they need to fight against before this. Dollar also will go down in the long term especially against BRICs, as to restore structural trade balance, but the current pace of printing is not yet at the level to cause hyperinflation which Eric and you think would happen.

gz_cp@yahoo.com

mr pinnion can you explain that? I'd be intereste...

2009-07-09T14:46:21.940-07:00

mr pinnion can you explain that? I'd be interested in that answer, not that i think printing is ok but i think that analysis is largely missing from the big debate.

anonymous. If printing $1 trillion wont cause infl...

2009-07-09T14:44:12.296-07:00

anonymous. If printing $1 trillion wont cause inflation because theres 3 -5 trillion credit destruction going on, Well are you also saying its ok to print 3-5 trillion without inflation? why not just print as much money as there is credit destruction?, problem solved, right?
Wrong. it rely carnt be that easy.
regards Oscar

3. Fed's printing of 1 Trillion is only a small fr...

2009-07-09T14:39:01.396-07:00

3. Fed's printing of 1 Trillion is only a small fraction of it, barely keeps up with the trillions of money supply reduction from credit.

Once money is loaned, credit is not part of the money supply. CDOs and other derivatives that were essentially credit have been trading at only a few cents on the dollar.

Stuff that trades at a few cents on the dollar is not money. Or did anyone ever see real dollars trading at a couple of cents on the buck?

Comments on Market Skeptics: *****California's Rapid Descent Into The Abyss****...