The case against Dr. Paul

[dash]

Well, that is certainly preferable to a tonne of homeless people all being created at the same time, isn't it? If the alternative is widespread misery and abjection, I can see how a case can be made.

You have this assumption people getting foreclosed suddenly become homeless. They can rent. All the foreclosed homes still exist. Someone has to own them. So if they can't sell them (due to the sheer volume of homes on the market) they can always rent them out. It's a free market.

Foreclosure = people lose the house they were making payments on. It doesn't mean they are instantly homeless.

Correct scenario is as follows:
1) People become unable to make payments, or choose not to when the assessed value of their home is below how much they owe. They walk away from the home.
2) Bank forecloses. Bank now owns the home. Bank doesn't want to own the home, bank wants its money back. So bank puts home on market.
3) Other home buyers, or investors with money, buy homes on market when they're satisfied with the price. Glut of foreclosed homes on market drives housing prices way, way down, so in dollar terms it's easier to buy a house.
4) Money gets shifted around to where it's most productive. Home values stabilize, and instead of being a ridiculous piggy-bank people tap into for ready cash, it's just the place where you live.
5) Housing bubble has deflated. People get on with their lives.

-Dave

 

[WildCat]

Dash - what happens when the economy grows beyond the total amount of gold available?

And that horse left the barn about a hundred years ago.

You need to deflate the value of the dollar to keep up with your standard, ruining your economy. That's what WildCat is trying to explain to you.

Exactly!

Also, if you fancy sending me any of those worthless IOUs you happen to have lying around, I'll PM you my address.

I called dibs first!

 

[dash]

No, there is no Bush plan to do that.

It might have been a trial balloon, and the public outrage squashed it. I tune in to the news circles that would speak of these things. Mainstream media might not always cover the stuff.

Here's an essay by Peter Schiff for Dec 6. He speaks of the Bush administration's mortgage rescue plan.

http://www.europac.net/archives.asp?year=2007&qtr=4#

-Dave

 

[dudalb]

Oh! You're one of those

That he thinks Peter Schiff is a great economic guru proved that.
Schiff thinks that you do not need to pay your income tax since the income tax is illegal.
His nickname is "Dr Doom" because he is following in the footsteps of his father in predicting economic doom.
I am 40 years old,and as long as I can remember the "Goldbugs" have been predicting economic doom.
It is an appealing theory to those who want a simple answer to everything.

 

[volatile]

Correct scenario is as follows:
1) People become unable to make payments, or choose not to when the assessed value of their home is below how much they owe. They walk away from the home.
2) Bank forecloses. Bank now owns the home. Bank doesn't want to own the home, bank wants its money back. So bank puts home on market.
3) Other home buyers, or investors with money, buy homes on market when they're satisfied with the price. Glut of foreclosed homes on market drives housing prices way, way down, so in dollar terms it's easier to buy a house.
4) Money gets shifted around to where it's most productive. Home values stabilize, and instead of being a ridiculous piggy-bank people tap into for ready cash, it's just the place where you live.
5) Housing bubble has deflated. People get on with their lives.

-Dave

Aside from the obvious question of where these suddenly-homeless people are going to find places to rent, your plan actually DOES screw Person Y over after all.

It's simple economics. If, all of a sudden, there is a glut of property on the market, prices drop, as you correctly state. Person Y, remember, has kept up with his repayments but now has a house worth considerably less than what he paid for it, and is probably in negative equity.

 

[dudalb]

You can't reward people for stupidity, by protecting them from the pain of their mistakes. That's how you dumb down your people.

All those stupid poor people. They should die and decrease the surplus population.

 

[volatile]

It might have been a trial balloon, and the public outrage squashed it. I tune in to the news circles that would speak of these things. Mainstream media might not always cover the stuff.

How could public outrage have squashed it if it wasn't even reported in the media?

By "tuning into the news circles", you really mean "read econo-conspiracy websites", don't you?

 

[volatile]

All those stupid poor people. They should die and decrease the surplus population.

Econo-eugenics! Awesome!

 

[dash]

Dash - what happens when the economy grows beyond the total amount of gold available? You need to deflate the value of the dollar to keep up with your standard, ruining your economy. That's what WildCat is trying to explain to you.

Also, if you fancy sending me any of those worthless IOUs you happen to have lying around, I'll PM you my address.

Listen, you've really got to do some research on wealth. I hear Adam Smith's Wealth Of Nations is the difinitive guide. Here's a link to gutenberg's copies.

http://www.gutenberg.org/etext/3300

The real growth of the economy is due to the increasing productivity of the people, or to the increase in the number of people. It's not due to the increase of the money supply. This is a fundamental concept you really need to understand. Please don't take my word for it. This is reality here, it's not my opinion.

People have come to equate growth in nominal terms (how may dollars things are) with prosperity. It's not the absolute number of dollars that matter, it's the purchasing power of those dollars. As such during this decade the Dow Jones has risen in dollar terms, but the value of the dollar has gone down, so in fact if you had invested in the DJ you'd have lost purchasing power.

Mark Twain has a very amusing section on this in his book, "A Connecticut Yankee In King Arthur's Court" where The Boss (our hero) and the King are eating with some commoners, and The Boss is trying to explain economics to these guys. One guy thinks he's earning more because he earns 4 pence a day, whereas the other guy earns only 2. But The Boss tries to explain that everything costs 3X as much in terms of pence when he goes to buy stuff, so his 4/2 pence ratio is eaten away by higher costs. They just can't understand it, no matter how he tries to explain it. All they can see is they're earning 4 pence a day and the other guys are only earning 2 pence.

If you feel like reading that section of the book, here's a link from gutenberg:
http://www.gutenberg.org/files/86/86.txt
Search down for "CHAPTER XXXIII SIXTH CENTURY POLITICAL ECONOMY"

A valid question you ought to ask would be phrased like this: Isn't it rather arbitrary that the money supply should be locked to how much of a certain yellow metal can be dug up out of the ground?

-Dave

 

[volatile]

But if people become more productive (or even if your population grows), you need more money, or you need to devalue the money you already have. Those are your only two options, and a gold standard ties you to option two, screwing everyone over...

 

[dash]

That he thinks Peter Schiff is a great economic guru proved that.
Schiff thinks that you do not need to pay your income tax since the income tax is illegal.
His nickname is "Dr Doom" because he is following in the footsteps of his father in predicting economic doom.
I am 40 years old,and as long as I can remember the "Goldbugs" have been predicting economic doom.
It is an appealing theory to those who want a simple answer to everything.

Yep, that's pretty much the response Peter Schiff gets when he's interviewed on Fox News. Oh well. When the economy tanks and we go into another depression, you'll at least have company in the bread lines. Your faith that everything will always continue on, business as usual, is most curious, given the skeptical nature of these forums.

-Dave

 

[dash]

It's simple economics. If, all of a sudden, there is a glut of property on the market, prices drop, as you correctly state. Person Y, remember, has kept up with his repayments but now has a house worth considerably less than what he paid for it, and is probably in negative equity.

Yep, there's pain all around when bubbles burst. At least Person Y isn't getting the double whammy though, having to pay for other people's mistakes AND suffer a loss in home values.

The free market always wins, prices can't be artificially controlled forever.

-Dave

 

[dash]

But if people become more productive (or even if your population grows), you need more money, or you need to devalue the money you already have. Those are your only two options, and a gold standard ties you to option two, screwing everyone over...

Yes, you make a good point. I think there is a sweet spot in terms of currency creation. We've been too far on the side of "Flood the world with dollars" and not close enough to "Lock down dollar creation to the mining rate of gold".

I don't have all the answers. I'm convinced we're in for a train wreck. Gold's going through the roof. In the aftermath, what would be the best way to setup an economy? I don't know. I just hope the geniuses that got us into this mess won't be the ones to design the solution. Keynsian economics needs to die with a stake in its heart.

-Dave

 

[volatile]

Yep, there's pain all around when bubbles burst. At least Person Y isn't getting the double whammy though, having to pay for other people's mistakes AND suffer a loss in home values.

The free market always wins, prices can't be artificially controlled forever.

-Dave

Except if you stop foreclosure, you avoid the problem and no-one loses. There's no whammy, let alone a double one. Person Y is not negatively effected at all if Person X is not made homeless, other than perhaps through some weird metaphysical sense of having been wronged. He's no worse off at all.

Your economic policy leaves everyone ruined. You're accelerating the "collapse" you say you want to avoid. Black is white and the moon is made of cheese in your world!

 

[volatile]

Yes, you make a good point. I think there is a sweet spot in terms of currency creation. We've been too far on the side of "Flood the world with dollars" and not close enough to "Lock down dollar creation to the mining rate of gold".

You can't have a "gold continuum". Either the dollar is locked to gold, or it isn't. If it is, and your economy grows beyond the amount of gold in existence, then your economy deflates and everyone is screwed.

I don't have all the answers.

All? Try any. You're not even asking the right questions.

I'm convinced we're in for a train wreck. Gold's going through the roof. In the aftermath, what would be the best way to setup an economy? I don't know. I just hope the geniuses that got us into this mess won't be the ones to design the solution. Keynsian economics needs to die with a stake in its heart.

I agree that cheap credit is not necessarily the best thing for an economy. But a gold standard won't fix that. The free market is what got us into this mess in the first place, what with the constant pressure on consumption pushed by corporate America.

You need to go back to basic macroeconomic principles here, Dash. You're so far off getting it.

 

[dudalb]

Your faith that everything will always continue on, business as usual, is most curious, given the skeptical nature of these forums.

99% of Economists say one thing, an economist who runs a company that depends on a panic mentality to seel it questionable investments and has a long history of economic woo....I know who I am going to beleive as a rational thinker.
I sense a whole bunch of "Psuedo Skepticism" coming my way.

 

[dash]

You need to go back to basic macroeconomic principles here, Dash. You're so far off getting it.

Boy that's really funny. Ok, have it your own way.

-Dave

 

[volatile]

Boy that's really funny. Ok, have it your own way.

-Dave

Seriously, Dash. Explain how an economy can grow if there is no more gold to allow it to happen, without deflating the economy?

 

[dash]

Except if you stop foreclosure, you avoid the problem and no-one loses. There's no whammy, let alone a double one. Person Y is not negatively effected at all if Person X is not made homeless, other than perhaps through some weird metaphysical sense of having been wronged. He's no worse off at all.

Your economic policy leaves everyone ruined. You're accelerating the "collapse" you say you want to avoid. Black is white and the moon is made of cheese in your world!

You can't stop the bursting of the bubble, you can only delay it. If you lock interest rates, the bank that loaned the money is certainly suffering. The investors that provided the funds to the bank to make the loan are suffering. Meanwhile you've got this artifcially inflated bubble that is kept inflated. It's sending all the wrong signals to the market.

With ARMs the teaser rate is so low it's not even paying down interest. That means the pinciple is growing...and growing...and growing...so when the freeze period ends, what happens then? The borrower suddenly has an even bigger debt he likely can't afford to pay off. Another freeze? Perpetual freezes? Whereas person Y is still paying his higher mortgage payments. Every month that goes by where person X gets a free ride and person Y doesn't -- that's not fair at all.

You can't mandate economic prosperity.

I'm losing interest in trying to educate you guys. You've got all the information you need to educate yourselves. It doesn't take very long to figure this stuff all out.

It might be you don't have wealth to protect or a mortgage anyway. If that's the case then don't worry about any of this.

Me, I own my own home outright. I'd prefer to let the housing bubble burst even though it means my house isn't worth as much in dollar terms. I'm looking at the big picture.

-Dave

 

[dash]

Seriously, Dash. Explain how an economy can grow if there is no more gold to allow it to happen, without deflating the economy?

Actually let's discuss deflation. Why is this a bad thing, again? Prices getting lower makes life difficult, exactly why?

Wages go down, but so do prices. I guess I'm not getting it.

You're conditioned to think deflation is a bad thing. So we have a constant varying rate of inflation. We consider ourselves lucky if the inflation rate is reduced -- but never to zero. Deflation is a negative inflation rate.

-Dave