What should we do IF we go over the fiscal cliff?

Quote: Wizard

Should this happen, I'd like to open for discussion the idea of just adding that extra 20% to the money supply. In other words, just creating the difference in new money. I don't want to say "print" the money, because most money in the money supply is electronic these days.

The problem with that theory is that we have already been doing that for 5 years. The programs are nicknamed QE1, QE2, and QE3 (short for Quantitative Easing). And as you say it is for far more money than the measly $1.2 trillion in printed currency.

It is illegal to blatantly create money, so technically there is a long list of legal loopholes which the government is using to get around it's own laws.

QE1: In late November 2008, the Federal Reserve started buying $600 billion in mortgage-backed securities.[ By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes, and reached a peak of $2.1 trillion in June 2010. Further purchases were halted as the economy had started to improve, but resumed in August 2010 when the Fed decided the economy was not growing robustly. After the halt in June, holdings started falling naturally as debt matured and were projected to fall to $1.7 trillion by 2012. The Fed's revised goal became to keep holdings at $2.054 trillion. To maintain that level, the Fed bought $30 billion in two- to ten-year Treasury notes every month.

QE2: In November 2010, the Fed announced a second round of quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011.

QE3:, was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month, open-ended bond purchasing program of agency mortgage-backed securities. Additionally, the Federal Open Market Committee (FOMC) announced that it would likely maintain the federal funds rate near zero "at least through 2015." According to NASDAQ.com, this is effectively a stimulus program that allows the Federal Reserve to relieve $40 billion per month of commercial housing market debt risk. Because of its open-ended nature, QE3 has earned the popular nickname of "QE-Infinity." On 12 December 2012, the FOMC announced an increase in the amount of open-ended purchases from $40 billion to $85 billion per month.

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Many people point out that China will do it's best to keep the dollar stable, as it has so much of it's foreign reserves in dollar denominated assets. While that is true keep in mind that Taiwan has a yearly GDP expressed in purchasing power parity of $902 billion (close to three times the value of Hong Kong).

I have always believed that China will risk a certain amount of devaluation in it's dollar assets if it is part of strategy that will allow them to regain control of Taiwan. As many powerful people in Taiwan would be perfectly alright with unification with mainland China, the situation is likely to be extremely murky, and military aspect could be a relatively small part of the takeover.

Neanderthals: Brucellosis? Heck, we still suffer from that!
Neolithic: Fecal contamination of water and diseases such as cholera. Heck, we had cholera in the USA often because migrants buried corpses too close to rivers.
Classical Greece and Rome: Violence as a big killer? Yes, The Third Man showed us what the violence of the Italian City States produced as opposed to the years of peaceful neutrality in which Switzerland produced the Cuckoo Clock.
Medieval period: Yes, filth was bad in London, cleanliness rather prevailed in the religious orders, which were kept rather strictly at fifty:fifty sex ratio.
Victorian: Diseases in crowded cities. Yes. A waiter on a country estate would make at most 38 pounds a year, yet his jacket would have cost the master of the estate fifty pounds easily. The real population was in the cities, the symbols and the power were in the countryside. Agriculture revolution affected wealth of the landed estates and health in the cities to which the teeming millions had flocked.
It is true that alot of our diseases of child birth and child hood have been eliminated and we reach a state that in nature would take other organisms. The "hunted" really don't reach our old age disabilities, but we get those disabilities from exposure to pollutants and toxins produced largely by our society. So yes, we live without the diseases of over crowding and poor sanitation and we survive trauma and the effects of our adventurous lifestyles, but genetic predisposition and environmental insults still affect the elderly even if they are not actively hunted. They die of insect or animal bites of long ago, they die of dementia from pollutants from years before.

Anyway, I didn't mean to derail the thread... only to revive the old joke about if we live longer we will have to pay off the national debt that we ran up rather than leaving it for our grand children to pay.

Thanks AZD for your three-part reply to my question. Those were the kinds of posts that were so good it is hard to give good cross talk. Don't mistake that for lack of appreciation.

I would like to point out that the "gold bank" comparison doesn't seem so appropriate because we're not on the gold standard any longer. Correct me if I'm wrong (as always), but the dollar only has value because we all think it does. It really isn't based on anything.

About just printing some money to solve the fiscal cliff issue, I wasn't suggesting creating 17 trillion out of thin air, but just enough to avoid becoming deadbeats. Inflation is right around zero, so it would seem we have room to heat up the presses a little.

Again, this is out of my area, so don't take anything I say too seriously on this topic.

We should stiff only those on entitlement programs and here's why. The Republican party is getting the blame for the shutdown and will get the blame for the default. The "entitlements" mainly go to Social Security beneficiaries and if we don't pay those then the core of the Republican base, mainly old white guys, would not get paid. If you don't pay old white guys then they get mad. Senator Mike Lee is learning this lesson all too well as I type this. His state, Utah's largest employer is the federal government so the largest employer in Mike Lee's state, Utah, has laid off a lot of people and they are unhappy at Mike Lee.

I don't receive any stipend from the federal government so I'm insulated from the shutdown. I even pared down my stock account so I'm sitting on a buttload of cash until the Republican temper tantrum over Obamacare runs its course. If this plays out the way I think it should, In January of 2015, Nancy Pelosi will receive her gavel back from the old white guy who takes it from John Boehner.

Quote: s2dbaker

I even pared down my stock account so I'm sitting on a buttload of cash until the Republican temper tantrum over Obamacare runs its course. If this plays out the way I think it should, In January of 2015, Nancy Pelosi will receive her gavel back from the old white guy who takes it from John Boehner.

You may have timed this wrong. Wall Street is jockeying for position for the Great Rebound when this is all over. Stock market was up over 2% yesterday and futures are up this morning. There seems to be a feeling that the train has left the station. [Where is that coming from? You may have the last laugh!]

Quote: rxwine

Don't know if this chart is correct but it's nice looking. : )

Regarding the chart about life expectancy, apparently many of these things are put together by who-knows-who? and are flawed because they mix life expectancy with infant mortality included and in another pane infant mortality excluded ... or, simply, modern times means infant mortality is not as much of a factor.

As an example:

Quote: wikipedia

(Chart shows stone-age life exp. 33, then says) Based on data from recent hunter-gatherer populations, it is estimated that at age 15, life expectancy was an additional 39 years (total age 54).

PS: I see that the Wizard has been ignoring my earlier question, so now I will ask if his calculator properly calculates, based on infant mortality excluded as a factor [whew, he is really going to be getting steamed now][g]

Quote: odiousgambit

You may have timed this wrong. Wall Street is jockeying for position for the Great Rebound when this is all over. Stock market was up over 2% yesterday and futures are up this morning. There seems to be a feeling that the train has left the station. [Where is that coming from? You may have the last laugh!]

I'm pared down, not totally removed. I did quite well yesterday. But right now, having a lot of cash seems attractive.

Quote: Wizard

Thanks AZD for your three-part reply to my question. Those were the kinds of posts that were so good it is hard to give good cross talk. Don't mistake that for lack of appreciation.

I would like to point out that the "gold bank" comparison doesn't seem so appropriate because we're not on the gold standard any longer. Correct me if I'm wrong (as always), but the dollar only has value because we all think it does. It really isn't based on anything.

You are welcome. Yes, we went off the gold standard in 1971. In one of the examples I have Mayor Oscar taking the town off of it as well. I used it because without starting with a gold backing it is more difficult for me to make analogies. Also, yes, the dollar is "fiat currency" and we give it value because we think it has value. It doesn't hurt that the rest of the world is more or less forced to do business in dollars, but that is another post.

Quote:

About just printing some money to solve the fiscal cliff issue, I wasn't suggesting creating 17 trillion out of thin air, but just enough to avoid becoming deadbeats. Inflation is right around zero, so it would seem we have room to heat up the presses a little.

Again, this is out of my area, so don't take anything I say too seriously on this topic.

I know you weren't serious on saying print $17 Trillion, but again I was using examples to make the point. Here is the scary point on that. In the early 1980s I remember a Reagan speech where he tried to convey how much a trillion is by using "dollars to the moon" examples. Now we are talking 17 times that and then some. In 30 years we could be talking $350 trillion at that rate. But I will leave math to math guys, I'm an econ guy :-)

The thing to remember is government cannot just print money to avoid being a deadbeat. Weimar Germany did this and really destroyed their economy, giving rise to the Nazis, Zimbabwe did it and had to print trillion dollar bills, each bought a loaf of bread. The USA is blessed in that we can borrow in our own currency, one of the few nations that can. If we printed money and debased the currency then people will say, "Look, I will loan you Euros, Yen, or gold. But not your own dollars, they are as worthless anywhere else as a Wynn cheque at Caesars.

Again that is another post. But the point to remember is printing money to meet a government budget is addictive to pols as heroin. They would never stop.

Quote: Wizard

About just printing some money to solve the fiscal cliff issue, I wasn't suggesting creating 17 trillion out of thin air, but just enough to avoid becoming deadbeats. Inflation is right around zero, so it would seem we have room to heat up the presses a little.

I refer to my post earlier about Quantitative Easing (QE). We are already creating a few trillion out of thin air with QE.

In old fashioned printing money we increased the supply from $0.6 trillion in summer of 2001 to $0.9 trillion when President Obama was first inaugurated to $1.2 trillion today. Depending on how fast they eliminate the old c-notes, they may greatly increase the cash supply.

Much to the dismay of Tea Partiers and Republicans in Congress, Trump cut a short-term deal with Nancy Pelosi & Chuck Schumer to raise the debt ceiling.