What shall we do as a people?

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The Wedge
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We can sex up economic talk, and speak of derivatives and electronic trade, but the bottom line of the world’s economy is pretty simple. The sun and the earth are the drivers of economic output. We, as a society, consume and are the economy. We consume the products grown from the earth, or purchase things made from stuff mined from the earth. If we save our money, we save it in banks where it is lent to others to harvest or mine the earth. The transactions that each of us has in the course of our lives is what keeps money circulating and the economy moving. Yet how much of that money is real? The US’s currency, as one of all national currencies, is fiat money—defined as a declared legal tender, state-issued and nonconvertible to a physical thing, and having no intrinsic value. It is only as valuable as others view the money to be. Hence it rises and falls upon public perception and supply and demand. Added to this fiat money is the generation of ghost money/credit using fraction reserve banking.
Fractional Reserve banking is very simple to explain. In a simple example, a gold miner pulls $5,000 worth of gold nuggets from the ground and deposits it in a bank and exchanges it for $5,000 in an account (demand account). The bank is generally required to hold 15% of demand deposits as actual cash reserves, but can make the remainder of the deposited money available for others to borrow. In this example, the bank would then lend $4,250 to credit worthy people. These transactions continue with the amount of money being available for credit reduced by 15% each time. Thus, $5,000 of an actual investment of hard currency (gold) yields a $33,333.33 increase to the total money supply. This system works and works well as long as the public has trust in the bank and makes sound investments that allow the bank to make money with interest. If those investments tank, then the creation of money is shown to be hollow and banks fail. If the depositors pull all of their money out of the bank, it fails as well. It is a system that naturally provides booms and busts as a business and credit cycle. It is how it is designed.
How this matters is that the US federal government has greatly increased the money supply and has quadrupled the national debt. Like normal people, the feds when they are over leveraged have to pay higher interest rates to continue to borrow money. We begin to approach Greece type trouble. But even the sage Warren Buffet does not see this to be the fate of the US government. No, we have the ability to “monetize our debt”. This means that the federal government will just print more money and pay off its debts with that generated currency. In a typical supply and demand way, the value of the money goes way down. Inflation becomes Weimer Republic-like (they did the same thing) and everybody’s savings are made irrelevant. Once we monetize our debt, nobody will lend money but it would be Armageddon for our economy anyway.
What shall we do? At what point will we trade our freedom for security? Aren’t we really doing that already? What is universal healthcare other than this? What happens to a country and its people when they are told exactly how much money they will be allowed to keep, how many resources they will be allowed to consume, how many children will they be allowed to keep, and how they must live? Why work hard if it helps your condition not?
I am a constitutionalist - not a fan of what either party has done with regard to following its preceps. We do not have the discipline to stop this massive federal spending. Even if we increased taxes, we will continue to outspend the increases. Who will really work hard in a country that takes 60% of what you make? Medieval serfs had less of a requirement to their government. I see no other way than to monetize our debt- something that Warren Buffet has spoken of recently.

The Wedge
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Forced to do a Bonkers

and respond to my own blog. Give me one more comment than him, please :)

S. Lindsey
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Wedge and our debt..

I am called a "DOOM and GLOOM" preacher. I guess with the now vogue way of saying it I am a gloomer..

I cannot see a system that allows uncontrolled spending and borrowing to continue propping up a shallow and as you say hollow dollar and economy.
The danger here is not the ones like me or you saying there are storm clouds on the horizon. No the real danger comes from progressives who just want you to move along nothing to see here.

There are people some tied to this administration who are trying to bring down the economy. To crash it to save the Earth. These radical environmentalist are using Cloward and Piven strategy to bring it down.

See http://www.glennbeck.com/content/articles/article/198/40154/ for a comprehensive view of the Chicago Climate Exchange and who it all ties to.

Look up/Google Maurice Strong see who he his and what he stands for then see his connecting to Obama and Al Gore.

Here is a little info:

"Once linked to Tongsun Park, the central figure in the United Nation's oil-for-food scandal in 2005 and one of the architects of the Kyoto Protocol, joined the CCX board of directors"

Tells you a lot.

Cyclist
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Europe: Please save us from ourselves

Europeans Fear Crisis Threatens Liberal Benefits

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.

Story

S. Lindsey
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One false move

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/23/AR201005...

"One false move in Europe could set off global chain reaction"

"Stock markets tumble worldwide as E.U. debt crisis continues and tensions mount in Korean peninsula
U.S. stock markets fell sharply on May 25, 2010 as investors continued to show concern about European debt and economic woes, and the growing tension on the Korean peninsula."

By Howard Schneider and Neil Irwin
Washington Post Staff Writer
Monday, May 24, 2010
If the trouble starts -- and it remains an "if" -- the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland's economic output"

and it goes on and on... Why is it that when one says be prepared for the worst but hope for the best they become an Obama hating bigot?

This economy is far from "fixed" as Newsweek put it.. We are one "shockwave" away from a total economic collapse. We may have a chance to fix it.. but to do so will require our Government to make some hard choices.. and when have they ever done that?

S. Lindsey
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Tea Party Defeats Palin in Idaho

"State Rep. Raul Labrador walloped Republican establishment favorite Vaughn Ward in Idaho’s 1st District congressional primary. Idaho native Sarah Palin campaigned for Ward, who had worked in the McCain presidential campaign in 2008. Labrador drew strong support from Tea Party activists. According to Politico, “Ward’s defeat also came despite his high-profile support from former Alaska Gov. Sarah Palin, who did more to assist Ward than she did for almost any other House candidate. Last Friday, she headlined a rally and fundraiser for Ward, and her parents and in-laws were supporters of Ward’s campaign.”
Lots of Republican incumbents lost their legislative seats, too, suggesting the continuing power of Tea Party activism and general populist unrest."
David Boaz Political Writer

But they are a shrill for the Republicans???

Gort
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S.Lindsey, are you saying the

S.Lindsey, are you saying the Tea Party is throwing Sarah Palin off the island? I thought she was your perpetual motion, campaign contribution, money making, machine. Say it ain't so?

What did she do that scratched your tea bag the wrong way?

AtHomeGym
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Gort, maybe Palin should have

called Ward's oponent and made him an offer he couldn't refuse to leave the race. After all, it's just politics as usual, right? Or is that shtick reserved for Bill Clinton?

Gort
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AtHomeGym, or maybe Sarah

AtHomeGym, or maybe Sarah Palin didn’t call Raul because she has nothing to offer.

JeffC
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Too much Glen Beck Wedge

"The US federal government has greatly increased the money supply and has quadrupled the national debt".

Since when? I've heard Beck and Sean make these claims which seemed incredible to me, so I checked. When Bush came into office in 2001 the debt was $5,727 trillion. When he left in 2009 it was $10,626 trillion. Now it has just crossed $13 trillion.

US Debt Clock

Bad enough but nowhere near a quadrupling.

Also, your example of $5000 inflating to $33,333 assumes that everyone borrowing a portion is also lending that portion and withholding 15%. First, after the bank lends it to one of your "credit worthy people", the money is no longer subject to the 15% reserve. Secondly, the vast, vast, majority of borrowed money is spent for goods not re-loaned.

For instance, the miner brings in his valuable gold and deposits in the bank vault, the bank keeps 15% of its value and loans me $4250 to buy a big screen TV. At what point does it become $33,333?

S. Lindsey
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Too much Keith Oberman Jeff

"The Office of Management and Budget has released its annual mid-session review that updates the budget projections from this past May. They show that this year, Washington will spend $30,958 per household, tax $17,576 per household, and borrow $13,392 per household. The federal government will increase spending 22 percent this year to a peacetime-record 26 percent of the gross domestic product (GDP). This spending is not just temporary: President Obama would permanently keep annual spending between $5,000 and $8,000 per household higher than it had been under President George W. Bush.[2]
Driven by this spending, America will run its first ever trillion-dollar budget deficit this year. Even worse, the President's budget would borrow an additional $9 trillion over the next decade, more than doubling the national debt. By 2019, America will be spending nearly $800 billion on net interest to service this large debt."

Uhh Bush debt badddd.. Obama debt gooooddd. You Libs make me want to puke.

This debt is killing us.. Even dems are saying it is unsustainable and what do they do spend more..

What do libs like you do... offer cover...

I guess the Carter foundation and trust fund will be pretty safe for you and yours but my kids and future grandkids will not be able to pay for these follies.

We are going broke.. Moodys is warning America's credit rating may be downgraded..

WE CAN NOT KEEP THIS UP. How does it end? I will tell you..badly for all of us.. Well maybe not you.

JeffC
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Too much Keith Oberman?

You made two false assumptions SL. Just to set the record straight, by the Carter foundation I assume you mean the Carter Center in Atlanta which is a private NGO. Their money is not my money. As to trust funds, we have a small one we set up for the kids college funds. That's it. There isn't one for me. Nor do I want one. I had some small success in software developing large scale integrated transportation simulation models and later in another software company that we sold a year before the tech crash. I choose that field partly because computer code didn't give a rats you know what who my parents were. I was a math major and I was writing code in C before Microsoft came out with a compiler. After they did, in anonymous software submissions, I was selected by Microsoft as one of the top 100 programmers in the country for a program I wrote that did minimum distance calculations in three-dimensional multi-node vector networks using matrix transformations. Software was indifferent to my lineage even when I threatened to have Dad launch an ICBM on it if it didn't work.

Your second assumption is easily arrived at but false. I don't watch Keith, haven't seen him for a year or more. I don't watch TV except for maybe two hours a week besides the NBC news at night. I work at night doing research and I read books.

I am distressed about the debt and would like to see entitlements cut, the only real solution. If you can ever find anywhere that I said Obama's debt is good I'll kiss your behind live on the Glenn Beck show (which I have never seen). I am disgusted with both Parties. Maybe at some point, the Republicans will get back in the game instead of sitting on the sideline pouting like a bunch of children. Maybe your TP people will win and cut spending. I doubt it. Excuse my cynicism.

Frankly, I do blame Bush and the Republicans. They inherited the best economy in the last 75 years and left it eight years later in a shambles with a world wide crisis. Then, for them, the world all of a sudden started fresh the day Obama was inaugurated. Sell it to the dumb masses if you can. Maybe they'll go out and vote for real leaders with innovative ideas attacking serious issues. Your track record though is electing Westmoreland and supporting lazy idiots like Palin. Sorry. I'm not inspired.

meanoldconservatives
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Good grief JeffC......

"....in anonymous software submissions, I was selected by Microsoft as one of the top 100 programmers in the country for a program I wrote that did minimum distance calculations in three-dimensional multi-node vector networks using matrix transformations."

"I don't watch TV except for maybe two hours a week besides the NBC news at night. I work at night doing research and I read books."

Nerd alert!!!!

JeffC
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LOL Moc

You're not the first one to say that either! I actually signed on to delete it since I haven't done software for several years,

S. Lindsey
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Frankly I have been waiting for you to say it is bad

You're right you have never said Obama debt is good.. But you also have NEVER said it was bad..

Obama did not have 3000 people killed within months of taking office and an industry (airline) failure because of it.. AND a DOT.com bubble burst thanks to Clinton..btw.

He also did not have to gear up and begin 2 campaigns against those that helped assisted or otherwise supported those same persons.. So don't give me that BS.. the Bush alone did anything.. YOU do remember Democrats controlled Congress for TWO YEARS. So both sides spent us into this mess..

So what did the new regime do? Come out of the gates spending a Trillion for this...a Trillion for that.. running deficits at record levels..

SO Jeff let's clear the air..

IS OBAMA"S DEBT BAD?

The Wedge
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Sorry I missed this Jeff C

But I will go with your premise. I am neither a phile or phobe of Glen Beck-I work and do not watch his show. I understand that he runs an informative and entertaining show. The only piece I have ever seen run was a youtube segment on George Whitefield. I thought that was well done- perhaps you do not like 18th century Christian legends-who knows ;-).
You have such a bad example on the TV. You bought the TV, where did the money go? Did it sit in the till at the store the whole time? come on get real. Okay- blue dog- explain the difference between M1 and M2 as it pertains to the money supply? in April 2008, the M1 value was 1.4 trillion and of that value-about 800 million was actual currency. The april 2008 M2 value was 7.7 trillion. What is that difference other than credit and ghost values?

S. Lindsey
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Oh I will so be waiting for that answer

I have been trying to get Jeff and others to talk about Obama's debt going on a year now..

All I get is bbbbbush, beck, Limbaugh...blah..blah...blah.

Davids mom
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Here is Jeff's answer -

Here is Jeff's answer - posted some time ago. Guess you missed it.

"The US federal government has greatly increased the money supply and has quadrupled the national debt".

Since when? I've heard Beck and Sean make these claims which seemed incredible to me, so I checked. When Bush came into office in 2001 the debt was $5,727 trillion. When he left in 2009 it was $10,626 trillion. Now it has just crossed $13 trillion.

US Debt Clock

Bad enough but nowhere near a quadrupling.

Also, your example of $5000 inflating to $33,333 assumes that everyone borrowing a portion is also lending that portion and withholding 15%. First, after the bank lends it to one of your "credit worthy people", the money is no longer subject to the 15% reserve. Secondly, the vast, vast, majority of borrowed money is spent for goods not re-loaned.

For instance, the miner brings in his valuable gold and deposits in the bank vault, the bank keeps 15% of its value and loans me $4250 to buy a big screen TV. At what point does it become $33,333?

S. Lindsey
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DM wedge saw that and wanted clarification

If you and Jeff think that Obama has not doubled the debt and by 2019 will triple it then you both are deluded.. See my response.. That's not my opinion it the Governments.

Go figure that some in Government actually see it for what it really is..

"Driven by this spending, America will run its first ever trillion-dollar budget deficit this year. Even worse, the President's budget would borrow an additional $9 trillion over the next decade, more than doubling the national debt."Office of Management and Budget

The Wedge
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I think you are failing to understand the main point

My example of $5,000 of currency being converted to $33,333 of currency and credit was to show how "credit money/vapor money" can be created outside of the central banks and the US mint actually printing money. It boggles my mind that anyone would dispute it. The M2 difference is the amount of money supposedly deposited in banks such as savings/checking/money markets, etc. This money is not actually kept as currency in the vault- only a small portion of it is and the rest is used as credit and money making opportunities for the bank.
Regardless of what Jeff states, this really is above dispute. The issue is that when the banks make bad investments, they lose the ability to cover for demand withdrawals. That is why no bank is safe from a run when all demand deposits are liquidated.
We have a lot of phony/credit money out there that may never be able to cover all of the demand deposits that are drawn against it. Adding more debt and obligations adds to our instability and shortens the day of reckoning.

S. Lindsey
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Once they crash the dollar

then all debts will be voided one reason they don't care how much they spend.

I really do not understand the mindset of people like Jeff and DM who totally ignore the indisputable facts of the growing debt. They just tip toe merrily along as if nothing is going on and all will be ok..

It's all right there to see it's easy to find. It's even easy to understand. That's why I have to feel like they see it but just ignore for purely ideological reasons. I guess they don't understand that they will suffer right along with the rest of us.. Misery after all crosses all party lines.

JeffC
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Sorry Wedge

About the Glen Beck thing.

M1 is physical cash. M2 is M1 plus all deposits including money market funds.

You're correct about ghost values and credit and I agree that at some point it cannot be sustained. Have we reached that point now? I think that the answer is no but we are very close.

We live in alarming times and I am very concerned and increasingly depressed.

My advice to people is to get out of debt and try to outrun it. I'm not a politician and I am not happy with those who are.

feoliocifoico
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spending

Dear Sir Or Madam;
The government is supposed to have all the experts on finance,and know what to do to get us out of this economic mess.
But it does not take a very smart person to know that you can not spend more than you take in. So much for the geniuses in Washington.

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