The debate "There will probably be a recession worse than 2008-09." was started by
July 25, 2018, 7:50 pm.
By the way, lachlan2 is disagreeing with this statement.
36 people are on the agree side of this discussion, while 33 people are on the disagree side.
That might be enough to see the common perception.
It looks like most of the people in this community are on the agreeing side of this statement.
lachlan2 posted 1 argument to the agreers part.
lachlan2 posted 22 arguments, Nemiroff posted 2 arguments to the disagreers part.
tenyiyi, PhrozenKeyy and 34 visitors agree.
lachlan2, Jasleen, sabrina, Aaronr12, MrShine, SaffronSHAM3 and 27 visitors disagree.
2. "you said it wont increase purchasing power".
Yes I did, when I said, "This just increases purchasing power and it dosent really matter because gold is divisible".
If the population multiplies by 10 (All other things equal "ceteris paribus" assuming no entrepreneur produces more gold) the demand for currency and the price increases, hence the purchasing power increases.
Other individuals' subjective valuations of gold don't affect the government set price. Their valuations would just determine whether or not they chose to buy gold. You're confusing price with value.
1. If a country keeps 100% gold reserves (which does not inflate) and foreign individuals buy the gold it is a purchase, not a robbery. If the Fed prints more claims to the gold than there is gold it will tend to dissapear. I don't know why ypu're not understanding this.
If a currency is redeemable in gold and another individual buys the currency and redeems it for the gold that is just a purchase and transfer of ownership. No offense but you sound like an economic flat-earther merchantilist referring to trade as robbery.
according to the wiki, the creator of the system wanted to have it preset but no government took him seriously. so as far as I can tell, no, it is not a historical fact.
ok then, if the population increases 10x, how will the same amount of value sustain all of them? what about the next 10x increase?
1. no, it has nothing to do with printing more. because even if we dont print more, we can still be robbed of every ounce of gold.
2. you stated it was a fallacy, I dont think you explained it at all. you stated it wont increase purchasing power, but dont you think 10x the population might need 10x the food, homes, products? woulsnt they need 10x the purchasing power?
So back to ypur points:
1. Your first problem is caused by a central bank printing bank notes, not marlet forces. Again, I don't think the "gold standard" is a good idea with leaving the Fed the power to create more notes. The Fed should be abolshed and there should be no national currency.
So I'm not endorsing the concept that "we shpuld use gold" I'm just saying that money should be left to thw market and most of human history used gold as medium of exchange.
2. As I explained before, this is a fallacy.
It is a historical fact that Bretton Woods set gold at 35/ oz. That was a government fixed exchange rate not a value, as value is subjective and wpuld be revealed of people redeem dolalrs or not. So two dollars didnt just divide the gold stock.
Its a fallacy that an economy needs more money to grow the population in a system of free market money. (I'm not endorsing the gold standard, I'm endorsing free money with market exchange ratios).
If there is a limited supply of money because it is natural (like gold) and demand increases it just has a higher exchange rate. This just increases purchasing power and it dosent really matter because gold is divisible (One of the reasons it because money). So this is a non issue.
The idea that privitized money would often change to human preferences is not a bad thing. It is true that gold moght eventually fall put of circulation and be replaced by silver or bitcoin. They change to become more convinient, or secure etc. So it is also true that control freak progressives would need to accept change in a system of free money.
it is a fact the bretton woods standard existed. what I'm disputing is that it ever had a preset 35$/oz value.
money doesn't grow the economy, but a growing economy needs more money...
if 100 people make it on a certain amount of gold value, there's a good chance that amount wont support 1000 people.
perhaps, but the gold system has flaws, specifically the 2 I specified that haven't been addressed.
unfortunately I won't be able to set aside time for a book atm, but I will gladly consider any summaries or examples you can give here. I may get to it in the future, but that wont help this debate.
the thing about evolution is that it never quite ends. gold was the best form at that point, but we evolved what I would argue is an even better one eventually. clearly it has dominated not just our system, but every system in the world. the gold standard has huge flaws. like my 2 points.
Again read the book I suggested, ill give you the free pdf if you want. Money is created through the individual actions and prefrences of people meant to make transactions easier. Over time gold evolved as one of the best forms of currency. They didnt just start using it because God told them to.
So if there was no usd or gold its not like all transactions end and we die.
The Bretton Woods gold standard existed. I'm not stating that as a theory its a historical fact. It wasnt functional given that two peices of paper don't double the amount of physical goods. It failed because of the federal reserve and central planning, not because of free market money.
Money is a medium of exchange to make trnasactions easier and to make economic calculations. It dosent grow the economy. Artificial credit expansion by the fed by creating digital cash is not backed by real savings and sets an unsustainable boom, resulting in a recession. (Thats what the thread is about).
Simply printing fiat money can't create correctly allocated capital. The same would be true for gold. Growth is created by saving not by the amount of paper. You're falling for the fallacy that something can be created from nothing.
let me rephrase my position so far.
I have 2 key concerns with the gold standard.
1. using fiat currency to rob all of our gold
2. inability to grow the economy without finding hard to find materials
cant make big quotes, but apparently the designer wanted for it to be a set value... but no government took him seriously.
this is according to the wiki. I don't think it ever used a set rate in reality.
also the problem I said about not being able to grow the economy without new gold, that's another default problem of a commodity tied currency. not something related to wether or not it's has a set value.
I'm not sure if that was the actual details of that named system but that's sounds nonfunctional. the only way that would work is if no new money could be printed and the only way to grow the economy would be to find more gold.
also, none of this addresses the problem of using foreign fiat currencies from stealing all our gold
No you're completely wrong. Printing money under the bretton woods gold standard dodn't just make each dollar convertable into less gold- (that would just be devalued dollars). Each dollar was redeemable on gold or "as good as gold" fixed by the State at $35/ounce. So two printed dollars did not split the pot to depreciate money, it would offer more than one claim to one physical commodity.
So my example with cars was dead on exactly the same case.
"it does have an effect I just don't think ypu're uderstanding the concept. If we each had a paper claim to one single car, one of us would not get the car. Does that male sense?"
if we print more paper on a gold standard, each paper is no longer worth the same, so we dont have a claim to the same lump of gold, we each now have claim to half.
I understand the logic of your statement, but that's not how any money (fiat or standard) works. your not describing reality. we would never have claim to the same car because the printing of more claims makes all claims worth less. therefore neither paper alone can now claim that car.
"Okay, ypu're just turning this into an argument of why gold might not make a gopd currency"
yes, that is the topic in general. but more specifically I was directly responding to your previous points
It does have an effect I just don't think ypu're uderstanding the concept. If we each had a paper claim to one single car, one of us would not get the car. Does that male sense?
Okay, ypu're just turning this into an argument of why gold might not make a gopd currency, which isnt a root of the argument for free marlet money. The fact is that it is what individuals chose with free choice becuase it meets all the properties of a good currency. Money is whatever the market decides for a medium of exchange (which in this case would hold real value).
Read "What Has Government done to Our Money" by Murray Rothbard
I'm not sure why, in your example, printing more paper didnt devalue the paper, but It really doesnt matter. as I said before, the loss of gold happens due to the exchange between fiat and commodity currencies. whether we print more or dont has no effect.
as to fakes, it certainly is easier to counterfeit paper, but it's also easy to change the paper when a counterfeit succeeds. someone takes a commodity good enough, you cant reformulate the commdity.
and if we ever find a bunch of gold somewhere, the value of gold, and our currency will plummet overnight. kinda like what happened to spain/Portugal when they found a mountain of silver in Argentina.
The government bonds they buy are bought by money created out of thin air which then gpes to the treasury. (So they create money to pay off the debt). Also when the Fed arrificicially lowers the interest rate they have to increase money supply and inject it into banks- so they can then lower rates.
This is why US dollar supply grew by around 390% since we left the gold standard.
I know there is fake gold, but it os significantly harder to copy than paper. And to say we can't have gold money because some people might fake it is like saying we can't own property because some people steal.
As for ypur last point you're really havong trouble understanding this principle.
If a country has 5 gold coins and 5 dollars each redeemable for a gold coin and they double the amount of dollars, the dollars will circulate and foreign governments and indovoduals can buy them. Eventually they redeem their dollars in gold and we have 0 gold coins and a lot of paper.
To you get it? If we each have a paper claim to one physical commodity we cant both have it.
"The treasury can physically print money but it cannot increase the money supply."
I'm sorry but this seems like a contradiction.
the fed has it's own private money which according to this info, is generated mostly from interest from its massive government bond portfolio.
there is fake gold, not the costume jewelry, but actual attempts at defrauding people with fake gold, diamonds, or other jewels. so you can counterfeit a physical commodity.
"Yes that is why the US lost its gold reserves because of monetary inflation. If the dollar is backed by gold and we double the supply of paper we don't double the supply of gold."
if we have the same amount of gold but double the amount of paper, the paper becomes less valuable, but the amount of gold remains the same. that had nothing to do with losing the gold to foreign players... I don't understand your connections.
did you look at the link about why we left the gold standard that I posted?
The treasury can physically print money but it cannot increase the money supply. Digitally created cash and a near double of the money supply since 2008 is work of the Federal Reserve.
That is what I'm talking about, because that no longer becomes a problem with privatized money. You can't counterfeit a physical commity.
Yes that is why the US lost its gold reserves because of monetary inflation. If the dollar is backed by gold and we double the supply of paper we don't double the supply of gold. Foreigners then redeem their dollars and we loose gold.
sorry, I typically debate in the mornings, so this will just cover your first post, and the gold standard comment.
I'm quite sure it is the us treasury, a completely public arm of the government that prints money. I'm not sure how much it cooperates with the partially private fed, but I dont think the Fed's activities directly corresponded with more printing. I'm open to proof.
you can print paper that you or others value. like stocks. but you cant make counterfeit U.S backed official currency... that's a no brainer and completely not what your originally talking about. that's stealing.
"During the Bretton Wppds gold standard the US was drained of physical gold because the Fed set an amount of gold equal to a dollar, and then printed way more dollars past the existence of physical gold"
diluting the value doesnt actually lose physical gold. we lost physical gold
And to adress ypu last point, which significant bank deregulation are ypu talking about that caused 2008? Because the only bank deregulation happened in late 90s I think and had absolutely nothing to do with the nature of lending... lol. So please tell me.
Lastly, something about artificial income inequality.. is the fact that it is cased by monetary inflation by the Fed through Cantillon effects. The people that benefit the most from new money is the fed, big banks, welathy businesses, and the state. We are the ones who lose. This is why income inequality has increased significantly since we officially went to paper money.
If the fed wanted to end inflation they should abolish themselves.. because nobody else is out there printing federal reserve bank notes.
Yes you are correct every bust follows an (artificial) boom. I challange you to find one financial crisis that was not following an artificial credit expansion. This is because, as I explained, government control of interest rates causes malinvestment of capital from lower orders to higher orders. I dont feel the need to explain Austrian Business Cycle theory again.
Another boom follows a bust because the Fed thinks that an artificially low interest rate and QE stimulates production, when in realitt they are scewing up the structure of production and inflating the next bubble. So this next recession has been brewing ever since zero interest rates began.
Yes government coercion through legal tender laws exist, of you were not aware. It os illegal to mint your own coins or print paper money. It is also required to pay taxes in paper.
Ypu really think privatized money means we will all be carrying around sacks of gold coins? really? thats how far in this argument we have to go back? The physical properties of gold ARE the reason the market as chose it as currency but you would likely never see the actual gold. You would probably see transfers of commodity money through paper recipts, cards, and other digital forms. The difference is that ot does not rise in supply 390% like fiat money and fall under control of the state! The expansion in value of gold and gold supply is next to nothing since the beginning of civilization, so to compare it to government paper notes is idiotic. (Or just a lack of knowledge of monetary policy).
During the Bretton Wppds gold standard the US was drained of physical gold because the Fed set an amount of gold equal to a dollar, and then printed way more dollars past the existence of physical gold! So obviously the US lost, because of central banking not capitalism! That is why a gold standard alone is not enough, the central bank has to be abolished.
So to your first point ypu mist concede to the fact that the Fed does indeed dogotally create money. The credit expansion after the recession is "the recovery" that will lead to the next recession I am talking about. The 2008 recession was casued my credit expansion and artificially low onterest rates as well. So the fed really just chases itself in circles causing business cycles.
the savings are not invested into the economy, they are invested in the stock market. and yes I know that's implied to go to the company, but that only happens during an IPO. if your buying stocks, your buying from a stockholder, and the company doesnt see a penny of it unless it is issuing new stock.
so the savings are just being traded amongst mostly rich people for digital certificates and no productivity. they are still worthless.
deregulated banks make more risky investments with money that isnt theirs, and create problems throughout the economy. they also gave loans to people who should not have qualified for them setting them up for disaster.
blind deregulation and income inequality are indisputably bad for the economy.
no, it did not fall from the sky, but whether they increased supply to buy the bonds or not doesn't change the fact that it was done after the recession to (successfully) stop the drop and start the recovery.
I'm not sure what kind of government coercion you are talking about. you are allowed to use any payment including barter and gold that you and the other guy agree on. its just that gold is cumbersome, difficult to get 1$ or quarter. paper and even more so digital money is amazingly convenient. currencies are just as vulnerable to market forces and if debeers was able to hoard and manipulate diamond prices, the same can be done with gold. there is no difference.
"Every other country uses fake paper money... so thats not true."
but that was my point, we were one of the last using real value behind our paper, and it was draining us!
"Every recession has been following an inflationary credit expansion."
credit expansion is a hallmark of a boom. so you just said every bust comes after a boom...
the point of the fed is to control inflation and keep it at a stable level. to avoid fluctuations that cause booms and busts.
One more thing, I don't think you understand what saving is. Saving is holding off consumption now for consumption later.
When people save they are not burning money, it goes in bank reverves, interest rates are lower, and the money is invested in capital. That is sustainable economic growth. So we would be poor without saving.
So investment and saving are really the same thing because all money not immediatly spent is either directly invested, put in back reserves and invested, or spent at a later time. Lower consumption means more saving and vice versa. They have an inversed relationship, so investment and spending cannot both fall.
If simple deregulation of banks could cause past investment in higher order capital goods to suddenly become unprofitable, how could that happen?
Lol and where do you think the Fed gets money to buy bonds?? They digatally create it. Anytime the fed artificially lowers rates they are necessarily creating new money. That is how money supply nearly has doubled from 2008 to now, it didnt just fall from the sky.
And the new money enters through the credit market. Even of there was a recent recession that induced the fed to lower rates it would still screw up the time structure with investment projects. Do you think this dosent happen?
Gold is not fiat because the price is created by markets, not government coersion. The reason gold is expensive is explained by the law of diminishing marginal utility.
Every other country uses fake paper money... so thats not true.
So regarding the time structure of production the artificially low interest rates over time are the cause of the recession. After years of malinvestment the fed will increase rates and expose all the malinvestments. There was a credit explansion before 2008, especially focused on housing.
Every recession has been following an inflationary credit expansion. A longer expansion will lead to a more dramatic downturn.
So a recession is really just the economy readjusting itself.
on the flip side, high income inequality means that most people will have less and less disposable income, whereas the wealthy that can afford all their needs already throw more into bank accounts instead of the economy. even as our GDP grows, more wealth leaves circulation and buying power actually decreases...
and while investors are in hype mode, ordinary people realize their scary situation, spending stops happening, low order products stop being bought, and high order products stop being ordered. leading to recession/depression.
it's not only logical, its inevitable
they are keeping the interest rates low by buying bonds, not printing money. and that was to get us out of the recession caused by the deregulation. the fed is currently trying to stop this emergency measure, and getting yelled at by our president for doing so.
the problem I have with a fiat system is that no other nation is using it. I believe we were one of the last to switch after international players used their currency to buy dollars, trade for our gold (as a fiat currency must be able to do), and buy their currency with the gold, draining us of our national gold.
also, isnt gold's value fiat as well? it's just shiny and rare. not printing dollars makes them rare... it's really the same thing. value is what we assign to it and either gold or a fake currency can topple overnight if a mountain of it is discovered or something better comes along.
"In the end the boom/bust cycle is created by bank credit expansion by the Federal Reserve with artificially low interest rates. The interest rate is a price just like anything else and should be left to markets."
but the low interest rates were in response to the original bust, they didnt exist before that, they were actually driven to record highs by normal market forces. I think you believe that a free market will prevent busts like nature is great at stopping natural disasters. it's our human actions that prevent these disasters, lessen their damage, and speed the recovery.
the proof of this is that your argument had cause and effect reversed chronologically. the cause cannot come after the effect!
I agree with the overconfodence notion, we're seeing the peak of it now, but its malinvestment rather than overconfidence.
Higher order capital goods are investment projects that are farther from the consumer in the time structure. Like steel factories, mines etc. When interest rates are low in a free market it is because people are saving more and there are more loanable funds. The low interest rates cause higher order investment projects, which the consumers prefer, given they are saving more.
But with central banking and fiat money, interest rates are controlled by the Fed and pushed low artificially by printing money. The boom happens, but is unsustainable.
This is a lot to type so check out Austrian Business Cycle Theory for more.
It is the only theory that takes the variable of time into account with capital, which self evidently exists in economics.
In the end the boom/bust cycle is created by bank credit expansion by the Federal Reserve with artificially low interest rates. The interest rate is a price just like anything else and should be left to markets.
overconfidence from the boom cycle and the allure of recent stock gains leading to the mindset that good times will never end...
which higher order capital goods are you referring to?
The business cycle is caused by central banking and fiat money through the government control of interest rates.
I think deregulation and income inequality would fail to explain why masses of entrepreneurs happen to be wrong at the same time. it also dosen't explain why the recessions hits higher order capital goods the hardest.
the yield curve agrees with you.
I think deregulation (of banks) caused the great recession just like deregulation caused the great depression.
also I remember seeing info of how large income inequality tends to lead to boom/bust cycles.
"Not only do the affluent have higher incomes, but they also tend to save more of what they earn instead of spending it. That means that as more of the nation?s income goes to top earners, the less gets passed around the economy in the form of spending. There isn?t enough demand for goods and services to prop up strong growth."
What do you guys think? And what do you think are the main causes of buisiness cycles or the 2008 recession more specifically?
more like 1-2 years possibly. It depends on a lot of things. But nobody can know for sure its just a prediction.
when specifically do you mean? because in general, yes. some day there will definitely be a recession.