The broad scope of this topic won't be justified in a short comment like this, but it's general knowledge that the economy goes in cycles.
My special area are rare earth metal bonds and EU government bonds. The derivative markets are not a good direct indicator for stability (because they are unstable), but they set the bar for what one can expect.
If you look at the M1-data by the FED [0] (M3 is _censored_), you'll see how large the bubble really has become.
And this is consistent across all global markets.
Call me an apocalyst, I don't even care. Invest, crash and burn, have fun!
When it gets hot, the FED prints money (they call it quantitative easing) (for 5-year-olds: throw money at the problem).
Look at 2008, where they ramped up the money stock like crazy. And afterwards, all these upward bumps were quantitative easing steps to "stabilize" the markets.
However, just realize this is exponential growth. You don't need a maths degree to realize that you can't keep on printing money like crazy and expect the markets to stay stable for much longer.
It takes one person to dig into the matter and ask the question: "But what covers this money?" and bang, you got a stock market crash.
And let's not call it money. What the FED "prints" is currency, sheets of paper. Money has inherent value (gold is money for instance), but not this FED-Dollar lie we live in every day.
Since 1914, America has been tricked into believing into this system. When Nixon turned off the Gold standard in 1971, the entire Bretton-Woods-System (built on top of the Dollar) sort of went Berserk.
Fiduciary media is money. Money need not have inherent value for value is subjective and thus cannot be inherent beyond people's achievement of various ends.
The gold standard was turned off far earlier than 1971. In fact, all commodity money standards have suffered subversion or suspension by financial institutions (suspending convertibility of notes) and governments at various times. Nor was gold arrived at by the will of market forces. It was imposed through bank charter, displacing the then-dominant silver in the process. Nor was the international gold standard well designed, for R.G. Hawtrey and Gustav Cassel presciently anticipated its collapse and resulting great depression thereof.
Monetary reform is definitely in order, but commodity money has nothing to do with it. Convertibility requirements can be satisfied with interbank clearinghouses and other means.
Menger provides an evolutionary theory of money's emergence and does devote a chapter to the precious metals, but historically all sorts of commodities have served as media of exchange in various circumstances.
The primary standards of international trade during the mercantilist and merchant capitalist eras were silver bullion coins like the Spanish dollar.
Formal gold specie standards arose during the 19th century by royal fiat and soon displaced other currencies.
It is likely that free currencies would settle on precious metal convertibility because of prior art, but there's no reason to presume it has to be gold in particular, or to single out gold as being "special".
> And let's not call it money. What the FED "prints" is currency, sheets of paper. Money has inherent value (gold is money for instance), but not this FED-Dollar lie we live in every day.
You don't get to redefine terms like "money" to make your arguments work better - not if you want to talk to the rest of the world. And by the definitions the rest of us use, you are factually wrong.
But it's fairly simple to see which money holds its value better over time. Gold/silver have held value over millennia while fiat moneys live and die with the states that oversee them.
Yes, gold and silver have held up over millenia. But, for example, gold fell from $1700 to $1100 over the last three years or so. Meanwhile, the dollar has held its value pretty well over that term.
So gold and silver are more stable over decades to millenia. They're more volatile over the short run (months/a few years), presuming a competent central bank.
You're confusing what money represents with what it is. Money represents an obligation for society to provide you with something of value. Money itself is simply a measure of accounting. Gold isn't money, and many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.
> Money represents an obligation for society to provide you with something of value.
What does that mean?
> many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.
This is how commodity money works. The dollar (as well as almost all paper currencies) originated as commodity money. The paper dollar was backed by and convertible to gold.
> Money represents an obligation for society to provide you with something of value.
It means that the important part is the obligation and the real value, not the units which get used to track this obligation. Under market-based social norms, if you give someone an awesome massage, then they now "owe you" for it. Perhaps this is in terms of making a website, or cooking lunch, or whatever. The most general form of this is a promise of a favor-not-yet-specified - but that concept needs some unit to measure whether or not you're "even" after making that promise.
The benefit of this is that lots of people like to receive a favor-not-yet-specified, because it can be turned into whatever sort of thing they need most in the future.
In short, that is what money represents - a promise that someone made to provide something of value to whoever winds up with that money.
Now, not any old promise will work well, since the other party wants some kind of guarantee that it can be redeemed later for something of value. This is where the banking system come into play: it creates money by convincing debtors to sign believable contracts to pay the bank back. In the past, it used gold and silver. Notes were convertible to hard currency at banks, and there was a general expectation that you could trade those for the things you wanted at a later point of time. But again, it was that expectation that was important, not the note, and not the commodity backing it.
> > many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.
> This is how commodity money works.
No, its how representative (or commodity-backed money) works, as distinct from commodity money.
> The dollar (as well as almost all paper currencies) originated as commodity money.
The dollar (whether you mean the US dollar or its Spanish predecessor) originated as commodity money -- actual silver coins -- true. But most paper currencies (including the -- later -- paper dollars) originated as representative, commodity-backed, money.
> The paper dollar was backed by and convertible to gold.
The original dollar was silver. The original paper dollar was ... a trickier question. If you count the 1861 demand notes as "paper dollars", then, as they were initially redeemable for gold (as the US had switched from a silver to a gold standard) money, they were convertible to (redeemable for) gold -- but they were not backed by gold (and redemption was soon suspended.)
If you mean the first legal tender paper dollars (U.S. Notes) issued soon after the 1861 demand notes, they were pure fiat currency, not backed by or convertible to anything.
Strictly speaking, money (as opposed to currency) is whatever is the most commonly used currency in a given region. Gold is not generally used as a medium of exchange anymore (i.e. it is not a currency), so it is merely a valuable commodity.
Legal tender laws are likely more qualitatively significant than ability to pay taxes in of itself.
I'd be wary of the chartalist/state theory of money, since it's somewhat of a truism (state theory of money is correct for money chartered by the state). It tends to ignore that many local currencies have also emerged through different channels.
MMT as promoted by Mosler, Wray, Kelton and Tcherneva is also a syncretic and often uncredited mix of a variety of economic ideas, generally as a clout for the policy activism that its founders promote.
Let's say I buy into the theory that QE indeed caused significant inflation, but in equity assets and specifically housing, rather than in consumer goods and services where people were watching for it. Now rates are near zero, equities and housing are still relatively high (but not in orbit given their yield relative to bonds paying nothing). Consumer goods and services and commodities remain cheap. Given this macroeconomic picture and the Fed's toolkit, what happens next?
I think that depends on what the Fed does next. If it continues to unwind QE, that means that equities and housing come back down, and bond yields slowly rise (presuming that the economy doesn't fall apart too badly in the meantime).
If the Feds return to QE, stocks and real estate go up further. I think stocks do so first, and real estate a bit more slowly.
And I think that what the Fed wants to do is unwind QE reasonably quickly, without causing the economy to tank (the real economy, not just the stock market). The real question is, how rapidly can the Fed unwind QE without damaging the real economy? Or can it unwind it at all?
It seems that when you put money into the hands of the public broadly, they consume goods and services. When you put money into the hands of the top few %, they have much less need for additional goods and services, so instead they invest it, which drives yields down and (consequently) asset prices up. The real question, then, seems to be how do we get money into the hands of tens of millions of grasshoppers and not just a few ants.
I don't know why you're being downvoted. Not only is it the issue of moving money away from gold and other physical commodities, but it's also the fact that the system is built on exploitation (mainly in the form of interest, bonds, and similar concepts).
Yeah, someone who says the us economy has been a big scam since 1914, we should all go to gold. You just have to laugh. I feel sorry for him. Yes, there will be depressions and growth spurts in your life, if you are fortunate to live long enough. You can pick one of them and claim that your bizarro econ theories are true, but regardless of being on gold or off it, there will be periods of bust, boom, and depressions. They happened without us being on gold, and happened with us being on gold. so what does being on gold fix?
Generally I don't talk to anyone about gold-standards unless they can also discuss the advantages and disadvantages of a bi-metallic standard. That is my 'shibboleth' for determining if they have knowledge or not.
If they don't, I send them off to think about the bi-metallic standard.
Excellent question. "Because of the secret float of the fed or something. You cannot trust those guys." That's always the answer.
There are non-crazy things to worry about the future - where will jobs come from for average people after we increasingly automate? Not everyone can be a programmer, and we don't need 95% of the population to do that. You can say medical care of palliative care or something. I don't know where the jobs are coming from.
And people that work in the financial industry, trading gold or CDOs, you aren't actually doing anything that helps society. If we stopped have people making money by trading on gold, would it matter to the world? No. Create something useful, that helps people, a new kind of drug. Teach kids. Don't sell real estate or work on faster stock trading algorithms. Grumpy me, my programming is the good kind, not the useless kind :-)
At least for regular stock exchange, I can see why they're necessary (although it took me an embarrassingly long time, given my profession, to figure this out). When a company does an IPO, they're raising capital. All good and productive there. Why do people buy stocks? Two reasons: for a share of the company income (dividends) and to make a windfall gains when the company grows by selling the stock (capital gains).
If you're in it for the second reason, you wouldn't buy the stock if you know there isn't someone else to sell it to in future. The second buyer needs a third buyer, the third need a fourth and so on. And presto. Stock market.
CDOs and other synthetics are a little more questionable. Some arguably lower stock market transaction and search costs: derivative markets provide a source of information that allows stocks to be efficiently priced. Other instruments like CDSs allow risk to be spread and hedged throughout the economy (which in some cases is efficient, particularly if at least some people have risk averse utility functions).
But I'm still learning; I'm a little allergic to finance in general. HFT just seems like cheating to me and adds uncertainty to other transactions. But maybe there's some good argument out there (and feel free to enlighten me if you have one).
All that aside, I personally have much more respect for 'the makers' than 'the ticket clippers' :)
Ya, well, we're all gonna die one day too. (Maybe). I can't prove it though and I'm unsure of when. But please indulge my worrying about it's immanence. I am a glass half empty kind of guy.....
As for the apocalypse, I've been waiting since 1980. And its coming to the point I've about given up. I'm still eating long term dried food rations packed in 2006 and they don't taste very good. I'm kind of starting to suspect that things change but somehow life keeps right on going.
Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.
The best way to live is to be prepared for continued success and prosperity in our society, yet also know what to do in case of utter collapse, or of anything in between.
Hence my coding job and investments on one hand, and living on a self-sustainable homestead on the other. If I never need to use my homestead, and just end up giving my children a piece of land worth enough to retire on... that sounds just fine.
"Hence my coding job and investments on one hand, and living on a self-sustainable homestead on the other"-Probably not very possible for most people. I suppose living in a rural area with a good job allows that, but a lot of people in rural areas/small towns aren't upper middle class programmers who live off the grid with "sustainable homesteads".
I think you're talking about extremes here, but that's not necessary.
> but a lot of people in rural areas/small towns aren't upper middle class programmers who live off the grid with "sustainable homesteads".
Just moving out of a big city with a similar job gives you a lot of extra cash for saving / planning. It gives you extra time, because you don't need to commute and the one shop is just down the street. You get calmer, more relaxing life.
You don't need to live completely off the grid or fully sustainable. But the extra savings gives you ability to invest in some solar energy/heating. And a tiny garden requires next to no effort and can give you a lot of food once you get a hang of it.
And actually yes, there are a few remotely working tech people in my village of ~2k.
There is loads of data that suggests an economic collapse around the corner. Right now there are so many indicators of economic health that are reporting poor results, that it's worth taking seriously the prospect of a looming economic collapse.
I'm pretty much convinced that (as someone with an actual academic background in economics) that most economic predictions are bullshit, regardless of who makes them. The economy may very well be headed to a downturn, but there's zero way to accurately tell how bad it'll be-Great Recession, early 00s, early 90s bad, something worse, something better? "Economic collapse" is so vague and alarming as to be useless (unless you have shares in a Prepper biz you are trying to inflate).
Sure, there are indicators, but we're terrible at predicting those results. Or specifically predicting when they happen and when they don't. I'm sure some collapse is coming soon. (for high values of soon) Then again, people collectively predicted >100% of the economic failures so far.
So unless you say when, why, and what are the steps to validate it on the way, why should anyone believe the collapse happens in their lifetime?
Why it will crash is because there are certain startups valued at too high value for producing exactly nothing.
It won't be to apocalyptic, but it will hopefully bring the gold rush in the internet erä down. I'm not sure if it will be in 2016, however I'm really sure that once in a while the markets (not just the us) needs to cleanup from everything overvalued.
Also even when that happens, it will happen again, once in a while it must happen cause we (the humans) are just too dumb to learn from our mistakes.
the bad part of this, is actually that mostly renewable energy will also suffer from big market drops since investores will be scared a bit from 'new' technologies after a bigger hit into the market.
However what I'm telling is nothing special, it happens as there a people who handle everything based on their greed.
Hopefully one day dumb humans learn from their mistake of blaming "greed" and various other nebulous exogenous factors instead of focusing on robustness of institutions.
A lot of the startups that are ridiculously overvalued don't really seem to produce tangible items ("lets monetise our bullshit social media app!"). At least renewable resource startups seem like they'd be a more solid investment than serving up ads in creative ways.
My special area are rare earth metal bonds and EU government bonds. The derivative markets are not a good direct indicator for stability (because they are unstable), but they set the bar for what one can expect. If you look at the M1-data by the FED [0] (M3 is _censored_), you'll see how large the bubble really has become. And this is consistent across all global markets.
Call me an apocalyst, I don't even care. Invest, crash and burn, have fun!
[0]: https://research.stlouisfed.org/fred2/series/M1