Abaco

Do you think Wall Street is in another bubble?

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I still recommend that for the people that have a concern about gold and it's relationship to money and liberty to read Richard Salsman's works. What I am going to write below about the subject comes from my understanding of his ideas on economics along with Jean-Baptiste Say's writings and the notes I have taken from reading both of these men's works.

Gold is money. And since the real value of gold has been relatively constant over time, when gold prices change they usually reflect the change in the market's estimate of the value of that currency. In other words, rising prices of gold reflect inflationary forces while a falling price of gold reflects disinflationary forces. Today (since we have a fiat money supply) the price of gold is the price of fiat currency in terms of genuine money. Gold cannot be debased and it tends to measure the debasement of fiat money best. When the gold price varies it is, for the most part, the value of paper currency that is varying.

The most important factor determining the gold price in any currency is the degree of credibility exhibited (or what is likely to be exhibited) by the government that issues the currency. In other words, the higher the credibility the more likely a government currency will retain its vlaue and the more likely that the gold price in that currency will stabilize or fall. And of course it works in the opposite direction when the price of gold goes up as this means that government credibility is being exhibiting in a lowering of the value of the government currency.

A possible reason Richard Salsman's predictions on gold might be slightly off, is because there are no objective standards/forumlas to measure the credibility and hence the value of fiat based government currency. But all government currencies tend to decline in value over time albeit at different rates and there is no way around this. Government intervention into the market, such as higher tax rates, increased regulation, protective tariffs along with other forms of intervention usually speeds up the debasement of their currency as their credibility decreases. Should there be any reason left to why gold prices are increasing under our current government policies? I do not think so.

So, gold is money which over time has been shown to have a real and relatively constant value. When gold's price increases in government backed currency it is not that it's real value is changing and instead it is the value of the currency that is losing it's value. This should be giving the wake-up-call to most citizens to start taking aciton, not to buy huge amounts of gold, but instead to get rid of the irrational and illogical government officials and their policies. If one does not take the actions to change the items mentioned they will not only watch the value of their currency decrease their liberty will decrease also.

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I'm surprised at how much it seems that the dollar has declined over the past few generations. I hear my dad talk of such things like buying a Corvette for what I'd spend on a bicycle and it makes me cringe. His early house purchases cost about what my wife's van cost us. I know, inflation is expected. However, when I compare what incomes were back then (for example, I'm talking about the early 60s) it just doesn't pencil out.

In casual conversation the other day my dad mentioned that his first job out of high school was at a tire shop for $1.70/hour. My first job was flipping burgers for about 2.5 times that, 25 years later. However, the cost of cars over that time, based loosely on the numbers I see, increased about 15-fold. Houses in the region where I was growing up had gone up in price about 10-fold. As time marches on I can't help but think many of my fellow, middle-class working Americans are just bee-bopping through life expecting their lifestyles to equal that of their parents'. But, in general, I just don't see how it can. Actually, I see a lot of my contemporaries who are broke while trying to live the Amercan dream. Generation-to-generation it seems as though the cost of living is outpacing what people earn. However, I've not had the time to really comb through the data enough to do this justice. It's just a gut feel based on what I observe.

Grandpa was a mail carrier. He started with nothing ("I joined the Navy at 18 so I could eat") and retired with a house in Mazatlan, a cabin on Whidbey Island (where I happily spent many summers), and a nice house in Seattle. My dad's retirement isn't quite as nice and he worked pretty hard in industrial sales. I'm an engineer who does fairly well and, well, I'm scrambling more than they did.

Perhaps I'm wrong in relating the quality of life with the value of money. This is just the mental meanderings of an engineer on his lunch hour, for what that's worth. :) And, sorry if this seems way off topic.

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Perhaps I'm wrong in relating the quality of life with the value of money. This is just the mental meanderings of an engineer on his lunch hour, for what that's worth. :) And, sorry if this seems way off topic.

Your thoughts are not off topic and show what happens when a government obtains the power of creating fiat money, they enslave their citizens which constantly keeps increasing until the citizen is fully enslaved. In other words, as the value of one's money keeps decreasing their liberty and value of life will keep decreasing also.

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No, there are many points in what you are saying, which you can have a look at with hard economics and by withdrawing yourself emotionally:

Inflation - well, part of it was to be expected - it comes with economic growth and productivity improvement. I do agree (much like anybody competent in the market) that money printing for funding welfare states does not help. But if there is going to be a money monopoly, it might as well do its job (provide currency and liquidity).

The cost of cars has gone up due to regulation more than anything. You can still buy a car in India for a fraction of what you are spending on yours. Most of what you are buying are government-mandated security features, union-inflated salaries (together with added costs throughout the supply chain due to intensive labour regulations in the US), as well as the consequences of having government-backed car oligopolies receiving tons of subsidies (much like every other international car company, to be fair). Other things in your life are much, much cheaper. Think for example about sending information to somebody else, in terms of purchasing power. This is because Silicon Valley is not regulated. The explosive, astonishing growth and subsequent productivity improvements that we have found in technology are what could have happened with EVERYTHING ELSE. The only reason Silicon Valley isn't regulated is that Washington is unable to understand it, what, and how. It will come eventually, sadly.

Remember labour is a market. Your father could earn more at an unskilled job because at the time, it was difficult to procure labour - an employee's market. Nowadays, minimum wage regulations create a shortage of work, whilst the large influx of immigrants willing to work for a lot less than you is driving wages down outside that tightly regulated pool of minimum wage jobs. It is quite telling that a man can work 16 hours a day at $3/hour in New York and feed a family of 6 in Mexico whilst surviving in conditions better than those of a middle class household 100 years ago. Tough for your income, good for your pocket (lower costs) and for the Mexican.

Your contemporaries weren't trying to live the American Dream. The American Dream is about taking risks and working extremely hard to move up in society. Most people, during the credit bubble, worked fairly easily (see The Office, etc.) taking no risks, and leveraged their earnings using cheap and easily available credit to live the life of somebody who works hard and takes risks. Money is not easily earnt, especially when the values you can provide compete with the globe.

The cost of living is in some aspects higher (such as aforementioned car) but in many others lower, namely anything where the productivity improvements have outstripped damage done by government intervention. You spend a LOT less on food than your grandfather did (my grandfather used to buy only mutton and cod to feed his family, as they could not afford any other sources of protein; both are now prohibited in his house, since he has now made it).

You can still start with nothing and end up very wealthy. Except those doing this are Indians, born in disgusting villages in conditions you cannot even begin to imagine (try walking around, finding out half the village population died of disease before they reached 30; or people having food poisoning on average one week a month, sometimes resulting in death). They rise, they come to the US and they start the companies Americans are busy ignoring, as they party in their remortgaged house. Different choices.

As for why you are "struggling" as an engineer when last generation's was thriving, well, this is simple offer and demand. Stocks outpaced bonds, according to a famous investment book. Except from the moment it was published, bonds, outperformed stocks. Similarly, there used to be money in taking the other side of companies' hedges on the forward market; there is now a net disadvantage to doing so. Engineering used to be a prestigious and difficult career, but it is now easy to borrow and study and become one; whilst the country is flooded with cheap and competent (if perhaps not as experienced and competent as you) engineers driving down real wages.

Choosing a career is similar to buying a car or an investment - at the end of the day, you are offering your time and effort (including the time you invest in yourself, training) in exchange for economic benefits, so you must look at where the values you have to offer are in greater demand than there is supply for; or industries which due to their dynamics have kept their wages sky high. An example of the former is risk management in banks (a totally useless function, in my opinion) which simply cannot hire enough maths phds and therefore offers them upwards of $400k for a position which really is not that hard to perform. An example of the later is mergers and acquisitions, which is a large collusion to keep fees sky-high (7% for an IPO?!) and restrict entry to the field, keeping the supply of competent bankers low and overall income very high (since there is limited demand for M&A services); it seems recently these guys have gotten even smarter, managing to get government insurance for casino gambling directionally on bubbles.

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Perhaps I'm wrong in relating the quality of life with the value of money. This is just the mental meanderings of an engineer on his lunch hour, for what that's worth. :) And, sorry if this seems way off topic.

Your thoughts are not off topic and show what happens when a government obtains the power of creating fiat money, they enslave their citizens which constantly keeps increasing until the citizen is fully enslaved. In other words, as the value of one's money keeps decreasing their liberty and value of life will keep decreasing also.

Ironically, American dollar inflation in part caused some of the problems Argentina found itself in causing it to default. They had pegged the peso to the dollar expecting the dollar not to lose value too quickly, but dollar inflation put a lot of pressure on this attempt at wise fiscal policy (not that it would have helped - the problem was not the currency but the Argentinian welfare state). The poor Argentinian socialists expected American capitalists not to play their own games!

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Inflation - well, part of it was to be expected - it comes with economic growth and productivity improvement. I do agree (much like anybody competent in the market) that money printing for funding welfare states does not help. But if there is going to be a money monopoly, it might as well do its job (provide currency and liquidity).

How does improving productivity bring about inflation?

Isn't most economic growth indicative of, if not brought about by, increased efficiencies?

(We need terms that allow us to differentiate between price increases that are attributable to the fluctuation of the supply and demand of commodities, and price increases attributable to the ever-dropping values of currency that isn't backed by anything other than the reputation of the issuing nation. "Inflation" seems to combine these two causes into one, easily pro-statist term.)

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Inflation - well, part of it was to be expected - it comes with economic growth and productivity improvement. I do agree (much like anybody competent in the market) that money printing for funding welfare states does not help. But if there is going to be a money monopoly, it might as well do its job (provide currency and liquidity).

How does improving productivity bring about inflation?

Isn't most economic growth indicative of, if not brought about by, increased efficiencies?

(We need terms that allow us to differentiate between price increases that are attributable to the fluctuation of the supply and demand of commodities, and price increases attributable to the ever-dropping values of currency that isn't backed by anything other than the reputation of the issuing nation. "Inflation" seems to combine these two causes into one, easily pro-statist term.)

I'd call it a necessary increase in the supply of money. The problem with using gold money is that eventually you are trading the tiniest chips of gold. 5 billion people cannot use the same number of notes and coins as 500 million.

Still working on my opinion for this, though. The problem, really stems from the fact government has a monopoly on money, which does add huge efficiencies (mainly in the form of liquidity and quality) but restricts the market mechanism from providing the supply of money when required by new demand from population growth and productivity improvements leveraging each person's wealth creation abilities.

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Rtg24, first off an objective person cannot detach themselves from their emotions as it is their emotional response to their values that drives them to take action. If you understand that one's emotions are an automatic response to their values which are chosen through deliberate, rational thought. And what it seems you want is a Mr. Spock type of person, who cannot exist in reality, as they would have no values and hence nothing to drive his actions. So, my look at economics (of any size or kind) is objective because it is in my best interest to do so which means guided by reason.

Now to the topic at hand. Inflation does not come from economic growth. Inflation (once agian) is defined as “undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie.” The term "undue" is defined as improper or fraudulent. Inflation is not caused by private citizens (to include businessmen), but by a government that artificailly expands the money supply. As I have mentioned many times, prosperity does not cause poverty.

I do not have the concern to re-explain all that has been discussed and defined before in this thread and others as it seems you to not agree nor care to rethink your position on. But, I will mention this, anytime we see a negative situation in an economy it is not Capitalism that is the cause, but instead whatever aspects of statism/intervention have been interjected that are the root cause. Capitalism is the system of prosperity not poverty and hence why inflation (an undue increase) only happens in state controlled economies.

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Inflation - well, part of it was to be expected - it comes with economic growth and productivity improvement. I do agree (much like anybody competent in the market) that money printing for funding welfare states does not help. But if there is going to be a money monopoly, it might as well do its job (provide currency and liquidity).

How does improving productivity bring about inflation?

Isn't most economic growth indicative of, if not brought about by, increased efficiencies?

(We need terms that allow us to differentiate between price increases that are attributable to the fluctuation of the supply and demand of commodities, and price increases attributable to the ever-dropping values of currency that isn't backed by anything other than the reputation of the issuing nation. "Inflation" seems to combine these two causes into one, easily pro-statist term.)

I'd call it a necessary increase in the supply of money. The problem with using gold money is that eventually you are trading the tiniest chips of gold. 5 billion people cannot use the same number of notes and coins as 500 million.

Still working on my opinion for this, though. The problem, really stems from the fact government has a monopoly on money, which does add huge efficiencies (mainly in the form of liquidity and quality) but restricts the market mechanism from providing the supply of money when required by new demand from population growth and productivity improvements leveraging each person's wealth creation abilities.

Your first statement is not the problem as miners can always mine (produce) more gold in a free society that can parallel the productive output of a society. Your next statement is also fallacious as free banking and all that falls under that is much more efficient than any government controlled banking/money making system and history has shown that over and over in many different countries and times.

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Hey Ray...I'm pretty Spock-like most of the time.

On the subject of "bubbles" - I am watching today's activities very closely. I'm starting to get that funny little feeling in my stomach that I got back in the Summer of 2007. The DOW plunge seemed to hit a shelf a little while ago. But, today is very exciting (in a bad way). My finger is tickling the "SELL!" button.

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Hey Ray...I'm pretty Spock-like most of the time.

On the subject of "bubbles" - I am watching today's activities very closely. I'm starting to get that funny little feeling in my stomach that I got back in the Summer of 2007. The DOW plunge seemed to hit a shelf a little while ago. But, today is very exciting (in a bad way). My finger is tickling the "SELL!" button.

When a government strips the investor of his earned reward/profit then the wise investor will take his wealth and go else where and the corrupt market will dry up or at least not prosper as a free one would. In other words the corrupt (statist) government wil always lead toward stagnation and the destruction of wealth in any country that it applies it's policies.

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