To save the US economy - Republicans turn to a tribunus plebis??!

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This is pretty much what every economist would prefer to see. That is a contracyclical system which would minimize the risk of overheating the economy. However it's very difficult to control credit markets or investments without seriously risking a lot of competitiveness and growth. In my opinion these cycles are basically unavoidable without serious regulation (and we're talking about planned economy kind of regulation here) which in the end would probably end up costing more in growth than the problem it's trying to fix.

 

I'm going to take that one step further to suggest that the pressure to live beyond your means that credit enables is where the real trouble begins. The idea that you can run a balance on credit cards and still maintain a few luxuries is what takes it's toll. When a crisis hits, like a medical emergency, job loss or simply the supply of credit reaching it's limit, default is inevitable. And when these defaults become more and more common, financial institutions that lent the money start to suffer for it, which is why they are begging for the monstrous bail out. Until the dependance on people living beyond their income, and prices come down to the point where people can afford the important things (like food, shelter, utilities) and maintain a degree of savings and disposable income, the economy will not improve.

 

T2: you've definitely proven that the decisions were at least arguable, I'll give you that. I also agree with you that coming up with a fair and equitable means of providing a few more checks on the supreme court would be helpful, as long as the courts are still somewhat insulated from fallout when they need to hear a controversial case or make a controversial decision.

 

From my perspective one of hte biggest problems with the supreme court is that it's members are appointed by the president and sit for life. This ensures that the court is staffed by very political members and with no way to replace them. I can't come up with a different system but for a body that is supposed to focus solely on the law and to disregard political feelings having the members appointed based on their political views seems a bit counterproductive.

 

NOG, using fiat currency is how you get the super inflationary results like when the ussr was having problems in the '80s(and any other country having similar problems).
The money is backed by nothing except the governement saying you HAVE to except it.
They are not promising to honour/garuantee it's value at all.
On a gold standard you know that X amount of dollars is worth Y amount of gold, whereas on a fiat system X amount of dollars is worth whatever the government wants to give you on that day.

An example:
$1 = 1 chicken
10 rubles = 1 chicken
$1 = 10 rubles
The ruble gets devalued to half of its current worth
Now it takes you 20 rubles to buy the same chicken, in simple terms your money has been cut in half.
The reason the countries went off the gold standard was to pay for the expenses incurred during WW1 & WW2.
At the time it was assumed that they would go back onto the gold standard as soon as the debts were payed off however this did not happen as governments saw how much easier it was without having to be confined to only as much money as they could actually back with gold.

 

In a global economy a gold standard would work very stiffly and plain out badly. What will you do with your currency if China decides it wants to change its currency reserves (which constitutes of mainly dollars) to gold? This is basically something the French did to sabotage the Bretton Woods system back in the 60'ies. The Chinese would have more than enough of currency reserves to take the entire system down very easily. Also the current volatility of gold prices would make the currency quite unstable.

 

Actually the gold held by countries for financial reasons is only valued at $41 per troy ounce, a price set in 1971.
Heres a good article http://en.wikipedia.org/wiki/Official_gold_reserves

To really understand the gold standard please read this
http://en.wikipedia.org/wiki/Gold_standard

 

I know what the gold standard is about and I also know the risks of a gold standard. You are of course entitled to your opinion about it and I certainly can't say with absolute certitude that the gold standard is a bad thing, I however can point out that most economists will agree with me on that it's probably not very efficent today. I'm also not talking about the gold reserves of other countries I'm talking about their dollar reserves, which in case of China are quite significant.

EDIT:

Just in case this was meant to answer to the volatility of gold, the price will eventually be determined by the markets not by some regulation of 1971.

 

Martaug, I understand what a gold standard was, but I don't see why it would cause people to stop saving money and start borrowing it. It's a question of living beyond your means or not, one of principles of living, not one of confidence in the value of your money.

 

NOG, it's not about stopping people it's about stopping the government from just printing more when they need it. It forces the government to live within their means, or raise taxes which has a self correcting force every 2,4 & 6 years.

 

Yes, I'd love to see the government pay for the Iraq War on the "gold standard." But it's not really about the government - it's about a modern day economy, not like in 1900. Things do change - hard to believe, but it happens.

 

But Martaug, the primary problem here isn't the US doing it, it's the corporate sector (and individuals). Yes, the gov't has done it to, but the gov't running out of money didn't cause this crisis.

 

No, the main cause was VERY unwise decisions by our defacto aristocracy in the federal government. Most of them have been there so long & in some cases been unopposed in several reelections that they feel they can do no wrong. 2 Terms per office should be sufficent for anyone, that still allows up to 32 years of governmantal service(4 as a representative, 12 as a senator & 8 each as a vice president & president)

 

I agree on that, but I don't see how the gov't using a gold standard would have changed anything.

 

Only tangentially related to the topic, but too amusing not to share

 

AM - That's great stuff. It made my morning.

 

Some stuff to read:

A.I.G. Has Used Billions From the Fed but Hasn’t Said for What

Consumers Feel the Next Crisis: It’s Credit Cards

Morgan Stanley's Bonuses Get Saved By You and Me

 

The Economy has been built to rely on people that live beyond their means. I have no sympathy for those that go to extremes to facilitate this. Whie I recognize their right to some interest on their capital, how much is too much? And if they set the payments such that the interest is oppressive, then they are not recovering enough of their principle, and that's what goes down the tubes when the poor sap they have on the hook has to declare bankrupcy. I just don't see that as a sound business model...

 

Do you have any evidence to support that? While it is true that consumer spending has been the largest part of the economy in recent years, I have not seen anything to suggest that most people are not paying their bills. While credit defaults are up, I would like to see the evidence that "the economy is built" on what you claim.

 

Chandos, you might want to check out the current account of US and see if the country is spending beyond its means. The deficit of last year stands at 700 billion dollars.