Author Topic: Economic question for Jrome or anyone else who can answer....  (Read 166 times)

TraceOneInfinite Flat Earther 96'

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Jrome, okay, we have discussed how Ron Paul wants to get rid of the Federal Reserve, and how the Federal Reserve creates money out of thin air.  Basically, out of all the established political parties in the US, I think the Libertarian's (Ron Paul is a Libertarian running as a Republican so he won't be denied oppurtunities that are sadly only availiable to two political parties) have the best policies.  And I've been a big fan of the late Harry Browne for a few years now.

My question is this.  So Ron Paul and Libertarian's want to get rid of almost all the government programs and allow for increased private ownership.  And also, they feel like the Federal Reserve creating money out of thin air is bad for the economy.  However, doesn't that money in a sense create many jobs, and ultimately filter back into the economy.  For example.  Let's think of a stupid government program like the war on drugs.  Okay, so in the war on drugs, even though it's a dumb program, it provides jobs for many people working to facilitate that failed program, those people in turn, take their paychecks and spend it on American goods and services, and in turn, those places of businesses pay their employee's, who then spend their money on American goods and services, and on and on.. creating more jobs and more economic stimulation. 

So is it possible that ultimately the money that the Federal Reserve puts into the economy may actually be stimulating the economy?
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virtuoso

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Re: Economic question for Jrome or anyone else who can answer....
« Reply #1 on: July 01, 2007, 05:57:07 AM »
Yes in theory the FIAT currency does work, that is to say that the paper currency does work, if the money supply is managed properly

There is nothing detrimental about the money inn circulation growing, if there is a similar increase in economic output. This is not an exact science and therefore the money supply will grow in accordance to expectations about the future performance of the economy.

However in the case of the U.S the money supply is being abused, what is basically happening, is the money supply is being doubled and then doubled again. This increases the disposable income in the economy but while the money in circulation has been growing real output i.e. the production of products has fallen courtesy of rampant outsourcing.

The flood of "money" into the economy has led to a massive devaluation in the currency, the currency is becoming debased (becoming worthless.


As the bubble exponentially grows, (borowing of secured loans, credit spending, over stretching on mortgages) the money supply has to keep growing in order to compensate for the value being lost per dollar. That is to say that if the dollar has lost 20% of it's value you would have to print 20% more dollars to compensate.

For the short term an increase in money supply can be a good thing if you know that real value is going to be added to the economy. However as the manufacturing sector shrinks, where is this value coming from?

While the money supply has been growing and growing, people have carelessly overspent because they perceive a feel good factor and tied themselves into massive debts.

At any point in the future, the FED could decide to cut the money supply before the currency becomes completely worthless. Should this happen the repercussions would be massive, with loans being called in, massive negative equity and an entire economy collapsing. Joseph Stiglitz has warned that if the economy is not managed properly there will be a depression.

While the FED issues money which it prints (most of it being just numbers, i.e. the fractional reserve) they have secured your into an agreement where you will forefeit tangible assets that do have real value, if you default on the payments.


Ron Paul never said he would pull the plug on the FED straight away because he recognises that would be devastating. Obviously it would be devastating because money needs to keep flowing. Instead he says he wants to phase it out, bringing about gold and silver as it's competition.
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TraceOneInfinite Flat Earther 96'

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Re: Economic question for Jrome or anyone else who can answer....
« Reply #2 on: July 02, 2007, 05:58:57 AM »
To be honest I didn't really understand what you were saying the way you explained it.  I kind of understood but it didn't really click in my mind or frame of reference.
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virtuoso

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Re: Economic question for Jrome or anyone else who can answer....
« Reply #3 on: July 02, 2007, 10:07:54 AM »

Take 2 then
 

jeromechickenbone

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Re: Economic question for Jrome or anyone else who can answer....
« Reply #4 on: July 18, 2007, 08:35:14 PM »
Sorry, been gone for a few weeks and just saw this.  My short answer to your question is no, it is not ultimately good for the economy.  With FIAT money (which is basically a currency with no backing like gold, simply put "monopoly money") it is defined strictly with it's purchasing power, which ties into the fundamentals of supply and demand, which is the cornerstone of Economics 101.  The more dollars that are in circulation, the less valuable they are - aka baseball card economics.  If it is easier to come by, it is less valuable. 

So yes, government farce's like the war on drugs, poverty, terrorism, illiteracy, etc. do create jobs.  But in creating these jobs, the government is pumping out BILLIONS of dollars every month to fund these types of programs.  By constantly printing this new fiat currency to fund these bureaucracies, they are diluting the real value of the dollar.  How does that affect us?  Well with that constant increase in the money supply, the dollar loses it's purchasing power. 

The real value of the dollar today compared to it's value at the time of the implementation of the federal reserve in 1913 is about 3 cents.  It's purchasing power has decreased 33x since we did away with the gold standard.  So while you might think you're cakin up, the purchasing power of your dollar is dwindling every year.  You're getting less bang for your buck.

All you see reported in the media today regarding our economy is the boom going on on Wall Street, the record highs and such.  They want you to think that our economy is fundamentally strong and sound.  People get distracted with the smoke and mirrors of these large dollar amounts that they don't even stop to think about how deeply the value of the dollar has deteriorated, and the fact that our country is in debt some 9 trillion dollars to China and Saudi Arabia.

 

virtuoso

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Re: Economic question for Jrome or anyone else who can answer....
« Reply #5 on: July 19, 2007, 10:53:26 AM »

Hey Jrome I agree with what you are saying but what you have to recognise is that the paper system is open to great abuse. I am simply saying that if it were managed properly there would not be a problem. However the sacrificing of manufacturing has meant that china could literally plunge America into third world status tomorrow, if it began dumping all it's treasury bonds.
You move from an extremely wealthy self sufficient nation, to one which becomes dependent and you are heading for disaster.