Why can't the US live within their means?

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And I propose that it has worked more than once (say, the Swiss franc), while the gold standard has failed more than once. Gold is just another commodity, and like all commodities, its value is determined by supply and demand; its value is not magically fixed and can go up as well as down. If its value shifts because of fluctuations in supply and demand you can easily end up with a disastrous situation that governments cannot control short of abandoning the gold standard altogether; you can end up in a deflationary spiral crucifying debtors on a cross of gold. Sure, if the state collapses altogether paper money becomes worthless, but if we're talking about hypothetical situations, gold is worthless on a desert island; maybe one should use the potato standard instead.

I've long thought that a electronics grade silicon would make a better standard than gold. There is a lot more of it, its critical to society and will be useful for a long time.

It has just occurred to me that we need a new standard for money. I propose two commodity standards:

1. Oil and
2. Gold

Now what shall we call units of currency in the Oil and Gold standards? Since most Oil comes from the emirates and sheikdoms I propose called the Oil standard unit The Sheik. Since Gold is measured in troy ounces I propose that we call the Gold standard unit The Trojan. And as we look at our wallets stuffed full of Trojans and Sheiks, we know exactly what the bankers and Emirs are doing to us.

ruveyn

I propose not having a currency based system at all. Why can't we have a system.. where machines do all the work. We do infact have the resources to house every American in this country, feed the entire planet, and live like how we where suppose to. The ability to have a heaven on Earth can happen.. but won't because of the evils that prevent such things. We're born into economic slavery and it's the primitive age we're witnessing. The Clandestine Empire. This idea comes from The Venus Project, by Jacque Fresco.

According to Fresco, poverty, crime, corruption and war are the result of scarcity created by the present world's profit-based economic system. According to the Project, the profit motive also stifles the progress of socially beneficial technology. The progression of technology, if it were carried on independent of its profitability, Fresco theorizes, would make more resources available to more people by producing an abundance of products and materials. This new-found abundance of resources would reduce the human tendency toward independence, corruption, and greed, and instead rely on people helping each other.

It is now possible to achieve a society in which people would live longer, healthier, and more meaningful lives. Fresco believes the monetary system and the processes associated with it, such as labour and competition, damages society and holds people back from their true potentials.

That is indeed possible, but the problem is the people who could make it come to pass don't want the unwashed masses to enjoy such a life. They want a world of slaves with power allocated to the hands of a few.

If the masses revolted, I doubt they would be visionary enough to embrace such a society. Most revolutions result in a new set of despots taking power, not an enlightened age.

What planet do you two live on?! The world isn't a fair place. The sooner you understand this the better off you'll be.

This is your fundamental error. Monetary policy rqeuires that currency be backed by the economy that it facilitates. The US dollar is backed by the entire US economy. The fact that an entire economy is not a tangible good does not mean that it is not real.

Furthermore, retail banks issuing debt is not creating money out of thin air--it is creating wealth out of the creditworthiness of the borrower. This is an investment on the part of the bank, that has a real, quantifiable risk/return profile. The danger point comes when economic growth is created by debt, rather than by capital. That creates the potential tipping point that we observed with the subprime mortgage crisis. That does not mean that banks should not create debt instruments beyond their capitalization, but rather that the debt instruments created should properly be regulated to ensure that they do not exceed the real economic growth that they are intended to facilitate.



Why the market, of course. What better regulator is there? I will grant you that there are pegged currencies out there, but the only one that is currently causing significant problems is the RMB. However, the Government of the PRC can only maintain the RMB peg as long as they have enough USD in their reserves to meet foreign exhange demand of their economy.



Again, the market regulates currency trading. If a Central Bank issues a vast array of new currency, the market will immediately react by collapsing its value internationally, and the domestic economy will react by way of inflation.

As for the "global players in the banking systems," (I am now picturing a group of gnomes in some Swiss catacombs...) individual trades have to be settled in the currency of the trade. Because margin trading is not practiced with forex products, settlement accounts are not required. Bullion settlement might well occur between investment banks, but that would be a function of the underwriting contract of a particular equity issue, not as a normative practice. Most equity issues are denominated in either USD or EUR, so the settlement would normally occur in the currency of the underwriting.



Sounds to me a whole lot like the economy backing the currency.

Don't confuse the value represented by currency and the risk inherent in maintaining investments in currency. You can invest your dollars into commodities, equities, debt and derivative instruments, all of which have value independent of their initial purchase price. That does not mean that the dollar you earn from work has not value--merely that it does not have a fixed value. But it never did.

Which is one reason we don't keep money in mattresses.

Fiat currency is backed solely by the willingness of people to accept it for payment of debts or payment for goods/services. The backing of any currency system be it fiat or species is the exchangibility of the currency for goods and services. If no one wanted gold then gold would be worthless.

ruveyn

And what you are not comprehending is that what is happening is ILLEGAL.

You can lend money. You can't lend credit.

You go into a bank, want to borrow $1,000. The bank has you sign a "loan agreement."

They go in the bank, open an account IN YOUR NAME. They declare the account is worth $1,000. Then then let you take the $1,000.

Now, where did that $1,000 come from (this all comes from a court case where testimony documented this)?

The bank does not give you $1,000 of its assets. They record your loan contract (a worthless piece of paper) as a DEPOSIT in YOUR NAME to THEIR LEDGER. BINGO! $1,000 out of thin air that they took no risk upon that you must pay back with interest.

1. Dilutes the currency supply.

2. An act of fraud because creating money from nothing is (essentially) counterfeiting.

The bank cannot create money from nothing in its own name because that would violate its bank charter. However, the rule of law is that you cannot demand repayment or interest on that which you did not risk.

If I lend you $1,000 from my own wallet, I have the right to be paid back with interest. I put my substance at risk.

If I can make $1,000 appear out of thin air, I have risked nothing, and I have no rights.

More so, how can you be forced to pay back what was created in YOUR NAME in the first place? The bank ALWAYS relies upon your contract as the basis for why they deserve to be paid. The law would say, that the creation of money from nothing (credit) is illegal, an act of fraud you are unknowingly induced to participate in, and since you have "clean hands" you have the right to walk away with no further obligation to the defrauder.

NO BANK WILL EVER WANT TO DEBATE WHERE THE MONEY CAME FROM. THEY ONLY WANT TO DEBATE THE CONTRACT. Contracts can not stand up where acts of fraud are involved.

Ahem, Panda, I have a wee bit of news for you....

Mike

The entire military is only 23% of U.S. government expenditures. Cut it entirely - not realistic - and we'd still have a huge deficit.

http://en.wikipedia.org/wiki/File:U.S._ ... Y_2007.png

I think nonamericans should learn more about how the U.S. actually works before venturing opinions on what we should do.

I admit I was wrong.

Dick Cheney was right, deficits do not matter. Most Americans don't know their own monetary system so they are in no position to offer solutions to nonexistent problems.

He was not. Simply put, the problem with borrowing is that the money then has to be paid back, the problem with borrowing every year is that next year you'll still have the same expenses plus you'll have to service an ever-growing debt. No, the deficits aren't paying for themselves (the debt is growing faster than the economy), and you can't simply print your way out of debt except in moderation (a weak dollar means a lower standard of living for Americans - it means more expensive imports, including more expensive fuel, it means higher inflation, etc). It goes without saying that a default would be the end of the US as a major economic power (Argentine is a good example of how you can go form one of the richest countries in the world to a basket case with such policies).

It's perfectly legal. You might argue that the law authorizing it is ultra vires the legislature that enacted it, but that is an argument for a judicial review, and I feel reasonably certain that it is a review doomed from the outset.



Actually, it is an asset. Look on any business' financial statements. There on the balance sheet, under assets, will appear the words, "Accounts receivable" (or words to that effect). The obligations that are owed to you by a party are assets. Further, they are taking a risk, because if you default on your obligation, they must expense that default.



The currency supply is regulated by the Central Bank. No bank can extend credit beyond the limit authorized by the Central Bank that supplies it. This is a basic principal of monetary policy that is observed in every member economy of Bretton Woods. The "dilution" is an element of monetary policy that is designed to ensure exchange rate stability and to control inflation.

As for fraud, it is an equitable principle that requires three elements:

1. A declaration of fact that is known (or ought properly to be known ) by the declarant to be false.
2. Reliance upon that declaration by another party
3. Actual loss falling to that party

Neither the first nor the third of the required elements of fraud exist in your example. The borrower emerges with $1,000 in cash, and an obligation to repay that $1,000 plus the agreed interest. No actual loss has befallen the borrower. Further, there has been no misrepresentation about the origin of that cash, since the debt obligation is clear and understood to both parties.



It bears repeating; banks do not create money from nothing. They create money from their borrowing from the Central Bank (which has the authority to issue currency), they risk their credit by investing in your debt instrument.

At each stage in that process, there is a defined value and a defined risk.

If you want to preach about creating value from nothing, you should be training your sights on the derivatives market--not the banking system.

What is the inherent value of a lump of gold? Can you eat it if you are hungry? Can you wear it, if you are cold. Will it keep the rain off your head? It is only worth what you can trade it for. The same is true of certificates of debt and fiat money. It is only worth what it will buy in the market place.

ruveyn