Very Interesting Indicators... http://www.nytimes.com/interactive/2008/10/18/business/20081019-metrics-graphic.html Notice how the real minimum wage has decreased dramatically over the years and notice how savings has also decreased dramatically, specially lately.... I would be curious to see the data of the consumer debt as well, though I know it has been going up dramatically. Also, the share of income of the bottom 90% has gone down dramatically over the years. That means that the US is losing its middle income earners and becoming a largely poor nation, even though the rich are basically the richest in the planet.... That all means that people have been consistently trying to replace loss of revenue with debt. Unfortunately, their lack of liquidity seems to be catching up to them. When will people learn debt is unsustainable? :bugeye: Huumm... it actually looks like either Carter or Reagan might have screwed things up.... :scratchin:
The Fed creates the boom/bust cycle. This is done by keeping interest rates BELOW the real inflation rate. The economy inflates with imaginary money for a few years, and then....pop! Please Register or Log in to view the hidden image!
Actually, government intervention STARTED with the first great bust. It was government intervention that solved it. Inflation is caused by the money supply. Keeping the interest rates low is what caused the economy to expand without inflation (or rather low inflation). The economy inflated because there was a ridiculous amount of debt that wasn't backed by any assets. Basically, the market grossly overestimated the amount of assets it had. When it discovered it had no assets to back up the debt, it all fell apart. First, liquidity was the issue, because people and businesses could not sustain their short-term obligations. Then, the long-term ones also fell through, which is why we are in such big mess. Assets were grossly overstated. It's that simple.
When I say the 'Fed' I'm talking about the Federal Reserve, which operates more or less independant of the government...which I usually refer to as Fedzilla!
Inflation (or devaluation as I call it) is caused by the growth in the money supply exceeding the growth of the GDP.
What caused them before the Fed? They sure existed before the Fed. Perhaps the Fed has time machines.
Depends on who you ask of course. According to Austrian economists, it's expansionary monetary policies in general, usually but not always primarily caused by a Central Bank, that causes them. Take the pre-Fed Panic of 1819 as an example.
http://en.wikipedia.org/wiki/First_Bank_of_the_United_States And before that monetary policies were even more chaotic. I'm not against central banks, just the notion of economic engineering...instead of simply maintaining a stable unit of value. An economy needs a stable unit of value in the same way that a carpenter needs a stable unit of measurement.
But there was no Bank of the U.S. after the 1830's and yet booms and busts were always there. http://www.nber.org/cycles.html Gold based currency, no gold based currency, high government activism or not. In any event, it is very clear that there are competing theories for what causes the business cycle (including the theory that it is natural an unavoidable as night following the day) and the "gummint did it" view is only one of them—a minority one—none of which has compelling evidence for it.
Obviously, if everyone decides to not work, or if you have a shortage of food... those things will cause economic instability regardless of whether there is a government active in controlling the economy! The key is for the government to have a stable sustainable growth economic policy! In the past decade, governments (specially US) had an unsustainable super-growth policy Please Register or Log in to view the hidden image!
What we had during the period of 'wildcat banking' from 1837 was simply a multiplicity of the same problem...the failure to maintain a stable unit of buying power. Instead of having one bank doing it you had several hundred banks doing it. The paper money printed may have been redeemable in gold or silver, but that didnt stop private banks from issuing more notes than they had gold to back up...eventually causing a run on the bank and insolvency.
We had that in the west (like San Francisco), not the East where the bulk of the real economy was. If you disagree, please correct me with citations. In fact, I am curious, what leads you to espouse this theory that we all need gold to stabilize the economy in the first place? Most economists consider it to be, with respect, a crackpot theory. I mean, do you realize how economically wasteful it is to use real time and effort to dig some arbitrary thing out of ground, smelt and refine it, form it into bars, then make real people use real time and effort guarding it 24/7, only to store it in vaults for long periods of time, unused in any productive capacity? We might as well base our economy on moon rocks and only issue currency if we have the moon rocks to back it up.
I never said it was necessary...helpful perhaps, but not necessary. The gold standard doesnt impose the necessity of actually using physical gold, only that the paper currency be redeemable in gold by the government. This is how it worked for decades both in America and Europe. But even without being pegged to precious metals I believe its possible to maintain a stable unit of value if its written into law...instead of being determined by arbitrary committee.