Economy

Say's Law

In Say's language, "products are paid for with products" (1803: p. 153) or "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another" (1803: p. 178-9). Explaining his point at length, he wrote that:

It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (J. B. Say, 1803: pp.138–9)

He also wrote, that it is not the abundance of money but the abundance of other products in general that facilitates sales:

Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found, that one kind of commodity has been exchanged for another.

Hans Hoppe and others have warned that a regime of easy credit will lead to changes in human behavior that are destructive, as people begin to forsake planning for the future and replace it with a present-oriented lifestyle.

Ludwig Von Mises was correct decades ago when he said "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody...- Alan Greenspan, then-Fed chairman, May 1999

Message Board Post by Baecorine

Re: China getting nervous about US recklessness... 11-Feb-09 12:01 am

I listened to the Bernanke testimony today and it became painfully obvious that Congress has no clue what this "crisis" is all about. No one wants to actually spell it out, everyone acts as if it were a complete mystery.

This crisis is about trying to monetize credit losses. The actual credit losses themselves are not the core of the problem , it was the leveraging of credit that got us here. No one can absorb these losses because they far exceed the savings or assets in the private sector. Leverage not only wiped out principal, it wiped out money that never existed in the first place.

By trying to finance these losses at the expense of the taxpayer, we are only making matters worse. This era of financial engineering in credit was destined to destroy the global monetary system. If you do not have any savings, you can't absorb losses, all you can do is refinance your debt or go deeper in debt.

The entire planet is sitting on IOU's and bankers call them "assets". Wall Street treats a dollar of savings the same as a dollar of debt. Please tell me how that is possible? If I have a dollar saved and you have an IOU for a dollar, how can anyone say that we both have a dollar in assets? I never have to wonder about my savings but you have to wonder if you will ever see that dollar you loaned out. For your troubles, you charge a risk premium, interest. That is all fine a dandy as long as the person you loaned the money to can generate enough income to pay you interest and return your principal. If your debt goes bad, your dollar is gone, I will still have my dollar because it is and always was mine.

The fact is that there is so much credit out there that it can never be repaid. I like to think of it as "Peak Credit". Once we crossed that line, the entire system fell apart. How can we monetize credit in a few years that was supposed to be monetized over a period of 30 years? Banks were creating money out of thin air on the assumption that the debt instruments they were creating would all be made good on. What collateral do you have against consumer credit? You can't even foreclose on the the borrower.

We haven't been dealing with real money for decades, only debt. Debt is no money, it never was. No wonder China is nervous, they know that the debt will never be paid back from money earned or saved, it can only be rolled over with more debt.

The private banking system is a failure, because there were no limits set on credit. I would rather see the US government charter a new bank, put 500 billion of capital in it and let the existing banks fail. Whoever has losses will have to eat them, too bad. At least we will have a bank that can lend rather than trying to make good on all this bad debt that is out there. Since the taxpayer is on the hook anyway, why throw good money after bad? Let C, BAC and others fail, wipe the slate clean and use taxpayer money to capitalize a new bank, use the 10:1 model and that bank will have 5 trillion to lend. Set a strict set of standards for lending and we will be well on our way t o recovery. Set rates at 5% and be done with it. We don't need the Fed or the banks, let the government be our bank. Our tax dollars should not pay for past mistakes made by greedy bankers. Screw the Fed too, we don't need the Fed.

Once the banks came to the taxpayer to cover their losses, they lost their rights to be in business in my opinion. If I'm going to fund banks with my tax dollars then I want the government to own the bank.

It sure looks like gold may very well be the only real money left standing by the time this is all over.

To clarify most clouds of confusion, it is best to refer to "Falling Asset Prices" instead of "Deflation" in almost all cases.

Falling asset prices will force even more monetary inflation in response in the form of rescue or stimulus.
 
-- Jim Willie

What gold bugs do not understand is that money is based on contract law. The IOU behind the paper measures its worth.

The U.S. dollar is still king unless reckless abandon to nullify contracts or mortgages is made. You cannot arbitrarily modify a contract after its signed.

The more debt that is issued the stronger deflation takes hold. Inflation is debt that is not backed by contract.

Do as adversaries do in law, —

Strive mightily, but eat and drink as friends.

— William Shakespeare, The Taming of the Shrew

Gold is a currency, not a commodity.

Message Board Post

Silver went out of circulation because the monetary value of silver coins was engraved upon them. When the market price of silver rose, and the value engraved upon the coins was left behind and below the value of the silver in the coins, the coins became more valuable as bullion than as coins. The coins were melted down. The silver coinage disappeared.

The US needs inflation to erode the economic value of its debt, a weaker USD to help exports and reduce the trade deficit. 

Message Board Post

1913 - income tax law was passed in the U.S.
 
1913 - President Wilson creates the Federal Reserve System, which is the central banking system.   The Federal Reserve authorizes fractional reserve banking to private banks.  This allows banks to artificially inflate the money supply. 

1933 - After a month-long run on American banks , Franklin Delano Roosevelt proclaimed a Bank Holiday, beginning March 6, 1933, that shut down the banking system. The banks reopened on March 13.
 
1933  - Gold standard for U.S. citizens ended
Executive Order 6102 is an Executive Order signed on April 5, 1933 by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates" by U.S. citizens. The Order required U.S. citizens to deliver on or before May 1, 1933.

1944 - Germany could buy materials during World War II only with gold.

Coin Debasement of Kennedy Half Dollar

1964 to 1968

In March 1964, Secretary of the Treasury C. Douglas Dillon halted redemption of Silver Certificates for Silver Dollars. In the 1970s, large numbers of the remaining silver dollars in the mint vaults were sold to the collecting public for collector value. All redemption in silver ceased on June 24, 1968.

1971 -  U.S. ended gold standard for foreign central banks.
President Nixon withdrew the U.S. from the Bretton Woods system on August 15, 1971.  This made the dollar inconvertible to gold directly, except on the open market.  This removed any external pressure on the FED's expansion of money.

1975 - U.S. citizens were again allowed to own more than $100 worth of gold through the passing of a bill signed by President Gerald Ford legalizing private ownership of gold coins, bars and certificates

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See also: Christian Finances

This page is sponsored by Tom Irvine, Email: tomirvine@aol.com 

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