The Economic recover: anyone willing to make a prediction?

[LaurieAG]

Originally Posted by charles brough

But I sense you are not real predicting we will re-establish the gold standard, are you?

Hi Charles,

I read two articles the other day on stabilisation of the global financial system through a gold standard. For most of human civilisation over thousands of years there has been some form of gold standard in operation, where the central bank/treasury sets the transfer prices of goods and services to a common standard. Up until the early 1970's there was a gold standard in operation where the global currencies were linked to the US dollar through its relationship with the price of gold (around $35).

The main driver for a gold standard is that, of the 680 or so trillion of outstanding derivatives, a high proportion (2/3 or so) are related to currency values and interest rates, a good earner considering that these factors remain largely under the control of the reserve banks (a good earner if you don't actually work for a living).

While Allan Greenspan may have been trying to protect the US economy from economic fallout, his own 'stairway to heaven' (If there's a bustle in your hedgerow, don't be alarmed now) was a major contributor to the global problems we now face.

So a gold standard would help protect the global financial system by stopping the speculators from sucking the grease out of the bearings before the engine seizes (again).

I wrote the following 10 years ago (5th Oct 1998). Surely there must be a way to get a win/win situation (between the people and business not between the governments and the business i.e. the current status quo), and not by continuing the exact same poor policies that lead us into this mess in the first place.

'The plea of BeiBionn'

You can have your magic beans Jack,
your children are hungry and we need the cow back.

The lack of just terms and equitable or fair pacts,
expose all crooked beanstalks to concerted attacks.

Unless obsessive cycles are stopped in their tracks,
our towns will again be as flat as tacks.

You have been too trusting Jack,
your childrens futures remain black,
while current problems compound through lack.

Struggle earnestly against the pack,
repudiate rights to depreciatingly retract,
as giants fortress lie ripe for sack.

For only fair shares of the golden goose Jack,
will save beanstalks and giants from the axe.

[Cindy Gates]

We won't see signs of recovery until 2010, in my opinion.

[charles brough]

LaurieAG proposes a return to the gold standard---to which I agree. But, you know, it won't happen in our life time . . .

Cindy Gates is thinking in terms of 2010. Could be, but I think all this money being created and pumped into the system will mean that once the stock market begins to rise up from these levels, cheap money will pour in from all over the world buying up real estate and other now-low-priced assets.

What I figure is that monetary inflation has distorted the picture which would otherwise equate 1929 with our 2005 real estate boom peak and that 1933 bottom corresponds to our 2009 next year. At least it is an interesting comparison . . .

[Buffy]

Yes, but it seems to be based on the notion that the gold standard would result in greater stability of currencies, when the exact opposite is the case.

Anyone ever read William Jennings Bryan's "Cross Of Gold" speech?

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold,
Buffy

[questor]

Economic recovery--3-8 years
Housing industry recovery-- 2-4 years depending upon location
Auto industry recovery-- 4-5 years. must redesign, retool, get union concessions as to salaries to ever become competitive in the USA again. The
bailout, whatever it is will not be enough. This industry may not survive as it is.
Banks-- more will fail, be aquired, be more regulated--limiting profits
Jobs-- unemployment will increase to 8-12%. Due to lack of education and training, we have a large number of people who may be unemployable.
Government -- will grow to try to handle all the chaos in our institutions and infrastructure. This, along with everything else will drive up taxes and further punish all businesses.

Economies can only function by a fair exchange of value between and among consenting parties. When the balance is skewed by trying to artificially ''even the playing field'', a time of reckoning surely follows. The very people who allowed and encouraged this debacle are now trying to lay the blame at the feet of others instead of admitting their mistakes and correcting the ideas that caused them.

We have elected a group of politicians who have historically elected to throw money at problems rather than make the hard but correct steps to solve the problems. All we can do now is pray they show enough toughness and insight to do the right thing for the country.
There is no good news out there and the worst is yet to come. The Dow fell below 8000 and I would not be surprised to see it at 6000 by next summer. More and more businesses are crying for bailouts and they don't even know how much they need to survive long term.
I hope to Hell I am wrong about this whole scenario.

[charles brough]

Originally Posted by Buffy

Yes, but it seems to be based on the notion that the gold standard would result in greater stability of currencies, when the exact opposite is the case.

Anyone ever read William Jennings Bryan's "Cross Of Gold" speech?

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold,
Buffy

How eloquent, Buffy!

With the gold standard, you have deflations, you have pronounced economic cycles. This is where its value lies: it avoids the ruination of currency with hyper inflation. In the Roman Empire, precious metals ceased to be used and base metals were used as money. The inflation became so serious that the empire reverted to barter for periods of time. Paper money was substituted in the Chinese civilization. They had ruinous periods of hyper inflation. We are heading for hyperinflation also and I think we are in for a taste of it when we come out of this very expensive recession.

[Thunderbird]

I predict unemployment rates will rise to 12-17% within a year as company‘s fall to the way side or begin to hemorrhage job positions. Numerous and Massive infrastructure building projects will bring unemployment down to 8% in two years. New energy technology will bring down the unemployment to below 6% in four years.

[Buffy]

Originally Posted by charles brough

This is where its value lies: it avoids the ruination of currency with hyper inflation.

Well, sort of, but its one of the worst ways to go about it! Talk about cutting off your nose to spite your face!

You're missing the point that no matter what you use as "currency" whether it's paper or Pieces of Eight supply and demand rules the markets, and artificial pegging of your currency will exacerbate fluctuations in that supply and demand.

It's true that pegging your currency to a specific exchange rate on a rare commodity can rein in foolish Monetary Chiefs, but the benefits of prudent floating of currencies to smooth out economic cycles far outweigh the benefits of assuming that those Chiefs are fools and making their jobs automatic.

The thing that the power to print money--the key factor in causing any level of inflation along with shortages that even a gold standard does not protect against--does is that it allows spending by the government to fill in when consumers and businesses cannot during economic contractions. If this spending is in the form of loans to be paid back later (that's what those bailouts are), or in the form of infrastructure projects or investments in new technology that provide both short term work opportunities as well as--and more importantly--providing jump-starts for new business as the expansion starts, such printing of money is simply in advance of the growth to come.

This sort of advantage from government spending is never possible according to extremists on the Right, and it would be better to go back to the pre-Civil War sitution of every man for himself, and if companies want railroads or highways or airports to improve trade, well, they just have to build them themselves. The fact that Obama is suggesting this sort of spending of course is a harbinger for Imminent Doom as far as these folks are concerned, no matter what the last century and a half of US history has shown.

So:

Originally Posted by charles brough

We are heading for hyperinflation also and I think we are in for a taste of it when we come out of this very expensive recession.

Why do you think so? With the recent drop in oil prices there are no inflationary pressures at all, and the Trillions of dollars of government spending that are currently being put in place are not only essential to avoiding the implosion of the economy a la 1930-32, but are spit in the ocean compared to the size of the US economy, and assuming even a slow turnaround, can easily be absorbed by new business activity--and rapid growth thereafter if we become leaders in green tech because of all the investment that's going to be included.

You may be disappointed if you fail, but you are doomed if you don't try,
Buffy

[charles brough]

Buffy, that is a very eloquent response and I agree with much of it. It is just that I put myself in historical perspective and see that when civilzations abandon the precious metals, they get roaring inflation and that it accompanies the decline of the civilization. I recognize that the gold standard is not going to be re-imposed here in the short to intermediate term. I am thinking thinking ahaid to the next civilization in a "what would be best" sense . . .

[charles brough]

LaurieAG:

. . . a good presentation of the gold standard . . . But I think you are no poet!!!


I once owned a few gold ingots in Jakarta but had to sell them because I could not take them out of the country. They fascianted me. There is nothing like gold. In Singapore, the jewelry shops only carried gold jewelry and usually 18 to 24 carrot. You could see the gleam from inside of the stores on the side walk outside. Now, I own gold stocks.