Are economies of democratically elected governments stable?

[Billy T]

My answer is No as discussed below:

“… ‘Soft despotism’ is a term coined by Alexis de Tocqueville {to describe the US of ~1835}…
Tocqueville's vision of “soft-despotism” is … mutually corrupt citizens and the democratic state. Citizens vote for those politicians who promise to use the state to give them whatever they want. The political-class delivers, so long as citizens do whatever it says is necessary to provide for everyone's desires. The “softness” of this despotism consists of people's voluntary surrender of their liberty and their tendency to look habitually to the state for their needs. …

{the government} extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals …”

From: http://en.wikipedia.org/wiki/Soft_despotism but actually just quoting and paraphrasing from Democracy in America

Billy T comment: Quite perceptive for a Frenchman who arrived in NYC in May 1831 and returned to France less than a year later (Feb 1832). IMHO the main thing that he did not foresee was fiat money. Thus, he probably would reply to the thread’s question:
“Yes, but degrading to individuals, and true freedom.”

I know how much easier fiat money has made it for governments (especially the US government with the dollar as the international reserve currency) to grant the wish of almost all to live beyond their means – for as long as the printed paper is accepted as having value, but law of supply and demand operates on fiat currency too. This continued increase in money supply makes the currency less valuable. I.e. there comes a day when the piper must be paid for the dance of consumption in excess of production.

In the US case this day or reckoning has been delayed by years, mainly by China's willingness to return the currency to the USA so it can be used again to buy more consumption goods, beyond US production, without printing more currency. For decades, the CCP keep the Chinese workers in near poverty, slaving away in factories (and even thankful to the CCP for having that job) so Americans could enjoy the consumption of the goods they made more cheaply. The Chinese people are now saying:

“Enough already – we want higher wages, better working conditions, to enjoy the fruits of our labors etc.”

And the CCP is responding: – Making: a social welfare system, hospitals, better schools, more paved roads, a network of trains, smart electric grids, rapid expansion of power generation from many sources, factories producing cars, washing machines, cell phones, TVs, computers, etc. in greater volume than any other country. For example, ~ 360 million Chinese have high speed internet connections – more than the total of ALL Americans!

In modern China, economic democracy is limited to the market place. I.e. the invisible hand of Adam Smith determines what is produced and consumed. The CCP reserves for itself the decisions as to how and what basic infrastructure will be created. When keeping the population slaving away in factories making export products was still possible, capital investment mainly supported these, inefficient and often unprofitable, exporting factories. They earned the foreign currencies that the CCP would lend back to the consuming nations so they could continue consuming beyond their means.

But “The times are a changing” The population is demanding more and getting it in form of double digit increases in their real salaries (and many new services like those listed above). China no longer has cheap labor. It increasingly produces mainly for the domestic market – For example: World’s leader in car sales and domestic sales of many electronic items, such as cell phones, computers, digital cameras etc., but it still exports too as conversion from an export to domestic based economy is not done in only a year. China is trying to accelerate this switch with too many measures to name all, but a very important one was the land reform of a few years ago that has allowed farmers to rent their land to larger, more efficient, producers and sent those farmers to the new cities (100 planned for populations of 1 million each) now being constructed in the interior, and serviced by the new rail lines, etc.

Although China is again a net buyer of US Treasury bonds (last three months) it was a net seller for the prior 5 months. The day is coming soon (a year or two at most) when only Treasury’s printing presses will pay off the maturing Treasury bonds as China will cease to “roll” maturing bonds. Long ago, I predicted a run on the dollar before Halloween 2014, and I am increasingly (especially after G-20 achieved nothing but promises) sure that will be correct.

SUMMARY: Now that fiat money exist, democracy and economic stability are mutually incompatible. The situation is worse than Tocqueville, ignorant that fiat money would exist, could imagine.

PS This thread is in philosophy forum, but can be moved to B&E forum; however, "Philosophy" need not be entirely "ivory tower." - I.e. it can and should be guided by real world human experiences, including how man behaves economically. Thus, the thread's question is really a philosophical one for which economic realities will provide the final answer. - We just speculate now.

I would change my answer to Yes, if the population were better educated, instead of just "trained" to be productive and useful citizens. - Perhaps in Scandinavia democracy and economies are stable, even with fiat money - they have been for a few hundred years.

[cosmictraveler]

I predicted a run on the dollar before Halloween 2014,

Last time I read about this you stated it woud happen by 2011, why did you change your prediction?

[GeoffP]

They're systems open to exploitation by more rigid, controlled world-memes; then again, they reinforce each other via sanctions and preference.

Too many variables. In the short-view no, in the wide-view who knows?

[Billy T]

Last time I read about this you stated it would happen by 2011, why did you change your prediction?Your memory must be wrong. It has been Halloween 2014 for at least five years. Initially I predicted, and posted many times, a run on dollar with deep long lasting depression to quickly (a few months) follow without any date - Then the Barron called me out on that vagueness, so I set this definite date.

A few months ago in one or two posts, I noted that I had not even heard of Obama when that definite date prediction was made. He is very smart, so I said I "would not be surprised" if he could delay the run on the dollar until his first term ends and that he would choose not run for a second (too smart to have a depression while POTUS) - That was not a new prediction and certainly not predicting a run on dollar in 2011, although that is possible, especially if someone shoots Obama in 2011, but still within my prediction's six year window which opened 31 Oct 2008. I think it was early 2005 The Barron asked me for a date.

Obama, if living, will leave office in late January 2013. I said that I was NOT changing my "by Halloween 2014" prediction, but expected the run on the dollar to come between 1 Feb 2013 and Halloween (31 Oct 2014). Initially my "run window" was 6 years wide.

[Billy T]

... Too many variables. In the short-view no, in the wide-view who knows?Are you saying: In the short term there will great ups and downs, but no collapse, say of the dollar as the world's reserve currency? How may years does the short term last? Specifically does it extend to 31 October 2014 - date before which my long standing prediction states the dollar will have collapsed.

As this is philosophy thread, can you tell some of the "too many variables" that relate to man's beliefs, thought patterns, dogmas, social systems, etc. and how they relate to the thread's question?

No need to fear being too long winded - Philosophers always are. :D

[NMSquirrel]

its not how bad we mess up, but how well we fix it..

inflation caused by citizens demanding more money to pay for the basics..

i often wonder how it would end up if our basic needs were taken care of..ie food, clothing, shelter,
i do understand about humanitys ability to mess it up..
how can it get set up to work?

i have heard of some companies setting up housing, and other benefits for their employee's, not sure how that is working..(wanna hear more)

how do we move away from aquiring things determining our self worth?

[Billy T]

To moderator: I still did not make the thread title reflect the question well. It should be:
"Are democratic economies stable? Please change it to this.


...
inflation caused by citizens demanding more money to pay for the basics. that is old philosophical question - which comes first, the chicken or the egg? I tend to think they are demanding more money (for their work) to pay the inflated price of the goods they need.

...i have heard of some companies setting up housing, and other benefits for their employee's, not sure how that is working..(wanna hear more)That is quite common in China's coastal factories - their workers often come (or did, prior to recent changes) from inland villages as single persons, knowing no one. - They were glad that the company provided a dorm room, company kitchen, etc. and perhaps four companions to share it. (Same sex as China is very prudish still)

To put a philosophical twist on this - we are by nature social creatures and need this type of help when forced to move to a strange city.


...how do we move away from aquiring things determining our self worth? Answer in a word: "education"

[glaucon]

To moderator: I still did not make the thread title reflect the question well. It should be:
"Are democratic economies stable? Please change it to this.



Mod Note:

Fair enough Billy T, but I have to admit, philosophically, I prefer your original.

[NMSquirrel]

that is old philosophical question - which comes first, the chicken or the egg? I tend to think they are demanding more money (for their work) to pay the inflated price of the goods they need.

exactly so what if the goods we are buying are cheaper because we dont have to worry about rent..



That is quite common in China's coastal factories - their workers often come (or did, prior to recent changes) from inland villages as single persons, knowing no one. - They were glad that the company provided a dorm room, company kitchen, etc. and perhaps four companions to share it. (Same sex as China is very prudish still)

that is the basic model, yes, and there are problems involved with that,which can be fixed..


To put a philosophical twist on this - we are by nature social creatures and need this type of help <deleted>


just reads better..



Answer in a word: "education"

see for me the word education intones a formal setting to aquire knowledge,it also means teaching everyone in the same exact way,we dont all learn the same way..

but to aquired the knowledge nessesary to understand, our worth is not based on our current emotional state of being, sometimes takes a more personal approach..

[Billy T]

exactly so what if the goods we are buying are cheaper because we don't have to worry about rent. ...I don't see how this relates to inflation or the price of goods. Perhaps you are assuming (from your post6):
"I often wonder how it would end up if our basic needs were taken care of..ie food, clothing, shelter."

Certainly there could be a society where the state's division of "public welfare" provided food, clothing, and shelter, but I think it would be very inferior to letting the "invisible hand" of Adam Smith do that. To a large extent the old USSR tried to do that. Products, when available, were inferior and required waiting in long lines. If there was no heat in the apartment you were assigned, there was nothing you could do about that. etc.

China has learned from the USSR's mistake and does let Adam Smith's hand manage the market place. The CCP only plans and develops the infrastructure (and much better than the US does as they work from ten 5-year plans. I.e. projects that will only cost and provide no benefit before the next election cannot be funded in the US, even if the long term pay off is great.) For example now in construction or advance planning in China are 28 new nuclear power plants but some will not be on grid until 2020. China is signing 30 year contracts for future delivery of oil and minerals they will need 20+ years from now. etc.

To take just one food item, bread: There is still cost for the flour, heating the oven, etc. that does not cease to exist just because the state gives each citizen one loaf / week "for free". Probably if instead of paying for that loaf in the store, and trying to make it last 10 days to save money, you pay more taxes and your life will be much worse. Not only is there cost to have government employees making all the decisions the baker can make better, but there is no incentive in the system to improve efficiency, etc. I think history shows clearly that such a system is doomed to collapse, probably as it citizens revolt.

The compatibility problem with democracy and capitalism is not caused by the efficiency of letting Adam Smith's hand manage the economy in a market place where you decide what to buy. It is caused by the current generation voting for things they can not afford and transferring the associated borrowing debt to their children. Look at Greece, the origin of democracy. They lived well while others were willing to lend to them. The US is just beginning to realize that living beyond your means for years by borrowing is not a stable plan.

[NMSquirrel]

I don't see how this relates to inflation or the price of goods. Perhaps you are assuming (from your post6):
"I often wonder how it would end up if our basic needs were taken care of..ie food, clothing, shelter."

yes.


Certainly there could be a society where the state's division of "public welfare" provided food, clothing, and shelter, but I think it would be very inferior to letting the "invisible hand" of Adam Smith do that. To a large extent the old USSR tried to do that. Products, when available, were inferior and required waiting in long lines. If there was no heat in the apartment you were assigned, there was nothing you could do about that. etc.

this is the type of info i was refering to when i said i wanted to know more..

now i am not the expert so correct me if i am wrong..
but isnt the set up in russia more of a welfare state? i mean they tried to provide everything? or was it just the staples they provided?


China has learned from the USSR's mistake and does let Adam Smith's hand manage the market place. The CCP only plans and develops the infrastructure (and much better than the US does as they work from ten 5-year plans. I.e. projects that will only cost and provide no benefit before the next election cannot be funded in the US, even if the long term pay off is great.) For example now in construction or advance planning in China are 28 new nuclear power plants but some will not be on grid until 2020. China is signing 30 year contracts for future delivery of oil and minerals they will need 20+ years from now. etc.

sound like they are trying to make it work,and of course there will be problems,but we learn from them..(some of us anyway)


To take just one food item, bread: There is still cost for the flour, heating the oven, etc. that does not cease to exist just because the state gives each citizen one loaf / week "for free". Probably if instead of paying for that loaf in the store, and trying to make it last 10 days to save money, you pay more taxes and your life will be much worse. Not only is there cost to have government employees making all the decisions the baker can make better, but there is no incentive in the system to improve efficiency, etc. I think history shows clearly that such a system is doomed to collapse, probably as it citizens revolt.

the government should not be the desicion makers, they should not be the ones in control of such a system, they can help by giving tax breaks to those who provide such a system,but they should not be in control..
and im not saying everything should be free, just the basics of survival,anything more than that has to be paid for. i also think corporations are in the best position to make something like this happen,i also think
this is an area which needs more serious disscussion to which you have begun.


The compatibility problem with democracy and capitalism is not caused by the efficiency of letting Adam Smith's hand manage the economy in a market place where you decide what to buy. It is caused by the current generation voting for things they can not afford and transferring the associated borrowing debt to their children. Look at Greece, the origin of democracy. They lived well while others were willing to lend to them. The US is just beginning to realize that living beyond your means for years by borrowing is not a stable plan.

i think i agree with that...the last part anyway..could you rephrase the first part?

[Faure]

I certainly agree that there is a fundamental tension between state power--including but not limited to monetary power--and democracy.

However, I don't see any sort of special problem that fiat money causes. I think that its perfectly possible to have both fiat money and fiscal conservatism, and I also think its possible for commodity-backed money to be at tension with democracy in similar ways.

Frankly I find that all too often, discussion of fiat money is a preface to your standard, overly simplistic, The-Fed-Controls-All Ron Paul style conspiracy talk that seems ubiquitous on the internet! :shrug:

[Billy T]

... I don't see any sort of special problem that fiat money causes. I think that its perfectly possible to have both fiat money and fiscal conservatism, and I also think its possible for commodity-backed money to be at tension with democracy in similar ways. ...Certainly there is no necessity for the fiat money and democratic society to ultimately have a near worthless currency, but to avoid that a well educated population is required. The voters must understand that they can not have everything they may desire just be cause some source of fiat money is available. I.e. they need to produce or trade for things they consume, not print money to buy them.

I thing the Scandinavians do have the level of public education required to avoid excessive consumption with borrowed (or printed) fiat money. Clearly Greece did not, several others, the US included, either already have or soon will have debt to GDP > 100%. There is only one case in last several centuries when that ratio greater than approximately 90% has not ended in a collapsed currency.

That case was UK at the start of the industrial revolution. England had both a technological advantage on the rest of the world and an empire to sell the items it could produce to. - I.e. was able to earn enough via exports with high profit margins to pay off most of its debts.

Now no nations has great technological advantage and competition keeps profit margins modest. Thus, the debt burden interest, once the debt is more than ~0.9GDP only grows annually. The US is borrowing to pay the interest on the old debts already. Next year US will borrow more with the rate of increase growing faster than the GDP. This is a death spiral for the value of the dollar.

Even rapid inflation* as a way to pay off the debt may not work as too much of the debt obligation is indexed to inflation. The largest of these is social security, but there are several others including the TIP bonds sold.** I expect "window dressing" adjustment will be made to reduce the cost of SS and /or increase the SS tax, but not anything that solves the problem. - There is AARP and too many self-interested older voters (and Congressmen wanting their votes) for the needed deep cuts to be made.

-------------
* Perhaps inflation can pay off the debt when debt to GDP ratio is only 90%, but it certainly cannot when that ratio is 120%, which is only a few years away at current grow rates of the debt and GDP. Too large a fraction of the debt is indexed to inflation.

** "... Treasury reported more than $557 billion worth of TIPS outstanding at the end of the first quarter {1Q10} ..." From: http://moneymorning.com/2010/07/06/defensive-investing-7/ where there is a good general discussion of TIPS.

[Fraggle Rocker]

Initially I predicted, and posted many times, a run on dollar with deep long lasting depression to quickly (a few months) follow without any dateWill this be like 1939 and cascade throughout the developed world, so there will be no safe haven?

[Billy T]

Will this be like 1939 and cascade throughout the developed world, so there will be no safe haven?If dollar were to collapse in 2010, I think all the G-20 would fall into depression. China still needs too export to US and more so to EU, their larger buyer (in 2009, but with Euro down, not sure that is still true)

China is rapidly converting to a more domestic market economy with more of its exports going to pay, in goods, for the long term contracts of energy and minerals. For example China will build railroad and port in the Congo to take out copper from the eastern part -far from the sea. Some more developed countries , like Brazil, just get up front "loans" that are to be paid back with oil, etc. China and Russia have recently become each other's main trading partner.

For example, in Russia, but near the border with China is the Kimkan open pit (2.6Km^2) mine with more than enough iron to build many hundreds of millions of cars. (See recent NYT writer Andrew E. Kramer article. - I read copy in Portuguese today in my newspaper) Their mutual trade in 2009 was 39.5 billion dollars. Russian is sending large amounts of coal and lumber to China. A new rail bridge over the boarder river (Amur) at town Nijneleninskoye has been built for the ore. Russian is supplying minerals and oil via 48inch pipeline, etc.

Russian & Chinese presidents met on 10 June 2010 in Tachkent to sign more trade agreements. Kingsmill Bond, Chief of Moscow bank of investments, noted that Russia & China were perfect partners as Russia has every resource China needs and China has the capital to help develop it. For example China, is giving 400million dollars for just the Kimkan mine development/ expansion. China places extra value on oil and other imported resources that the US Navy cannot block.

I think by Halloween 2014 China's switch to a domestic economy will be far enough along so that the economic pain (if any) in not selling to the US and EU will be more than compensated by lower cost of its need imports if the US and EU are in deep depression and not buying in competition. So if the dollar has not already collapsed by then (as I predicted, long ago) China will take the one time loss of basically dumping the treasury bonds it still holds to send US and EU into depression via a collapsed dollar.

Summary: It is still a few years before China will say: Go to Hell USA.
We don't need your market. We won't lend more. Your green paper is worthless.

When it does Brazil, Australia, NZ, Russia and a few other suppliers of raw materials, energy and food stock will not be in depression but basically become economic colonies of Asia. By 2030, the world will dance to China's tune with possible exception of India.

[Billy T]

http://www.fool.com/investing/general/2010/04/16/why-the-us-cant-inflate-its-way-out-of-debt.aspx article is entitled "Why the U.S. Can't Inflate Its Way out of debt."

This article then concludes that only by large tax increases or deep spending cuts can US save the dollar. I rest my case, (For both a coming depression and the instability of Democratic economies, with education like in the US.).

[Me-Ki-Gal]

It might get pretty ugly before it is over. Jubilee!!!

[Yazata]

Are democratic economies stable? I'm not sure what a "democratic economy" is.

Market economies probably are less stable than command economies, if only because market economies are more dynamic and responsive. They are far more innovative and generate higher rates of growth. But they are also more exposed to financial shocks, speculative bubbles and such things. If we graph market and command economies, there will probably be more jagged up-and-down volatility in the market graph, while the command graph will be flatter. But the market graph will have a greater overall upward slope.

With regards to political democracy, my opinion is similar to Churchill's (if I recall correctly) when he said that democracy is the worst system on earth... except for all of the others.

It's true that political interference can distort an economy in favor of the interests of those in power. But abandoning democracy and turning control over to a self-appointed and brutally sustained party cabal like that in China won't make the political interference problem go away. It just expands it tremendously, institutionalizes it and makes it impossible to correct without large-scale revolutionary bloodshed.

I'm not convinced that China is better governed than the US. It's just exploiting its huge low-wage labor force to undersell American manufacturers. They run up huge trade imbalances with countries that their leaders decide to target, driving industries out of business in the target country while simultaneously using that country's wealth to finance their own development efforts. It's right out of Europe's own playbook, just old-style 17'th century mercantilism updated. And in the process, China's "communist party" has totally abandoned Karl Marx and is building a state-led 'corporate' nationalism very reminiscent of 1930's European fascism.

They may find that they are holding a tiger by its tail.

As tens and then hundreds of millions of Chinese ascend to 'first-world' standards of living and become increasingly sophisticated and aware of the world around them, they aren't likely to be satisfied by the imperfect freedoms that the state grudgingly allows them. Freedom to make money if doing so is in the state's interest, but no freedom at all to challenge the hegemony of the self-perpetuating leadership. Long term, that's a source of real instability, a ticking time bomb.

Then there's the even more dangerous problem of China's poor. It's just inherently destabilizing to give the billion-plus Chinese hopes of a better life and knowledge of how people outside China live, and then fail to deliver. But delivery isn't going to be easy. China has four times the population of the United States. If every Chinese was living at the American standard of living, then presumably China's annual consumption of raw materials would be four times that of the US. With some commodities, that might actually exceed total world production. Even if it doesn't, new demand on that massive a scale (another US x 4) will drive commodity prices through the roof. And it will likely initiate a ruthless 21'st century military competition to guarantee supplies. The 19'th century's "great game" is going to return bigtime, with a powerful new player on the board and the Western world in a greatly diminished state.

And to the extent that the system does deliver, China's competitive advantage shrinks. Labor costs will inevitably rise once laborers are living at an American and European standard of living. But it might be possible to keep juggling all the balls in the air for decades to come, enjoying the best of both worlds, while those connected to the Chinese party elite and the country's growing middle class serve as a managerial and entrepeneurial class, in effect new mandarins exploiting an endless supply of rural villagers hopeful of moving to the big city and willing to work for low wages.

But internal colonialism will inevitably prove unstable longer-term. The greatest fear that the Chinese communist leadership has is popular insurrection (it's ironic but not unexpected, since that's how they rose to power themselves) and they are clearly scared to death of it. We saw at Tiananmen what their response would be to an Egypt-style uprising. Bloody and brutal.

[Billy T]

Are democratic economies stable? I'm not sure what a "democratic economy" is. As I started the thread, I will answer despite it being quite clear from the discussion in the OP (post 1):

It is an economy where the government's leaders are "democratically elected" by the adult population (or most of them can vote). "Democratic" should not be understood as an adjective modifying economy, but as describing how the leaders of the government of that economy are selected. (One can not make short title (four words) reflect accurately what the OP states is the thread's subject.)

[IceLight020]

Ironically, communist economies are more stable... That is because everyone is pretty much made to be the same. You either follow one perception or die.

In a democracy, you have people who have different views. Guess what happens? Chaos.

I am not saying communist economies are the best, I am just saying they are, technically, more stable in general.

Technically though...

It depends on what you are comparing as well as what you define as "stable".

Why?

Because I can easily say the killing of people is symbol of instability in communist governments, thus contradicting my previous statement.

[Billy T]

This thread was originally in Philosophy forum, General Philosophy where it was locked for unknown reasons and now has its third title, which I hope accurately expresses the thread's subject for those who do not read post 1 where it is made clear. (The prior title made post 19 necessary.) The thread certainly concerns economics, but really, IMHO, is a philosophical subject. For example it is also asking what is the proper relationship between generations - clearly a philosophical question.

The OP starts with: "... ‘Soft despotism’ is a term coined by Alexis de Tocqueville {to describe the US of ~1835}…
Tocqueville's vision of “soft-despotism” is … mutually corrupt citizens and the democratic state. Citizens vote for those politicians who promise to use the state to give them whatever they want. ..." So this is an old philosophical question, even discussed by the ancient Greeks. - Plato’s The Republic etc.

Considering the rapidly growing US debt due in large part to at least three decades of Americans living far beyond their means on borrowed money since they voted for those who would borrow from future generation makes de Tocquevillle's observations still valid.

It would seem to me that my generation has treated the young of the coming genertion very badly. We have given them less education (now it is more job training than education)* and a huge debt they can only pay by destroying the value of the dollar.

* Almost none read (Cliff Notes not counting) texts recording 2,500 years of developing wisdom that have created Western Society. Few college graduates, except philosophy majors, have even heard of half their authors! I assume that is why you see the confusion between communism and despotism evident in post 20. I would bet Icelight020 has never read either Marx’s Das Capital nor Machiavelli’s The Prince and probably had never even heard of Alexis de Tocqueville (Democracy in America) before this thread quoted him.

Thanks to James for re-opening and moving thread.

[Billy T]

http://secure.campaigner.com/accountsmedia/6000/B&B%20-%2003-24-11%2022.gif All spending beyond their tax income = Borrowing for current expenses.

The stability question, to a large extent, depends upon who they are borrowing from. If mainly from your own population, there is little chance their own population will decide to destroy their own currency - For example by trying to sell all the bonds they hold.

If borrowing from a competitor for the vital, and limited, resources both lender and borrower need to import, then there may be an advantage for the lender if it destroys the currency of the borrower. I discuss further with a specific example:

The US is deeply in debt to China, Japan, (even Brazil, which is the fourth largest foreign holder of US treasury paper. The largest holder is the FED.)

The economies of China, Japan, and India (to name just a few) have rapidly growing demands for oil, and other commodities, like copper, iron ore, cotton, soy beans, corn, wheat, etc. which are in limited supply. Thus, the price of these items is surging upwards at several times the rate of general inflation.

Post-quake Japan, will need to import at a much faster rate than did pre-quake Japan. Japan holds 886 billion in treasury bonds, but will need to sell some (I guess at least 200 billion) of them to pay for reconstruction (cost >300 billion) and to import of more oil for power generation, even food, due to the nuclear accident's reduction of production of these items. One can not expect the population, many of whom have lost their homes, businesses, farms, and fishing boats to buy more Japanese bonds. I.e. the quake has converted the world's greatest savers (= lenders) into borrowers.

China understands well that the value of the dollar is in long term decline as the US "monetizes" it huge debt. China has not "rolled" the 10 year and longer bonds it held, but is moving to shorter maturities. They have also reduced their total holding of treasury paper during the last two years, mainly by using dollars to by real assets - often paying "up front" for delivery of specified volumes of commodities they will need during the next 20 or even 30 years. The Arab oil exporters have also recently reduced their holdings of Treasury's paper promises and probably are part of the reason gold and silver demand and prices are rising so fast.

Summary: This getting out of US paper, is not yet the "run on the dollar" I have long predicted - just a still orderly walk away from the dollar.

This global reduction of central bank holdings of Treasury paper combined with the US's trillion plus deficits is forcing the FED to be every more the buyer of treasury paper. New Treasury paper must be issued not only to cover the deficits, but also to pay off the maturing bonds that are not "rolled." Either there will be a QE3 soon after QE2 ends in June or a great surge upwards in the interest rates the US must pay to sell bonds.

The latter will greatly increase the annual deficits as mainly short term bonds have been sold in recent years and when they mature the new bonds will carry these new higher interest rates. - I.e the bulk of US's huge debt will in a few years have at least twice the interest cost it now has, if the FED does not make QE3 to artificially hold interest rates down (as it is now). Thus the FED will, like it or not, make QE3, then QE4, etc. This monetization of the growing debt is the only acceptable escape from the debt burden because doubly or even tripling of the cost of borrowing (a return to normal rates) will kill the fragile economic recovery. Joe American, is not able to replace the FED if there is not QE3. Conceptually large and profitable US corporations could, but they are investing in developing countries as that is where their profits are coming from. They would only buy US bonds, if bond interest rates were much higher -at least equal to the returns on capital they are getting by investing in developing countries. Those higher rates, as just stated, would kill the recovering economy. Ben Bernanke, may not like the choice of QE3, etc. but monetization of the growing debt is the only choice he has.

China knows this. When they have further reduced the volume of dollars in their reserves and are more of a domestic demand economy (with no need to export to US & EU as exports to other growing Asian economies dominate their exports) then it pays China to kill the dollar by dumping their remaining dollar reserves, at a ONE TIME loss, more than compensated by the fact that US & EU will not be able to be significant competitors for the energy, raw materials, and food stocks it must import EVERY YEAR. (Less global demand for these things = lower prices for them = net long term savings for the still expanding Chinese economy.)

[Otto9210]

I would say despite the US's current lag in real political debate, Democratic governments are more stable. Democratic governments take everyone's views and beliefs and try to pack those beliefs into a policy that is stable and doesn't lean to heavily one way or another. However the people can become deeply divided against each other, which can lead to instablility and stupidity.
How many absolutley Free market or Centrally planned economies are left?
I think most would agree the best policy is a combination of the two polar ideologies.

One question I would like answered is if the Chinese wages begin rising will their factories move to another low wage region to increase profitability? And if this happens where would the people work then? Wouldn't they have a similar American dilemma of trying to create a service economy and trying educating their citizens to work mostly low wage or high wage jobs?
ALSO, HOW MANY COUNTRIES CAN CONSUME THINGS LIKE AMERICANS, UNTIL COUNTRIES START FIGHTING EACH OTHER FOR RESOURCES?
Correct me if I'm wrong but didn't Marx predict something to that extent?

[Billy T]

I would say despite the US's current lag in real political debate, Democratic governments are more stable. Democratic governments take everyone's views and beliefs and try to pack those beliefs into a policy that is stable and doesn't lean to heavily one way or another. ...Politically this is true. Modern India, the world's largest democrcy is a good case of this "stability" or perhaps more accurately "political inertia." China in contrast is a command economy and can act very quickly. For example they built the world's largest airport (a mile long) with capacity for more planes than any other docked at the terminal in less time than England spent just in public hearing related to the expansion of part of Heathrow. The "instability" the thread is concerned with is not political but financial.

Unfortunately, all these diverse political groups agree on one thing: The government should borrow from future generation to provide a higher living standard to the current generation, even if with each passing generation the debt grows more impossible to re-pay, ultimately resulting in collapse of the country's currency.

... One question I would like answered is if the Chinese wages begin rising will their factories move to another low wage region to increase profitability? And if this happens where would the people work then? Chinese wages are rapidly rising (minimum wages by 15 to 20% per year! This mainly benefits the interior as few, if any workers in the coastal factories get only the minimum wage. Last year, FoxCom had a few dozen of its workers commit suicide. They were housed in four of five story barrack like dorms holding more than 30,000 workers, feed in the company's mass kitchens, and seldom if ever could leave the FoxCom compound - i.e. cut off from all friends and with little contact to even other worker from their home area. Life seemed pointless for many and dozens acted on this view.

FoxCom raised salaries by 30%, turned the kitchens over to restaurants firms, hired psychological councilors, repainted rooms, added curtains, etc. but still it was not enough. - The number of workers declined, so to get workers, FoxCom did close two coastal factories and re-opened them in the interior. There wages were slightly lower, but that saving was basically offset by the greater shipping costs.

Life in the interior is rapidly changing. Farmers now can lease their tiny plots long term to allow large efficient farms to form. They move to one of the 100 new cities being built in the interior. Each for a population of 1 million persons. Building these new cites and the national high speed rail system, etc. is creating many more high paying jobs in the interior. Chinese are very close to their families and prefer to live near them. About a month ago was the new year of the rabbit. When that traditional gathering of families ended, more than 10% of the coastal workers did not return to the coastal factories. Other jobs, near home were available. This rapid conversion of rural China into an urban way of life is by far the greatest social transformation (100 million people drastically changing life styles in less than two decades) in human history. The US did this too, but over about 150 years.
... ALSO, HOW MANY COUNTRIES CAN CONSUME THINGS LIKE AMERICANS, UNTIL COUNTRIES START FIGHTING EACH OTHER FOR RESOURCES? Correct me if I'm wrong but didn't Marx predict something to that extent?Yes Marx did in several of his books, papers but most extensively in Das Kapital, which I read many years ago in the original. In it, I think is where he first noted that "Capitalism has the seeds of its own destruction within it." (And that it would be replaced by communism, after passing thru a socialistic stage) but he was thinking more of the social stresses of the capitalism of his day, not the Earth's limited resources. What Marx and Engels failed to foresee was the rise of the labor unions, which undid the worst of the capitalist abuses (Children chained to looms, young girls locked into factories, one that burned 146 of them to death a few days more than 100 years ago in NYC.)

The other notable (for it accuracy) quote I remember from Das Kapital is his definition of a Capitalist: "A capitalist is one who will sell you the rope with which to hang him." For example, to efficiently smelt iron ore into iron you need to mix in some scrap iron (it melts and improves heat transfer). Just before WWII, the US sold almost all of the scrap iron in the USA to Japan who was paying higher prices than the local steel mills.

[Carcano]

I would change my answer to Yes, if the population were better educated, instead of just "trained" to be productive and useful citizens.
Its a matter of ethics...not education or a lack of information.

For example, if a person is in debt and keeps applying for new credit cards to pay his old credit bills, this is a moral failure...not ignorance.

Consider this, if you were a social worker faced with a drug addict alternating back and forth between the two extremes of being HIGH or painful withdrawl...which extreme is THE problem???

Most modern US economists would say the withdrawl symptoms are the problem...to be solved with more drugs.

This is their response to the bursting of credit bubbles...pile on more credit.

Its not that theyre stupid...just amoral.

US citizens generally have no more ideals...not religious, artistic, political, cultural or economic.

[quadraphonics]

China in contrast is a command economy and can act very quickly. For example they built the world's largest airport (a mile long) with capacity for more planes than any other docked at the terminal in less time than England spent just in public hearing related to the expansion of part of Heathrow. The "instability" the thread is concerned with is not political but financial.

What you describe there is exactly political turmoil, simply deferred. I.e., for all that delay at the front end, Britain gets public works projects that the public actually democratically accepts, and feels that they have a stake in and a fair say on. It's a pain to get built, but once it is built it is legitimate and trouble-free. China simply bulldozes over people, and thereby entrenches authoritarianism and adds to its huge reservoir of deferred outrage. China is systematically cultivating massive political resistance to the current system, and hoping to manage that indefinitely through some combination of growth and repression. Once the growth falters - and it will, eventually - they face the collapse of the government. Which is a much more serious concern than the collapse of a currency.

[Carcano]

Once the growth falters - they face the collapse of the government.
How...will the Chinese people rebel???

I dont think so...they remember what happened last time.

They know they will simply be mowed down and their bodies burned in mass ovens.

The ashes can be mixed with the toxic plaster used in the drywall China is exporting to America.

In a mercantilist economy nothing goes to waste in the quest to maximize the trade surplus.

[AndrewH]

Once the growth falters - and it will, eventually - they face the collapse of the government. Which is a much more serious concern than the collapse of a currency.

Sounds like wishful thinking to me....I'll believe it when I see it.

Hard to tell what will happen considering cases ranging from Egypt, to Libya, to North Korea and Myanmar.

[birch]

you can't give people too much freedom or too little. it backfires.

the issue is if china does have massive unrest, it is because it is not taking care of the larger demographic or appealing to it's wants. that's why pyramid schemes or capitalism, though immoral imo, tends to work as it creates enough people that are not desiring resistance and will defend the status quo. you've got to have more people revolting than those who aren't. appealing to selfishness by trampling on others is the easiest way and it appeals to most because it is the easiest. morals and the poor be damned. democracy and capitalism is a comical farce, they are the antithesis of eachother anyways.

still shitty overall.

[Carcano]

Democracy and capitalism are the antithesis of each other.
They are both based on consenuality...as opposed to coercion.

[birch]

They are both based on consenuality...as opposed to coercion.

lol. not exactly the point. people can consensually agree to dominate others as well. that's what authoritarianism is. shit rolls downhill and those on the bottom get the shit.

besides, democracy and capitalism is still antithetical to eachother in principle and practice with or without coercion. those who have the money have the power so therefore that trumps any illusions of democracy more or less.

[AndrewH]

lol. not exactly the point. people can consensually agree to dominate others as well. that's what authoritarianism is. shit rolls downhill and those on the bottom get the shit.

besides, democracy and capitalism is still antithetical to eachother in principle and practice with or without coercion. those who have the money have the power so therefore that trumps any illusions of democracy more or less.

This is somewhat akin to the 19th century factory owner saying: my workers choose to work for me under slave wages, when really there's not much of a choice between working and starving to death...

[birch]

This is somewhat akin to the 19th century factory owner saying: my workers choose to work for me under slave wages, when really there's not much of a choice between working and starving to death...

no, that's a symptom. when a core system is stratified which is what capitalism basically is, there is not real democracy. the question is, how bad is it on the bottom? usually it's enough to keep them fed and with the chance that they could move up. if it's not so bad, they may not complain as much.

this is why people try to scramble to the top but only there aren't enough positions/seats for everyone. that's the illusion because someone will always end up with the short end of the stick.

it's like musical chairs. lol

believe it or not, the more socialistic countries are more true to democracy. for some reason, people rarely discuss governments or economies with much honesty.

[birch]

it's actually pretty simple. it's not that heirarchies are necessarily negative. it can work fine and is legitimate based on merit/compensation. you've got multimillionaires/billionaires and minimum wage. that's too much disparity to be even remotely balanced or fair. that is bullshit as well as people making money off a system.

it's just that it's much easier to work with cooperation than force. too much greed can backfire. if the top gave a little or eased up, then the middle and bottom would not be a threat to them or not as problematic a society. instead you have constant stream and climate of relatively disgruntled, stressed-out and unhappy people who cling to religion or drugs or alcohol, revolting or fighting etc to relieve their stress or give them hope or people having unrealistic delusions of making it big.

when you have people working in adverse situations, not able to earn enough to cover expenses and some discretionary money, looked down upon because of social status; then essentially what is happening is a pot that will eventually boil over. also, the competition for jobs is rather chaotic and disorderly, supply and demand is not even realistic. in capitalism, people are secondary when in reality that is what a society is supposed to serve. it also has a poor sense of priorities as arbitrary value can be placed on the frivolous rather than what is more important and people lose sight of it. it is akin to some level of insanity. it's not that the frivolous shouldn't exist or be enjoyed, it's just the priorities are wrong. i have a problem with a world that has people spending millions for a diamond to wear when there are people starving or those who mine them are barely being fed. this is not a blame placed on any country, it is a worldwide problem of greed at any cost.

everyone has different talents, skill levels, interests, abilities and intelligence that is suited for all types of positions in society but when they are not compensated fairly you've got a problem on your hands. many people are actually happy with what they do if they were compensated enough to take care of themselves. unfortunately many are not but society says they are.

when those on the middle and bottom are not happy, there is less stability and more people not doing what they are doing as well as they could simply because they've got their eyes on the prize rather than what they are doing which someone will have to do anyways. and you've got constant warring and turmoil.

a society can run with happy or unhappy people, nature really doesn't give a shit. it's just that the level of quality differs.

greed is a stupid thing. it doesn't mean giving everyone it all, it just means not being as stingy with the purse strings. it's all about a balance. that's real wisdom.

[Carcano]

besides, democracy and capitalism is still antithetical to eachother in principle and practice with or without coercion.
Except that they are both antithetical to coercion.

[Carcano]

This is somewhat akin to the 19th century factory owner saying: my workers choose to work for me under slave wages, when really there's not much of a choice between working and starving to death...
That would mean that no one existed before the dawn of factories...seeing as everyone would have starved to death.

[birch]

Except that they are both antithetical to coercion.

it's irrevelant because people don't always know what they are getting themselves into. besides, coercion doesn't have to be upfront. it can operate behind the scenes. if the stakes are already placed, the game is already begun without people even realizing it. look at the federal reserve, do you really think people would have voted for that if they knew how it works?

[AndrewH]

That would mean that no one existed before the dawn of factories...seeing as everyone would have starved to death.

Pretty close! People who weren't land owners anyway. For poor farm worker the average wages decreased quite a bit with the advent of new agricultural machines during the Industrial Revolution. You either stayed on as a farm hand or moved to the cities. Prices in the cities were pretty atrocious considering their factory wages.

Want to go back further in time? Back to the Dark Ages? Starving was indeed common.

[Carcano]

it's irrevelant because people don't always know what they are getting themselves into.
That would be an example of defining the USE of Capitalism by its ABUSE.

When a consensual exchange is made without full disclosure this is an ABUSE of Capitalism...not the USE by which it is defined.

Would you also define Socialism by its abuses?

[Carcano]

Pretty close! People who weren't land owners anyway. For poor farm worker the average wages decreased quite a bit with the advent of new agricultural machines during the Industrial Revolution. You either stayed on as a farm hand or moved to the cities. Prices in the cities were pretty atrocious considering their factory wages.

Want to go back further in time? Back to the Dark Ages? Starving was indeed common.
If a farmer received lower wages in a city factory than he would earn on the farm there would be no reason to move.

There have been many famines and starvation throughout history, but this is primarily due to climate, crop diseases and technological problems...not economic systems.

[Me-Ki-Gal]

it's actually pretty simple. it's not that heirarchies are necessarily negative. it can work fine and is legitimate based on merit/compensation. you've got multimillionaires/billionaires and minimum wage. that's too much disparity to be even remotely balanced or fair. that is bullshit as well as people making money off a system.

it's just that it's much easier to work with cooperation than force. too much greed can backfire. if the top gave a little or eased up, then the middle and bottom would not be a threat to them or not as problematic a society. instead you have constant stream and climate of relatively disgruntled, stressed-out and unhappy people who cling to religion or drugs or alcohol, revolting or fighting etc to relieve their stress or give them hope or people having unrealistic delusions of making it big.

when you have people working in adverse situations, not able to earn enough to cover expenses and some discretionary money, looked down upon because of social status; then essentially what is happening is a pot that will eventually boil over. also, the competition for jobs is rather chaotic and disorderly, supply and demand is not even realistic. in capitalism, people are secondary when in reality that is what a society is supposed to serve. it also has a poor sense of priorities as arbitrary value can be placed on the frivolous rather than what is more important and people lose sight of it. it is akin to some level of insanity. it's not that the frivolous shouldn't exist or be enjoyed, it's just the priorities are wrong. i have a problem with a world that has people spending millions for a diamond to wear when there are people starving or those who mine them are barely being fed. this is not a blame placed on any country, it is a worldwide problem of greed at any cost.

everyone has different talents, skill levels, interests, abilities and intelligence that is suited for all types of positions in society but when they are not compensated fairly you've got a problem on your hands. many people are actually happy with what they do if they were compensated enough to take care of themselves. unfortunately many are not but society says they are.

when those on the middle and bottom are not happy, there is less stability and more people not doing what they are doing as well as they could simply because they've got their eyes on the prize rather than what they are doing which someone will have to do anyways. and you've got constant warring and turmoil.

a society can run with happy or unhappy people, nature really doesn't give a shit. it's just that the level of quality differs.

greed is a stupid thing. it doesn't mean giving everyone it all, it just means not being as stingy with the purse strings. it's all about a balance. that's real wisdom.

I am on board . This is the mothership right here . You are brilliant. The laborer is worthy of there wage . The Iron fist of ages is at play in our reality right now in the ebbs and flows of market fluctuation. Rebellion is inevitable. Unrest will continue until humanity as a hole gets a figgen clue. Because of dependency

[Carcano]

Look at the federal reserve, do you really think people would have voted for that if they knew how it works?
Even most elected representatives dont know how it works...seeing as its never been auditted.

Even the government inspectors overseeing the Fed's activities dont seem to have a clue whats going on there.

Watch: http://www.youtube.com/watch?v=cJqM2tFOxLQ

[quadraphonics]

How...will the Chinese people rebel???

More or less, yeah. Or it could be that the middle class - or, perhaps more saliently, the borgousie - will have by then accumulated sufficient clout to secure more freedoms. It's not like the CCP can't see the writing on the wall, or are mindless brutes, or something. They're greedy and corrupt, not suicidal.



I dont think so...they remember what happened last time.

And the time before that - when they overthrew the Nationalist regime.



They know they will simply be mowed down and their bodies burned in mass ovens.

Or, not. Even if they were, that doesn't necessarily imply defeat in the larger terms - a CCP with zero internal or international legitimacy is not going to be able to rule a country of that size and complexity for long. Especially as it becomes more developed, educated and connected to the outside. But frankly, it's not particularly clear to me that the army would actually go along with that sort of thing, to save the political leaders.

[quadraphonics]

Sounds like wishful thinking to me....I'll believe it when I see it.

Indeed, you will. If you live long enough.



Hard to tell what will happen considering cases ranging from Egypt, to Libya, to North Korea and Myanmar.

Tell me: which, if any, of those countries do you consider to be comparable to present-day China, and why? Because the economies of all four of those countries, are nothing like that of China.

[Carcano]

Or it could be that the middle class - or, perhaps more saliently, the borgousie - will have by then accumulated sufficient clout to secure more freedoms. It's not like the CCP can't see the writing on the wall, or are mindless brutes, or something.
How is the middle class going to secure more freedoms...by voting?

There is only one party.

Writing on the wall?

Anyone caught writing on the wall is arrested.

What alternative newspapers are there in China voiceing any opposition to the party line?

[Carcano]

And the time before that - when they overthrew the Nationalist regime.

Before the government had machine guns and water cannons???

[Carcano]

Even if they were, that doesn't necessarily imply defeat in the larger terms - a CCP with zero internal or international legitimacy is not going to be able to rule a country of that size and complexity for long.
International legitimacy doesnt seem to pose a problem. The dictators were recently feted at the White House strewn with red carpets and palm leaves...where the entire Obama admin were seen crawling on their bellies without shame, in supplication before their Chinese creditors.

[quadraphonics]

How is the middle class going to secure more freedoms...by voting?

By demanding the right to vote, and using their considerable powers to give force to such a demand.

China is a huge country. The CCP cannot rule it without the acceptance and cooperation of large segments of society. It is quite frankly preposterous to suggest that they could maintain themselves in power indefinitely through brute force alone.


What alternative newspapers are there in China voiceing any opposition to the party line?

As in all societies that live for extended periods of time under authoritarian dictatorship, political resistance is expressed in more subtle, sublimated forms (subversive artwork, oblique memes, etc.). Alternative newspapers that openly question the party line are features of liberal democratic societies - the expectation that such needs to exist as a prerequisite for democracy, is stilted to the point of inanity.

[quadraphonics]

Before the government had machine guns and water cannons???

The Nationalist government most certainly had machine guns and water cannons - and tanks, planes, bombs, etc. They fought Japan - and won - in WWII. They were supplied with modern military equipment by the Western powers, at the time of the revolution. I'm not sure what you imagine China was like in the 1940's, but it most certainly was not some sort of stone age country without machine guns or other serious military hardware.

[quadraphonics]

International legitimacy doesnt seem to pose a problem. The dictators were recently feted at the White House strewn with red carpets and palm leaves

The issue was what the violent suppression of a legitimate Chinese reform movement would do to international legitimacy, not what China is like right now.

And you'll recall that China was widely shunned internationally for like a decade after Tienanmen Square - and that, even with a strong measure of internal legitimacy and a strong economy. A China without those two features, is not one that could count on international support.



...where the entire Obama admin were seen crawling on their bellies without shame, in supplication before their Chinese creditors.

If you owe the bank $1,000, that's a problem for you. If you owe the bank $100,000,000,000, that's a problem for the bank.

[birch]

i don't think there is any way to be psychic on the future of china. it all depends on what the leaders do. if they keep running things with an iron fist, it may not work for long but if they placate the people or enough people it may just trudge along like any other place.

[Carcano]

The Nationalist government most certainly had machine guns and water cannons...
Mao and his Russian supported rebels were far more likely to have AK-47s as the Russian gun was only established in 1948-49.

A completely unarmed modern Chinese population has far less chance of successful rebellion than US militias have against Obama.

Neither of them have a prayer, but at least the militias have weapons.

[Carcano]

By demanding the right to vote, and using their considerable powers to give force to such a demand.

China is a huge country. The CCP cannot rule it without the acceptance and cooperation of large segments of society. It is quite frankly preposterous to suggest that they could maintain themselves in power indefinitely through brute force alone.
Its already doing just that...ruling a huge country by brute force.

And have been proving it profoundly un-preposterous for decades.

Considerable powers???

What powers are those?

[Carcano]

And you'll recall that China was widely shunned internationally for like a decade after Tienanmen Square - and that, even with a strong measure of internal legitimacy and a strong economy.
It wasnt shunned at all...except maybe by some American Buddhists concerned about Tibet.

Mere window dressing.

The rest of the world was beating a path to the promise of cheap labour...which the mercantilist mandarins were all too ready to sell.

[birch]

The rest of the world was beating a path to the promise of cheap labour...which the mercantilist mandarins were all too ready to sell.

lotsa capitalists in the world and they often recognize another one. lol

lots of window dressing these labels are; communism, socialism, capitalism, 'democracy' (lol).

i can call myself a saint, doesn't make me one.

[AndrewH]

Tell me: which, if any, of those countries do you consider to be comparable to present-day China, and why? Because the economies of all four of those countries, are nothing like that of China.

This is exactly my point. Each and every case is different. You can't say you can predict what will happen with absolute certainty. At best it just an "educated guess".

People have been predicting a North Korean collapse for awhile now...hasn't happened. OTOH, no one would have predicted an Egyptian collapse a year ago.

With a system as complex and large as China's (its certainly not some homogenous ethnic and economic sytem)...I won't believe ANY prediction until it happens.

[AndrewH]

If a farmer received lower wages in a city factory than he would earn on the farm there would be no reason to move.

There have been many famines and starvation throughout history, but this is primarily due to climate, crop diseases and technological problems...not economic systems.

Yes that is correct...although I don't think I ever implied famines and starvation were soley due to the economic system...at least that wasn't my intention. If it wasn't clear, then I apologize.

The 19th century factory example was merely an example of perceived "abuse of power/money" in a capitalistic system. Keyword here is perceived (i.e. as viewed by some, may not be true).

[AndrewH]

Back to the OP Topic, I would say personally, I am unsure if it can be unequivocally stated that:

1. If the government of a nation is democratically elected, then its economy must one day become unstable.

On one hand, we can make the case using examples such as the US, some European countries (Spain, Ireland, etc.), however there are examples or democratic countries with relatively stable economies...

Could it be that countries that lack "tranparency" and "accountability" paired with democracy are more likely to develop unstable economies? Here, my prime example would be the US which has numerous branches/institutions which lack "tranparency" and "accountability".

However, I am not sure if this holds true with cases like Spain, Ireland, Portugal, Greece, etc. Is anyone familar with the details of the economic collpase of these countries?

[Billy T]

Back to the OP Topic, I would say personally, I am unsure if it can be unequivocally stated that:

1. If the government of a nation is democratically elected, then its economy must one day become unstable. ... No it is not but two things, not present in the USA, seem to be required:
(1) a very homogeneous population so all can regard others as their distant "kin" - Are concerned about the welfare of others etc.
(2) a culture, created by uniform and good educational system, that is more concerned with the future, the environment, public health, etc. than profits and willing to be taxed a lot to get these things provided via the government to all.

AFAIK, (1) & (2) only exist in Scandinavia countries. They have had stable economic systems and democracy for about 300 years.

BTW, a reasonable one-word summary of (1) & (2) is: Socialism.

[quadraphonics]

Mao and his Russian supported rebels were far more likely to have AK-47s as the Russian gun was only established in 1948-49.

A completely unarmed modern Chinese population has far less chance of successful rebellion than US militias have against Obama.

And whence the presumption that the Chinese resistance would not end up armed? As you note, foreign powers dumped all kinds of arms into China during their last revolution - why do you insist we assume that wouldn't happen again?

[quadraphonics]

Its already doing just that...ruling a huge country by brute force.

No, that's not how the CCP stays in power. They are heavily reliant on the cooperation and acceptance of the industrialist/business classes and the masses in general. There is a social contract in China, and it goes something like "you don't get to vote or read media we don't approve of, but you do get development and growth." It is not "shut up and take it or we'll kill you."

Point is that if you subtract the "prosperity and development" part of the contract, you've got a billion+ people that have no reason to go along. You can't shoot your way out of that.



Considerable powers???

What powers are those?

The lion's share of the Chinese economy. The upshot of all the capitalist reforms over the last decades, is that they've largely replaced the monolithic state economy, with one operated by an entrepreneurial class. They now need the cooperation of that class, to remain in power.

[quadraphonics]

It wasnt shunned at all...except maybe by some American Buddhists concerned about Tibet.

Mere window dressing.

The rest of the world was beating a path to the promise of cheap labour...which the mercantilist mandarins were all too ready to sell.

Both the USA and Europe have maintained an arms embargo against China ever since Tianenmen Square - that's over 20 years.

[quadraphonics]

This is exactly my point. Each and every case is different. You can't say you can predict what will happen with absolute certainty. At best it just an "educated guess".

People have been predicting a North Korean collapse for awhile now...hasn't happened. OTOH, no one would have predicted an Egyptian collapse a year ago.

With a system as complex and large as China's (its certainly not some homogenous ethnic and economic sytem)...I won't believe ANY prediction until it happens.

Predicting political change is a lot like predicting earthquakes - you can observe the structural features and see the mounting pressures, and make a very reliable predicton that some major shift is on the way. The difficult part is predicting when it will happen - could be tomorrow, or next year, or not for decades.

[Billy T]

... There is a social contract in China, and it goes something like "you don't get to vote or read media we don't approve of, but you do get development and growth." ...Quite a few (more than would publicly admit it since not even half do vote) of the un & under employed in US and many of the Joe Americans with decreasing purchasing power ON AVERGE again would be glad to sign that contract.

Your point is well taken: there is little reason for the CCP to fear significant rejection so long as they are delivering several times the US GDP growth, and increasingly shifting a greater share of it to the masses. Of course there will always be unhappy minorities - as is the case in the US.

I think the vast majority of Americans will love to have a government like China's by end of 2014. For why, see post here:
http://www.sciforums.com/showpost.php?p=2727167&postcount=175

In addition to what is stated there, food prices many cannot afford (if they buy gasoline during 2015) will shift the values placed on voting vs eating and driving etc. strongly towards the latter. A new emotion will arise in many: China Envy.

[Billy T]

Bill Gross is sticking by his implied "no" answer to thread's question:

"... Bill Gross, who directs the world’s biggest bond fund at Pacific Investment Management (PIMCO) upped the ante in his Total Return fund from three to four percent against the U.S. government’s debt.

At the end of April, PIMCO’s $240.7 billion Total Return Fund had negative 4 percent of its assets in government and related debt as opposed to the negative 3 percent the month prior. The big bond fund also raised its cash position to 37 percent in April from 31 percent in March. ...

“Holding Treasuries at these yield levels for an extended period of time represents and abdication of responsibility,” Gross wrote on PIMCO’s website ..."

From: http://www.topstockportfolios.com/report/11336/PIMCO-Ups-Bet-Against-U-S-Bonds-%28And-BlackRock,-Goldman%29/1/0/96abc399f3366465a9d79ff1d1efdaac146f03af

[Billy T]

A specific and current example of why democratically elected governments are NOT stable in the long term*, especially now that fiat money can roll off the printing presses:

"... At this point, there can't be anyone left who truly believes that the debt ceiling debate taking place in Washington is really about what's good for America. The truth is the debt ceiling debate is about the 2012 election - and the party that wins the debt ceiling debate will be the party that comes out on top next year. It's politics - pure and simple.

Republicans and Democrats have their own respective agendas heading into the 2012 election. And with 16 months to go, there's just enough time for actions taken now to work their way through the system and swing the economy in one direction or the other. ...

The Democrats would like to see rapid growth, with unemployment coming down sharply. They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012 they figure they will sort out any problems after the fact - particularly if they can recapture the House.

Conversely, the Republicans would like growth to be sluggish, with unemployment stubbornly high. They also would like to make the painful decisions that bring long-term growth now, so that they can benefit from the growth and not suffer the political cost of the pain if they capture the Presidency and ideally both Houses of Congress in November 2012. ..."

From: http://moneymorning.com/2011/07/14/the-2012-election-and-the-truth-behind-the-debt-ceiling-debate/

----------------------
* perhaps even the short term now - we will know soon after 2 August 2011. Billy T comment: Neither party can help the other. It is not in their nature. Perhaps the debt ceiling compromise will not be reached. It’s like the scorpion who wanted to cross the Red Sea: He told the turtle it would be safe to give him a ride on his back across as if he stung the turtle he would drown so the turtle agreed and both died mid way across. The scorpins last words were – I could not help it – it’s my nature.

[Billy T]

http://www.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/11/us_economy/img/us_debt_slideshow_slide7.jpg As Pogo said: We have met the enemy and he is us.

[nietzschefan]

Lookit that NASA budget. Exactly why I am disgusted with society (Western "liberated" democracies) and choose not to vote, hoping only for revolution. SNFU.

Such waste---fking military budget(which has a bigger space program than NASA)

[Fraggle Rocker]

A columnist for the Washington Post wrote in February:
If you look at how the federal government spends our money, it’s an insurance conglomerate protected by a large standing army.

The United States is an insurance company, and we can’t continue to dither when it comes to righting our core business.

[nietzschefan]

100% agreement. Also why there is no courage anymore, too scared for space travel, too cheap to spend on exploration.

[Billy T]

... hoping only for revolution. SNFU. ...Be careful what you wish for. I think when the dollar collapses (I'm still predicting it will before Halloween 2014) you are likely at the least to get Marshall law, if not full blown bloody revolution (wide spread food riots, etc.), ending by a strong military leader on a "white horse".

[nietzschefan]

I'd rather roll the Dice Billy and bet on a winner than sit in the morass of mediocrity. I don't even give a crap for myself anymore, just depressed about the direction of the human species.

[Billy T]

Because we vote for politicians who promisse the most (and some of it they do deliver on) here is what we really get:

http://images.moneyandmarkets.com/2270/chart1.gif Decades of voted services & imports (fiat money) > US production

Only twice in human history has any nation not collapsed with debt to GDP ratio above 90%.

(1) England did when it went deep into debt to build the machines (factories) of the industrial revolution and had a captive empire (especially India) only it could sell to (thing like textiles from the new power looms, etc.)

(2) US did after end of WWII as it was the only significant nation with its manufacturing still in tack.

I.e. the exceptions are when the deep in dept nation is also by far the leading global manufacturer.

US no longer enjoys that unique position. In fact for more than decade Asian nations are selling more manufactured goods than the US is - a small fraction (<10)%) even to the US.

[quadraphonics]

Only twice in human history has any nation not collapsed with debt to GDP ratio above 90%.

I'm going to go ahead and assume that you meant to say "government" there, rather than "nation." I don't think you can produce any examples of nations "collapsing."

[Billy T]

I'm going to go ahead and assume that you meant to say "government" there, rather than "nation." I don't think you can produce any examples of nations "collapsing."Yes your assumption is correct, but better still might be "no economy" has survived a 90% ratio. We often speak of governments "falling," especially in England and other parliamentary governments with little disruption of their economy.

Above 90% either the lenders charge such high interest rates that each year the ratio grows worse OR the government devalues the money to pay off debts. US is following this path with the FED buying Treasury bonds with "thin air money" to keep interest rates low. Few seem to realize it Or don't print much about it but trying to get China to increase the value of the RMB wrt the dollar is more accurately described as more of the US's dollar devaluations efforts.

China is has been keeping the RMB relatively steady in value. I.e. as inflation goes up so does the purchasing power of the Yuan, (of course cost of some parts of economy are going up faster than others - food & housing, but housing is now coming down in price /sq meter and food is at least now stable). It is the dollar that is dropping in real value - buy some groceries to see what I mean. China wants to switch more to a domestic based economy, so I predict the RMB will go up even faster than the cost of living in China does for several years now. And predict the reverse for the US.

Or in other words: More Americans will drop out of the "middle class" and more Chinese will climb into it.

[quadraphonics]

Yes your assumption is correct, but better still might be "no economy" has survived a 90% ratio.

Only if by "better" you mean "incorrect." You are asserting that, for example, the economy of Japan has "not survived." Except, Japan is still there, housing and feeding and transporting and employing millions and millions of people - the word for that activity being "an economy." Japan's economy does not appear to be "dead;" in fact it is the world's third largest, and in fact still grows mildly.

What, exactly, is it that you are predicting will happen to countries that run debts above 100% of GDP for too long? You use a lot of ill-defined, sexy-sounding language about "survival" and so on, but what does it mean? Are you referring to stalled growth and high unemployment, or what? Suggesting that the debt-to-GDP ratio won't recover? Because you're speaking in apocalyptic terms about outright national demise, and this seems highly overblown. Since you're making categorical assertions about "every country that's ever ran a debt bigger than such-and-such," how about you actually deal in concrete examples of such, and show us what happened and how the high debt contributed to it. We might learn something useful from that, unlike these vague polemics.



Above 90% either the lenders charge such high interest rates that each year the ratio grows worse OR the government devalues the money to pay off debts. US is following this path with the FED buying Treasury bonds with "thin air money" to keep interest rates low. Few seem to realize it Or don't print much about it but trying to get China to increase the value of the RMB wrt the dollar is more accurately described as more of the US's dollar devaluations efforts.


So you're saying that either the debt stays high, or you undergo a bunch of inflation. This is substantially less sexy than what your earlier phrasings suggested.

Meanwhile, you keep suggesting that reinvigorated manufacturing - and specifically, manufacturing for export - is the right answer to the situation. But, dollar devaluation is exactly the policy that one would pursue to make that happen. China's gotten where they are exactly on the back of the intentional suppression of their currency's value - and exhibits rather high inflation. So you seem to be trying to have your cake and eat it too.

[Billy T]

It is 1 AM for me - I don't have time or inclination to discuss semantics now. But perhaps some of the additional paragraphs I added while you were replying will make what I am trying to say more clear _ the last is sort of a summary. It is:
"Or in other words: More Americans will drop out of the "middle class" and more Chinese will climb into it."

Next day AM:
I will play your semantics game a little:
Every populated region has an "economy." The Eskimos do, but it is more primitive than that of the US. Not easy to define "primitive" in this context as IMHO some not too primitive economies are more to be desired than the unsuitable, oil and credit based, economy the US has. One characteristic of primitive economies is that the population on average lives more directly from the land (or sea), not the Wal-Mart, the gasoline station, or the Kroger, etc. and makes a lot of what they consume.*

What I was saying (and have been saying for about five years) is that with the US's intentional dollar devaluation that the US version of an economy will not survive the run on the dollar that I predicted will come on or before Halloween of 2014. More Americans, of necessity, will be eating food they grew (even in urban lots after they have burned down the unsold house that was there) and much less of Kroger's food. Etc. - I.e. Living in a more primitive economy.

----------
* Sell your big second car, while it still has value. Use the funds to buy cheap at yard sales etc. functional old sewing machines. You will be able, if my predictions are correct, to sell them for nearly 10 times what you paid in about 5 years when people without jobs make their own clothes and clothes to sell. Few will listen to this good advice just as few did 4+ years ago when I told them to buy ADRs of Brazil and India.

[quadraphonics]

Next day AM:
I will play your semantics game a little:

The games are all on your part. You're the one trafficking in ill-defined (but sexy) terms of "national survival" and what-have-you. I'm just asking what you actually mean by any of this. If you'd limit your assertions to unambiguous terms (trade, growth, gdp, inflation, etc.) then there'd be no issue.


What I was saying (and have been saying for about five years) is that with the US's intentional dollar devaluation that the US version of an economy will not survive the run on the dollar that I predicted will come on or before Halloween of 2014.

So, lower standard of living. There, was that so hard? But, what is the mechanism through which this is supposed to happen? A lower dollar makes imports more expensive, true - but it also boosts export competitiveness and internal demand for domestic production, and thereby boosts employment. Given that the USA is a very large, diversified economy spanning an entire continent, there isn't really anything that we absolutely have to import.

But my other question remains: you promote an export-heavy manufacturing-based economy as the cure for America's ills. The main thing that America would need to do to get to that point, would be to devalue the dollar to boost export competitiveness, particularly vis-a-vis China. As I just described above. So it seems to me that you are simultaneously claiming that dollar devaluation is urgently needed, and also that it is really bad and spells the end of America. So, square that circle: if dollar devaluation is bad, and reinvigorated manufacturing (specifically, for export) is good, then what is the industrial policy that boosts America's manufacturing and exports, but keeps the dollar strong?

[Workaholic]

The games are all on your part. You're the one trafficking in ill-defined (but sexy) terms of "national survival" and what-have-you. I'm just asking what you actually mean by any of this. If you'd limit your assertions to unambiguous terms (trade, growth, gdp, inflation, etc.) then there'd be no issue.

In all due fairness, I do know some people who would see it as the "end of the world" if they couldn't have their Starbucks and Jamba Juice every day. :p

[Billy T]

After I said in post 73: “Only twice in human history has any nation not collapsed with debt to GDP ratio above 90%.” You complained that nations don’t collapse due to economic problems (But Workaholic in post 79 understood what I meant / said about “nations collapsing”) but I agreed with you that I did not mean the nation would cease to exist – cease to be populated and suggested that:

"no economy has survived a 90% ratio” might better express what I was stating - actually I had been quoting a recent extensive study, which as I recall did say “No Nation” (survived or recovered from –If forget which) a 90% ratio. Anyone not being obtuse would understand their meaning (I did, as Workaholic did) and not assume they were literally stating that region would become unpopulated or have no economy.

But you continued to discuss the words I was using, and not the idea, and objected to my “no economy” too with:
“You are asserting that, for example, the economy of Japan has "not survived." Except, Japan is still there, housing and feeding and transporting and employing millions and millions of people - the word for that activity being "an economy."

As it was then 1AM for me I said I did not have time or inclination to discuss semantics (of the word "economy”) but then the next AM, agreeing with you once more: I admitted that I did not mean the population would have no economy – only that it would be very different economy. I said:

Next day AM: I will play your semantics game a little:
Every populated region has an "economy." The Eskimos do, but it is more primitive than that of the US … One characteristic of primitive economies is that the population on average lives more directly from the land (or sea), not the Wal-Mart, the gasoline station, or the Kroger, etc. and makes a lot of what they consume.*

What I was saying (and have been saying for about five years) is that with the US's intentional dollar devaluation that the US VERSION of an economy will not survive the run on the dollar that I predicted will come on or before Halloween of 2014. More Americans, of necessity, will be eating food they grew (even in urban lots after they have burned down the unsold house that was there) and much less of Kroger's food. Etc. - I.e. Living in a more primitive economy.... But you would not give up. Would not switch to discussion of the ideas:
The games are all on your part. You're the one trafficking in ill-defined (but sexy) terms of "national survival" and what-have-you. I'm just asking what you actually mean by any of this. If you'd limit your assertions to unambiguous terms (trade, growth, gdp, inflation, etc.) then there'd be no issue. …Using words that don’t express with exact precesion is not “semantics.” Semanitc is the discussion of words and their meaning, which I have NOT done until now. (I.e. This is the first semantics I have posted. Prior to this, unlike you I have been using words to try to express an idea, and twice changed the words I was using at your request, but you seem to want to discuss the words I use, not to discuss the idea I am suggesting. That why I finally said I would play your semantics game.)

BTW,"inflation" is far from an "unambiguous term." I think when some time ago, I told that I have some TIPs it was you who said: "The CPI does not measure true inflation." etc. It is sufficiently ambiguous that factor of 2 difference in its computed values exist.

Now, in the following, you start to discuss the idea (instead of semantics):

So, lower standard of living. There, was that so hard? But, what is the mechanism through which this is supposed to happen? A lower dollar makes imports more expensive, true - but it also boosts export competitiveness and internal demand for domestic production, and thereby boosts employment. Given that the USA is a very large, diversified economy spanning an entire continent, there isn't really anything that we absolutely have to import.

But my other question remains: you promote an export-heavy manufacturing-based economy as the cure for America's ills. The main thing that America would need to do to get to that point, would be to devalue the dollar to boost export competitiveness, particularly vis-a-vis China. As I just described above. So it seems to me that you are simultaneously claiming that dollar devaluation is urgently needed, and also that it is really bad and spells the end of America. So, square that circle: if dollar devaluation is bad, and reinvigorated manufacturing (specifically, for export) is good, then what is the industrial policy that boosts America's manufacturing and exports, but keeps the dollar strong?I did not say: “lower standard of living” as I am disinclined to call a slightly more primitive economy, one more connected to the land, a “lower standard of living” than one with greater wealth and average income, etc. I.e. "standard of living” is a very ambiguous term. - Different meaning for different people:

In fact in post 77 I said “Not easy to define "primitive" in this context as IMHO some not too primitive economies are more to be desired than the unsuitable {to economic stability}, oil and credit based, economy the US has.” Quite a few very high paid Wall Street types agree – have moved to New England farms etc. as they have seen / understood how inhuman their hectic artificial lives were. – I.e. they wanted, and could afford a HIGHER standard of living on a farm, splitting their own wood for winter, etc. (Money / income, etc. is not the measure of “standard of living” in my book, or theirs.)

As to: “what is the mechanism through which this is supposed to happen?” I have explained that dozens of times in the last five years: Briefly: going into debt that can never be repaid (in real value – only in depreciated currency). I.e. there comes a day when the lenders say: “No more you dead beat.”

Or ask for such high interest than the debt problem rapidly becomes worse (as has happen in Greece, appears very likely to be happening in one or more of the other PIIGSs (Cap S is for Spain) and perhaps even France*, if their credit rating is downgraded. – It surely will be if Italy does not recover as France has great exposure to Italian debt.) It will be a few years more before China tell the US to go to hell – that China now trades only with those who do not need to borrow to buy and will no longer finance US deficits.

I do agree that as the dollar declines in value, the volume of some exports will increase. That does not mean the income from exports will increase in real value with larger volume – often quite the contrary. For example, Brazil exports more beef than Australia does but they earn more money with beef exports. (Brazil's steers climb up and down hills, too steep for crops, so make relatively tough beef, but with no risk of mad cow disease as 100% grass feed.)

Another serious problem for the US is that it no longer can make much of what the world buys. (The factories are closed, the skills needed no longer exist, etc.) For example Asian countries are now making generation 6 of flat screen displays – US cannot even make generation 1 with an economic yield (too many screens with defects). As I have frequently noted, after the dollar run it will be mainly coal and Midwest corps that are economically competive, but less than 5% of the population has jobs related to that. How do the other 95% live? – Very poorly is my answer, with government aid for many. That is already rapidly growing and adding to the debt.

As far as: "what is the industrial policy that boosts America's manufacturing and exports, but keeps the dollar strong..." I doubt there is one now. Earlier, in many post I noted that GWB's tax cuts helped build the more modern factories in China (mentioning W. Buffet's 10% ownership of BYD motors, etc.) I also have suggested a 100% tax on funds exported to build factories outside of the US. I.e. Buffett could still help BYD expand with ~200 million dollar investment, but he would have had to give the US treasury 200 million dollars also, which would fund retraining (and especially higher education) of former US auto workers (and others whose jobs had been exported.) Unfortunately, doing that now is sort of locking the barn door after the horses were stolen.

The US now has lost too many jobs. In the non-manufacturing areas, like soft ware, Others can do as well and sell cheaper. The US masses are more poorly educated in math and sciences than most other "advanced" countries. We still have some of the finest higher education universities in the world, but every year the entering class at most has lower SAT scores (except SAT has adjusted their scale by about 20%, as I recall, to keep the average score constant.) -China has a funded program to build 50 "MIT or equal" new universities and is very actively stealing (with high wages, complete labs built to the new professor's specs, etc. and very motivated smart, well prepared students.) the best professors in the west, (many are not ethnic Chinese, just top notch experts) to head the new departments. Thus with less well prepared entering students, cut backs in funds, etc. US's day as having the world's best universities are numbered.

SUMMARY: I am not trying to “square the circle.” I have been very clear: depreciating the dollar is disaster as it is being done mainly with print press money. Also note that contrary to economic theory the ~20% decline in dollar value in less than a decade has NOT significantly booster the (inflation adjusted) earnings of US exports. I don't have hard numbers but think even the volume has held about steady with only a few exceptions. One would be natural gas - none was exported a few years ago, so yes that volume has increased.

Later by edit:
* Perhaps even Germany:
"...Reports {a few minutes go ~8AM (NY time)} indicate that Germany fails to get bids for 35% of the total bonds offered at auction. ..."
from: http://www.stateofthemarkets.com/report/14553/German-Bond-Auction-Not-Well-Received/1/0/bd8fd7114ffb380832c52676a2e63fc72700dc84 an article titled: "German bond auction not well received"

[Workaholic]

Later by edit:
* Perhaps even Germany:
"...Reports {a few minutes go ~8AM (NY time)} indicate that Germany fails to get bids for 35% of the total bonds offered at auction. ..."
from: http://www.stateofthemarkets.com/report/14553/German-Bond-Auction-Not-Well-Received/1/0/bd8fd7114ffb380832c52676a2e63fc72700dc84 an article titled: "German bond auction not well received"

Some speculation on the German bond auction:

http://www.counterpunch.org/2011/11/24/the-roads-to-war-and-economic-collapse/


Why would Germany, the only member of the EU with financial rectitude, not be able to sell 35 per cent of its offerings of 10-year bonds? Germany has no debt problems, and its economy is expected by EU and US authorities to bear the lion’s share of the bailout of the EU member countries that do lack financial rectitude.

I suspect that the answer to this question is that the failure of the German government’s bond auction was orchestrated by the US, by EU authorities, especially the European Central Bank, and private banks in order to punish Germany for obstructing the purchase of EU member countries’ sovereign debt by the European Central Bank.

The German government has been trying to defend the terms on which Germany gave up control over its own currency and joined the EU. By insisting on the legality of the agreements, Germany has been standing in the way of the ECB behaving like the US Federal Reserve and monetizing the debt of member governments.

From the beginning the EU was a conspiracy against Germany. If Germany remains in the EU, Germany will be destroyed. It will lose its political and economic sovereignty, and its economy will be bled in behalf of the fiscally irresponsible members of the EU.

If Greeks will not submit to the tyranny, why should Germans?

Remark: I am a bit confused here. For Germany, is the EU beneficial or harmful? I have read opinions which state both. :bugeye:

[Billy T]

... I am a bit confused here. For Germany, is the EU beneficial or harmful? I have read opinions which state both. :bugeye:There really is little doubt. Germany, sometimes world's greatest exporter, greatly benefits by having the Euro instead of its old Mark.

The frugal, hard-working, relatively low paid, burnt-once by run-away-inflation, Germans would not be able to export even half what they do if still using the Mark. It would be much more valuable than the Euro, which has relatively low value thanks to the Borrow, spend-now, pay-later PIIGS.

You can see this in the Swiss Frank. - Its value was climbing so fast, hurting exports so much, that even though Switzerland is not on the euro, they effectively joined - I.e. pegged the SF to the euro.

[Captain Kremmen]

The problem with democracy is that the people standing get their funds from people who want repayment in Government policy once they get elected.
Unless there is a means for a party to get into Government without effectively being bribed by sponsors, Democracy is dead.

[Billy T]

Euro nations are like a sports car maker who promised potential buyers and investors that it would average 100 mph in his current demonstration on ordinary roads. At this point, 60 minutes into the demo, it has covered 70 miles.

I.e. in the past the euro nations, especially those of "club med," mortgaged all their assets to live beyond their means and there is no way now they can go back in time to undo that or buy back (pay off) the mortgages with their current falling incomes (dropping GDPs). The more they try via "austerity" the faster their GDP drops.

Just like the sports car maker who in the recent past used up 60 minutes so now it is impossible to average 100mph, it is impossible for Euro nations to pay off the debts in Euros which still have value. Despite its experience with German run-a-way inflation, and promises to keep the Euro sound, etc. soon, I bet*, the ECB will fire up the printing presses and destroy the Euro - much like the US treasury and FED are doing.

China determines when these houses of cards collapse. I.e. China has won WWIII.

-----------------
* I will lose this bet if Mario Draghi, head of the ECB, thinks in the long run a set of surviving, stronger, euro nations will be better off if the PIIGS do default, go back to their pre-euro currencies, and leave a smaller, viable, set of Northern European nations as the reduced "Euro zone." Seldom in man’s history has what one man believes controlled the future as it does now.

[elte]

Indeed, a lot of us individual consumers realize that we don't want to borrow money unless it can return itself, plus some extra to compensate for the risk involved, in reasonable time. The southern European countries being smothered under debt forgot about financial prudence.

Tourism isn't a trustworthy thing to base a future of economic growth on, IMO. Generally, growth requires natural resources to exploit, and those countries are relatively resource poor. The way they could still have economically succeeded might have involved massive education in the scientific fields, since technology is the hope for future prosperity. Also, they ought to drop their native language if they want the best chance at prosperity, and adopt the mainstream language of the world.

[Billy T]

A current example:

"... We are not fooling anyone among the generation under 50. Of course they’ll be inclined to vote for politicians who give them a “payroll tax cut extension.” **It’s paycheck money they can spend now —not unfunded promises for the future. That math is so simple that despite our educational system, today’s young people get it. ...

All the generous titles in the world, including the “Middle Class Tax Relief and Job Creation Act of 2012,” cannot hide the fact that our politicians on both sides of the aisle are spending our money to buy our votes—and destroying our future in the process. And that’s The Savage Truth! ..."

From: http://www.moneyshow.com/investing/article/11/Blog-26674/The-Latest-Social-Security-Shell-Game/

** Extension of lower Social Security deduction from paycheck passed a few days ago with strong support from both parties.

[iceaura]

The question of whether the economies of democratically elected governments are stable should be answered "compared with what?".


All the generous titles in the world, including the “Middle Class Tax Relief and Job Creation Act of 2012,” cannot hide the fact that our politicians on both sides of the aisle are spending our money to buy our votes—and destroying our future in the process. And that’s The Savage Truth! ..." That's way too simple, and its pretense of "both sides" equivalency is rightwing propaganda framing.

In the Social Security mess, for example, the Republican Party is spending rightwing corporate money to grift and con votes from middle class people. Whose money is involved in the Social Security shell game depends on who eventually pays - in the setup now coming to its moment of truth (Reagan's deal) the rich borrowed from the poor (at very favorable rates, the kind that indicate complete faith in the borrower) and were to pay back with interest via income taxes starting about now. They are now attempting to default on that obligation, and bribing their Congresscritters to enable the default.

The notion that this is "our" money simply presumes the rich will not be taxed. Otherwise it's ordinary Keynesian stimulus - the rich get poorer, the poor get richer, the average is a net gain, and the economy settles down at a fairly high - certainly higher - equilibrium.

Of course that is difficult under democratic government, because the rich have great influence on community will and favor - but it is close to impossible under other forms of government, because the rich don't need to bother with community will and favor.

The economies of undemocratic regimes get their stability from being at low equilibrium levels, in other terms.

[Billy T]

The question of whether the economies of democratically elected governments are stable should be answered "compared with what?".Compared to non-democratically elected government is the obvious answere to your "compared with what? For example compared to the Chinese government. Their leaders ship is not selected by very expensive national popularity contests that require large (huge now that "Super Pacs" are legal) financial contributions from the very wealthy etc.

There is a lot in your post that at best, I don´t understand (at worst seems simply false) but lets ask about this only for now, especially part I made bold below:
... the Social Security shell game depends on who eventually pays - in the setup now coming to its moment of truth (Reagan's deal) the rich borrowed from the poor (at very favorable rates, the kind that indicate complete faith in the borrower) and were to pay back with interest via income taxes starting about now. ...I understand that the some what fictional "Social Security Trust Fund" has given funds to the government in exchange for Treasury bonds - paying interest rates like others sold to China, life insurance companies, other investors, etc.

Currently those rates are very low for all buyers - as part of QEx etc. stimulus plans. What do you mean by "favorable rates"? SS get the same rate as others do buying bonds at that time.

I am not arguing that SS is sound long term, just that your payrole SS tax money is being spent by the glovernment equally well (or equally foolishly depending on your POV) as the money being borrowed from China etc. It is not any more of a transfer of weath between classes than the other government programs, so I have no idea what you are trying to say with the now bold text above.

Please clarify.

[iceaura]

Compared to non-democratically elected government is the obvious answere to your "compared with what? For example compared to the Chinese government. The stability of the Chinese economy has not been tested. The US economy has handled several serious wars, a couple of economic crises, at least one major change in technology, and so forth. The post-Reagan erosion at its base may yet bring it down, but it's had a very good run.

If China can manage to remain stable while increasing general prosperity and economic production to some obviously vulnerable level - that is, maintain a stable equilibrium that is not simply bottomed out or nearly so - for 75 years, we can revisit the issue. My guess is that the rulers of China have the human flaws of such men everywhere, my observation is that they are cryptic and insulated from informed criticism, and have very little in the way of institutional checks and balances - just saying. The setup of standard tragedy is visible.


rich borrowed from the poor (at very favorable rates, the kind that indicate complete faith in the borrower) and were to pay back with interest via income taxes starting about now. ...
- - - -
so I have no idea what you are trying to say with the now bold text above. No deep matter - just that if you step back and look at what happened with SS, you see money in excess of transfer needs subtracted from poor people's paychecks, and in a variety of several step processes ending up as cheap money and/or safe investment returns available to wealthy people (tax breaks, low prime rates, Treasury bonds, etc), the exchange supposed to end with the poor people's stash being replenished by taxing income and capital gains receipts from the employment of that money (which mostly from rich people). It's this last step which has run into trouble.

[iceaura]

So to carry the point a point further: the question is not whether the economies of democratic governments are stable

- they have proven to be at least as stable as the economies of monarchies, oligarchies, dictatorships, tyrannies, theocracies, and so forth (the collapse of Spain's monarchy governed economy under the weight of mismanaged New World wealth infusions is more than a lesson in the fragility of backing one's currency with gold, the collapse of the Soviet "politburo" governed economy under the weight of mismanaged industrial development is more than a lesson in the inappropriate rigidity of "Five Year Plans", etc)

the question is whether democratically elected government is stable in the face of large and rapid accumulations of wealth.

[kmguru]

Did not read all of it...anyone discussed Korea?

[Billy T]

... the question is whether democratically elected government is stable in the face of large and rapid accumulations of wealth. I think large concentrations of wealth probably increase the stability - make life bad for all but the "1%" who control everything, especially elections via TV , SuperPAC etc., I.e. basically that is like a return to the middle ages - the lord and a few friends in his court control everything.

Many government hold "elections" that are shams. The US is fast approaching that. Money now buys elections. Long ago, US elections were more than beauty contests, they were about ideas. For example the often reprinted and discussed Lincoln/ Douglass debates. Now they are mainly 30 second negative sound bites.

As far as China being stable I think it is. Non-democratic China has 2,500+ years of history and for >1,800 years had the world´s greatest GDP.

The thread´s question is about the stability of truly democratic nations. I think they can be stable but all the population that votes, must be well educated, as is the case in the Scandinavian countries - They have at least 500 years of stability under democracy with women having the same rights as men for longer than the US has existed. I expect the US to collapse before becoming 300 years old because it’s ill educated population votes for what it can not afford. The US is the Mother of all "kick the can down the roaders" - Apologies to Saddam, for stealing his "Mother of all ...” phrase.

[iceaura]

I think large concentrations of wealth probably increase the stability - make life bad for all but the "1%" who control everything, especially elections via TV , SuperPAC etc., I.e. basically that is like a return to the middle ages - the lord and a few friends in his court control everything.

Many government hold "elections" that are shams. So not stable as actually democratic governments.

They erode, or disintegrate, into plutocracies or dictatorships or various other forms of authoritarian government.


As far as China being stable I think it is. Non-democratic China has 2,500+ years of history and for >1,800 years had the world´s greatest GDP. Wars, famines, revolutions, coups, frequently shifting borders, hyperinflations, depressions, - - - stable economy?

Wet rice subsistence farming may have been the most productive subsistence farming regime ever established, but an economy that is "stable" at the level of subsistence farming (a kind that required almost 50% more working hours per subsisting farmer than subsistence farming elsewhere) gets no points for having a high GDP compared with other subsistence farming economies of lower population density, less labor requirement, and less amenable geography - that's not "economic" stability at a level higher than subsistence.

http://en.wikipedia.org/wiki/Yuan_Dynasty

[Workaholic]

So not stable as actually democratic governments.

They erode, or disintegrate, into plutocracies or dictatorships or various other forms of authoritarian government.

Wars, famines, revolutions, coups, frequently shifting borders, hyperinflations, depressions, - - - stable economy?

Wet rice subsistence farming may have been the most productive subsistence farming regime ever established, but an economy that is "stable" at the level of subsistence farming (a kind that required almost 50% more working hours per subsisting farmer than subsistence farming elsewhere) gets no points for having a high GDP compared with other subsistence farming economies of lower population density, less labor requirement, and less amenable geography - that's not "economic" stability at a level higher than subsistence.

http://en.wikipedia.org/wiki/Yuan_Dynasty

Just to clarify, are you including the Yuan Dynasty as an example of an average Chinese Imperial Dynasty to substaniate your claims above?

[Billy T]

So not stable as actually democratic governments. They erode, or disintegrate, into plutocracies or dictatorships or various other forms of authoritarian government. ... There seems to be some confusion. I have suggested that "democratic govenments" like the US are not stable. I´m NOT claiming anything about non-democratic governments - but only noted that several have lasted much longer than the US government will. I also noted that if the population is very well educated, even democratic governement may be stable as that appears to be the case in Scandinavia.


http://en.wikipedia.org/wiki/Yuan_Dynastythanks for this link. There I learned why Chinese currency is called the Yuan and that it was the world´s fist fiat currency:

"... Paper currency had been issued and used in China before Yuan time; by 960, the Song Dynasty, short of copper for striking coins, issued the first generally circulating notes. However, during the Song Dynasty, paper money was used alongside the coins. On the other hand, Yuan was the first dynasty {1271 until 1368} in China to use paper currency as the predominant circulating medium. The Yuan bureaucrats made paper bills from the mulberry bark paper. ..."

Printing on mulberry bark probably limited inflation so in the early days the Yaun was not "fully fiat." It would be interesting to know who much more rapidly the dollar has lost value as there is no shortage of paper to print them on.

[Carcano]

I would change my answer to Yes, if the population were better educated, instead of just "trained" to be productive and useful citizens. - Perhaps in Scandinavia democracy and economies are stable, even with fiat money - they have been for a few hundred years.
To educate the US population on currency devaluation would require an honest assessment of its history.

This is currently NOT possible because educators believe children should be taught that their government is basically altruistic and has their best interests at heart.

Western populations have more education available to them on these matters than at any other time in history...and still the same old problems persist.

Unconditional democracies are inherently mediocre and elect mediocre governments. This is why I prefer a conditional democracy where voting rights are earned by passing an aptitude test on constitutional law.

[Billy T]

No, not the US or many EU versions. Germany may be until all are dead who can still remember when 99% of the value of a wheel barrel heaping full of Marks, was in the wheel barrel, not in the money. Here are some facts about US´s debt (which China can stop financing at will and will stop financing in a few years. Already, the FED´s printing presses are the main financer of the US deficits, not China any more.):

"... The following are 34 shocking facts about U.S. debt that should set America on fire with anger....
Billy T now comments on #8, as you may not read that far:If I am correct that the dollar collapses by Halloween 2014, then paying face value of bonds totally 23 Trillion dollars only three years from now is not much of a problem, for the government (Only for those trying to live on the pay out). In fact having the dollar collapse is the plan - the ONLY way that debt can be re-paid.

#1 During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.

#2 When Ronald Reagan took office, the U.S. national debt was less than 1 trillion dollars. Today, the U.S. national debt is over 15.2 trillion dollars.

#3 During 2011, U.S. debt surpassed 100 percent of GDP for the first time ever.

#4 According to Wikipedia, the monetary base "consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank." Currently the U.S. monetary base is sitting somewhere around 2.7 trillion dollars. So if you went out and gathered all of that money up it would only make a small dent in our national debt.

#5 The U.S. government spent over 454 billion dollars just on interest on the national debt during fiscal 2011.

#6 The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. The liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.

#7 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

#8 It is being projected that the U.S. national debt will surpass 23 trillion dollars in 2015.

#9 According to the GAO, the U.S. government is facing 34 trillion dollars in unfunded liabilities for social insurance programs such as Social Security and Medicare. These are obligations that we have already committed ourselves to but that we do not have any money for.

#10 Others estimate that the unfunded liabilities of the U.S. government now total over 117 trillion dollars.

#11 According to the GAO, the ratio of debt held by the public to GDP is projected to reach 287 percent of GDP by 2086.

#12 Others are much less optimistic. A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#13 The United States government is responsible for more than a third of all the government debt in the entire world.

#14 If you divide up the national debt equally among all U.S. taxpayers, each taxpayer would owe approximately $134,685.

#15 Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011. That was not supposed to happen until 50 years from now.

#16 Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

#17 During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

#18 When you add up all spending by the federal government, state governments and local governments, it comes to 46.6% of GDP.

#19 Our nation is more addicted to government checks than ever before. In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for 18.4% of all income. ..."

You get the idea but for the next 15 read here:
http://www.stateofthemarkets.com/report/16076/34-Facts-About-U-S-Debt-(And-Yes,-You-Should-Care)/1/0/3f06ad325ebb8d2fdd5636cf60b546cf2b330225

[Billy T]

An example (and news) from the UK:

"... UK Q1 preliminary GDP was reported to have fallen -0.2%, which was below the consensus expectations for a gain of +0.1%. Industrial Output fell -3.0% on a year-over-year basis and -0.4% from last quarter. Manufacturing Output fell -0.9% year-over-year while Services rose +1.0%.

The report confirms that the UK has officially entered a recession as this was the second consecutive quarterly decline in GDP. ..."
From: http://www.stateofthemarkets.com/report/16530/UK-Officially-Slips-Into-Recession/1/0/c20b18cb98b56d5569b917598810673f9f067d63

[GeoffP]

Dear India145,

How can I apply for a surrogate in India? Your forthcoming assistance would be most economic.

Best regards,

GeoffP

[Billy T]

Dear India145, How can I apply for a surrogate in India? Best regards, GeoffPIf your interested in sexual service surrogate, forget it and shop locally. For why, see:
http://www.sciforums.com/showpost.php?p=2930152&postcount=2252

[GeoffP]

But the foreign market does it cheaper and faster. :shrug:

[Billy T]

But the foreign market does it cheaper and faster. :shrug:From experience many years ago, I know that was once true of the Mexican market, but now sex is available in the US for free with no strings attached if you know where and how to look.

If you don´t have three ears, or no hands, etc. you should be able to get some. About 20 years ago at work I had a 50 year old, quite short and already nearly bald, friend, recently divorced, who often had interesting speech patterns. One day at lunch he remarked:

´It was amazing how many and what good bargains were available in the "used ladies" market.´ - And that was 20+ years ago.

[Billy T]

The Congress seems to be arguing for a NO answer now.

[Economister]

There seems to be a lot of general confusion and ignorance in this topic, lol. Billy T, I'm willing to bet $100,000 that the USD and the US Gov't do not collapse by Halloween 2014. (That should make my position clear enough, lol).

[Billy T]

There seems to be a lot of general confusion and ignorance in this topic, lol. Billy T, I'm willing to bet $100,000 that the USD and the US Gov't do not collapse by Halloween 2014. (That should make my position clear enough, lol).I don´t expect to make that bet with you, but for me to even consider it you need to give an operational definition of "collapse" Certainly there will be an US government on 1Nov2014.

What I have said is that there will be a "run on the dollar" on or before Halloween 2014. Nothing about US government collapse.

[Economister]

If there's a run on the USD, then how does the US gov't pay for its liabilities? Hence, the collapse.

I'm willing to bet $100,000 that there isn't a run on the USD by Halloween, 2014. I'll even write you a call option for 2015.

[Billy T]

If there's a run on the USD, then how does the US gov't pay for its liabilities? Hence, the collapse. ...Your understanding seems very limited. The reason there will be a run is that the FED / Treasury are intentionally printing dollars at an unsustainable rate (by a factor of 10, at least) to make paying the debts possible. I.e. they will pay a maturing 10 year bond with printing-press money. The run will be the result of this accelerating printing of thin air money.

After the run, the ten year bond holder is paid with freshly printed money and it will buy less than half what the goods and services that the money he lent the government 10 years earlier would. Many are already noting that buying US bonds is a sure way to lose purchasing power. When this POV is a little more common, very few (other than the FED and fixed obligation persons and corporations) will be net buyers of bonds.

I.e. redemptions will exceed new buying, making even more printing press money need to pay of the net reduction in Treasury bonds held by foreigners, Americans and corporations, both foreign and domestic. There will still be buying by for example life insurance companies (and others with fixed dollar future obligations) as their contracts require the payment of a fixed number of dollars. They don´t care if the widow collecting on her husband´s 50,000 dollar policy can only live one month on $50,000 - they have met their legal obligation to pay her $50,000. They and almost all, me included, are confident the US will not default on its bonds. - Not so long as it has a legal right to use printing press. Even if the dysfunctional Congress fails to raise the debt ceiling, Treasury will not pay some other obligations so that it can still pay the maturing bonds. ("Full faith and credit" will not be violated - just bond holders will suffer great loses in purchasing power.)

The Fed will continue buying in a failing effort to hold interest rates low, but interest rates required to sell Treasury bonds to anyone other than the Fed and those with fixed future obligations will rapidly rise (bond prices will fall). All will learn how stupid it was to buy US bonds. China became a modest net seller two years ago. When almost all are net sellers, the US has only the unacceptable choice of default or the undesirable, but acceptable choice of the printing press money.

To be more precise in what I mean by a "run on the dollar," it is when Either (1) There is a net reduction of holding of Treasury bonds by all but the Fed and corporations etc. with fixed future obligations to pay; OR When the interest rate on 10 year bonds triples in a year or less. (From the current ~1.7%); OR the 10 year bond interest rate increase by 1% in only two months. (This last so we don´t need to wait a year to know that the run on the dollar has started.)

You (and others) might learn something about what is already happening if you find out how the changing rate of sales of 10 or longer bonds are going compared to the changing rate of sales of silver and gold coins sales are going. The bond market is huge compared to the silver / gold coin market so focus on the net change in rate of holdings not the absolute size.

[Economister]

Are you referring to the US Dollar or to US Debt lol, because amongst the financial community, USD = US dollar.

[Billy T]

Are you referring to the US Dollar or to US Debt lol, because amongst the financial community, USD = US dollar.I have been completely clear:
Your understanding seems very limited. The reason there will be a run is that the FED / Treasury are intentionally printing dollars at an unsustainable rate (by a factor of 10, at least) to make paying the debts possible. I.e. they will pay a maturing 10 year bond with printing-press money. The run will be the result of this accelerating printing of thin air money. .....
To be more precise in what I mean by a "run on the dollar," it is when Either ...

Thus in addition to having near zero understanding of economics, you have a reading comprehension problem too. One more annoying post with no thought content, and you go on my ignore list. (As you are new that means I will not see anything you post.)

[Workaholic]

Came across an interesting article related to the original topic of this thread:

The Parable of the Frogs

http://www.counterpunch.org/2013/01/18/the-parable-of-the-frogs/



The metaphor of addiction is extremely relevant to situations such as these, because addicts always seek to maximize their intake (or behavior) rather than optimize it, even though the former leads to self-destruction. In the face of what seems to be biologically driven activity, reason doesn’t have much of a chance. An experiment with frogs some years ago demonstrated this quite clearly. They were wired up with electrodes in the pleasure center of the brain, and could stimulate that center–i.e., create a “rush”–by pressing a metal bar. Not only did the frogs keep pressing the bar over and over again, but they didn’t stop even when their legs were cut off with a pair of shears!

But what if the reality of all social systems is that they are homeostatic, which is to say, designed to stay in balance? In that case, said Bateson, the attempt to maximize any single variable (for example, wealth) will eventually push the system into runaway, such that it will destroy itself. To take a physiological analogy, we recognize that the human body needs only so much calcium per day. We do not say, “The more calcium I ingest, the better off I’ll be,” because we recognize that past a certain point any chemical element becomes toxic to an organism. Yet we seem to be unable to extend this insight to the social or economic realm. We do not say, for example, “That company is making too much profit,” or “That individual (Bill Gates, Carlos Slim) has too much money for one person,” or “The Gross Domestic Product is spinning out of control.” Rather than being interested in balance, in stability, we are fascinated by asymptotes–frogs at the bar of pleasure, even while our legs are being cut off. We don’t get it, that if you fight the ecology of a system, you lose, especially when you “win.”

How, then, can excess be curbed in a free democratic system? For we can be sure that the intelligent frogs, who are really quite exceptional, are not going to be listened to, and certainly have no power to enforce their insights. True, there are certain countries–the Scandanavian nations come to mind–where for some reason the concentration of intelligent frogs is unusually high, resulting in decisions designed to protect the commons. But on a world scale, this is not very typical. More typical, and (sad to say) a model for many other countries, is the United States, where proposed “changes” are in fact cosmetic, and where the reality is business as usual.

Of course, authoritarian systems don’t have these problems, which is a good indicator of how things will probably develop. Under the name of “harmony,” for example, China regulates its citizens for what it perceives to be the common good. Hence the famous one-child policy, introduced in 1979, supposedly prevented more than 300 million births over the next twenty-nine years in a country that was threatened by its own population density. In the case of the United States, the imposition of rules and limits on individual behavior to protect the commons is not, at present, a realistic prospect; the population is simply not having it. But how much longer before this freedom of choice is regarded as an impossible luxury? In fact, no crystal ball is required to predict the future here. The tragedy of the commons–what Hardin called “the remorseless working of things”–is that a society such as that of the United States won’t undertake serious changes even when it is sitting on the edge of an abyss. It has to actually be in the abyss before it will entertain such changes; i.e., it has to be faced with no choice at all. It seems unlikely now, but things are probably moving faster than we realize. In terms of population, energy, food, resources, water, social inequality, public health, and environmental degradation, a crunch of the type I am referring to may be only twenty years away.

[ElectricFetus]

The energy is out there, it just a matter of tapping enough of it in time. Social inequality is decreasing world wide and democracy is increasing. Sure collapse is possible, but not working for a better future will insure collapse.

[kmguru]

collapse is possible because we have too many Lawyer Leaders...followed by Economists...

[Billy T]

... not working for a better future will insure collapse.In graduate school, I had a live in girl friend who had quite an ironic streak. At least once per day she would invert something I (or others) said. Often making more truth than the original version. In her honor I´ll do that with your statement:

Ben Bernanke is working* for a better future and, if his efforts continued, that will insure collapse.

* By printing more than 1 trillion dollars annually now

SUMMARY: "The road to Hell is paved with good intentions."

[ElectricFetus]

In graduate school, I had a live in girl friend who had quite an ironic streak. At least once per day she would invert something I (or others) said. Often making more truth than the original version. In her honor I´ll do that with your statement:

Ben Bernanke is working* for a better future and, if his efforts continued, that will insure collapse.

* By printing more than 1 trillion dollars annually now

SUMMARY: "The road to Hell is paved with good intentions."

I meant working for a better future as in the little things you your self can do other then say building a bomb shelter, stocking food and assorting a large armory of weapons in preparation because "the end is ni!". If everyone in the world decided to do that and had that mentality then the world would in fact end and soon. Little things like be productive, help others, invest wisely, if you predict an economic disasters is coming then you should ask "how can I prevent it?" not simply raise your hands up and flail wildly that the end is coming and nothing can be done to prevent it.

[Billy T]

... if you predict an economic disasters is coming then you should ask "how can I prevent it?" not simply raise your hands up and flail wildly that the end is coming and nothing can be done to prevent it.About 10 years ago, before posting at Sciforums, when it might have been possible to avoid the coming economic disaster, I wrote and published Dark Visitor which is a fictional but possible cosmic disaster. (Small black hole passes by our solar system, slightly changing Earth´s orbit to make Northern hemisphere winters milder and summer significantly cooler. - Sounds nice, but huge snow falls, like occasionally do occur in early Spring happen nearly every day all winter long, and the colder summers that follow can not melt it all. - In a decade, sea level has dropped and no port can be used, etc. with thick ice sheet covering all but the southern tip of Florida in less than two decades, etc.)

I wrote Dark Visitor as I was concerned that the best and brightest US students were seeking careers, not in math or sciences, but with greatest earning potential (law and business / wall street, etc.). Dark Visitor is presented as the true observation of an astronomer, who has been studying Pluto´s perturbations from his Southern Hemisphere observatory (Pluto can only be carefully observered from the S. Hemisphere now.) That is how he detected the BH approaching.

I wanted at least some of these bright money-driven student to look at the physic* in Dark Visitor to see if it was possible that their plans were invalid and perhaps become interested in the math and physic area as US had already lost technology leadership to Asia and was in great danger of losing scientific leadership to Asian too.

* Dark Visitor could be true. Its physic is valid. - Most (>95%) on earth would die, but I adjusted the BH´s path** so that only all coastal cities in the Southern Hemisphere, SH, get washed into the sea by the torrential rains. (While Earth is closer to the sun during the NH´s winter, the mainly oceanic SH has greatly increased summer evaporation with dense clouds often spanning the globe - that is the origin of the 100 foot plus annual snow falls in the NH, making a transition to a PERMANET ice age.)

SUMMARY: I did what I could, back when avoiding the disaster was still possible. Now the developed nations are like an airplane over the ocean without enough fuel to reach an airport. A crash is only a question of when. There is no way the global and increasing flood of thin-air money can be undone without prompting the crash - a few years at best of "can kicking" is all that is left now, especially with US´s dysfunctional Congress.

** Trajectory calculation, including the changes in Earth´s orbit, is a three body (BH, Earth & sun) problem - the finite time step program used is one of several appendices. One chapter considers 4 or 5 dense non-reflecting alternatives to the black hole. My favorite is the aggregate*** of North and South magnetic monopoles - very dense as each is according to theory, more than 1000 times more massive point than the proton. Two chapters explain climate (before and after BH passes) - Things like why the prevailing wind comes from the West, etc. Actually, Dark Visitor is a well disguised physics book, calculating with all three of Kepler´s laws, etc. but never naming them. - My intended readers would never knowingly open a physics book. The first chapters are a "hook" that give the history of the astronomer and his ancestors, etc. He is very rich but has zero interest in the large cattle ranch he inherited, etc. except it permitted him to build his well equipped observatory with meter diameter mirror.

*** This explains why none have ever been found - Unlike the weak gravitational attraction that assembled stars their mutual inverse square attraction is very strong. All formed "lost in space" aggregates by time first star was born.

[rodereve]

"Democratically elected government" is an ideal, and the advantages of that ideal should not be attached to the pseudo-democracies that exist in reality. Not to bash the American forum-goers, but I don't think we should be taking the US as the model example of a democratically elected government. From an outside perspective (Canadian), its sad to watch the whole political orgy that occurs when election time swings around. Why has it become a money race. Does anyone see the huge contradiction in billions of dollars invested into political propaganda and commercial ads that are saying "4 trillion dollars in debt -- How can we solve it?". And political ads are becoming less about the capabilities of one candidate, but how incapable the other candidates are. The electoral candidates we have for the US presidency is not about who is the smartest most capable person, but who isn't a complete retard. Perry, Gingrich, Cain...how do these people get to the point where they even have a chance to become president. I know these aren't the smartest and most capable men the US has to offer. I guess I'm just angry because the US election is not about the United States, when you decided to elect Bush for 2 terms it affected the entire world lol

Rant complete sorry for getting on a tangent. I'd just like to say that economies and government type may not correlate. You can have bad democracies and good dictatorships in terms of the economy running smoothly. It just depends on the interests and the will of the people under that government. The government represents at a larger extent the type of conditions the people are willing to endure and live with.

[Billy T]

Certainly the typical voter supporting the politicians who promise more benefits now and will send the bill to later generations are a powerful force for instability (main theme of this thread) but central banks printing fiat money to pay the current bills are a force for instability too.
If the interest payments {on the debt} grow faster than the economy then the situation becomes unsustainable - the debt payments will cause inflation. At this time US borrowing is on an unsustainable trajectory. That's not a problem now, but it will become increasingly difficult for borrowing to produce enough deflation* to counter the inflation from interest on past borrowing. The Fed won't be able to monetize a deficit due to the inflation, so we'll be stuck with increased inflation or increased taxes. Based on CBO analysis, I estimate we have one to two years before the debt induced inflation starts to hinder overall economic growth.

--------
*Initially borrowing {from investors, not future generations by Fed just “printing” money} removes money from the economy,** which is deflationary, but when in a quasi-steady state is reached, as is now the case in US, especially with interest rates rising, the repayment of maturing bonds add more money than is removed due to interest paid. If there are no investors and Fed just pays growing debts by printing money that is road to Zimbabwe currency.

** Until it is all spent and even then if some is spent buying, for example, French wine and the vineyard owner wants to hold some dollars, then even long term money has been removed from the US economy. Until last few year confidence in dollar was stronger than many other currencies so holding dollars by foreigners was very very common - so much so that most physical green dollars were not inside the USA. The "Russian Mafia" alone was estimated to hold more physical dollars than all Americans did. In Brazil, bribes were paid with boxes or suitcases full of dollars as at one time inflation was 250% per year! (Person getting bribe, could not invest it even in an indexed to inflation account as he would need to account the the Brazilian "IRS" where the money had come from, so he just held the cash in his vault.)

[Billy T]

Answer: For the US´s, No.
http://static.cdn-seekingalpha.com/uploads/2013/3/9/saupload_z-temp5.png Ever growing debt GDP ratio is not stable.

Take the long term averages (21% and 18% dashed lines). Government outlay exceed income by 16.7% and currently GDP is growing by 10% of that!

Not to mention that the balance of trade grows ever worse, but that will correct when Joe American has hit his buying limits. Infact in less than five years I expect US to have a trade surplus as financially busted Joe* will not be buying and the imported oil bill will be much less.

* Food prices climbing faster than inflation and his salary continuing to decline in purchasing power so ever more "Joes" go to food stamps, and soup kitchens etc.

[wellwisher]

The reason outlays are higher than revenues is because taxes are taken by force. One does not have the choice to opt out. Like the mafia protection racket, you are forced to participate in something you might not choose, if you had a choice. But since both can use force, you have no choice but be shaken-down.

Picture if taxes had to be collected, with the option to opt out, like a political fund raiser. The politician might still go into debt, but it can't force his contributors to pay, if he exceeds their limit of giving. The debt belongs to him. He would need to go back and fund raise again to make up the difference or pay from his own pocket.

On the other hand, say he could shakedown his contributors for money, with threats, like we do with taxes or mafia protection. There is no reason he can't overspend since it only means he needs to get more goons. This result is the graph above.

I like the idea of collecting taxes being more a fund raiser. Each political party has favorite programs and their own minions could be ask to attend the fund raiser so they can fund what they think is important. Or is stealing preferred?

The Church did it with a 10% tithe (forced) and the rest done by charity (fund raiser). Maybe we could blend revenue stealing and fund raising so there is less waste and more accountability.

[Billy T]

The reason outlays are higher than revenues is because taxes are taken by force. ...What are you smoking?

I want some too so I can believe that people would increase their taxes if not required to pay by law.

[iceaura]

Picture if taxes had to be collected, with the option to opt out, like a political fund raiser That's pretty much what we have now, in the US, for large corporations and the very wealthy.

It was put to a particular test when the US went to war in Afghanistan - the country needed the money to avoid huge debt, war is as serious a demand as there is, the wealthy were taking in record amounts of income and increases in their wealth, the required tax rates on the wealthy had just been lowered dramatically, the war was launched by a political administration favored by the wealthy and supported by them, every influence on paying more tax voluntarily was positive.

They didn't pay an extra nickel.

[river]

You might be interested in this video by Paul Hellyer , former defence minister of Canada

Hear it out

http://jhaines6.wordpress.com/2013/01/03/paul-hellyer-former-defence-minister-of-canada-ufos-free-energy-and-the-global-financial-fraud/

To get to the economics go to about 32-33 minutes in

[river]

Any thoughts by those that viewed the video above ?

[Billy T]

Any thoughts by those that viewed the video above ?I listened between 32 & 40 minutes. He does not like banks being able to create money (fractional reserve banking now in US with possibility of making up to 10 times more than funds deposited in the bank). I was not completely clear about his position on the Government creating "thin-air" money. If he is against that too, then just say he wants hard money (gold, or any thing else with nearly constant small amount existing/available - H2O will not do even thought it has a more fixed amount than gold on surface of the Earth.)

Problem is that with gold standard growing economies need more money than is in circulation and shrinking ones need less to avoid inflation, which always comes when there is an increase in the circulating money at rate faster than goods and services offered for sale. That is why Brazil has interest rate of 7.5%. I.e. there has been a flood of dollars into Brazil (in part to take advantage of that safe high interest). This flood of $ is more than people and companies want, so to keep the local currency, R$, from growing too strong (that kills the exporters) the government is forced to buy up most of the incoming $ flood. Here is basically how that works:

Brazilian Pedro, owner of shoe company, American Joe just aided to expand with part of the $ flood has no use for Joe´s $s, so he offers them for sale to get R$ to pay his workers with. There are so many Pedros that the surplus offerings of $ is diving the price other Pedros will with R$ they don´t immediately need, down (supply and demand law). If the government did not buy up the surplus of $, then the R$ becomes strong wrt to the $. That would make it impossible for Pedro to export his shoes, which for example cost 200R$. I.e. the foreign buyer would need to exchange too many dollars to get the R$200 to pay Pedro.

So government prints some new R$ and buys the most of flood of $, some of which were Joe´s then became Pedro´s after Joe got his new shoes. That injects too many R$ into the Brazilian economy, making an inflation problem. Also the rapid economic improvement of millions of once very poor Brazilians is stressing the factories of Brazil as they buy their first car, first refrigerator, etc. The government has no choice but to make it more difficult for them to buy now using credit. I.e. must keep interest rates on loans high. That of course, has a down side. People like me bring $s to Brazil to take advantage of the high safe interest rates.

So Brazilian government is trying to not let $/R$ ratio get too high (as then Joe must fire his worker who vote); Nor let inflation get too high (need to stop or at least slow buying on credit with high interest rates) AND recognizes* that Joe would not be sending his $ to Brazil if the interest rates in US were not held artificially low by Fed buying 85 billion dollars of bonds etc. each month with newly pronted thin-air money, driving bond prices up and interest rates down for Joe to borrow cheaply and invest in Brazil - but Joe is not investing much in US so the QEs don´t really help the US much even in the short term and actually hurt the US in the long term - I.e. Pedro uses Joe´s money to make shoes more efficiently and the US loses out in global sales as the Brazil and others (especially China) grow more productive with more modern factories than the US has.

To bring this long discussion back to the question, note that this Currency War US is making against Brazil et. al. with low interest rates, is only possible because the US can print thin-air money. If it were on a gold standard that would not be possible and Joe would build a shoe factory in the US, creating US jobs, instead of making Perdro´s factory even more competitive with more modern new machines.

SUMMARY: Thus, thin-air money and the Fed´s excessive production of it (QEs) are not doing much good for US except the banks that it gets created in (via the 10 times multiplier of the Fed´s thin-air money deposited to its account in the bank). In fact this new money is new debt as the video explained, but did not note the destructive side effect, I discussed above of the currency war, making Brazilian (and Chinese) factories more modern, more efficient & more competitive. Both the growing debt and the unintentional aid to foreign factories are leading the US to economic destruction - a run on the dollar by or before Halloween 2014, as I predicted about 7 years ago when GWB started this mess.

* In fact it was Brazil´s finance minister who invented the term "currency war."

[river]

The thing is , as I pointed out before

The US has NO US central bank , the so called US central bank is a conglomerate of privately owned banks , which of course would not put in place regulations to what it can and cannot do as far as investments and so on

Its a conflict of interests situation

The US to my mind needs a truly Federal Central Bank , hence then able to put into place , regulations , that the countries banks must follow , legally

[spidergoat]

Democracies can be stable, but often not if they are hacked together from communities that would ordinarily not interact, or only interact in certain circumscribed ways. Dictatorships can also be stable.