this just in - hard STOP in CA

[audrey_girl]

fyi:

http://www.reuters.com/article/bonds...32492220090608

first CA, then USA?

[phirang]

Re: this just in - hard STOP in CA

all part of a cynical game... you'll see the result in about a month or so.

[flintlock]

Re: this just in - hard STOP in CA

Amazing how they play the "we didn't see this coming" card every time. Its extortion. Give us more money or we'll cause anarchy. Yes, State by State, US is next. This is getting a little dangerous. They think they can cut it close, pumping money in just in time, but I think things will get out of hand.

[The Outback Oracle]

Re: this just in - hard STOP in CA

Well it is better than being in Aus where they say "it is not our fault at all. It's the fault of the USA" This totally mignores the fact we were all playing on the same PONZI scheme of course.
In this way we don't have to change anything about what we do...just sell whatever is left to the Chinese.

[touchring]

Re: this just in - hard STOP in CA

I don't get it, if they can do this for the banks, why can't the fed create money out of nothing and lend to to mr terminator?

[ThePythonicCow]

Re: this just in - hard STOP in CA

I don't get it, if they can do this for the banks, why can't the fed create money out of nothing and lend to to mr terminator?

They can (the Fed could lend money created out of nothing to California.)

But they don't want to. They don't want to because it would destroy the dollar, which is the Fed's principle stock in trade.

Imagine for a moment you are an alchemist of several centuries ago, working on the problem of converting base metals into gold. Imagine you solve the problem. You figure out how to convert dirt by the ton into gold, instantly, ton for ton. You could convert an entire mountain if you chose, with a wave of your hand.

The King, his trusted advisors, and you and your assistants decide to keep this a secret. If everyone realized that gold was now really only worth dirt, then much of golds power (and likely your life) would be lost. The King needs to be careful to keep gold payments within the bounds of expectations of the kingdom's subjects and the neighboring kingdom's merchants, so that they continue to value this gold highly, as before.

Back to reality ... For centuries, the "gold standard" for a kingdom's currency was gold or some other precious metal. The natural limits on the supply of precious metals kept the money supply within limits. Such limits on the money supply are vital to ensuring that a dollar saved today is worth approximately a dollar earned tomorrow, and to providing a trusted basis for time honored contracts such as loans, savings, debts, tax rates, salaries and wage rates.

The United States switched over the period from roughly 1913 to 1971 to what's called a fiat currency but I call a debt based currency. Dollars and Treasury debt are interchangeable in a very liquid market, and Treasuries are (well, have been) the most trusted debt paper in the world. We switched in good part because the economy was naturally growing faster than gold could be found, causing a gold based currency to become too scare, hence provoking economic downturns for lack of sufficient money in circulation. (Well there is also a bad part of the reason for switching -- it gave Banksters a practical monopoly on money creation in America, as debt paying interest to the Banksters holding the debt, which is a way to great wealth.)

Whatever the monetary basis however, gold, debt or seashells, it is vital that the amount of money in circulation (be that physical currency in hand or demand deposits in trusted bank accounts) be kept in rough proportion to the amount of economic activity. The total amount of goods, services, resources and productivity available in a society at any point in time should maintain a constant proportion to the total amount of that society's currency in circulation at the same points in time.

If the worlds money lenders, including central banks, ever became convinced that the Fed had become trapped into "printing" its way out of a collapse, with no choice left to it other than to print more money to avoid debt default, then five or ten trillion dollars worth of Treasuries could arrive the next morning at the front door of the United States Treasury, demanding conversion to Dollars, which Dollars would be spent (if and when obtained) on buying stuff as fast as possible, all trying to unload Dollars and Dollar denominated debt before its value collapsed to zero.

Well, it doesn't go down quite that fast (I hope.) But it could get really ugly really fast. Our distinguished political and financial leaders really don't want to risk losing their power, their lives, their fortune and (in some cases I trust) their honor.

[thunderdownunder]

Re: this just in - hard STOP in CA

If banks, car companies, investment houses and insurance companies can do it, well ??????
I would have to say that Californication is Way, WAy, WAY to big to fail
Done deal!

You just wait, you will be paying for 52 States if this gets up!

All Aboard On the gravy train leaving at a station near you

Holy latex Batman, we should get in the Batmobile and chase those money dropping Helicopters, Crime does pay in the Us of Hay.
Edit:
I had a Trawl through some other older posts and came upon one by a fellow called EJ, "coming to a hard stop"
I have now to admit I may have been suffering from a vision and belief that US is able to overcome everything (as does most of the World)
This is all coming apart at the seams in a time scale that is, compared with modern history, frighteningly quick. So much is going sour within a few months. The pythonic cow must have been writing when I was and his post is very to the point and I read it after my quicky. Judas priest, what and how are your governments going go about this and the other states shortfalls. NewJersey got a quick loan from JP Morgan for a couple of Billion to last them to August (another post) Chrysler is not having the cut and shut the government wanted (pesky bondholders standing up for their rights) and if Justice prevails, as it should, and the courts can't be politically swayed, the outcome may sit the USA government on its ass. Bad for GM. The banks are still hemorrhagic with commercial loans to come on stream soon and defaults and foreclosures in the housing, being forced by Unemployement or under employement. The Unemployement U6 figures are at 16%+ and still rising with the car makers and suppiers to come on stream yet ( this will send some suppliers under and may effect around 1.5 million workers) Car sales (on average down 45% yoy) must reach a point when the fixed overheads of running a dealership overtakes the bottom line. Same with shops (excluding food) leases, light, advertising, wages,center management fees, insurances and a myriad of items have to be paid to keep the doors open.
I'm getting scared that this IS an Avalanche and its heading for the tree line. Yes I'm getting very, very worried that we were sold a pup with "green shoots" and "evidence of a turn around" and "figures point to a slowing"
Yes California will get a loan from Goldmans or JPM to kick the can down the road and so will other states, next the universities then car dealers then.....

I was wrong - this is not good and it is starting to crash everything in is path. Print, damn you, Print on anything you can find. Maybe paper will stop the avalanche, I know trees don't- but paper might be stronger than trees.

[sunskyfan]

Re: this just in - hard STOP in CA

Back to reality ... For centuries, the "gold standard" for a kingdom's currency was gold or some other precious metal. The natural limits on the supply of precious metals kept the money supply within limits. Such limits on the money supply are vital to ensuring that a dollar saved today is worth approximately a dollar earned tomorrow, and to providing a trusted basis for time honored contracts such as loans, savings, debts, tax rates, salaries and wage rates.

BINGO! Well said and the essence of economic stability. Even if it was based on dog turds we could decide how many dogs there are and work from there. Money creation must eventually return to a derivative of something real and not faith that the Fed is all knowing. That ship has sailed.

[touchring]

Re: this just in - hard STOP in CA

The United States switched over the period from roughly 1913 to 1971 to what's called a fiat currency but I call a debt based currency. Dollars and Treasury debt are interchangeable in a very liquid market, and Treasuries are (well, have been) the most trusted debt paper in the world. We switched in good part because the economy was naturally growing faster than gold could be found, causing a gold based currency to become too scare, hence provoking economic downturns for lack of sufficient money in circulation. (Well there is also a bad part of the reason for switching -- it gave Banksters a practical monopoly on money creation in America, as debt paying interest to the Banksters holding the debt, which is a way to great wealth.)

Kudos, this is the best explanation in layman words that I've seen.

[audrey_girl]

Re: this just in - hard STOP in CA

more bad news from the Golden State

Oakland considering bankruptcy:

http://www.sfgate.com/cgi-bin/articl...3DJB.DTL&tsp=1

[bungee]

Re: this just in - hard STOP in CA

We switched in good part because the economy was naturally growing faster than gold could be found, causing a gold based currency to become too scare, hence provoking economic downturns for lack of sufficient money in circulation.

Did the gold standard really end because the economy was growing too fast? If so doesn’t it mean that it is impossible to ever go back to the gold standard? ie. if it gold was scarce then it must be a hell of a lot scarcer now! If this is so then it has serious consequences for those who believe gold has a future as money!


My understanding is that countries were forced off the gold standard because they were fighting wars and running up costs that were incompatible with being on a gold standard, not because gold was scarce. You can use the gold standard / gold as money with any amount of gold, just the less you have the more you have to sub divide it and the more it is worth per unit mass.


I assume the ‘big problem’ with being on the gold standard is governments can’t run up debts as once they try people take the actual gold rather than the notes.

[ThePythonicCow]

Re: this just in - hard STOP in CA

more bad news from the Golden State

Oakland considering bankruptcy

Thanks for the update.

I lived in the southern end of Alameda County, California, until 2007. Oakland is in the northern end of Alameda.

I moved out, to Texas. I'm sure glad I did.

[Jay]

Re: this just in - hard STOP in CA

more bad news from the Golden State

Oakland considering bankruptcy:

http://www.sfgate.com/cgi-bin/articl...3DJB.DTL&tsp=1

Hello, muni panic?

[c1ue]

Re: this just in - hard STOP in CA

Whatever the monetary basis however, gold, debt or seashells, it is vital that the amount of money in circulation (be that physical currency in hand or demand deposits in trusted bank accounts) be kept in rough proportion to the amount of economic activity.

Your description is reasonable, but I would like to point out that economic activity can be artificial as well. Why then should the amount of money rise to compensate?

Certainly the Great Depression was exacerbated by lack of credit, but note that the amount of money (cash) increased after 1929, not decreased.

The problem was that all of the money(cash) in the world in 1929 was coming into the US in the form of margin debt(credit).

No monetary policy in the world can mitigate this circumstance.

The gold bugs are wrong in saying that a gold standard will prevent such occurrences - our near and dear Great Depression is a fine example.

The only way to prevent depressions is to prevent the bubbles - and politically this is extremely unlikely barring a near and painful memory in the minds of the voters.

As for those saying that the government can/cannot reflate - ultimately it still comes down to will: will the US tell its creditors to f**k off when its citizens are faced with massive falls in standards of living?

I certainly think so. A voter in your district is worth 10,000 outside - doubly so for nations.

[ThePythonicCow]

Re: this just in - hard STOP in CA

Did the gold standard really end because the economy was growing too fast?

In part, yes. We really were seeing deflationary depressions in the late 1800's because of a shortage of money. This was especially a problem in America, which was growing rapidly.

If so doesn’t it mean that it is impossible to ever go back to the gold standard? ie. if it gold was scarce then it must be a hell of a lot scarcer now! If this is so then it has serious consequences for those who believe gold has a future as money!

Some of us suspect this, yes. This is really more a political question than an economic one. If nations go back to a gold standard somehow, and if they do so honoring the gold currently in private hands (rather than confiscating it as FDR did in America) then goldbugs could be well rewarded.

If we did that and allowed the value of gold to rise sufficiently, then there would be enough gold to base the worlds currencies. In the past, this would have been more difficult because it is physically difficult to handle gold in units much smaller than a grain of sand, so if even that little bit of gold is worth thousands of dollars (2009 US dollars, say) then it would leave us with a gold basis for the small denominational currency bills.

However just as the computer now allows governments to hyperinflate just by adding more zero's to amounts electronically, similarly the computer now allows electronic gold currency accounts (such as GoldMoney) that subdivide gold down to the atomic level if so desired.

So it really boils down to the will and integrity of our political leadership. I have deep trust in the will of my political leaders. I trust they will screw us ;) ).

My understanding is that countries were forced off the gold standard because they were fighting wars and running up costs that were incompatible with being on a gold standard, not because gold was scarce. You can use the gold standard / gold as money with any amount of gold, just the less you have the more you have to sub divide it and the more it is worth per unit mass.

We're pretty much in agreement I think. In addition to rapid economic growth, the fighting of wars is another (more common, I suppose) reason governments seek a "more flexible" currency than gold.

I assume the ‘big problem’ with being on the gold standard is governments can’t run up debts as once they try people take the actual gold rather than the notes

I can't predict what our esteemed governments will do in times of crisis, but I can confidently predict that they will not voluntarily consign themselves to a plain and simple gold standard, for the reason you give. On the other hand, it seems that nations such as China and Saudi Arabia are accumulating gold and demanding that gold they have on deposit in London or Europe be repatriated in actual auditable physical form to China or Saudi Arabia. The speculation is that China, Russia and the Arabs in particular would push for some sort of flexible gold basis for exchange between major central banks. This would be intended to allow existing national currencies to continue to operate, while keeping any one of such currencies from inflating too rapidly. This might or might not enrich existing small private gold owners.