Are economies of democratically elected governments stable?

Discussion in 'Business & Economics' started by Billy T, Jun 29, 2010.

  1. iceaura Valued Senior Member

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    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.
     
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  3. river

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  5. river

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    Any thoughts by those that viewed the video above ?
     
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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    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."
     
    Last edited by a moderator: Mar 16, 2013
  8. river

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    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
     
  9. spidergoat Venued Serial Membership Valued Senior Member

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    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.
     

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