The problem with the economy, IMO.
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16-01-2013, 06:18 PM
RE: The problem with the economy, IMO.
(11-01-2013 08:46 AM)Chas Wrote:  
(10-01-2013 05:33 PM)bemore Wrote:  You cannot create new money without creating debt.... this needs to change or we will forever be going around in the circle of depression, growth, depression, growth.

I dont think this recession will ever end. Not for the likes of me (the middle class) anyway.

There is too much debt and them creating more (from QE) is only papering over the cracks.
Of course money and wealth can be created without debt.

I go out to my back yard, dig, discover a vein of gold ore. Voila, wealth, not debt.
Wealth is not only created by debt, that is true up to a point.

However, resources are inevitably finite. Thus there is only a set mount of resources and wealth in the world. Even a resource that renewable does so at a certain rate. Once you dig up all the gold in your back yard, its gone, and the wealth is within the system. More gold won't just suddenly appear.

Wealth is continually destroyed as well. Maintenance cost are extremely high. Natural disasters destroy billions of dollars worth of resources every year.

Meanwhile interest just continues to accumulate to infinite.
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22-01-2013, 09:21 PM
RE: The problem with the economy, IMO.
Can I change the starting point for this discussion? Or, at least get back to the root question, which is "what is wrong with the economy"?

I think there are a few thing wrong with the economy, most of which are not, in and of themselves, problems, but when coupled with everything else have a catastrophic effect. Kind of like mixing two chemicals that, by themselves, are ok but together create an explosion. There a number of things in play here and, in no particular order this is my take on what is going on:

1. Globalization - globalization has the potential to bring a lot of good to a lot of people but, from an economic perspective, it's done a lot of damage. Rich countries exploit the poverty and governmental corruption in poor countries, allowing them to get away with wages and working conditions that would never, ever fly in their home countries. People love the perception of improved prices and shirk the moral accountability that comes from buying a new ipod or Nike sneakers produced by someone 10 year old working 80 hours a week for $0.10 a day. Aside from destroying the future opportunities of people in the countries being used this way, it is also destroying the manufacturing base of the countries who's jobs are being exported. The US is a great example of this. Once upon a time, a person without a college education could get a job in a factory that paid a living wage and allowed him to raise his family in a decent neighborhood, attend decent schools, etc. Those days are long, long gone. There is still a manufacturing economy in the US and western Europe but is nothing like it once was.
2. The banking industry has changed, and for the worse. Once upon a time Investment Banks played a valuable role in society, acting as a middle man between those who needed capital to grow their businesses and those who had capital to invest. Banks were partnerships with the partners taking the risk of the bets they made. In the late 1970s and early 1980s, mot of the large investment houses went public, putting their officers in position to take ever increasing risks where they got the benefit and their shareholders took the risk. The ultimate "heads I win, tails you lose" proposition. This lead to riskier deals and the increase in proprietary trading (meaning where the banks trade on their own account). It's gotten to the point where, for most investment banks, their primary investment customer are themselves. They have become day-traders on steroid and they have dressed their crazy bets up as solid investments to the unsuspecting public and into institutions. This is probably the single biggest issue because it lead to many of the toxic assets that helped crater the economy on 2008. It also lead to more brazen behavior and outright criminal acts like the LIBOR fixing scandal, among others.
3. Deregulation of commodities - During the Depression the US government passed restrictions on commodities trading limiting the amount of naked positions middle men could take. The way a commodities market works is you have people willing to sell something, and people willing to buy something, and getting them together at the right place and time to conduct a transaction is costly and onerous. So, you get a commodities broker who will buy goods that need to be bought and later sell them to people who need them. The middle man, or broker, takes the risk that he can sell it for more than he bought it. I'm not going into detail here but, in practice - and for 50+ years - the system worked very efficiently in the moving of commodities. Why? Because the brokers were limited in how much of a position the could take, which prevented them from buying a commodity simply to drive the price up. That all changed in the early 1990s when the Commodities Exchange Commission started to give secret exemptions to these rules that allowed certain firms to actually buy as much of a commodity they wanted without having to take delivery (a change in a 50 year old rule). Think of it this way - imagine you want to buy a new Toyota. Imagine if someone was investing in Toyotas not because he wanted to drive one but because he thought they had a value over and above their basic utility. You have people out there buying all the Corollas and Camry's, not because they want to drive them, but because they think the value will keep going up and they can package them up into car bonds worth far more than the cars themselves. It won't take very long before people who actually want to buy these cars and use them as cars are priced out of the market. This type of speculation in commodities is what drove food and oil prices through the roof in 2008 (and is playing some part in gas prices now, although there are other geopolitical issues involved). Don't believe me? Go check out the discussions between the Saudis and the Bush administration that were made public by Wikileaks where the Saudis told the Bush team that they were producing record amounts of oil and if they wanted gas prices to come down they needed to go reign in Wall Street.
4. Dept - The US and western Europe live way above our means. We have more people taking out of the system than paying in. Too much of our economy and monetary policy is focused on paying down our borrowed funds. And, people have been living the same way as the government. Less disposable income because we are all spending so much of our free cash servicing our debts is a big problem for everyone.

Some of these are big problems on their own and some of them are big issue because of the other problems. Any one of them is enough to start a problem but all of them combined is proving to be fatal. And, this is not an exhaustive list.

My 2 cents, at least.

Shackle their minds when they're bent on the cross
When ignorance reigns, life is lost
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