Global Bailouts

[a-train]

What would you have done, if it had been your decision? Would you have advocated the various bailouts/buyouts that are going on in the U.S. and around the world with the economic crisis? Would you have followed suit with what IS going on? Would you have done nothing? Would you have done something else? Do you think that what has been done is making things better? What do you think the long-term effect will be?

-a-train

Edited October 21, 2008 by a-train

[FunkyTown]

I strongly believe the buy-outs were a mistake, which is probably in line with what you believe.

Basically, the US government is taking the risk on -themselves- for the next few years in the hope that the economy bounces back. If there's another crushing blow to the banking system, the house of cards falls apart and massive inflation hits the US.

People who had saved their whole life will suddenly find their savings less than worthless, the ability to purchase basic necessities of life will fail. That's a worst case scenario, but since that's pretty bad, I think they need to recognize that a bad recession is not as bad as a mind blowingly bad bankruptcy.

Thankfully, here in Canada banking regulations prevented getting involved in the sub-prime mortgage scandal, so our banks are doing pretty good. But I do empathize and feel badly for my american brethren.

[JohnBirchSociety]

What would you have done, if it had been your decision? Would you have advocated the various bailouts/buyouts that are going on in the U.S. and around the world with the economic crisis? Would you have followed suit with what IS going on? Would you have nothing? Would you have done something else? Do you think that what has been done is making things better? What do you think the long-term effect will be?

-a-train

I would not have done the bail-outs.

At the same time I would work towards are reasonably timely return to the real money standard of the Constitution. The Gold / Silver Standard. I would also in a reasonably timely manner, return a free market environment.

[a-train]

Thankfully, here in Canada banking regulations prevented getting involved in the sub-prime mortgage scandal, so our banks are doing pretty good. But I do empathize and feel badly for my american brethren.

Do you think that if things really get bad, Canada will be just as effected as the U.S.? Will it be in better shape than the U.K. or other nations doing bailouts? Do you think that if troubles spill into the Canadian economy that you will see the same bailout galore strategy?

-a-train

[FunkyTown]

Do you think that if things really get bad, Canada will be just as effected as the U.S.? Will it be in better shape than the U.K. or other nations doing bailouts? Do you think that if troubles spill into the Canadian economy that you will see the same bailout galore strategy?

-a-train

Though Canada does have socialist tendencies, I doubt that the economy breakdown will hit us as bad for several reasons:

1) We're an export economy: Power, steel, grain. Canada produces far more than it's 35000000 population consumes. In fact, China loves buying electricity from us.

2) 20 years ago, when the US had a cold, Canada got pneumonia. We were so tied to the wealth of the US that every economic recession hit us bad. This is not the case now. In this global recession, we're suffering far less because we have achieved a global economy and tend to trade with multiple partners. We also, unlike Iceland, are not an economy based upon investment banking. In a global recession, we would suffer loss of jobs in the manufacturing sector(Which we have for a long time, to the point it has dwindled greatly), but little other effects would be felt. Unless other countries decided they didn't need food, electricity or steel, I don't see our economy being greatly affected.

3) Our banking system is heavily regulated and relies far more on the traditional model of lending funds to make money, rather than gathering capital and investing it. It means our banks tend to have fewer dizzying highs or lows. In order for this to affect us, the global recession would have to be long enough and desperate enough that countries simply didn't purchase external foodstuffs or developmental necessities like steel, nickel or the like.

Don't get me wrong - Since the US is a major trading partner, a US recession would hurt us. It just would force us to diversify our trading partners.

[deseretgov]

I think the bailouts were a horrible idea. But the CEOs of those banks don't, Hint hint, wink wink, money money. I think we should get rid of the Federal Reserve and return to Abraham Lincoln's early, and unfortunately temporary, greenback policy.

[Elgama]

I honestly don't know if it is right or wrong - I do know the most secure place to have your savings right now is in Northern Rock which was nationalised months ago, I could have done with one of the bailout banks going lol might have lost my loan in the crisis. I think it was right for Gordon Brown to do as he is a socialist and we have a society that has dealt with nationalised savings etc before - for the US I think it was a bad decision - your economy is not used to having things nationalised. Plus upto £35,000 here your savings were guarenteed by the banking group, before the crisis stared to hit, if you make sure your savings after that are in different banking groups your savings are as secure as they can be except for under the bed

-Charley

[a-train]

Gordon Brown = Satan

[Elgama]

Gordon Brown = Satan

lol na that was Tony Blair - the SNP even did a poster of him as such got slap on the wrist had to withdraw em but enduring image (scarilly think it was my idea I had suggesed it to our local MP that Tony Blair's grin was Satanic)

Gordon Brown is merely Faust he made a pact with the devil now he is suffering for it.

I won't be mean and give the British view of your present incumbent:D

-Charley

[a-train]

lol na that was Tony Blair - the SNP even did a poster of him as such got slap on the wrist had to withdraw em but enduring image (scarilly think it was my idea I had suggesed it to our local MP that Tony Blair's grin was Satanic)

Gordon Brown is merely Faust he made a pact with the devil now he is suffering for it.

I won't be mean and give the British view of your present incumbent:D

-Charley

The British view of Mr. Bush would probably have the countenance of a complement when standing in the shadow of my scrutiny.

Are you at all concerned by the seeming international competition between the politicians on both sides of the pond for the gold medal in coalescence of global governance? If I am keeping score, Mr Brown is currently in the lead, not that Mr. Bush isn't trying, he is just inept. However, George is getting some good points for his internationalist agenda of bank bailouts.

-a-train

Edited October 21, 2008 by a-train

[Elgama]

The British view of Mr. Bush would probably have the countenance of a complement when standing in the shadow of my scrutiny.

Are you at all concerned by the seeming international competition between the politicians on both sides of the pond for the gold medal in coalescence of global governance? If I am keeping score, Mr Brown is currently in the lead, not that Mr. Bush isn't trying, he is just inept. However, George is getting some good points for his internationalist agenda of bank bailouts.

-a-train

you know what I used to follow the news and politics very closely as a teenager, tbh when Tony Blair took over from John Major he started removing the accountability of parliament, and the politicians became more like stepford wives - prior to that we had strong characters that could be admired, liked, disliked, hated, everybody has since shifted to centre ground and its dull, dull, dull - whatever else I think of him Bush is at least a character. I hate the shift towards identity cards, the removal of rights under the terrorism act it was wrong in Northern Ireland and its wrong now, I hate the way school curriculums have been tighetened and its been more difficult to study at university - in a lot of ways our society has been freer than the US until Blair took over - that concerns me more than anything. I thank God we still have our safeguard in the Queen although she is a figurehead she has an awful lot of power enshrined in law, something about the Royal Family makes me feel safe right now I have strong feeling we will be glad of them over next few decades - Blair got rid of our second house and placed it in a position to be well and truly rigged.

These days I am more relaxed watch news couple of times a week etc - and no I just know its in the Lord's hands I think its gone beyond anything I can do except maybe in Scotland our parliament is doing a pretty good job, he prepared for the credit crunch and coming recession by creating extra public works etc which have sured up some jobs. (but then the SNP are quite left wing lol) Plus it has the potential to be good for us, we could never have afforded to buy a house and certainly nothing we wanted, my husbands job whilst not fireproof is more fire resistant than most right now - we are one of the few families in our branch not having to tighten our belts too much (mind you years of being poorer than everyone else has taught me how to keep food bills down etc) yet. Ultimately this could place us in a better position than we have ever been in, which is a horrible thing to feel really but we needed this crash. We had our 7 years of lean when everyone else was with plenty and have had a strong feeling for weeks and hope its a prompting that actually this is start of our 7 years of plenty. Quite frankly because my debt isn't huge and past experiences say that best thing to happen to me is for my banks to go under. Richard's firm has a sizeable war chest and isn't relying too heavily on their banks right now.

-Charley

[rameumptom]

I am uncertain concerning the bailouts. I'm not sure how far the DOW would have collapsed without them, or if they'll help at all in the long run.

The big problem is our nation/world are focused on the short term profits and greed, and not in saving for the long run. When we incredibly change credit/expense into a profit/income source, then we are really getting away from what I learned in my accounting classes.

Until we retrain Wall Street and Pennsylvania Avenue and Main Street how to use credit properly, and to reject materialism, will we get things under control. Moving to a gold/silver standard cannot save us from this, as we were on the gold/silver standard in 1929, when similar problems occurred due to extreme risks taken with lending.

Making money from nothing and pumping it into the economy is a short term solution, but key changes must occur in our nation for long term solutions to happen for our economy. I haven't seen them happen yet. Sending Americans another stimulus check won't do it. They'll spend it, giving the economy a short bump, but then we're back to people being engulfed in debt still, unable to spend anymore.

[HiJolly]

I think the bailouts were a horrible idea. But the CEOs of those banks don't, Hint hint, wink wink, money money. I think we should get rid of the Federal Reserve and return to Abraham Lincoln's early, and unfortunately temporary, greenback policy.

That is factually incorrect, deseretgov. Dick Kovacevich protested and did in fact think it was a "horrible idea". At Moment of Truth, U.S. Forced Big Bankers to Blink - WSJ.com

HiJolly

[JohnBirchSociety]

I am uncertain concerning the bailouts. I'm not sure how far the DOW would have collapsed without them, or if they'll help at all in the long run.

The big problem is our nation/world are focused on the short term profits and greed, and not in saving for the long run. When we incredibly change credit/expense into a profit/income source, then we are really getting away from what I learned in my accounting classes.

Until we retrain Wall Street and Pennsylvania Avenue and Main Street how to use credit properly, and to reject materialism, will we get things under control. Moving to a gold/silver standard cannot save us from this, as we were on the gold/silver standard in 1929, when similar problems occurred due to extreme risks taken with lending.

Making money from nothing and pumping it into the economy is a short term solution, but key changes must occur in our nation for long term solutions to happen for our economy. I haven't seen them happen yet. Sending Americans another stimulus check won't do it. They'll spend it, giving the economy a short bump, but then we're back to people being engulfed in debt still, unable to spend anymore.

Moving back to the Constitutional mandate for real money is the only thing that will save us from our current economic mess.

No, we were not on the Gold Standard of the Constitution in 1929.

[rameumptom]

Yes, we were on the Gold Standard in 1929. During the 1800s, we were on a bimetallism standard (Gold and Silver). We moved to a pure gold standard in 1900 and stayed on it until 1933. Here's the data here.

During most of the 1800s the United States was had a bimetallic system of money, however it was essentially on a gold standard as very little silver was traded. A true gold standard came to fruition in 1900 with the passage of the Gold Standard Act. The gold standard effectively came to an end in 1933 when President Franklin D. Roosevelt outlawed private gold ownership (except for the purposes of jewelery). The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce. "The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed". The gold standard has not been used in any major economy since that time.

Oh, and moving back to a gold standard will NOT end the problems we have, as the value of gold could be changed on a weekly basis by Congress to print more money. The only difference between today's fiat money and the gold standard that today's Congress would probably employ, is that of how much value gold is given from one week to the next. You devalue the gold, and you can print more money, which is what they are doing now without the gold component in fiat money.

Edited October 21, 2008 by rameumptom

[rameumptom]

From this website: Why Not the Gold Standard?, we see the reason why we abandoned the gold standard. As we entered into global trade, deficit spending threatened the weaker economy holding onto the gold standard.

Why Not the Gold Standard?

Talking Points on the Likely Consequences of Re-Establishment of a Gold Standard:

Brad DeLong

U.C. Berkeley

--------------------------------------------------------------------------------

Consequences for the Magnitude of Business Cycles:

Loss of control over economic policy. If the U.S. and a substantial number of other industrial economies adopted a gold standard, the U.S. would lose the ability to tune its economic policies to fit domestic conditions.

For example, in the spring of 1995 the dollar weakened against the yen. Under a gold standard, such a decline in the dollar would not have been allowed: instead the Federal Reserve would have raised interest rates considerably in order to keep the value of the dollar fixed at its gold parity, and a recession would probably have followed.

Recessionary bias. Under a gold standard, the burden of adjustment is always placed on the "weak currency" country.

Countries seeing downward market pressure on the values of their currencies are forced to contract their economies and raise unemployment.

The gold standard imposes no equivalent adjustment burden on countries seeing upward market pressure on currency values.

Hence a deflationary bias which makes it likely that a gold standard regime will see a higher average unemployment rate than an alternative managed regime.

The gold standard and the Great Depression. The current judgment of economic historians (see, for example, Barry J. Eichengreen, Golden Fetters) is that attachment to the gold standard played a major part in keeping governments from fighting the Great Depression, and was a major factor turning the recession of 1929-1931 into the Great Depression of 1931-1941.

Countries that were not on the gold standard in 1929--or that quickly abandoned the gold standard--by and large escaped the Great Depression

Countries that abandoned the gold standard in 1930 and 1931 suffered from the Great Depression, but escaped its worst ravages.

Countries that held to the gold standard through 1933 (like the United States) or 1936 (like France) suffered the worst from the Great Depression

Commitment to the gold standard prevented Federal Reserve action to expand the money supply in 1930 and 1931--and forced President Hoover into destructive attempts at budget-balancing in order to avoid a gold standard-generated run on the dollar.

Commitment to the gold standard left countries vulnerable to "runs" on their currencies--Mexico in January of 1995 writ very, very large. Such a run, and even the fear that there might be a future run, boosted unemployment and amplified business cycles during the gold standard era.

The standard interpretation of the Depression, dating back to Milton Friedman and Anna Schwartz's Monetary History of the United States, is that the Federal Reserve could have but for some mysterious reason did not boost the money supply to cure the Depression; but Friedman and Schwartz do not stress the role played by the gold standard in tieing the Federal Reserve's hands--the "golden fetters" of Eichengreen.

Friedman was and is aware of the role played by the gold standard--hence his long time advocacy of floating exchange rates, the antithesis of the gold standard.

--------------------------------------------------------------------------------

Consequences for the Long-Run Average Rate of Inflation:

Average inflation determined by gold mining. Under a gold standard, the long-run trajectory of the price level is determined by the pace at which gold is mined in South Africa and Russia.

For example, the discovery and exploitation of large gold reserves near present-day Johannesburg at the end of the nineteenth century was responsible for a four percentage point per year shift in the worldwide rate of inflation--from a deflation of roughly two percent per year before 1896 to an inflation of roughly two percent per year after 1896.

In the election of 1896, William Jennings Bryan's Democrats called for free coinage of silver as a way to end the then-current deflation and stop the transfer of wealth away from indebted farmers. The concurrent gold discoveries in South Africa changed the rate of drift of the price level, and accomplished more than the writers of the Democratic platform could have dreamed, without any change in the U.S. coinage.

Thus any political factors that interrupted the pace of gold mining would have major effects on the long-run trend of the price level--send us into an era of slow deflation, with high unemployment. Conversely, significant advances in gold mining technology could provide a significant boost to the average rate of inflation over decades.

Under the gold standard, the average rate of inflation or deflation over decades ceases to be under the control of the government or the central bank, and becomes the result of the balance between growing world production and the pace of gold mining.

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Why Do Some Still Advocate a Gold Standard?

A belief that governments and central banks should not control the average rate of inflation over decades, and that the world will be better off if the long-run drift of the price level is determined "automatically."

A belief that bondholders and investors will be reassured by a government committed to a gold standard, will be confident that inflation rates will be low, and so will bid down nominal interest rates.

Of course, if you do not trust a central bank to keep inflation low, why should you trust it to remain on the gold standard for generations? This large hole in the supposed case for a gold standard is not addressed.

Failure to recognize the role played by the gold standard in amplifying and propagating the Great Depression.

Failure to recognize that the international monetary system functions best when the burden-of-adjustment is spread between balance-of-payments "surplus" and "deficit" countries, rather than being loaded exclusively onto "deficit" countries.

Failure to recognize how gold convertibility increases the likelihood of a run on the currency, and thus amplifies recessions.

IOW, we can either stay off the gold standard and try to use economic theory to manage our growth, or we can leave it on the gold standard and leave it in the hands of chance whether we have economic strength or problems. Gold as a standard has no more value than any other standard, including the confidence of the American people in themselves. Given that gold could potentially become so valuable or worthless that Americans and others suffer from either extreme, shows this to be true. A decade ago, gold was about $200 an ounce. Then in the last few years shot up to over $1000 an ounce. Had we been tied to it, our rate of inflation would have been extreme over the last few years, and destroyed our economic capacity, in the same way that the banking industry has wiped out our capacity by speculating on housing prices.

[JohnBirchSociety]

Yes, we were on the Gold Standard in 1929. During the 1800s, we were on a bimetallism standard (Gold and Silver). We moved to a pure gold standard in 1900 and stayed on it until 1933. Here's the data here.

Oh, and moving back to a gold standard will NOT end the problems we have, as the value of gold could be changed on a weekly basis by Congress to print more money. The only difference between today's fiat money and the gold standard that today's Congress would probably employ, is that of how much value gold is given from one week to the next. You devalue the gold, and you can print more money, which is what they are doing now without the gold component in fiat money.

We were not on a Constitutionally mandated Gold Standard in 1929. We were in a mixed Fiat / Federal Reserve / Gold Standard. There is a big difference. The main difference is the manipulation(s) that occurred by the FED prior to 1929 that set-up the circumstances of the Great Depression.

You can't print GOLD...lol...

Furthermore, there is no such thing as Fiat Money. You're speaking of Fiat Currency.

Yes, Congress could change the weight of Gold / Silver to the unit of measurement called a dollar on a weekly basis. However, historically this was far from the case. In fact, I can't think of anything Congress does / has done on a week-to-week basis on any issue.

By Gold / Silver standard I mean that which is Constitutionally mandated, and set-up by Congress by the Coinage Act of April, 1792. By this means the weight of Gold / Silver in each dollar is mandated by act of Congress (its' proper constitutional function in the matter).

Obviously we could not return to such a system in an immediate fashion. We'd have to do it in a very determined, reasonable way. It would probably take 10-15 years to fully extricate ourselves from the debacle of the Federal Reserve System.

However, since GOD said that the Constitution is the way to go and that anything more or less than it "cometh of evil", I'll stick with GOD and the Gold / Silver Standard in the Constitution any day of the week.

[rameumptom]

For those who do not like data from Berkeley, here's from an unbiased source:

The total amount of gold that has ever been mined has been estimated at around 142,000 tons.[7] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $7.6 trillion is in circulation or in deposit (although international banking currently practices fractional reserves).[8] Therefore, a return to the gold standard would result in a significant increase in the current value of gold, which may limit its use in current applications.[9] For example, instead of using the ratio of $1,000 per ounce, the ratio can be defined as $2,000 per ounce (or $1,000 per 1/2 ounce) effectively raising the value of gold to $8 trillion. Gold standard advocates consider this to be an acceptable and necessary risk. [10]

Fluctuations in the amount of gold that is mined could cause inflation, if there is an increase, or deflation if there is a decrease.[11][12] Some hold the view that this contributed to the Great Depression.[13][9]

It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, giving central banks fewer options to respond to economic crises.[14]

Some have contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak. For example, some believe the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency.[13]

If a country wanted to devalue their currency, it would produce sharper changes than the smooth declines seen in fiat currencies

[rameumptom]

I consider the Constitution this way: in the days of Joseph Smith, the command of God to honor it was valid. Today, there may be the chance that something better may be available. For instance, I'd take Zion over a Constitutional Republic any day of the week. And they are not completely compatible without changes to the Constitution.

[rameumptom]

JBS, I'm giving data and details. You are welcome to your opinions, but for me they are just opinions.

We left the "Constitutionally" mandated form of gold standard because it DID NOT WORK. It caused inflationary/deflationary periods. It impoverished farmers, who continually sought to extend out to the silver standard. What good is a standard, if it makes it that there is no money available and impoverishes people? Joseph Smith told of the days when to support his family, he had to resort to chopping wood for neighbors in exchange for food. Why? Because the gold standard was keeping the economy from expanding enough so that people could have currency to spend, and currency to hire others.

Nixon finally removed us from the gold standard completely, because of the Vietnam War's expense, and also because there were millions more of Americans living in 1971 than there were in 1900, but little more gold.

Who can afford $2000/ounce for gold, just to put it at our current USA pace? Of course, that is if we consider backing it up on ALL the gold ever mined in the world, which the USA does not have full possession of! It would more likely have to be placed at $3-4,000 an ounce. Suddenly, the value of our nation gets popped with hyper-inflation. Yeah, that's almost as stupid a thing to do to us right now as allowing Wall Street to use borrowed money as capital.

[JohnBirchSociety]

From this website: Why Not the Gold Standard?, we see the reason why we abandoned the gold standard. As we entered into global trade, deficit spending threatened the weaker economy holding onto the gold standard.

IOW, we can either stay off the gold standard and try to use economic theory to manage our growth, or we can leave it on the gold standard and leave it in the hands of chance whether we have economic strength or problems. Gold as a standard has no more value than any other standard, including the confidence of the American people in themselves. Given that gold could potentially become so valuable or worthless that Americans and others suffer from either extreme, shows this to be true. A decade ago, gold was about $200 an ounce. Then in the last few years shot up to over $1000 an ounce. Had we been tied to it, our rate of inflation would have been extreme over the last few years, and destroyed our economic capacity, in the same way that the banking industry has wiped out our capacity by speculating on housing prices.

This is so fundamentally flawed, I'll have a hard time sorting it out.

Let me start at the end. Comparing the "value" of Gold versus Fiat Paper Currency is absurd. And, it is constitutionally inappropriate. Congress determines how much Gold is in a dollar. "Dollar" is a unit of measurement.

Fiat Currency inflates over time (always). Federal Reserve Notes have inflated over time (and they always will, it is their nature). Thus, saying the value of Gold inflated based upon FRN's is false. Actually the value of the FRN's decreases over time (it always will) causing more FRN's to be needed to purchase Gold.

On the Gold standard, this is not the case. The Gold is the Dollar (with some other metals to make the coinage more durable). It is a constant that rarely changes over time.

Also, the person you quote interjects that the Gold Standard and the Federal Reserve System co-exist. This is not possible in a Constitutional sense.

Hope I'm clear enough.

[a-train]

Moving to a gold/silver standard cannot save us from this, as we were on the gold/silver standard in 1929, when similar problems occurred due to extreme risks taken with lending.

The gold standard will not prevent speculation and the debt cycle. However, it will offer a good buffer to those not speculating. With this current plan, there will be a permanent loss in the purchasing power of everyday Americans who did nothing but honestly work and save throughout the rise and fall of the bubble. On a gold standard, this would not be the case. There would have been no way to do the bail-out, there would not be the same inflationary reaction from the FED. Wall street and banking losers would lose big and average Joe Americans would go on.

During the Great Depression we were on the Gold Standard, however prices were still propped up and "money" was still created through fractional reserve banking. That was actually one of the main contributors to the crisis. If everyone in 1929 ran into the banks to get their gold there would not have been enough. Wait, that is what happened...

-a-train