Tilted Forum Project Discussion Community - View Single Post - The money and banking system

host · 12-08-2007, 09:06 PM

roachboy, I think this is a good spot to break the "money" and fiat currency issues out of the "Bush is a Socialist" thread.

I posted this earlier on this thread:

Quote:

http://www.tfproject.org/tfp/showpos...8&postcount=24

.....You make the same argument Greenspan attempted to make....and there is no history of that concept working to result in anything but devaluation of the medium of exchange, and surges and pullbacks in liquidity, i.e., credit availability, with all of the behavior that accompanies the waves of euphoria and despair of the surges. The euphoric times of easy credit always end with malinvestment....the false demand of house and condo "flippers" in the US for the past five years will result in an inventory excess that will take ten years to sell into actual demand....people needing a residence, as opposed to flippers who create demand that prompts the construction of unneeded housing units....

This speculation was initiated as the US central bank attempted to cushion the impact of the last bubble that it created with interest rate reductions, the stock market bubble. The reduction of the discount rate to one percent was in reality, a flood of liquidity, soaked up by speculators in a real estate market that had too little inventory to meet a sudden surge in artificial, liquidity induced demand. To keep it going, GSEs...Government sponered enterprises, Fannie Mae and Freddie Mac introduced even easier, lower interest terms for mortgages....low doc, no doc, (you didn't have to provide evidence of how much money you made, or of your existing debts and assets to qualify for a mortgage), they agreed to buy mortgages written under those new guidelines, as well as interest only mortgages, and "no down payment" mortgages that actually lent 103 percent of the appraised property value, to cover closing costs of penniless homebuyers.

In a market where the only borrowing would come from holders of gold or silver who would have to be paid a high enough interest rate to persuade them to risk lending their "money" to a prospective homebuyer, would any of the above ridiculously lax criteria be tolerated? The Fed and the GSEs worked together to eliminate any competition for borrowers to obtain funds. Everyone was instantly qualified to borrow, and the demand drove prices of the underlying assets....real estate parcels, to the stratosphere.

Now we sit back and watch the mess unwind.....

<h3>If only those with assets did the lending, there would be no periods of easy or hard to come by credit.....there would be near constant interest rates and no spikes and troughs in demand.</h3>

There isn't much inflation because central banks around the world trade the US currency that comes into their countries' exporters, for paper currency that they print up out of thin air. Toyota for example, has little use for the hundreds of millions of US dollars that arrive in it's accounts in Japan each year. The Japanese central bank obligingly prints yen up, trades them for Toyota's dollars, and buys US treasuries with the dollars. Japan attempts to create an inflation psychology among it's domestic consumer base with the constant flood of yen, and it keeps the yen low enough to make Japanese exports competitive. The Japanese are satisfied to buy US central bank paper at 4-1/2 percent, with US dollars that they obtained in trade for yen that they printed up out of thin air.

This is the "system" that you are supporting....it will work until it doesn't. Gold and petroleum will relentlessly creap up in price, if I am correct, and the dollar will eventually collapse. The Japanese and Chinese see a greater reward than a risk...even it the US defaults on it's outstanding treasury obligations, they are only "out" the yen and the yuan that they printed up out of thin air to acquire the dollars. The US treasury bonds that they owned were simply an entry on a balance sheet.....

I agree with your description of Ron Paul. I think it is revealing that a "flake" is the only representative with oversight responsibilities who even came close to challenging Greenspan's "nonsense", during his long tenure as Fed chairman....