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Sat May 25th, 2013 at 09:12:10 AM EST
The main focus of this diary is on measures for the better integration of various parts of rail systems: gauge enhancement in Switzerland, temporary broad gauge in Spain, the semi-abolition of unbundling in Britain, and reliability improvements to the RER in Paris. Further themes will be scandals and lawsuits, progress in trans-Asian projects, and a new Euro-American locomotive.
Let's start in Switzerland. The centrepiece of the Alpine country's ambitions to move transit freight from road to rail, the 57 km Gotthard Base Tunnel, will open in 2016, and the 15.4 km Ceneri Base Tunnel will follow three years later. Unlike legacy lines in Switzerland with their relatively narrow loading gauge (cross section), these will be suited for standard piggyback wagons carrying trucks with an also standard 4.0 m corner height. (For a solution with non-standard wagons see InnoTrans 2012.)
Rail companies have complained, however, that the large loading gauge of the new tunnels will be of no use if connecting lines won't be adapted, too. Now the Swiss Federal Council finally moved and approved a gauge enhancement programme that will run until 2020 with a budget of CHF940 million (755 million). The single largest project is the doubling of the 2,526 m Bözbergtunnel (on the crossing of the Jura mountains between Basel and Zurich). Some experts are rather critical of this, however, arguing that this will bring neither a capacity nor a speed increase, unlike a shelved project for a new tunnel a bit further to the east.
Fri May 24th, 2013 at 11:47:10 AM EST
In their paper Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach Nathaniel Cline and Nathan Cedric Tankus illustrate the power of carefully looking at economic history while illuminating some of the limitations of economic and monetary theory, in this case that of MMT, and clarifying factors that affect the abilities of different societies to create a truly sovereign state.
(Warren) Mosler argues that in the mid 1990s he thought, "the theory of the monetary circuit was correct to the point of being entirely beyond dispute". However, he also argues that the theory "could be further enhanced by starting from the beginning". This beginning for Mosler was of course why the workers accepted the units of a currency as payment for their labor services. His answer (which is quite well known among heterodox economists by now) was that imposed debts denominated in that unit of account, give it's units value; in other words taxes. This is an important part of the story, but we would argue it is in fact not the beginning. The true beginning to the circuit is the question of where people and organizations gain the ability to tax.
In order to impose liabilities onto a population (i.e., build a tax system), an organization or group needs to have the resources to impose a tax, collect a tax, and use the real resources it gains through spending to expand and institutionalize its power. The catch-22 is that all of these tasks take real resources and personnel, which is precisely what the tax system is supposed to get. This brings us to history and why this approach has fruitful insights for understanding growth and development. Western Europe was in many ways set up for the modern period by having a deeply institutionalized system of taxation and tribute (some of it in tally sticks and some of it in real resources) before capitalism started developing. They already had the ability and authority to extract real resources and thus it took minimal institutional change to do this purely through a monetary system run by a nation state rather then city-states and feudal hierarchies.
Thu May 23rd, 2013 at 03:13:09 AM EST
I visited the Kismaros–Királyrét narrow-gauge railway again today [Monday 20 May]. I showed a diesel railcar in mid-April and a solar-powered railcar in early May, but today, the spectacle was steam traction.
Fri May 17th, 2013 at 09:15:03 PM EST
Simple solar principles
dark gets hot
clear keeps the wind out
insulation keeps heat in
heat can be stored and moved
and any window that sees sunlight
Thu May 16th, 2013 at 03:10:20 PM EST
Beta: Universal Basic Income Calculator New Deal 2.0 Mike Konczal
Click here to try a new Universal Basic Income calculator. You can click on which programs you'd like to turn into a UBI, and what taxes you'd be willing to put into motion, and it will tell you how large of a UBI can be supported with those resources. You can also type in your own numbers if you are interested.
[editor's note, by ARGeezer] Inserted blockquotes around first paragraph.
Wed May 15th, 2013 at 01:57:44 PM EST
Because bullshit bingo is fun:
|When a Very Serious Person says...||... you should hear...|
|vandalism, property damage, destruction of property||graffiti|
Tue May 14th, 2013 at 01:38:44 AM EST
Since Niall Ferguson is back in the news it seemed like a good time to write about Jack Weatherford's excellent book - Genghis Khan and the Making of the Modern World as it is a great antidote to many previous attempts by Ferguson and others to rewrite the history of the world and create a narrative of inherent European superiority. As usual, serendipity was the key element.
Fundamentally, Europe's renaissance was built on the flowering of civilisation inside the Mongol Empire:
Although never ruled by the Mongols, in many ways Europe gained the most from their world system. The Europeans received all the benefits of trade, technology transfer, and the Global Awakening without paying the cost of Mongol conquest. The Mongols had killed off the knights in Hungary and Germany, but they had not destroyed or occupied the cities. The Europeans, who had been cut off from the mainstream of civilization since the fall of Rome, eagerly drank in the new knowledge, put on the new clothes, listened to the new music, ate the new foods, and enjoyed a rapidly escalating standard of living in almost every regard.
Of course, Ferguson and his ilk would leap to the "never ruled by the Mongols" as the first evidence of European superiority. However, this seems to be a real misunderstanding. Rather, when the Mongols invaded in the East of Europe they won some huge victories and large areas of territory. However, the booty gained was not on the scale found in other areas neighbouring the Mongol Empire - notably the Sung Kingdom in China and the Muslim states in the Middle East. Thus, the Mongols turned their armies back towards more profitable regions. In effect, Europe escaped being part of the Mongol Empire because it was too poor and backward to be a target.
This turned out to be a stroke of luck, because Europe was able to receive the benefits of all the cultural and technological advances in the Mongol Empire through trade, but it was separate when a cataclysm destroyed the fabric of the Empire.
front-paged by afew
Sun May 12th, 2013 at 06:27:34 AM EST
This time, I'll bring a string of rapid transit news, another bunch of short updates on open access and rail privatisation, and a third string of news on line construction.
It is a frequently seen (and frequently lampooned) sign of neo-liberalism when public services get private sponsorship. Now here is a blatant example from the Madrid Metro, which is under an austerity regime:
MADRID Metro announced on April 23 it will rename one of its lines Line 2 Vodafone and the city's most central station Vodafone-Sol after reaching a three-year 3m agreement with the mobile telephone company.
For a company the size of the Madrid Metro, 1 million a year is not even a lot. (The article says this boosts advertisement income by 10%.)
Fri May 10th, 2013 at 04:55:37 AM EST
Nothing ever becomes real 'till it is experienced. - John Keats
After eleven kilometres of walking into wilderness and not a stitch of dry clothing left, I decided I needed to see Daisy one last time.
That decision cheered me up a notch, three hours after hoisting up my pack and starting my tramp through unencumbered rain. One can start to feel quite miserable by walking through rain for hours, particularly when it's the vigorously unstoppable rain on the West Coast of New Zealand. My shoes, although advertised with Gore-Tex, had given up already and were squelching industriously. My jacket had begun sucking up water and was feeling like lead. What friends had described as 'a pleasant hike uphill' had become an arduous test of will. There were at least three more hours of wilderness, scrambles across boulders and frighteningly flimsy swing bridges ahead of me before I'd reach the hut.
Daisy had been on my mind those first three hours, flicking in and out of thoughts like a merry spectre. Not just her, of course; family, friends, loved ones, they all come to greet my thoughts during long, solitary hikes. Which is why I was doing this in the first place. Or partly why, anyway. Yet Daisy had been the surprise guest. Already I knew there'd be no other person this journey who'd more upset me, affect my thinking and emotionally unravel me. Such was clear from the day I left her, when I drove alone for hours with rain on the windshield, sad music on the radio, a heart left wrenching, all the way wondering what on earth had happened. I needed to see her again to make sure.
Tue May 7th, 2013 at 03:56:50 PM EST
This is what a currency peg to the Euro does to an economy on the fringes of the EU: The Economic Winter Will Stay in Croatia (6 May 2013)
Quite pessimistically is titled the spring forecast of the European Commission for Croatia - "Recovery slipping further away. Stuck in recession". Only two months before its accession to EU, the moods in Croatia are not at all festive. The economy has been in recession since 2008 as by now the economic activity has shrunk by almost 12%. The first signs of recovery are expected in 2014, but the conditionality is huge. In 2013, the Croatian economy is expected to contract by 1% as the main hamper to growth still is domestic demand which will continue to decline. The main reasons are continuing growth of unemployment as well as the nominal cuts of public sector wages by 3%. Inflation, too, is a factor for the not good economic perspectives ahead of the future 28th EU member state.
What? The Commission doesn't think cutting public sector wages in a recession is a good idea? Someone should tell Portugal!
Tue May 7th, 2013 at 02:35:59 AM EST
A great piece by Mark Blyth on the roots of the "The Austerity Delusion: Why a Bad Idea Won Over the West" in general zeroes in on a question that I have been asking myself eversince this madness started in 2008: Why the peculiarly German impetus to austerity?
Yes, I had heard the proverbial explanation based on collective memory of Weimar hyperinflation and the Nazi nightmare that ensued.
But Blyth's account post-war, practical and policy-based, and while nothing new for readers of this forum, is worth quoting for its clarity:
Given Germany's history with inflation and deflation in the 1920s and 1930s, financial stability has always been the watchword of postwar German economics. But what has really distinguished German economic thinking is its dismissal of Keynesianism -- because the theory never made much sense to German policymakers considering the way the German economy actually functions.
front-paged by afew
Mon May 6th, 2013 at 02:30:01 AM EST
From everyone's favourite sorry excuse for a historian: An Unqualified Apology (05/04/2013)
During a recent question-and-answer session at a conference in California, I made comments about John Maynard Keynes that were as stupid as they were insensitive.
I had been asked to comment on Keynes's famous observation "In the long run we are all dead." The point I had made in my presentation was that in the long run our children, grandchildren and great-grandchildren are alive, and will have to deal with the consequences of our economic actions.
But I should not have suggested - in an off-the-cuff response that was not part of my presentation - that Keynes was indifferent to the long run because he had no children, nor that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes's wife Lydia miscarried.
Niall Ferguson omits the third and important way his comments were stupid: he should not have suggested that Keynes advocated deficit spending when the economy is far from full employment because he was indifferent to the long run.
front-paged by afew
by Ted Welch
Fri May 3rd, 2013 at 01:39:42 PM EST
Fortune favours the flaneur again.
Late on May Day, just as I got towards the end of the Promenade des Anglais (so I'm sort of authorised to stroll there) a group of hippie revellers erupted from Cour Saleya, crossed the Prom and took this weird figure to the sea. It was all over in about 15 minutes - what serendipity !
Fri May 3rd, 2013 at 05:48:37 AM EST
In a special issue (offline) of Alternatives Economiques, Christian Chavagneux argues that too great a size of the financial sector slows economic growth, and cites evidence from recent BIS and IMF working papers in support.
Though the development of financing circuits is indispensable to the functioning and growth of economies, the recurrent tendancy towards bubbles of credit and asset prices (stocks, real estate...) shows that beyond a certain threshold, finance has a very negative impact on the dynamics of activity.
An excessive financial sector reduces the rate of productivity increase, according to BIS working paper Reassessing the Impact of Finance on Growth (Cechetti and Kharroubi, pdf), which shows that a level of credit to the private sector at 75-100% of GDP (or greater) causes drag on average GDP-per-worker growth. To take into account differences between economies (developed, high-finance economies grow more slowly than less developed ones for a variety of reasons), the authors present this scatter plot based on deviation from the country mean (data from 1980-2009):
A falling-off in credit to the private sector/GDP (predictably, if one considers pro-finance common wisdom) correlates to a slowing of GDP-per-worker gains, but so does an increase. The effect, according to Cechetti and Kharroubi, is even more marked when only bank credit to the private sector is considered.
An IMF working paper, Too Much Finance? (Arcand, Berkes, Panizza) reaches similar conclusions: starting from 80-100% private-sector credit/GDP and beyond, economic growth is negatively impacted.
Chavagneux explains the negative impact by the mechanics of bubbles, see below the fold.
Thu May 2nd, 2013 at 09:34:41 AM EST
An interesting posting on the LSE Blogs
Poor economic performance may leave the UK with no choice but to join the euro if it wishes to remain in the EU | British Politics and Policy at LSE
In light of the Eurozone crisis, many commentators in the UK maintain that the Eurozone and the EU are doomed. Recalling the UK's desire to remain apart from embryonic attempts towards European integration in the 1950s, Tim Bale argues that, should the euro survive, the UK may be unable to resist further integration. With a relatively poor outlook for growth in the coming decade, the UK may be soon faced with a choice: join the euro to remain in the EU, or face complete marginalisation
Now an alternative might be to take an economic path, less serious, but that would never do. but it may become a choice that has to be made.
Tue Apr 30th, 2013 at 11:19:10 PM EST
Last year, one of the vendors at NESEA's Building Energy conference (http://www.nesea.org/buildingenergy/) gave away a keychain fob, a little two LED hand crank light. This year, another vendor gave away three LED solar keychain lights. A few weeks later, I got another solar LED light as a giveaway from the MIT Energy Initiative.
A little searching found where these promotional gifts are available in bulk:
1.61 @ per 5000 solar keychain lights
1.32@ per 5000 hand crank keychain lights
I wonder what happens when these cheap sweatshop trinkets meet the necessary invention of the bottom billion and a third, billion and a half people who do not yet have access to reliable electricity.
by Frank Schnittger
Tue Apr 30th, 2013 at 05:02:33 AM EST
Paul Krugman is arguably becoming not just the most influential economic commentator on the planet, but also one of the more influential political commentators. That's partly because it's hard to gainsay the economic credentials of a Nobel Prize winning economist, but also because he has a way of putting often complex ideas quite simply. Here he gives a handy summary of his economic philosophy for the benefit of those economic simpletons who claim he is an out of touch "high fallutin'" intelectual:
The Ignoramus Strategy - NYTimes.com
1. The economy isn't like an individual family that earns a certain amount and spends some other amount, with no relationship between the two. My spending is your income and your spending is my income. If we both slash spending, both of our incomes fall.
2. We are now in a situation in which many people have cut spending, either because they chose to or because their creditors forced them to, while relatively few people are willing to spend more. The result is depressed incomes and a depressed economy, with millions of willing workers unable to find jobs.
3. Things aren't always this way, but when they are, the government is not in competition with the private sector. Government purchases don't use resources that would otherwise be producing private goods, they put unemployed resources to work. Government borrowing doesn't crowd out private borrowing, it puts idle funds to work. As a result, now is a time when the government should be spending more, not less. If we ignore this insight and cut government spending instead, the economy will shrink and unemployment will rise. In fact, even private spending will shrink, because of falling incomes.
4. This view of our problems has made correct predictions over the past four years, while alternative views have gotten it all wrong. Budget deficits haven't led to soaring interest rates (and the Fed's "money-printing" hasn't led to inflation); austerity policies have greatly deepened economic slumps almost everywhere they have been tried.
5. Yes, the government must pay its bills in the long run. But spending cuts and/or tax increases should wait until the economy is no longer depressed, and the private sector is willing to spend enough to produce full employment.
front-paged by afew
Mon Apr 29th, 2013 at 08:57:09 PM EST
Remember when real estate was the only sure bet investment? It had real... estate value. You could pass it down to your children. You could live on it, or in it. It had physical size and was tangible. However, its value went up and up and up, far beyond its real affordability. Why? How? Because the banking game had changed and people who were not bankers were throwing money at unsophisticated ordinary citizens and telling them they could afford these homes and the extra demand pushed the price of houses up. When the houses became more expensive they just increased the amount of money they could loan people of a certain income. Prices went even higher and these non-traditional bankers started making loans to people without checking their credit worthiness or doing a check on anything. Volume was the watchword for these brokers. With every loan they made they collected a fee, and they experienced none of the consequences if the loan went bad after. Then they turned around and sold these mortgages in pieces of paper, telling the purchasers that the value of their paper was guaranteed because, even though these were risky investments, they were backed by something of real value, actual houses, which at the time was an unmistakably safe investment. Real estate had only gone down in value twice in the United State's history and that was during the Great Depression and again during the Reagan years associated with the savings and loan crisis. Even though the new bank/brokerage houses were doing the very same things that lead to the Great Depression, in their eyes, the United States was an endless ocean of prosperity, it was like the atmosphere or the seemingly limitless number of fish in the sea, their illegal activity couldn't possibly pollute it or diminish it, at least not to the extent that it would create any real damage to our economy. For them there wasn't any danger of the United States going into anything that remotely looked like a Great Depression; to the new bank/brokerage houses that was like talking about ancient history. Things were different now. We have smart phones and super fast computers; we drive sophisticated cars that run on gasoline. Besides, real estate is real estate and will not go down in value. Unfortunately, we know now that that type of thinking is ludicrous. So use that critical thinking to think about what people are telling you about our money and gold?
The true value of gold is what others are willing to give up or do to get it from you. Gold, just like real estate, only has value when conditions are right to support that value. The value of gold is relative to the value of its importance to what you buy given a particular set of circumstances. Let me give you an example. If I am starving and I will die soon if I don't get food and I have gold in my pocket, I will want to exchange that gold for food real fast. Gold has no value for me in comparison to food. However, if the food supply is limited and the person who has food also needs it to survive, my gold is worthless. It is worthless to both or us because you can't eat it and survive. The decision of whether you will get food at all for your gold depends on either the goodness of the food holder's charity or the timing when the food holder thinks there will be more food. Chances are the food holder will only give you at most a portion of his food for gold, and more likely then not, he or she will want all your gold for an amount of food that will most likely not sustain you. You can substitute anything that has a myth of value for the word gold here, such as jewels, platinum, stocks, bonds, money and even mansions. Let me explain. During the Bataan Death March wealthy people signed over mansions for food only to die anyway. Suddenly faced with dying their mansions weren't that valuable anymore. Back to my point, things only have value relative to their worth during a given circumstance. It is an illusion to thing otherwise. So I am going to ask you, why do you think gold is any different than paper money? When you ask your self this question I want you to remember how real estate was discussed at the beginning of this post?
Paper money is the truest form of exchange under trading goods themselves for goods, or at least it should be. It truly has no value on its own. The value of paper money is in the exchange of goods. For example, socks are worth a buck a pair, let's say, and shoes are worth 10 bucks. You can also say shoes are worth 10 pairs of socks. Money is just a medium of exchange. If you put gold into the equation things get more complicated. Let's say that you purchase wool and knitting needles with 2 bit of gold and you make ten socks. You go to buy shoes but the person isn't willing to sell you his shoes for your 10 socks. He wants gold. He says you have to have ten bits of gold first. So you have to go to someone who has gold to buy gold but the only gold in this economy is the gold you first used to purchase your wool and needles that you used to make socks. You go to him and he wants three pairs of socks for the one bit of gold, because he wants to rent shoes from the guy with the shoes when he goes outside and renting shoes only costs one bit of gold and he plans to go out twice. Now, think of this simple example on a Macro level.
Why is gold valuable? One reason is that it is not a common metal found in abundant quantity. It is scarce compared to the demand for it. Just imagine how valuable gold would be if it was the medium of exchange for the world's economy. Very few people would be capable of possessing it. All the gold in the world would not equal all of the active money being handed over for goods in a single day in the current size of our world's economy. It doesn't take a genius to realize that gold simply doesn't work in a modern economy as it didn't work in my example about the socks.
There is another factor, perhaps an even more important one about how money works in our economy that makes using gold not beneficial to the ordinary citizen. The factor is how ordinary people and businesses create added value goods. Money is created in an economy by adding value. For example, clay has little value alone. You or I, if we know where to look for it, can probably get clay for free. However, you take that clay, shape it, glaze it and fire it and it becomes a useable bowl. This is something that has value to a lot of people. Let's say that those people specialize in making spoons, or soup or something else. Let's say you have made more bowls than you need and you want to explore the idea of not using your hands to eat soup out of your bowls. You are willing to exchange a bowl that you made to a person who has made spoons in excess of what they need. You come to an agreement that the bowl is worth four spoons. The value of the clay, plus your know-how and labor now has a measurable value in spoons. Spoons, in this example, become the de facto currency since compared to other goods spoons have a traded value when it comes to bowls. Bowls have an exchange value measured in spoons, thereby creating the "spoon" standard much like the so called "gold" standard. Substitute currency for spoons and now the bowl has an added value over clay of some figure of money. You, the lowly bowl maker has just created money in an economy over the value of nearly valueless clay. This happens almost every time goods or services are exchanged in our economy.
I know it is hard to believe, but you can replace the word "profit" quite comfortably with the words "value added" without messing up the meaning too badly. You purchase bowls in bulk that are priced at a value added over clay, and you sell the bowls in smaller quantities in a nice display at your retail establishment at an added value over bowls purchased in bulk. Every step of the way creates money. In order to deal with the ever-expanding value of raw materials being turned into value added goods you need something that will grow with it, and gold can't do that. In order for gold to keep up with this enormous engine of economies creating money, mining of gold would have to be on a level comparable to how we mine for coal or drill for oil. Gold, like oil and coal is a finite commodity. We probably in a year or two after switching to a gold standard would begin talking about peak gold.
Currency, however, doesn't have these problems. It is just a medium of exchange. The value of goods and services should not be based on the currency, but the value of your goods or services against all goods and services. What makes the value of money go up or down isn't a factor of the money itself, but its supply in the economy. In order for money to not go up or down in value is how close the government agency hits the mark of how much money was created during a particular period. In the United States the agency in charge with matching the production of money so as not to create inflation or deflation is the Federal Reserve.
Our reserve bank tries to keep the amount of money in our economy at the level of the economies creation of money. This is a bit of guesswork and is not an exact science. If they project too low then the value of currency will increase and you have deflation, if they put too much money into the economy the value of currency will decrease and you have inflation. The Federal Reserve adds or detracts money from the economy by printing money and lending it to the banks that circulate it into our economy in the form of loans. If interest rates are high, fewer people get loans and the money supply in the economy drops, if interest rates are low, loans are more affordable and many more people barrow money and increase the money supply.
The Federal Reserve is not a private institution; it is, however, an independent institution wholly owned by the Federal Government and the therefore owned by the citizens of this country. It is independent to free it from politics so that it may concentrate on its mandates. It has two mandates, the first is to keep inflation under control and the second is to keep unemployment low. It makes a profit over its expenses and hands its profits to the US Treasury. This is apposed to the Federal Reserve banks that distribute the money from the Federal Reserve. They own unsalable "shares" in the Federal Reserve, which entitles them to 6% of the Fed's earnings. The Fed and the Federal Reserve Banks make up the entirety of the Federal Reserve system. The Federal Reserve system is necessary because we industrious Americans keep taking things that are worth nothing or of little value and making them more valuable, (i.e. making clay into bowls). We create money in our economy and so the money supply has to increase with that. The Federal Reserve controls interest rates at the bank level by the interest rates it is willing to lend to banks. (Oh, so that is why they report the Federal Reserves interest rates so much on the news.) The interest rates asked for by the Fed are directly linked to two things, the cost of borrowing and the rate of inflation; however, inflation has other factors affecting it as well. Remember that when interest rates are high people and businesses tend to barrow less. This dampens economic growth, but maybe necessary to slow down inflation. If it makes interest rates low then businesses and people tend to barrow more and grow their businesses and employ more people. However, more money flowing to people and businesses tends to increase demand and that causes inflation. Remember the example of the cost of real estate? Banks made credit to people wanting to buy houses really easy and it inflated the prices of homes? Low interest mortgage loans that were too easy to get by nearly everyone, caused housing prices to go up and up, in other words, caused there to be inflation in the housing market. This can happen with an entire economy such as one the size of the United States as well.
Gold doesn't have the capacity to do anything that the Federal Reserve Bank can do to regulate inflation or deflation. Gold doesn't allow money supply to keep up with money creation, which is what happens in a sound economy. Gold is a limited supply commodity that is finite. All the mined gold in the world today would fill up a little over two Olympic sized swimming pools. It won't reach to cover the entirety of the United State's economy and there ain't a prayer that it will cover the worlds economy.
Moving to the gold standard would probably cause a supreme amount of deflation.
Deflation has economic problems that can be just as bad as inflation. If we tried to use gold as our currency, we would have massive deflation. Massive deflation leads to money hording rather than investing and banks can't lend because the value of things are going down. Deflation is mostly associated with depressions.
Just like what happened in the housing market and the supposed incorruptibility of the value of real estate, we have been manipulated in believing the value of certain things such as gold don't go down only to have them change in value dramatically. If you can't remember back 14 or 15 years ago to the end of the 1990s let me remind you, gold had gone down in value to a 22 year low. That means that those who had purchased gold close to their retirement as a sure bet in the late 1970s, for the intervening 22 years of their life, they would have seen their savings drop by 69%. If someone had saved 100 thousand dollars and purchased gold with it in the late 1970s, at the end of the 22 years, provided that they hadn't touched it for living expenses, they would have had only gold worth $31,000 by the end of the 1990s. If they would have kept their money as cash in a bank, they would have been far ahead even while earning relatively low interest on their deposit. I am sure with every drop in the price of gold during those 22 years; investors were told that gold had enduring value, that you can't beat gold as an investment, etc. etc. But the reality was that gold went from a high of over $800 per ounce around 1980 to a low of somewhere around $250 in 1998 and stayed there until 2001. That drop in value would have given us an inflation rate of over 14% a year for 22 years on average. The truth of the matter is that most of that 69% drop occurred in the first 5 years. Most average citizens would have experienced an inflation rate of 50% or more per year. 50% inflation for half a decade would have been devastating to our economy. Given this historical reality anyone can understand why gold doesn't work as a currency anymore.
If we truly are thinking of social and economic justice then think of this. One percent of the wealth of the United States is controlled by 1% of the population. Murphy's golden rule: whoever has the gold makes the rules.
During deep recessions there isn't a lot of economic activity so interest rates come down to encourage companies to barrow and pump that money into the economy. That part of our economy is not working the way it should work. Businesses are holding huge amounts of cash on the sidelines. They don't even need to barrow to do what they may want to do. Growth has stopped and many businesses have gone out of business. Ordinary citizens have gone bankrupt or had their homes foreclosed on or are upside down on their mortgages. The housing market, which would normally be the leader out of a recession, is still in very bad shape with trillions of loaned dollars still at very high risk.
How did we get in this mess? We repealed a very important law called Glass-Steagall. Glass-Steagall prohibited investment houses from entering into the mainline banking business of lending to homeowners and small businesses traditional loans. Allowing investment houses, now often referred to as investment banks, into traditional banking is what created the mortgage crisis and destroyed our economy. It is Wall Street for the last decade and the Republican controlled congress of the Clinton era and not the Federal Reserve that screwed things up.
In conclusion gold simply isn't a good investment right now since it is at economic bubble values, gold won't hold its value over time because investors will abandon it so that they can use the cash from its sale to invest in something else that will be growing in value or is proclaimed to have the ability to retain its value over currency, also, gold won't be a good substitute for US currency because there just isn't enough of it around to make it a practical currency. In order for our economy to work we need a money supply that can grow with the creation of money that happens naturally in a healthy economy. Currency that has no real commodity value such as paper and coin money is an ideal medium of exchange as long as the supply is controlled in the economy the way the Federal Reserve controls the entrance of money into our economy. We as a nation could reduce the swings of inflation and deflation of our currency by instead of only backing the US currency with the full faith and credit of the US government, we instead index the value of the US dollar to the cost of goods commonly traded between countries. This would enhance the dollar as "the" exchange currency by having the US government promise to exchange the US currency with supplies of goods on the index. This would make the Federal Reserve's job a lot easier since heavy swings of inflation and deflation would largely be non-existent. The Federal Reserve would only have to get close to what the money supply should be for that time period, but the index value would be the ultimate arbiter of the value of the currency. In other words sell your gold and invest in yourself and in things with which you have experience.
Sun Apr 28th, 2013 at 04:16:31 AM EST
Some random reading on the internet got me thinking today:
Apple's new pitch to investors | Felix Salmon
Apple is trading at an astonishingly low valuation, with a p/e ratio in single digits, because it has now become that animal investors like least: a slow-growing tech stock. Either one is fine on its own, and both slow-growing stocks and fast-growing tech stocks can support much higher multiples than Apple is seeing right now. But conservative investors, who like slow-growing stocks with high dividends, are constitutionally uncomfortable with the volatility inherent in the tech world. And technology investors, who are happy taking that kind of risk, want to see substantial growth. Apple, notwithstanding the fact that it's one of the most valuable companies in the world, is falling through the capital-markets cracks.
front-paged by afew
Sat Apr 27th, 2013 at 02:43:33 PM EST
Been shown fifty ways from Sunday, one of the necessaries for a vibrant economy is the creation of new businesses. Venture Capital and Angel investors have become the primary way new business ventures are funded.
I was watching a YouTube talk last night on the early history of Silicon Valley and the lecturer mentioned in passing the top investment for a start-up in the Valley in 1955 was $300,000.
Which piqued my interest and I decided to delve into it a wee bit using wage rates and VC investment as the analytical tool. (Without a great deal of thought, granted.)
Notice: all data is from US sources.
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