JamesM

Canada due???

We are in a recession and debt crises already.

It won't end until we can convince some folks in the middle east to stop producing so many barrels of oil.

MikeUK

But you won't convince them as they too fear Recession and Debt

for you it brings economic hardship.. for them its regime change, war and death

What would you choose ?

thefishnets

One area not explored so far is how the world gets beyond the obviously flawed US style capitalist system.
When 'capitalism' was developed (in the UK strangely enough) it was largely done by entrepreneurs with a philantropic outlook (eg The Quakers who were banned by law from 'the professions' and put their talent to work in manufacturing) those owning the companies had a finite limit on how much they wanted financially and spent the rest on 'good works'.
In 2016 85 individuals will have more wealth than the rest of the world combined!! Why? they can'd spend it as fast as it increases!
The current model is about those with money or able to borrow money demanding not a 'fair return' but the biggest return on investment. This has led to the accumulation of wealth to a staggering degree.
Wealth creation can only be done by manufacturing or selling resources - everything else is simply redistribution and inevitably ends up in the hands of the already wealthy.
In a global economy under the current system it is a race to the bottom for western societies. The avaerage income in the world is around $5 a day and who stops the producers shifting production to the lowest cost workforces? Can we live on that level of income?
How can we stop it going belly up? Perhaps the only way to get back to a reasonable system is by imposing a 100% Death Tax (abolishing inheritance) so we all start equal and there is no reason to accumulate more than we might need.

Shakyuk

This is precisely my point, the money for the debt must come from somewhere. I invest frequently and very successfully, I hold bonds from many countries and companies but currently the bond market is in a very unique position, and not for the good. Equities and bonds are inversely proportional; as one rises, the other falls. Bonds and interest rates are also inversely proportional. Throughout history higher interest rates have meant people can hold cash and bonds as safe havens. Now we're in a position where bonds aren't attractive, interest rates can only go up and therefore bond prices WILL go down. Without people buying bonds, cash to fund debt dries up. If America doesn't solve its deficit it will find itself in a position where it cannot fund its own borrowing. Britain will be in the same position but it will arguably happen more quickly for the UK and be more devastating.

I agree; Japan has improved in terms of living standards due to deflation increasing consumers spending power but this has been a mixture of their strong exports. I also agree that there is a lot to be said for a stable population but I'm not sure you need the growth. I think functioning competitive markets in mature economies could function without growth. Its the continued requirement for growth I think is flawed. Society is seeking more wealth when it should be seeking more equality.

The reason the system does actually rely on perpetual growth is proven by the fact that every equities market in the world is worth more than the actual sum of its constituent parts. Look at the FTSE100, if you add the physical assets of every constituent company and all their cash in the bank you'll see that it doesn't come close to the money invested. People invest now hoping for future returns, you pay more today because you believe the value in the future will grow. If the system wasn't based on perpetual growth then this system would cease to exist or at the very least cease to grow (as companies rise and fall the total value would remain the same but the winners and losers would change).

Debt default and deflation are part of what is a cyclical and volatile economic system but I don't think they prove it works. I also don't think a totalitarian system is the alternative. The alternative is what we had; in simple terms man A produces apples and man B produces pigs. An agreement is made that 50 apples equals 1 pig and the trade is done. The problem comes when man A then says if he borrowed money he could produce 200 apples in 3 years. He acquires debt, in 3 years he makes more profit but the shareholders who bought in to fund his growth now want a greater and continued return as he supplied earlier and so begins the drive for perpetual growth. The problem is greed and the current economic system and especially the stock market fuels greed. As thefishnets wrote in this thread you can't create more money from nothing, but you can redistribute it and the stock market is a very effective method of wealth redistribution from those than can afford to take part and those that cannot. The alternative system is a sustainable trade system without the complexities of continually seeking growth as soon as possible funded by debt.

MikeUK

The key to the game is for other people especiallythose holding your debt to force them 'indirectly' to hold substantial sums ofyour currency i.e. the dollar by making it a default currency for a key commodity


This forces other to re-consider calling inyour debt no matter how high, as they will take a serious loss due to the dropin the currency value and also a create a significant impact in the commodity beingtraded, which in most cases forces the costup dramatically further increasing the impact to the ‘debt’ holders


Another approach is to be an almost monopolistictrader so if ‘you‘ destabilise the key player your ability to play is directly impacted,which is why key stock markets and banking sectors do their upmost to monopolisecertain market sectors.


Hurt them and you’re automatically out of themain game trying to find a smaller alternative to play in with the losses/ orreduced profits that come with it

JonboyE

That is the essential flaw in your argument. It does not.

Shard

This would stifle far too much growth as it would knock the wind out of entrepreneurship. Having said that, the non-progressive tax pendulum has swung too far in the other direction. Bernie has it right, but of course is a bit ahead of his time in the US.

Pizzawheel

Shame Jeb got knocked out of the presidential race early as he could just have bombed them.

Alan2005

That's just it. "people hoping for future returns" is not the same as system "relying on perpetual growth". And of course people hope for it - who wants to lose money?

Debt can be a good thing for many reasons. Specifically in your example it is a good thing that the apple producer can borrow against his future potential income if he thinks that he can produce 200 apples in three years with additional investment. If he gets it wrong then he and his investors lose money. I guess I'm failing to understand the problem with this (well other than directly for the apple producer, but then it's his own fault for being shitty at producing apples).

So you'd make lending at interest illegal? Sounds pretty totalitarian to me.

Alan2005

There are many misconceptions about how money is created. Personally I blame those youtube videos made by gold standard nutters.

Shakyuk

Since currencies are a quantitative values applied to effort/goods for the purpose of trade. I'm interested to know where this free money comes from? Care to explain?

dave_j

I suppose the downside of you argument is that, yes the apple producer and his investors lose money, but the following year he's bankrupt and no-one wants to lend him more. Result: he goes out of business and no more apples and the apple business fails and he can't find a buyer because apples cost too much to produce.
These speculations on future events cannot be argued logically. If that were so, the Soviet Union would be the world's powerhouse and russians would be living in communal harmony. But as we know, you cannot separate aspiration, greed and laziness from the individual. The result is that the hard working stop working hard when they see others thriving at their expense and the power hungry seek to enhance their rewards and don't look well at the prospect of rejoining the masses. So, what should be an ideal society breaks down because people rebel against idealism and unfairness.
Similarly, the western capitalistic system has also been seen to fail and the periodic bloodletting is only dragged back into resurgence because it offers what the soviet system never could and that's personal advancement and the prospect of greed getting results and a realisation that it's probably the best choice of a number of bad choices.
But it has the fatal flaw that individual actions will always act to maximise their wealth at the expense of others and that there always will be those who will do this at the expense of the stability of the system. When this happens there is a big shock, the system shudders, the powers that be open the sealing wax and sticking plaster cupboard and patch it up again.
All well and good until you run out of wax and plaster or a willingness to apply it.
We saw this in action during the recent Greek debacle. Logic would have dictated that Greece should have left the euro and devalued. Had they done this early, their economy would now be thriving. But individual actions and an unwillingness to accept the inevitable has resulted in greek debt reaching ridiculous proportions and to a level where it can never be expected to be repaid. The can has been kicked down the road again, but sooner or later europe will run out of wax or more likely will want not to share its dwindling stocks of wax.
So debt can be viewed as one of the essential pillars of the western system. Those who have more will seek to lend to those who have less providing they see their capital as being safe. Unfortunately, as the UK discovered some years ago, the value of the currency can be manipulated by 'the market' and when this happens all bets are off.

JonboyE

No one was talking about currency, or free. Every time a government issues treasury bills, every time a bank makes a loan then money is created.

FlyingDutchman6666

Unbelievable as it seems, JonBoyE is essentially correct. Most money is created out of thin air by commercial banks when they make a loan.

"Where does money come from" is a book written by two mainstream economists which nicely outlines current understanding of the nature and properties of money. It makes fascinating reading, and I don't pretend to understand anything but the very basics.

Introductory chapter here.

Alan2005

It's not quote thin air. It's from the future