patrick.net

Auntiegrav says

The "cost of being a consumer" on the other hand, is always more than we can afford.

Auntie, you sure got that right.

bgamall4 says

Cost of living is based on many factors, a main one being speculation. Speculation is an investment bank tax on the rest of us. That is why it is ok for them to tax us with high cost of living while diminishing our wages in a global economy.

I disagree with this entirely.

You may be thinking of so called "moral hazard," where banks take risks and if they lose they are bailed out by the taxpayer. This is a problem, and a big factor in why our economy is broken now. But it is the result of deregulation, and allowing banks to be investment banks. Speculation existed long before this and is not an intrinsic cause of inflation or recession.

Deregulation was a general causal factor in the housing bubble. Low down payments and unregulated exotic derviatives ( CDS and CDO ), a securitized mortgage market of bogus securities (given fraudulaent ratings) whcih created a demand for mortgages regardless of risk (ie the risky mortgages were were hidden in convoluted "securities"). This market caused a monstrous demand for mortgages, which generate fees, and there were a lot of idiots and dirt bags willing to write morgages that they knew could easily default if RE didn't continue it's bubbleiscious double digit/year rise.

This is all separate from generalizations about speculation. In healthier times, when banks were separate from investment houses and appropriate regulations existed speculation was not a problem and was not the cause of major inflation that occurred during these times. Although connected people with a lot of money certainly speculated profitably during these times.

It might be easy though to confuse cause and effect. Because changes in currency values and commodity values are of course going to be accompanied by speculation, as long as we are in a free market capitalist economy. But that doesn't make speculation evil.

The causes of changes in standard of living are complex. I know that even if I had a degree in economics, I would still have a hard time wrapping my mind around all the variables. But here are a couple a simple causes.

We advocate global capitalism, and gobal markets which makes sense. There is a natural evolution going on. But low wages in other countries,
puts an obvious damper on wage growth and job growth domestically.
There are forces at work which are causing their standard of living to increase, while ours decreases. Movement in the direction of equilibrium is no big surprise.

The purchasing power of our incomes wasn't helped any by women going to work en masse (a good thing), because then people could afford to pay more for rent and living in general. Everything is a market right ? Supply and demand. If people can afford to pay more, even if because of an additional income, this gradually affects prices.

There has been huge inflation over the last century, but SOMETIMES wages were going up as much as prices so standard of living isn't always decreasing with inflation. OF course if by random luck you bought too much house in the 1968, overextending with a bigger mortgage than you should have, you would have been well rewarded with the ensuing inflation and wife going to work. Timing is everything.

In any case this kind of thing is absurd:

Honest Abe says

If home prices were in the $20,000 to $60,000 range for the average person, a good three year old car could be had for $1,800 and the cost of living was comparatively low - life would be better for millions of Americans.

Yes, and if we could all be 27 forever that would be really nifty too. So ?

Nobody has the power to instantly change the value of money. Believe me, if they could they would (well maybe not), the money of all those millionaires and billionaires would be worth more too. Money represents value - you can't just instantly increase the amount of value out there !

Besides, it would simultaneously increase the value of all debt too.

It's crazy talk. Totally absurd. OBviously if the value of money is going to change with our well entrenched system, it will be in the direction of becoming worth less.

But we are at an unusual juncture where it doesn't seem likely that wages can go up a commensurate amount if and when inflation does occur, and hence the scariness of these times for anyone who really thinks it through.

bgamall4 says

Cost of living is based on many factors, a main one being speculation. Speculation is an investment bank tax on the rest of us. That is why it is ok for them to tax us with high cost of living while diminishing our wages in a global economy.

the only wide spread speculation i and many have seen, documented by Robert shiller is Home Price speculation by the public at large.. claiming 10-50% appreciation annually over the long term.

banks had very little to do with it.. govt turned the blind eye and encouraged it.

http://www.youtube.com/embed/d__GPqOVNbE&playnext=1&list=PLE56D69691F1F2C13&feature=results_video

bgamall4 says

Also asset inflation is even more hurtful to main street than wage and asset inflation.

I guess we aren't entirely disagreeing. I agree the economy and markets are broken, but I believe that even most of the bankers strongly wish we could go back to more regulation and to when things weren't completely broken (eg our bond market where prices are propped up buy the US buying our own bonds, while
the real interest rate is basically negative)

bgamall4 says

Banks set it up. They set up the speculation. I cannot believe how difficult it is for you to grasp the truth. Lack of government regulation was fostered bythe banks as well.

Lack of Govt regulation even with required disclose didnt prevent the stock bubble in later half of 90s. We still saw the public at large speculating on internet stock as they did before in the 20s, yet the SEC act of 1933 and 34 were still on the books.

The housing bubble was equally created by the public at large with talk of "buy now" mania. Shiller provided all the proof needed, and yet today much of what he has proved is still ignored by the public when it comes to financial valuations.

bgamall4 says

If your assumptions are wrong, like all real estate cannot tank at the same time, the risk number is wrong too.

All RE in many metros did thank long before the repeal of Glass Steagall back in the late 80s and early 90s. Again, the RE mania corrected accordingly, without the need for regulations.

bgamall4 says

The S and L bubble was also a scam and Greenspan was behind that one as well.

Keep dreaming... Home Prices over the long run appreciate at about the rate of inflation. Prices became unfordable for many .. reaching 10x incomes. We had back then the same crazy public mania over RE (but not as bad as more recent.)...

There is no amount of regulation which will change the publics attitude over speculation on some crazy nonsense.

All bubbles are ultimately created by the public. Different bubbles may have different contexts and catalysts buy in the end it is all down to crowd behavior.

bgamall4 says

How do you not know this after as long as you have been studying this?

oh yes, blame it on this or that... get over it! RE prices dont appreciate as the public wrongly believed regardless of Basel 2,3,4.. or 10 in the future.. The public lost their mind and their wallet!

bgamall4 says

No, all bubbles are created by the banks. It has been that way from the beginning of time because they control the supply of money and they control the markets.

Invest in a Beanie Baby lately! How about a couple of Lotto tickets! Any baseball cards you collect for big bucks! Banks have little control over the emotions of the pubic.

Thomas, surely you are right.

Like when someone like Eliot Spitzer got entrapped, well, he made the choice.

I think s/he meant the Bubbles are enabled by banking.

Peter P says

Different bubbles may have different contexts and catalysts buy in the end it is all down to crowd behavior.

Okay. But take away the catalyst of sub-prime loans, liar loans, etc, which were TOTALLY tied to deregulation and what is really large scale fraud, and we have no idea of how much smaller the boom would have been.

Would it have existed at all, under old fashioned mortgage lending practices ? How can we say it would have, considering that virtually all homes bought for residence are bought with a mortgage. Investment buying and "flipping" is gone without the upward trajectory, and when rents don't cover the mortgage payments.

thomaswong.1986 says

Banks have little control over the emotions of the pubic.

But they happen to finance virtually ALL home purchases.

Would it have existed at all, under old fashioned mortgage lending practices?

Actually, TPTB have been reducing the cost of living for some time. Look at the Core CPI: inflation at 2% or less, thanks to careful government/Fed marshaling of the economy. (Of course, this figure is reached by excluding "volatile" items such as food and gasoline.) Just look at how much cheaper housing has become in places like Lancaster, CA, or Homer, GA. Factor that in and, metaphorically, we are almost as well off as the 1%.

As I understand it, the BLS includes food & energy in its calculation of the CPI, but doesn't take into account product shrinkage (or package amplification). Get less, pay more, but the CPI is blessedly stable. There's a whole field called "Hedonics" which assures us that a person who is used to eating steak will, when confronted with higher beef prices, switch to chicken or tofu or fish sticks, so, BONUS! his grocery budget actually comes out ahead. I am not sure where you go when fish sticks become too expensive; I'm thinking the plan would involve trapping neighborhood pets and possum for protein, and this activity would show up in the CPI as "FREE MEAT ALLOWS UNGRATEFUL CITIZENS THE CHANCE TO SPLURGE ON MAC-N-CHEESE!"

Note also that the cost of coveted "toys" are parsed and prettified by experts who point out that your new TV or laptop is so much bigger or faster than what was available last year that it counts as an upgrade, even if it's the most stripped-down entry model and costs more than last year's equivalent. In my own household, we find that hand-me-down clothes and the box of leftovers from the neighbor's garage sale gives us a more extensive wardrobe than we could ever afford by shopping at Walmart. The scarecrow look and Shabby Chic are so popular now.

As you now can see, the CPI--against which wage adjustments or retiree's benefits are calculated-- has de facto reduced the cost of living! They calculate that there's no inflation, so you don't need a cost of living increase. You just need to recalibrate your personal hedonics.

marcus says

Okay. But take away the catalyst of sub-prime loans, liar loans, etc, which were TOTALLY tied to deregulation and what is really large scale fraud, and we have no idea of how much smaller the boom would have been.

Hmm... what about the South Sea Bubble and the Tulip Bubble?

bgamall4 says

Cautious1 says

has de facto reduced the cost of living!

No, the reduction is in the means to pay for the cost of living which is still elevated by speculation. But I get your point, that wage inflation is not to be feared. Still commodity inflation is pure stealing if you don't get a better wage!

Gary Anderson strategicdefaultbooks.com

How oil speculators jacked up oil price, which affects other basics like food.

http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html

bgamall4 says

You need easy credit for oil and housing bubbles and the banks supply that.

There was no expansion of credit when it came to stock bubbles..that was all based on disposable incomes/savings.

Peter P says

Hmm... what about the South Sea Bubble and the Tulip Bubble?

Brain fart ?

I wasn't making a generalization about all bubbles.

And I don't know how familiar you are with logic, but the fact that public mania can cause a bubble in tulips or whatever without bank involvement is nothing like a proof that it is the only factor in all bubbles.

It's a chicken and egg question. It doesn't take a lot of capital to get the price trend going strong enough in something like tulips to then generate some crowd behavior buying mania.

But in the real estate boom, there were financing practices, which weren't necessarily a conspiracy, that allowed the buying to occur for several years with people bidding prices up up up, leading to more people doing the same, again often buying and bidding up prices when a huge percentage of these bidders/buyers would not have been able to even participate with lending practices of 30 years ago.

marcus says

Would it have existed at all, under old fashioned mortgage lending practices?

not that long ago... I, like many put down 20% with a fixed loan during more sober times. You will find more than 50% of homeowners today did the same.

Listen to Wrongwong's video of Schiller.

He talks about people in Los Angeles in 2006 on average thinking that RE was going to go up 23% per year.

Yes, this is buying mania public crownd behavior at it's finest. But it's based on the increases they saw in the 5 years before that. And that was based on a lot of buying and demand that was financed with liar loans and low down payment loans and a fraudulant mortgage securities market that was begging lenders to write more morgages.

The lenders said, oh, you want us to generate more fees and make more money ? Oh,...alright... I guess we can do that...

bgamall4 says

Tulip bubble was based upon a futures market and speculation that was forced to end, if Angry Bear has it right.

Gary Anderson strategicdefaultbooks.com

An unregulated futures market.

There is a distinction between regulated derivatives regulated by the CFTC and other regulated dervitives versus the so called "shadow banking" markets that trade unregulated derivatives.

bgamall4 says

Who has those, Marcus? :) Most of the damage comes from deregulation wouldn't you agree?

We have had them for a very long time. Futures markets in everything from metals, to oil, livestock, grain. They are well regulated.

There are regulated financial futures in such things stock indexes and treasury securities that have only been in existence about 30 years.

The Commodity Futures Trading Commission (CFTC) is the one who brought suit against Barclays in the recent Libor scandal, presumably because what was essentially massive insider trading of treasury security futures or euros was creating severe damage to the liquidity of these regulated markets.

marcus says

And that was based on a lot of buying and demand that was financed with liar loans and low down payment loans and a fraudulant mortgage securities market that was begging lenders to write more morgages.

Can you say the same back in 1989 - 92... yet prices went up and eventually fell.
Much was actually with cash.. not loans.

And fast forward to his NYC example.. not made with liar loans! Its all about valuations.

thomaswong.1986 says

Its all about valuations.

Which in turn are all about the market. I'm not making an absolute generalization one way or the other here.

marcus says

Okay. But take away the catalyst of sub-prime loans, liar loans, etc, which were TOTALLY tied to deregulation and what is really large scale fraud, and we have no idea of how much smaller the boom would have been.

Would it have existed at all, under old fashioned mortgage lending practices ? How can we say it would have, considering that virtually all homes bought for residence are bought with a mortgage.

I don't claim that the lending practices accounted for 30 or 40% of the boom, or that is was 80%. Just saying it's an obviously huge factor.

marcus says

There are regulated financial futures in such things stock indexes and treasury securities that have only been in existence about 30 years.

We had the 1933-34 SEC act for some 75 years.. A good set of regulations, but did little to prevent mania in many markets.. including commodities.. since reading the company and industry wide MDA would provide transparency to those markets.

marcus says

I don't claim that the lending practices accounted for 30 or 40% of the boom, or that is was 80%. Just saying it's an obviously huge factor.

bgamall4 says

Wrong, the amount of folks in those markets recently have gone berserk. The numbers are making the contracts scarce.

This makes no sense, and no offense but it's obvious you know very little about these markets. "the number of people in these markets ?"

Increasing the participants just increases liquidity and lowers the profit potential it doesn't cause the market to be priced wrong.

As for what caused the crazy prices of 2008, I don't know. If it was speculators, believe me, many of them got burned. For all we know it was the Saudis. What they say or what their spokesman says doesn't impress me.

I read about it back them. Whenever there is craziness in markets, traders and speculators are blamed. I don't buy it. PRicing of finite resources is tricky. Who knows, maybe prices of oil are being held artificially low now and really should be much higher. A good argument certainly could be made for that case.

B.A.C.A.H. says

Auntiegrav says

The "cost of being a consumer" on the other hand, is always more than we can afford.

Auntie, you sure got that right.

Thanks. Sometimes I get lucky when I spew out a thought that seems clear and logical, but it gets flamed by the Defenders of Right; that is the Right that Might made Right.

bgamall4 says

Peter P says

All bubbles are ultimately created by the public.

No, all bubbles are created by the banks. It has been that way from the beginning of time because they control the supply of money and they control the markets.

Gary Anderson strategicdefaultbooks.com

Bubbles are not "created". To be created implies something done intentionally. Bubbles are "allowed" and incidental in the process of seeking maximum economic harvests (whether they be profits or debt write-offs by government through weak dollar policies). The active process is the economic extraction process and the bust is a symptom of growth-based thinking (as opposed to utility-based thinking). Whether it is 'the' solution or not, a government should be basing its policy actions on the utility of its people's activities to the future of the nation, and nations should work toward the future of the world. This, however, is anathema to the concept of God-given rights, Might is Right, and Humanism (it would require humans to become subservient to their own future selves, rather than enslaving themselves with instant gratification debts). This would be called "leadership".
I know, I know,...an anachronistic idea in a world of Cash-based Deities.

david1 says

The fractional reserve argument is bogus, raindoctor. Investment is not lending. This liquidity trap is exactly waht is happening RIGHT NOW in our current fractional reserve banking system. The M2 & M3 multipliers have fallen greater than M0 has increased through quantitative easing. Hence QE hasn't spurred economic growth. Monetarists all over the world are scratching their heads while Keynesians know exectly what the problem is...

Liquidity trap doesn't explain. In fact, mainstream economists and Mish like austrians are wrong about how modern fiat money system works. I was disabused by Randall Wray's Modern Money Primer.

http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html

Here, Bill Mitchell of MMT (modern monetary theory) trashed Krugman's Liquidity CRAP!

http://bilbo.economicoutlook.net/blog/?p=6617

BTW, I was wrong about reserve requirements. Capital requirements are different from reserve requirements. What constrains lending is capital requirements.

bgamall4 says

It has been my thought that liquidity is not the problem, but rather, how the liquidity is used, to enable the TBTF banks to buy treasuries and to speculate in commodities and stocks.

Therefore, QE could only work if there were strict rules against speculation by these middlemen in oil and food, etc. That money has to somehow be filtered into the real economy. What do you think about that raindoctor?

bgamall4, we have swallowed many misconceptions sold by both Austrians (like mish) and mainstream economists about what money is, how it is created, how it flows, etc.

Banks can lend without any reserves (here, you need to study horizontal and vertical transactions). Banks are not lending not because of two reasons.

1. They are not finding creditworthy folks and firms. For instance, Google, Apple, etc, don't need any frigging money from banks to lend. And banks don't wanna take risk by lending out to Raindoctor, Inc, which wanna sell weight loss drugs in Oakland and East Palo Alto. If you read the evolution of Private Equity and/or LBO, it is a child of junkbonds (remember our Mitt Romney raised money through Junk bonds with help from Mike Milken). Junk bonds came into the picture because banks don't wanna lend to risky firms; however, healthy firms don't need banks since they can raise money in the market or since they can use their earnings to grow (in fact, 40 percent of firms expansion is funded by earning--thats the recent statistics). Venture Capital is for new firms; private equity for junk companies and for raiders.

2. They don't wanna take risk. They can risk by lending $5M to my company and ideas. They can even charge me 10 percent. But the problem is the chance of making profit is very slim: in fact, they will end up writing off the loan they give me. So, in this scenario, their capitals get depleted.

When banks lends you $100K, two things happen: (a) they add $100K to their assets; (b) they add $100K to their liabilities. +100K-100K = 0. They don't need any reserves. In fact, I heard, Canadian banks dont have any reserve requirements. Banks need to keep some capital for asset losses (like when they write off loans: here they use dirty tricks).

Read these:

http://bilbo.economicoutlook.net/blog/?p=332
http://bilbo.economicoutlook.net/blog/?p=352
http://bilbo.economicoutlook.net/blog/?p=381
http://bilbo.economicoutlook.net/blog/?p=20536

The other myth sold is: govt needs to sell bonds to finance its deficits. It is empirically false. I was fooled by mainstream economists (both left and right) and by Austrians like mish shedlock.

Read those four posts and this one as well
http://www.nakedcapitalism.com/2012/04/scott-fullwiler-krugmans-flashing-neon-sign.html

bgamall4 says

I am not an Austrian but I thought Mish agreed with what you say. I don't know if he is a true libertarian. Please advise.

Yeah, he is a true libertarian. He thinks that deficits are funded by borrowing. That's not how it really works. Treasury sales of bonds or open market operations--etc are meant to target interest rates (short term, ones). Fed can't control the aggregate demand, nor can it increase the lending. Treasury can spend without issuing long term t-bonds: in fact, one way to euthanize rentier class is to stop selling long-term t-notes and retire existing long-term t-notes. For more on this, you can read Bill Mitchell's works and blogs--I have just started unlearning the crap sold by mish about deficits.

European crisis has to do with Euro. If PIIGS countries, and France had their own currency like UK, they wound't be this situation. PIIGS are not sovereigns, anymore; banksters are bankrupting these countries. If they had sovereign currency, they woudn't be in this situaiton. Randall Wray's MMT primer has some posts that address this issue.

Money is IOU, it is not a commodity. Banks create both money and assets: the moment they financialize something, they do two things: (a) an asset; (b) a liability. That's why they create IOU's. Bank A IOU's is accepted by Bank B. Bank B's IOU is converted to Soverign's IOU through federal reserve. Read the MMT primer's debt pyramind of IOUs to get proper understanding.

Banks don't need reserves (for instance, Canadian banks dont have that reserve constainrs or they have 0 reserves). Whenever Treasury spends money, Banks' reserves are increased. Whenever people pay taxes, reserves are decreased.

Speculation has nothing to do with reserve requirements. It is because they are not able to generate profits in traditional banking. Google, Apples of this world dont need money from banks. So, Banks can do two things: (a) they can give loans to private individuals (like housing crisis); (b) they can gamble in stock markets, etc.

Regarding (a) When they lend money to risky ventures like housing, they gotta maintain capital reserves. Here, they use off balance sheet vehicles, securitization, and accounting practices like not marking to market.

Regarding (b), they can create new financial instuments (like futures, cds, swaps, etc). When they create these instruments, they are doing two things: (a) an asset (these instruments); (b) liability. Assets = liabilities. And maintain capital ration based on those assets. Here, they play the tricks to show that they have capital reserves.

BTW, I spent last 3 days to read Randall Wray's MMT primer. Many of my confusions, my questions, are solved by their theory.

bgamall4 says

Raindoctor, can't say I disagree with anything you say except that Mish would agree that reserves don't fund loans, but that loans are originated from scratch. Isn't that what you are saying?

It would be better if banks used the excess capital to fund real projects, or maybe have the government do it. Otherwise we have 147 dollar oil.

I enjoyed your post above.

Gary Anderson strategicdefaultbooks.com

With every loan, you are also creating an asset. So, they zero out.

You don't need banks to bail out the main street. If congress has balls, they can do it differently: budget $4 T for infrastructure projects. Here, treasury can act on it without selling any frigging t-notes for $4T. Treasury adds $4T to contractors/individuals accounts, the way social security checks are given. When you get a check from treasury for $2K, here how it works.

1. You get a check from treasury for $2K
2. You deposit $2K in your bank of america checking account
3. BofA adds $2K in your account; adds $2k on their liabilities side
4. BofA settles this treasury check with Federal reserve (here, fed adds $2k to BofA reserves at Fed reserve level)

No bonds required for uncle sam to give you $2k. Extend the same logic to $4T. Banks can add $4T to individual accounts; Treasury (by using Federal reserve) adds $4T to these private banks reserves.

Study "Employer of Last resort" or 'Job Guaratee" program, a policy recommendation by Modern Monteary theorists.

http://neweconomicperspectives.org/2012/03/mmp-blog-42-introduction-the-the-job-guarantee-or-employer-of-last-resort.html

Libertarians, Conservatives say that deficits cause inflation and that deficits needs be borrowed. That is not truth at all. And the leftist economists like Krugman don't know shit about how banking system and federal reserve operate. Nor do these mainstream leftist economists, who advise Democrats wanna learn the truth. It is a giant scam, the more I think about. They are spreading the same scam in China, India, Africa, elsewhere: financialize every aspect of life and then screw the population

So, stop blaming banks. We all know about republicans, who are honest about what they wanna do. Look at democrats, who are not honest about what they wanna do: these assoles don't know how money is created and functions. Those who know how it works (like lobbysists for banks and the existing wealthy) subvert the way MMT sketched ELS/JG by using fallcious arguments. They do that because they wanna keep the existing wealth.

Read Bill Mitchell's "Full Employment Abandoned: Shifting Sands and Policy Failures"

http://www.amazon.com/Full-Employment-Abandoned-Shifting-Failures/dp/1858985072/ref=la_B001JP83Q8_1_1?ie=UTF8&qid=1345183795&sr=1-1

Blame leftist economists, who are ignorant about treasury, federal reserve operations and the banking system

Blame democrats. Don't blame banks, since things can be done without banks' help.

What happens when techne replaces labor to the extent that it's no longer possible to employ most or all of the adults except for the 10% who own the production, or service the production directly?

marcus says

Yes, this is buying mania public crownd behavior at it's finest. But it's based on the increases they saw in the 5 years before that. And that was based on a lot of buying and demand that was financed with liar loans and low down payment loans and a fraudulant mortgage securities market that was begging lenders to write more morgages.

As for LA or NYC,,,it has become ingrained into their thinking on RE and wealth. As shiller pointed out, the upper end who paid cash also went ape-shit on over paying for RE expecting higher returns. Mortgages were not the issues, its all about prices.

bgamall4 says

Ryan wants a housing bubble and Mitt wants a bigger one than his dad blew. His dad was stopped by a sovereign USA, but now the banks are sovereign. It is the NWO.

Its pretty well know Mitt wants the RE market without government interference to find its own correction/bottom. He has said it many times over.

http://www.youtube.com/embed/FiFslD8QYg4

thunderlips11 says

What happens when techne replaces labor to the extent that it's no longer possible to employ most or all of the adults except for the 10% who own the production, or service the production directly?

Homo Economicus. A Legendary Creature, like Bigfoot, claimed to exist by Pseudoscientists.

The whole game of efficiency is misguided. Companies reduce the output, even if they are efficient to meet the demand, so that they can make money.

The problem is not so much about robots replacing humans. If robots replace humans in every work, isn't it good? After all, we can use the time to do whatever we want? Yes, it is good: but the problem is we have toll booths (rentiers) that collect toll from everything related to survival: food, shelter, health, etc. Here, a tax policy can be used to euthanize rentiers. The other problem is: even the robbed wanna be a robber! That's the irony. Today, we all complain about rentiers because we are not rentiers: we all believe that we can become rentiers one day, thats why we defend the logic of rentiers. For instance, Fannie Mae, Freddie Mac, Mortgage interest rate reduction, Prop 13 in California, FHA, etc--all these programs/entities increase the cost of living, yet every one wants to keep them!

Read this:

http://neweconomicperspectives.org/2012/06/mmp-blog-51-the-efficiency-fairy-and-inflation-goblins.html

This is great reading, thanks Raindoctor.

bgamall4 says

Then you see a lot of guys on the side of busy streets with a cardboard sign in their hands begging.

Exactly, unless we replace the way society functions.

While I enjoyed RD's link, I have this question

Can't "Efficency", instead of resulting in layoffs, instead translate into shorter hours at the same pay?

thunderlips11 says

Can't "Efficency", instead of resulting in layoffs, instead translate into shorter hours at the same pay?

It aint gonna happen, unless 70 percent of humans understand how modern fiat money system works. A sovereign nation with a sovereign currency (not like those EU members without their own currency) does not fund their spendings by issuing bonds--that has been the reality and the truth. But there are vested interests and the intellectual dishonesty from the intellectuals like Krugman--the latter will subvert everything.

Sensible way of dealing issues.

1. Campaign finance reform
2. Part time politicians (no fulltimers)
3. Stop selling long term treasury notes (why pay interest to the elite when you don't need any long term bonds to fund the sovereign deficits/spending. Short term bond sales are required to target the interest rates)
4. Tax rentiers (non-productive class): real estate/land; non-wages.

50% of US GDP is wages. In mexico, it is 25 percent!! If things go the way they are going now, wages to total GDP ratio will reach that of the third world.

The problem is not with the money, nor with the treasury, nor with the federal reserve. It is those folks, we all wanna become one day: who does not wanna become a billionaire and keep those billions for 20 generations? After all, we entertain those fantasies!

I like your thinking. Let me add:

5. 90% inheritance tax

6. Ban Trusts that pay to any individual person more than the Median Wage / year.

7. Tax religious institutions on revenue not spent on charity.