Originally Posted by For_England:
Yes I agree, however there seems to have been specific issues that led to this particular crash, dating back to laws passed in the Clinton administration, and not the inevitability of it because of capitalism per se (though I agree the seeds to capitalism' eventual destruction are within it). Forcing companies to operate sub primes in the name of not discriminating against minorities who otherwise wouldn't qualify, being one of them. And the idea that it wasn't caused by GSEs because it affected the UK is silly - all the GSEs would need to do is effect the US market -the US market would then effect the UK, irrespective of the cause. I the UK had GSEs, Britain would have caused its own problems, but that doesn't mean America's GSEs didn't indirectly cause the UK's issues.

But one major cause is just that there is a minority of people and organisations with alot of capital they are looking to invest and they can't invest it all in productive operations so they have to invest it in marginal areas like sub-prime loans.
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Originally Posted by BonnieDundee:
I'm not sure they do have instrinsic value, they are just shiny bits of metal. But most importantly they have litte relation to the level of production in the actual economy, whereas backing currency with goods and productive capacity does have this relationship.

I'm a software engineer - how much is my job worth ?
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Your job has value of course.

The trouble is the value of the currency is decreasing partly due to decline in manufacturing and the fed creating the money out of thin air.

The paper monetory system is bound to fail if not restricted by real economic growth and that's why I am sure Bonnie Dundee is right.
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Originally Posted by youcanhandlethetruth:
Your job has value of course.

The trouble is the value of the currency is decreasing partly due to decline in manufacturing and the fed creating the money out of thin air.

The paper monetory system is bound to fail if not restricted by real economic growth and that's why I am sure Bonnie Dundee is right.

The point is if you're going to back a currency with goods and services you first of all have to decide a way to value those goods and services independantly of that currency.

So, what is my job worth ?
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allanon> I'm a Software Engineer as well. It is amazing when people suggest that the I.T industry does not produce anything like a factory does. I presume these people think computers and telephone exchanges and so on and so forth work by magic.
I guess because our product is viewed on a screen and does not have any physical pressence other then a collection of binary digits on a disk or magnetic tape, means we have produced nothing..... well as long as they are consitant and believe the same with regards to electricity and power stations then I'm OK with that :-).

As for my job, I rate my worth by the highest daily rate I can get contracting :-).

Ea of dune
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Originally Posted by For_England:
But I can't see how digging silver from mines could even compare to the feds or bank of england printing new money. Compare what a pound or dollar could buy fifty years ago with today, and then compare the amount of silver it could buy then with what the same amount of silver could buy today, and I would suspect there would be little comparison. The thing about silver and gold is that they don't have to be backed - they have intrinsic value and they themselves are coined and in the pocket, not IOUs.

Precious metals are not "intrinsically" valuable although they enjoy a considerable amount of confidence in today's world. There have been a great many civilizations which didn't see anything particularly attractive about Gold and Silver.

The idea that Gold is a stable benchmark against which to assess value is an illusion. Until recently precious metals had been falling in value against all currencies, literally the value of the substance was declining in exactly the same way a currency would. It was for this reason that Prudence flogged the BoE's bling a couple of years ago (at the very bottom of the market).

Any commodity or service can vary in price against any form of exchange. If we take an extreme example, in the 1912 Titanic market gold collapsed to the extent that no amount was worth a life boat seat.

It would be impossible to run a modern society on gold or a currency backed by gold or silver because the availability of cash would be constrained by the supply of metal. This would cripple the economy which would then essentially be entirely dependent on the success of an inefficient and massively expensive quest to mine basically useless metals.
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Originally Posted by For_England:
Yes I agree, however there seems to have been specific issues that led to this particular crash, dating back to laws passed in the Clinton administration, and not the inevitability of it because of capitalism per se (though I agree the seeds to capitalism' eventual destruction are within it). Forcing companies to operate sub primes in the name of not discriminating against minorities who otherwise wouldn't qualify, being one of them. And the idea that it wasn't caused by GSEs because it affected the UK is silly - all the GSEs would need to do is effect the US market -the US market would then effect the UK, irrespective of the cause. I the UK had GSEs, Britain would have caused its own problems, but that doesn't mean America's GSEs didn't indirectly cause the UK's issues.

Paul claimed that the "implicit guarantee" that the Fed would bale out the GSEs made them less of a risk and therefore allowed them to raise capital at a rate which did not reflect the risk involved. This gave them an unfair advantage as the manipulation of the risk factor made the GSEs more attractive than they would otherwise be, enabling them to attract capital on an unfair basis. Paul claims this led to capital pouring into the property debt market and starving the rest of the economy.

Of course Paul identified the problem, the massive inflows of capital into an unsustainable house price bubble but anyone who did not see this was, quite frankly, an idiot. What Paul has not done is identify why this happened correctly as demonstrated by the fact that the same bubble developed in dozens of countries which did not have state based mortgage lenders. You could not borrow money from Fannie Mae to buy a house in Reading or Grenoble, nor was the capital which poured into these other markets artificially protected.

The reason why the capital poured into the house price bubble is not one Paul could possibly admit even if he knew why. The fact is that there is not one single competitive industry within the West which has a long term future. All of them, Google included, will inevitably be overwhelmed by Asian rivals operating on cheaper labour with increasingly better education and motivation. While the markets had no explicitly worked this out they had assessed each industry on an individual basis and come to the obvious conclusion. So they maintained there faith in the general economy by investing in farming individuals debt. Big mistake.

There is a fashionable theory running through extreme right wing thought that the cause of this was Clinton's insistence that banks loan money to economically marginal individuals without means. Supposedly this was part of the political agenda of that administration. In fact I suspect that having mired the viable population in debt to the maximum possible extent (and then some) the banking industry lobbied to be allowed indenture the very plebes themselves in a desperate attempt to find somewhere to put capital.

This event is not the product of a banking error but of the systematic failure of the entire Western economy.
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