Sub-Prime leading collapse.

Ulairi: yes, I am arguing exactly that. The reason governments want to 'manage the money supply' is for segniorage and political power. Floating currencies, backed by nothing, are a cancer on the people who actually work; it lets a few people get ridiculously wealthy, and impoverish the people actually generating that wealth, without providing real value in return.

What I mean is that a weak dollar will help increase our exports, decrease our imports, and make our capital markets more attractive to foreign investment.

Not enough to do anything useful. Chinese workers make like a hundredth what ours do. Even if our currency drops by half, it can't make up for that kind of differential.

The dollar needs to drop a lot, we need to cure our nasty import habit, but don't fool yourself that it will result in anything good over the short or medium term. All it will do is cause pain. Lots and lots of pain. America is so non-competitive that currency adjustments aren't going to do sh*t.

Nations have gotten into the competitive currency devaluation thing before, the 'race to the bottom'. The last time it was widespread was in the Great Depression. All it ultimately does is wreck the economies involved.

Nations have gotten into the competitive currency devaluation thing before, the 'race to the bottom'. The last time it was widespread was in the Great Depression. All it ultimately does is wreck the economies involved.

We didn't even have a floating currency during the great depression. Pegged currencies and I'm including a floating peg here, are bad for everyone.

America is so non-competitive that currency adjustments aren't going to do sh*t.

America is very competitive. We have one of the fastest growing in the western world, we are one of the most productive nations on earth. What you basing this lack of competitiveness on?

Ulairi: yes, I am arguing exactly that. The reason governments want to 'manage the money supply' is for segniorage and political power. Floating currencies, backed by nothing, are a cancer on the people who actually work; it lets a few people get ridiculously wealthy, and impoverish the people actually generating that wealth, without providing real value in return.

Wow....you are so wrong on so many levels. I thought this belief died in 1971. I am not willing to give up our monetary policy. Since, I am not sure you understand what you're saying I'm going to tell you why you're wrong. I don't mean to come off insulting here, but, I see a lot of fear in your posts but nothing based on reality. Fixed exchange rates do not allow for the adjustment in the balance of trade. Currency is traded so business can import and export their products and it reduces the cost of market integration. When our CA is in deficit, the decreased demand for the home currency will cause exports to increase and home country imports to decrease. Under a fixed regime, this auto-balancing doesn't happen.

Pegged currencies and I'm including a floating peg here, are bad for everyone

Currencies that are worthless are bad for everyone. Just ask the people in Zimbabwe. Currencies need to represent something. The US dollar is a promise to pay nothing on demand; unlike most promises by politicians, that's one that will be kept.

When currencies have no inherent value, they can be manipulated by the party in power to retain power. The ONLY reason to have currency without inherent value is to give power to the government, and they almost never use that power to benefit the country as a whole. Instead, it lets them raise taxes enormously without the people being able to object. A very great deal of the oncoming fiscal crisis is because the US government has been stealing value like mad out of the economy, and issuing worthless paper certificates in exchange.

We didn't even have a floating currency during the great depression

I'm not sure we were involved in the great race to the bottom directly, but we most certainly did devalue our currency during the Depression. I'm a little blurry on the details now, I haven't been paying attention to this for several years.

Fixed exchange rates do not allow for the adjustment in the balance of trade. Currency is traded so business can import and export their products and it reduces the cost of market integration. When our CA is in deficit, the decreased demand for the home currency will cause exports to increase and home country imports to decrease. Under a fixed regime, this auto-balancing doesn't happen.

This is crazy talk. There's nothing magical about money. It's just the most marketable commodity. It's an outgrowth of the barter system.

Waaay back when, if you wanted a pair of shoes, you had to find a cobbler who would accept what you wanted to trade, perhaps a chicken. This was awkward; barter sucks. But if the cobbler knows a buddy who wants a chicken, and his buddy can make him a hammer he wants, he may accept the chicken anyway. The more people that accept a given product or item, the more likely that people who CAN'T directly use it will accept it. Gold was fairly universally liked, as it was decorative, rare, easy to carry, fungible, and easily formed into tokens. So it gradually became 'money' through the power of the network effect; even if you can't use gold, if you know lots of people who can, you'll take it in trade. It didn't have to be gold... and it wasn't in all primitive societies. Sometimes it was seashells, sometimes it was pretty rocks... it was whatever is most marketable in a given society. Western society settled primarily on gold.

Gold was universally accepted, but it's not terribly convenient, as it's quite heavy and hard to carry around in large quantities. There was also real problems with coin clipping and the like. Governments started offering mint services, where people (miners mostly) would bring in gold, and the mint would give them back coins of almost equal value... minting has a cost, as the workers have to be paid, so a percentage was deducted. Some rulers discovered that by debasing their currency, they could issue, say, two '1 ounce' coins for every ounce of real gold that was brought in. This was incredibly profitable, and was called 'segniorage'. (I may be misspelling that; someone corrected me the last time I was talking about this, but I have forgotten the correct spelling. This makes google searches hard. I'll try to find the right version.) One ruler in particular was terrible about this; his coins were copper with a thin gold layer on the top. The gold would rub off the exposed surfaces of the coin, leading to that king's nickname: "Old Copper-Nose".

There is one universal truth about countries that debase their currency in this way: they always fail. A strong currency, over the long sweep of history, has always meant a strong nation. A weak currency has meant economic distress; a very weak currency has been a death sentence. I'm aware of no exceptions to this, but if you happen to know of any, I'd be interested in hearing about them.

So with the advent of paper currency, it made this kind of debasement easier. Any paper currency MUST issue more paper than it actually has gold for, because paper wears out and is lost, but an abusive government will issue many more notes, increasing the apparent money supply. We did that in the 1920s. Combined with the ability of fractional reserve banking to further magnify the apparent supply of wealth in the system, this caused massive malinvestment and overbuilding, and led directly to the Depression. Bubbles are really bad; the financial equivalent of a nuclear weapon.

So then, in 1971, we went to a fully imaginary money supply, complete fiction. There is now NO LIMIT to how much money the government can print. We are just starting to really feel the effects of that. When they can run off 100 dollar bills on their equivalent of an inkjet and demand real goods and services for it, that's hidden taxation. They've been doing this for a generation now, running up debts we can't possibly pay. Our government is in debt to the tune of fifty trillion dollars in today's money (per the GAO), consumers are indebted beyond imagination, and our manufacturing has all gone overseas. We have no way to dig back out without repudiating our debts. And we will (attempt to) do that with inflation.

None of this needed to happen. You can't trust politicians with money! The money supply needs management no more than any other commodity; as long as the weights and measures are carefully regulated to prevent fraud. We don't talk about regulating the soap supply; regulating the money supply is no different. If money (gold, probably, but it could be silver or energy or something) is expensive, more of it will show up like magic. If there's too much, production will drop off. But when politicians can create it anytime they want to finance their pet projects... well, the result is inevitable, and we're starting to see it now.

manufacturing has all gone overseas. We have no way to dig back out without repudiating our debts. And we will (attempt to) do that with inflation.

You do realize that manufacturing isn't the only sector of our economy. In fact, it has been the service sector that has been leading our economic growth. Our manufacturing sectors being shifted to other markets hasn't hurt our growth. And actually, the manufacturing shift when you take into account foreign subsidiaries, reduces our CA deficit.

This is crazy talk. There's nothing magical about money. It's just the most marketable commodity. It's an outgrowth of the barter system.

It's not crazy talk. It is basic economics. You may not like it, but it's factual.

So with the advent of paper currency, it made this kind of debasement easier. Any paper currency MUST issue more paper than it actually has gold for, because paper wears out and is lost, but an abusive government will issue many more notes, increasing the apparent money supply. We did that in the 1920s. Combined with the ability of fractional reserve banking to further magnify the apparent supply of wealth in the system, this caused massive malinvestment and overbuilding, and led directly to the Depression. Bubbles are really bad; the financial equivalent of a nuclear weapon.

Gold is a finite commodity and we should not peg our currency. We have seen great economic growth since the removing the peg of the U.S. $. The United States is still the worlds reserve currency and buying federal treasury bills is the safesest investment in the world. The dollar is tied to the full faith and credit of the United States government. This isn't the British Pound that started to face major issues when it was the world's reserve currency.

Malor, I know you feel very passionate about this issue but what you're saying isn't grounded in reality. It goes against decades of economic research and empirical data.

You do realize that manufacturing isn't the only sector of our economy. In fact, it has been the service sector that has been leading our economic growth

The service sector does not generate wealth. It's just pushing jello around the plate, not making new jello. We will not get rich cutting each others' hair.

Gold is a finite commodity and we should not peg our currency. We have seen great economic growth since the removing the peg of the U.S. $.

Of course we have, because we've been going into debt like crazy ever since going off the gold standard. The economy grows like mad when the government is injecting liquidity into the system. This is a lot like using methamphetamine for personal productivity; it works great. For awhile.

The United States is still the worlds reserve currency and buying federal treasury bills is the safesest investment in the world.

That's propaganda, not economic reality. If I'd bought US treasuries in 2000, I'd be behind in real value. If I'd invested that same money in Euros or gold, I'd be way, way ahead.

One of the fallout consequences of this bubble popping is that we will no longer be the world's reserve currency.

The dollar is tied to the full faith and credit of the United States government.

The dollar isn't a promise to pay anything. It's backed by the full faith and credit -- but it isn't an actual promise of any kind. We are promising fervently that will pay our creditors nothing on demand.

Malor, I know you feel very passionate about this issue but what you're saying isn't grounded in reality. It goes against decades of economic research and empirical data.

Yep. And I'm mostly right, too, and they're mostly wrong. We're falling off a f*cking cliff and it's your vaunted decades of research that led us there.

Economics isn't called the dismal science for nothing.

The service sector does not generate wealth. It's just pushing jello around the plate, not making new jello. We will not get rich cutting each others' hair.

Marketing, finical, engineering, and many other jobs fall under the service sector.

You're dead wrong my friend. Dead wrong.

Well, I'll enjoy seeing your explanations of what's happening over the next few years. I suspect your framework of understanding will not let you grasp why things are falling apart so very badly.

Worthless money lets politicians manipulate the economy; almost NEVER do they have our best interests in mind. Even when they do, on the rare occasions they're genuinely trying to improve things for everyone, and not just for the next election..... well, we've seen what happens with centrally planned economies.