We are on the Verge of Economic Catastrophe

[Elixir]

It's not clear what system of money RVonse would prefer.

If you read between the lines it’s evident that he’s advocating for a formalized barter system where currency only fills the role of a promise, outside of which exchanges of goods and services hold to constant relative values. The model is a thing of beauty. So are MC Escher sketches. But the naïveté is charming.

 

[Jason Harvestdancer]

Of course the US economy is in bad shape. It has been in a worrisome condition ever since the 2001 recession was "fixed" with stimulus instead of being allowed to run its course. When you suppress the symptoms they come back stronger later, which happened in 2008. The economy since 2008 has been queasy, and the 2020 lockdowns were a disaster. Ending the lockdowns "created growth" according to some measures, but the stimulus during the lockdowns has made an inflation disaster that is only now easing.

Inflation disaster? It didn't even approach the 1970s. The global economy was jostled in the pandemic. Inflation began as a supply side issue, not stimulus problems. Stimulus would be on the down end. Stuff got more expensive because supply dropped and it rippled. Inflation we experienced was hardly a "disaster".

The current situation has been building since 2001.
The can got larger every time it got kicked down the road. We're running out of road to kick it down.

The current situation has been developing since 1981 with trickle down economics and the GOP embracing deficit spending to starve the beast. You say "kicking the can", this is the GOP's whole plan.

Interesting you mention 1981. It is also interesting that you mention "trickle down" as I've seen many people oppose it but none support it.

Now Carter and Reagan had a problem they had to deal with - stagflation. According to the standard economic model at the time you really couldn't have both at once, it was a trade-off. If the economy is too strong you get inflation, but if it is too weak you get unemployment. Stagflation upended the Keynesian paradigm for a while. Not for long though. That cancer never goes away.

During Carter and early Reagan, the federal reserve chairman was Paul Volker. He recognized that if inflation wasn't gotten under control it would create a huge problem, so he kept raising interest rates until he finally defeated the inflation of the time. That led to some hardship at the very beginning of Reagan's first term.

Anything that may be considered part of Reagan's lasting legacy wouldn't have been in 1981, he as facing other issues at the time.

 

[Jason Harvestdancer]

I don't see any of the resident trumpers criticizing this obvious cooking of the books.

I don't think there are any.

 

[RVonse]

It's not clear what system of money RVonse would prefer.

Fiat currency that was backed by gold and gold by itself wasn't perfect but it worked for hundreds of years. That kind of money was good enough for the central banks in the past and gold is still desired by the modern central banks today.

But if you don't like gold, than your fiat currency can be tied to some other commodity like oil, uranium, or group of commodities that will always have value. That way if someone like myself does not trust his government, that fiat currency can be redeemed for the real commodities of value. That would be honest money where no one gets screwed. Rather than making huge sums by financial manipulation and shorting dollars to buy real assets intelligent people would otherwise be motivated to earn a living by providing real goods and services.

Such an honest unit of exchange for society would help the middle class to flourish,. Lets say you earn the equivalent to a barrel of oil in currency today and put that currency in a retirement savings account with no interest. In 50 years when you retire, your currency will still purchase the barrel of oil in the future. It won't be like putting your money in a leaking bucket because of a corrupt government.

 

[bilby]

Fiat currency that was backed by gold

I presume you mean representative currency - eg notes that can be exchanged freely for the commodity they represent; Or perhaps fiduciary money, in which the notes can theoretically be traded for the commodity with a specified person or organisation, and whose value depends upon how trustworthy that person or organisation is thought to be.

Fiat currency is defined by the fact that it is not backed by a commodity, so "Fiat currency that was backed by gold" is a contradiction - a logical impossibility.

and gold by itself wasn't perfect but it worked for hundreds of years.

...until the industrial revolution turned a formerly static and agrarian economy with very low social mobility, into a rapidly changing urban economy with lots of opportunities for advancement, innovation, invention, and personal improvement.

If you pine for the good old days, when most people did the exact same job as their grandfather, in the same way, with the same tools; And when, for the vast majority, that meant back-breaking work in muddy fields, which barely made enough to keep most of their family alive, in a good year; With no light at night, no plumbing, no healthcare, and no say in how society should be ordered (unless you were one of a tiny number of nobles) - if that's the world you long to live in, then a gold-based currency will probably work fairly well for you, most of the time.

You can buy livestock or land or grain with gold; But you can't buy a flatscreen TV with gold, because it is impossible to have both a commodity money economy and a flatscreen TV producing economy in the same time and place.

The sort of civilisation that can use gold as money is not the same sort of civilisation thet can mass produce consumer electronics.

 

[RVonse]

Fiat currency that was backed by gold

I presume you mean representative currency - eg notes that can be exchanged freely for the commodity they represent; Or perhaps fiduciary money, in which the notes can theoretically be traded for the commodity with a specified person or organisation, and whose value depends upon how trustworthy that person or organisation is thought to be.

Fiat currency is defined by the fact that it is not backed by a commodity, so "Fiat currency that was backed by gold" is a contradiction - a logical impossibility.

and gold by itself wasn't perfect but it worked for hundreds of years.

...until the industrial revolution turned a formerly static and agrarian economy with very low social mobility, into a rapidly changing urban economy with lots of opportunities for advancement, innovation, invention, and personal improvement.

If you pine for the good old days, when most people did the exact same job as their grandfather, in the same way, with the same tools; And when, for the vast majority, that meant back-breaking work in muddy fields, which barely made enough to keep most of their family alive, in a good year; With no light at night, no plumbing, no healthcare, and no say in how society should be ordered (unless you were one of a tiny number of nobles) - if that's the world you long to live in, then a gold-based currency will probably work fairly well for you, most of the time.

You can buy livestock or land or grain with gold; But you can't buy a flatscreen TV with gold, because it is impossible to have both a commodity money economy and a flatscreen TV producing economy in the same time and place.

The sort of civilisation that can use gold as money is not the same sort of civilisation thet can mass produce consumer electronics.

I presume you mean representative currency
Exactly what the US had and was using before 1971 when Nixon took the dollar off the gold standard. The currency looked the same but it could be redeemed with gold if that is what you wanted to do.

You can buy livestock or land or grain with gold; But you can't buy a flatscreen TV with gold, because it is impossible to have both a commodity money economy and a flatscreen TV producing economy in the same time and place.
The US sent men to the moon in 1969. And we were using currency that was backed by real gold while making these advancements in science and technology.

 

[bilby]

The US sent men to the moon in 1969.

They didn't have any flatscreen TVs though.

 

[SLD]

The US is unlikely to drop into recession

With the job market softening and economists hammering on about the negative consequences of tariffs, some people expect the US economy to slow down and eventually drop into recession.

klementoninvesting.substack.com

Slowing growth and continued inflation, but not an outright recession. Trump of course has walked back a lot of his tariffs. But I think the real issue is a massive increase in the deficit caused by his tax policies. If the U.S. loses its credit rating that could threaten the dollar as the world’s reserve currency. The consequences would be catastrophic. Increases in inequality also caused by tax policies and cuts to various programs will have a longer term impact.

 

[Jimmy Higgins]

One thing I heard was that tariffs should inflate costs, but it'd be a singular increase, so the market could live with that. And the Fed, who is being berated by Trump every day would also handwave that concern as well. The other issue, however, is the TACO issue. The tariffs have a real impact on construction. Bidding construction right now is a very dangerous thing for contractors, as Trump has out of the blue announced a tariff on this metal or another metal and pricing that into the cost is very difficult. Then there is investment. Hard to plan out factories, power plants, etc... if the price of metals is being used a jousting weapon against foreign countries. Finally, tariffs also have a built in delay, where TACO Don keeps doing, undoing... so importers or exporters or retailers might temporarily eat the costs so as to not lose market share, but if the increase remains for long enough, they'll stop eating it, which likely means the increase in pricing due to tariffs will be in steps, so the inflation will take a bit to build in. .

 

[Elixir]

Then there is investment. Hard to plan out factories, power plants, etc...

No worries for Trump. He'll be long dead by the time those chickens are home to roost.
But the rest of the country will suffer for decades and Republicans will blame "the left" no matter what.

 

[Loren Pechtel]

I barely understand cryptocoins in general, let alone "stablecoins." (What is their PURPOSE, if any, anyway? Tax evasion?)

Not tax evasion at all. Wealth preservation.

I asked SPECIFICALLY about stablecoins. These are supposedly tied, for better or worse, to the U.S. dollar. $100 in "stablecoins are supposed to provide $100 in US Dollars when you cash out.

So tell me again what their "purpose" is.

Unblockable, anonymous transactions. What Bitcoin was supposedly for originally. Useful for purchasing stuff your government does not like. Say, mifepristone.

 

[Loren Pechtel]

Are you blaming "the fed"?

Yes. The fed prints (counterfeits) more dollars into circulation causing the existing dollars to be worth less (inflation).

A nation can not be a world class producer without an honest currency that does not continually inflate itself away. Producers and business need this stability to know for certain what their real costs and overhead is.

No. The ideal is 0% inflation, but this is unattainable as we do not have perfect control of the situation. And deflation is more harmful than inflation. Thus the real world ideal is to aim for a point as low as possible but where the variations won't touch the zero point.

This is harmful to those who put their money under the mattress but it is not harmful at the level of society. Every country is subject to the same forces--note how despite inflation the exchange rate between currencies remains similar? Only when a country messes up do you see big changes in the exchange rate.

And you are also aiming for an impossible in knowing what their costs are--because they are subject to supply fluctuations. While I work with code my code works in a production environment where things like supplier A has the best price, but sometimes they don't have any and we need to pay more from supplier B. And since most of those products are wood they are subject to various events that disrupt supply.

 

[Loren Pechtel]

By way of comparison, Japan's annual CPI inflation exceeded 20% throughout the mid 1970s while U.S. inflation barely exceeded 11% during this time.

And note that despite that when I was there in 1975 the quick conversion was 300Y to the $. (Not exact, but that's how we scaled prices.) When I was there this century the quick conversion was 100Y to the $. Despite bad inflation they did enough other things right that they gained 3x on us.

 

[Loren Pechtel]

Yes, the bank will know whom I paid and the government can send in jack-booted storm troopers to force the bank to divulge my Coke™ purchase. But what is the (non-criminal) reason I should prefer to spend stable-coin?

1) Not all illegal purchases are immoral.

2) Look at what's happened recently with Steam. They delisted a bunch of games because their payment processor demanded it. Purely moralizing as Steam purchases do not carry the usual extra risk of adult transactions.

 

[Loren Pechtel]

If you are wanting to be technical then inflation starts with the fed and gets implemented by the banks. And if this is your idea of 2% inflation I do not want any part of it:

The Purchasing Power of the Dollar -What is $100 worth in 1913 over time?​

1913: $100
1923: $57.89
1933: $76.15
1943: $57.23
1953: $37.08
1963: $32.35
1973: $22.30
1983: $9.94
1993: $6.85
2003: $5.38
2013: $4.25
2019: $3.87

And if I have a dollar today why do I even want to worry about earning more than 2% interest just to stay even? I would rather put it in the bank and have it be worth more tomorrow with deflation (despite all the nay saying you will give us here). Or better and simpler yet. Just put a dollar in the bank so I have exactly a dollar to spend when I become too old to work. Is a stable currency too much to ask for from a government who wants to help everyone else on the planet except for the middle class?

*It should be noted that we got the horrible creation of the fed in 1913.

Note that much of that deflation was in the early part of the Fed.

And putting the dollar in the bank isn't a good idea. The bank is going to take that money and loan it out, but much of what they make in the process goes to the cost of running the bank, you make little.

Take that money and do something like buy a market index fund. Do that with the first $ you earn and by the time you retire you should expect to have close to $4 after considering inflation.

 

[Loren Pechtel]

If the point is to spend the money there should be better ways to do that then to devalue our currency.

That does however beg another question why a country devoid of manufacturing even should want to spend money to improve the economy. Because the money spent goes to whoever produced the product.

And now days that ain't America.

We aren't devoid of manufacturing. For nearly 40 years now I have worked for companies manufacturing the US.

And note that much of what we make these days is digital, not manufacturing. No factory workers, just people on screens and some guys to put the data centers together.

 

[Loren Pechtel]

I have no problem what so ever reading from AI but in this case the data simply regurgitates what the prevailing economists (of our day) have said. Besides disagreeing with prevailing economists of our day we know they can not be right or we would have full employment and no inflation. With the proper argument I would be willing to admit they might be "righter" than I am. However the 2% inflation (really a tax to us all) is not without a real and substantial cost to middle class Americans who are already overtaxed.

If you disagree with the prevailing economists who do you agree with and why are they more qualified. You should always take it as a given that you aren't the smartest, if nobody else holds a position you're wrong.

And here you clearly do not understand prevailing economic thought so you have no business disagreeing with it. You say if they were right we would have full employment and zero inflation--we would in a static world. The real world is dynamic, nothing is 100% stable or 100% predictable. A job does not miraculously appear when someone graduates and miraculously disappear when someone dies/retires. And changing technology makes things even more unpredictable.

I also take immediate issue to a couple of the ridiculous arguments that always come out of this:

• Delayed Spending (The Paradox of Thrift): Why buy a TV today if it will be cheaper next month? Consumers delay purchases, hoping for better deals. This collapse in demand forces businesses to cut prices further, lay off workers, and reduce investment, which further reduces demand—a vicious cycle

A ridiculous argument that can not be true. Because if it were true we would not have flat screen tv's and computer hardware costing almost nothing. Nobody would ever have replaced their tube television because they knew prices were coming down even more. Why do Apple customers wait in line to buy another smart phone when they know good and well waiting will save them money? Same with the Tesla customers when they first came out. Lower prices in the future (deflation) is a GOOD thing for the middle class.

And once again you fail to understand. This is the flip side of you wanting to put a $ in the bank and have a $ at retirement. The reality is something now has more value than something in the future. Reality shows that we discount the future at about 3%/year--we will only postpone the purchase if we expect next year's version to be more than 3% cheaper than this year's version, and even that assumes no secondary effects. I hike solo--something I would not consider doing without my emergency gear. When my beacon hit it's expiration date the choices were between sending it off for refurbishment or buying the newer version, expired safety gear is simply not an option.

• Real Wage Rigidity: It's very difficult to cut nominal wages (the actual dollar amount on a paycheck). Workers resist pay cuts. In a deflationary environment, if prices fall by 3% and wages stay the same, real wages (wages adjusted for purchasing power) actually rise by 3%. This sounds good for workers, but it's terrible for employers. Their labor costs become unsustainably high, forcing them to lay people off instead.

Does anyone really feel sorry that Bezo's might have to pay more if prices should fall faster than wages? I for one don't. So why do people like Swammerdani enjoy worshiping the oligarchs while spitting on the middle class?

The real problem is that in a deflationary environment people delay investing. We aren't worshiping the oligarchs, we are recognizing that we are the ones that get laid off when that happens.

2. It Gives Central Banks More Room to Maneuver​

I say fuck the banks! The taxpayers bailed them out 100% back in 2008 so they could give themselves more bonuses! Its time to give the middle class more "room to maneuver".

Again, you're not seeing the picture as a whole. In the long run no competitive industry makes unreasonable profit--any who do so will end up undercut by competition. And what really happened in 2008 is that the government had put it's thumb on the mortgage market in the effort to encourage home ownership--pretending shit was high quality. 2008 wouldn't have happened if the government hadn't done that.

3. It Greases the Wheels of the Labor Market​

This relates to the issue of wage rigidity mentioned above.

• In a dynamic economy, some sectors grow while others shrink. Wages need to adjust between these sectors.
• It's much easier for a company to give workers in a shrinking sector a 2% raise (a real wage cut when inflation is 3%) than it is to cut their nominal wages by 1%. The former feels like a reward (even if a small one), while the latter is demoralizing and often leads to higher turnover and conflict.
• Low, predictable inflation allows for this subtle adjustment of real wages across the economy without the painful and politically difficult process of cutting nominal wages.

No. Predictable 2% inflation will be paid for and by middle class Americans to help out the oligarchs and the bankers. Full stop. Most people are too busy working to notice how much 2%inflation fucks them over by the end of their useful work life. After a lifetime of toil they have no quality savings to retire on because our government (controlled by oligarchs) decided it needed to be inflated away.

And again you don't understand. Predictable, low inflation costs us almost nothing because it's already priced into everything. I'm not fucked over by that 2% because all our long term stuff is in the stock market. And note that this is a good thing for people--the economy works better when that money is doing something useful than when it's sitting around.

4. It Helps Relative Price Adjustments​

Not all prices change at the same rate. Some goods and services become more expensive, while others become cheaper.

• Inflation makes these necessary relative price changes smoother. A company might be able to hold its price steady for a year, which is effectively a price cut relative to the inflation rate, without having to officially lower its price and signal weakness.
• In a zero-inflation environment, any price change for a specific good is a real price change. This can make markets more rigid and less efficient.

You mean business has to compete or die without an extraneous advantage? That is called capitalism. We can survive and flourish even better without crony capitalism!

Again, you are looking at business as if it's somehow isolated from the consumer world. It's all interconnected, you can't pull one thread in the spiderweb and leave the rest of it alone.

 

[Loren Pechtel]

I reject that a stable currency can not be maintained without stunting technology. We know this because from the 1870's to 1900 the US had an extremely non inflationary currency while at the same time having a high degree of technical progress.

The world was on the gold standard and most economic activity world wide was either labor intensive agriculture or manufacturing at that time - much different now. The gold standard “genie” is out of the bottle and won’t grant your wish no matter how hard you rub it.

Moreover, the period you cite had more deflation than inflation, including a couple of 5%+ deflationary years. Deflation hits debtors hard.

And look what happened to Spain with the influx of gold from the New World.

What's important is the ratio of money to goods. While we can't just print gold (even with the atom smashers--there's no simple process that produces stable gold. I believe that leaves only neutron bombardment and that produces a seething mess of radioactivity) we can find gold. And big gold strikes are horribly inflationary in whatever is "local" (based on transport) to them. There is reason to think there's a layer of solid gold deep under the Caloris basin. We do not yet have the technology to even find out, let alone mine it, but when we do...

 

[Loren Pechtel]

I have no problem what so ever reading from AI but in this case the data simply regurgitates what the prevailing economists (of our day) have said.

AI only ever regurgitates stuff other people have said. It's a search engine pretending to be clever - no different from some clueless nerd using google in his mom's basement, other than in its ability to use grammar correctly and make fewer spelling errors.

It looks up a huge body of text, and spits back what it finds, with ZERO consideration for the accuracy thereof.

As such it is worse than useless as a source; If you know enough to know when it gets things wrong, it is valueless; If you don't, it is dangerous.

Google's AI I actually find somewhat useful. It shows me a likely answer which lets me do a better job of selecting what links to examine to verify or reject what it proposed.

 

[RVonse]

I'm not fucked over by that 2% because all our long term stuff is in the stock market. And note that this is a good thing for people--the economy works better when that money is doing something useful than when it's sitting around.

​

You will not say this if you end up unlucky enough to retire at the wrong time! The poor suckers who cashed their long term life saving stocks to retire during these periods got fucked heavily:

The Great Depression (1929–1932)
The Early 1970s (1973–1974)
The Great Recession (2008–2009)
The Lost Decade (2000–2013)
COVID-19 Pandemic (2020)

While I agree that the stock market is a great place for long term growth it has proven to have serious downturns antithetical to cashing out for retirement.

The average wage earner should not have to be a professional stock trader or gambler just to make sure his family is covered for retirement after he becomes too old to work.