Is the current U.S. fiat economy sustainable?

[luke warm]

i certainly don't deny that we get what we pay for... as i've said before, we've grown accustomed to having our cake and eating it too... we are an entitlement country, in every sense of the word... it's grown generationally... most of you don't get the same news stories that i do, but you'd have a sense of what i mean if you could actually hear some of the katrina victims speak... a lot, not all by any means, don't want to do anything to rebuild... they actually say things like, "where's the government? they should do it"

 

that's the new orleans area, it's (mostly) different in other parts of the state (where rita hit, for example) and it coastal mississippi... i have a son who is a policeman in diamond head, ms and a daughter who lived in waveland, ms... both lost everything... neither has simply sat and waited for someone else to clean up and rebuild

 

for anyone interested, here's a link to a story that was done on shane, ivy, and the kids... my other two sons had comments below the story, and ivy had a few things to say to some posters <go girl> ... they are saving money and are doing better... i never replied to any of those negative posts, as much as i wanted to.. my replies were of a different nature... but a dad could not be more proud of a son... army ranger, trained others at hood, fought in iraq, was home maybe 3 monts and then katrina... he has a great wife and wonderful kids (i don't say that just cuz i'm paw paw ;))

 

http://risingfromruin.msnbc.com/2005/10/new_life_in_a_f.html

Edited June 2, 2006 by luke warm

[RedSpawn]

Last year when I filled my car with gasoline the cost was twenty U.S. dollars. This past week the cost had soared to over thirty U.S. dollars. The oddity is I cannot determine if the basis for this additional cost is a rise in the price of gasoline or a decline in the value of the U.S. dollar.

 

The U.S. dollar is fiat money, paper money with no inherent value other than as a trading medium. Let us suppose for a moment that the U.S. dollar were backed by a standard such as gold, that is one U.S. dollar could be redeemed for one gold coin. In such a case, when I had to pay an extra dollar for my gasoline I would know that the scarcity or demand for gasoline had risen - supply and demand at work to establish prices. I would know this because the value of gold did not change drastically - my dollar bill would still "buy" one gold coin.

 

However, when I am using fiat money, there is no way to determine whether the demand/scarcity of gasoline has changed or whether the value of the I.O.U. "dollar" I am using as an exchange medium has changed.

 

Suppose I am OPEC with one barrel of oil to sell. Last year I could sell the U.S. that barrel for fifty U.S. dollars and turn around and use those fifity U.S. dollars to buy a vcr from Japan; however, this year, the Japan vcr makers want seventy U.S. dollars for the same vcr - not because of demand/scarcity of vcrs, but because on the world market the trust of the value of the U.S. dollar has declined. So as OPEC, I simply raise my price to accomodate the decline in the dollar. So this year I charge seventy U.S. dollars for that barrel of oil.

 

This free-floating market value of the dollar could not occur with a commodity-backed currency. The value of the currency is determined by the value of the commodity.

 

So my question is this: can a fiat economy be sustained indefinately or is there a point at which it must collapse?

Excellent observations.

 

I have to resurrect this question because the petrodollar can be sustained as long as the entire world needs to pay OPEC for their oil in U.S. dollars--the instance that a country starts to get the funny idea that they can pay OPEC for oil in a functional currency different than the U.S. dollar then our monetary hegemony is at risk and we must use our military to respond to such insubordination.

 

The petrodollar system guarantees a permanent demand for US dollars as long as OPEC countries run substantial trade surpluses, and keep investing these surpluses in US Treasuries.

http://ftmdaily.com/preparing-for-the-collapse-of-the-petrodollar-system/

http://www.energytrendsinsider.com/wp-content/uploads/2012/03/gas-prices-graph-1998-2011.jpg?00cfb7

http://www.energytrendsinsider.com/wp-content/uploads/2012/02/gas-prices-inflation-adjusted.jpg?00cfb7

https://en.wikipedia.org/wiki/2000s_energy_crisis

Terrorist and insurgent groups have increasingly targeted oil and gas installations, and succeeded in stopping a substantial volume of exports during the 2003–2008 height of the American occupation of Iraq. Such attacks are sometimes perpetrated by militias in regions where oil wealth has produced few tangible benefits for the local citizenry, as is the case in the Niger Delta.

 

Many factors have resulted in possible and/or actual concerns about reduced supply of oil. The post-9/11 war on terror, labor strikes, hurricane threats to oil platforms, fires and terrorist threats at refineries, and other short-lived problems are not solely responsible for the higher prices. Such problems do push prices higher temporarily, but have not historically been fundamental to long-term price increases.

 

Investment/speculation demand

Investment demand for oil occurs when investors purchase futures contracts to buy a commodity at a set price for future delivery. "Speculators are not buying any actual crude. ... When [the] contracts mature, they either settle them with a cash payment or sell them on to genuine consumers. Several claims have been made implicating financial speculation as a major cause of the price increases in the 2000's."

[kenberg]

I was interested to see the plot of gas prices adjusted for inflation. I started driving in 1954 and it has often seemed that gas prices now, adjusted for inflation, are no more than they were then, and this seems to jibe with the graph. But that's not the whole story. My Honda gets about 30mpg, the '47 Plymouth I bought in 1954 got about 15 mpg as I recall. Certainly no more than 20. So the price of gasoline per mile has definitely gone down substantially.

 

Otoh, people drive more. A lot more. When my father traded in his 1940 Chevrolet for a new 1953 Chevrolet the old one had about 70K miles on it, as I recall. And it was our only car.

 

Besides whatever bit of nostalgia interest this holds, to me it indicates, once again, that we have to be very careful in looking at statistics. It's not that the data is (oh, excuse me, are) faked or in any way wrong, but unless we look at all aspects of it, we can come to misleading conclusions.

[mike777]

Ken I think what confuses many of us, but most of all the media that reports is the meaning of aspects

 

Since we don't understand what aspects mean we don't fully understand the conclusion of statistics.

 

Just to start the discussion people don't understand error or +- error....when discussing poll results. If math guys can get the public to just understand this much, granted many concepts involved, not just one......you advance the discussion.

 

If you want to discuss misunderstand basic beginner terms perhaps the most basic misunderstood term is standard deviation. People, students just find this a very difficult concept.

 

Ken hopefully you of all posters besides say Richard or Helena hopefully understand if the public don't uderstand SD the public don't get the rest.....

 

:)

[RedSpawn]

I was interested to see the plot of gas prices adjusted for inflation. I started driving in 1954 and it has often seemed that gas prices now, adjusted for inflation, are no more than they were then, and this seems to jibe with the graph. But that's not the whole story. My Honda gets about 30mpg, the '47 Plymouth I bought in 1954 got about 15 mpg as I recall. Certainly no more than 20. So the price of gasoline per mile has definitely gone down substantially.

 

Otoh, people drive more. A lot more. When my father traded in his 1940 Chevrolet for a new 1953 Chevrolet the old one had about 70K miles on it, as I recall. And it was our only car.

 

Besides whatever bit of nostalgia interest this holds, to me it indicates, once again, that we have to be very careful in looking at statistics. It's not that the data is (oh, excuse me, are) faked or in any way wrong, but unless we look at all aspects of it, we can come to misleading conclusions.

 

You bring up a very important point. We consumers have to remember the importance of "messaging" the retail data we see at the pump. Inflation is a silent tax we pay at the gas pump and we have to adjust the nominal price we pay at the pump for inflation to see the TRUE price of gas. I think people are still curious as to what was going on between 2000-2013 even after adjustments to try to better understand our commodities market.

 

However, as you have astutely observed, we are putting way more miles on our cars because we are driving a whole lot more in 2017 than we were in 1950. So the total cost of gas in our budget now is proportionally higher than in the past.

 

Question: So are the extra miles we put on our cars a function of our trying to fit more side trips in a given day in this frenetic paced society? Or is it a function of our state and federal governments not finding other transportation infrastructure alternatives to our car problem than just building more and more roads and/or repairing our existing federal highway system? Or is it a function of something else?

[RedSpawn]

https://www.nolanchart.com/article7009-the-purpose-of-money-and-the-dangers-of-fiat-currency-html

 

Is the Constitutional power that Congress has to coin money assignable to the Federal Reserve Bank cartel system?

[barmar]

However, as you have astutely observed, we are putting way more miles on our cars because we are driving a whole lot more in 2017 than we were in 1950. So the total cost of gas in our budget now is proportionally higher than in the past.

But fuel efficiency has also improved, so you can drive farther on the same amount of gas. MPG of passenger cars has improved 40% since 1980.

[kenberg]

Question: So are the extra miles we put on our cars a function of our trying to fit more side trips in a given day in this frenetic paced society? Or is it a function of our state and federal governments not finding other transportation infrastructure alternatives to our car problem than just building more and more roads and/or repairing our existing federal highway system? Or is it a function of something else?

 

It is a cliche that we of an age can be at least bemused by the many ways in which the world has changed. Mobility is certainly an example. I boarded a plane for the first time when I was a grad student going to a math conference.

 

One of the pleasures of aging is that I now pay people to do things that I don't want to bother with. The dashboard on my car lit up to tell me that it needed some routine maintenance, so I took it in. An oil change. Ok. Time to change the transmission fluid. Ok. It also needed a coolant liquid flush and exchange. This would be $164. This is like when I opened the valve at the bottom of my radiator, unscrewed the cap at teh top, started the engine running, poked a garden hose into the radiator and turned on the water? Of course adding Prestone for the Minnesota winters? I chuckled and said ok. I treat the car to these perks, it takes me where I want to go. That's a deal.

 

A good part of the change in driving is that we do it because we can. Actually, this reason can be used to explain a lot of things.

[Al_U_Card]

Other considerations: The CPI determines inflation and it has changed radically, especially with groceries and gasoline (IIRC...) being removed from it (wha?!!!) but i-phones being included (reasonable).

 

I suppose hours worked to pay for something might be more realistic if harder to define on an average or median basis.

[RedSpawn]

Other considerations: The CPI determines inflation and it has changed radically, especially with groceries and gasoline (IIRC...) being removed from it (wha?!!!) but i-phones being included (reasonable).

 

I suppose hours worked to pay for something might be more realistic if harder to define on an average or median basis.

http://www.bankrate.com/personal-finance/smart-money/is-inflation-higher-than-you-think/

 

Wha? I had to double check your story about gas and food not being included in the core inflation calculation (CPI). Where is the super-like button again?

 

Man, am I wiping eggs off of my face. The Bureau of Labor Statistics ran a fast one on me. UGH! You learn something new every day. Thanks for that information.

[kenberg]

I offer a couple if sites:

 

https://energy.gov/e...price-1929-2015

 

https://data.bls.gov...07&year2=201707

 

I mentioned 1954, the year I bought my first car.

 

The first of these sites informs us that the average price at the pump in 1954 was 29 cents a gallon. This is a little higher than I remember it but maybe it depends on regular versus premium or something like that.

 

The second site converts 29 cents to today's dollars. I used July 1954 and July 2017, and it converts 29 cents to $2.64. Locally gas is about $2.30 so it seems to be in that the inflation index when applied to gas prices is in right ballpark.

 

It is fair to ask "Who cares about 1954?". But at the other extreme the Banknote site that Al , excuse me, Red cites seems to concentrate on the last year or so, and it is reasonable to ask for a longer time frame than a year, even if we do not go back to 1954.

 

I certainly would agree that gas prices are more important than coffee prices. I have been buying coffee even longer than I have been buying gas, but gas is needed in a way that coffee is not.

 

I still insist that we need to take great care drawing conclusions from these or any statistics. By 1950 or so I was old enough, 11, so that the local drug store would serve me coffee. But it was drug store coffee. 10 cents for a cup, 5 cents for a refill is what I recall, but that may be off. I think it was a nickel a cup at the White Castle.

 

Comparing then and now is not simple, or at least I don't think that it is. My father had an 8th grade education, I grew up in a small but nice house, I went to a not great but decent school, the neighborhood was safe at least if you didn't act like an idiot. In short, I look back with pleasure on my early years. I get the idea that life is far less simple for many growing up today. I do understand that being white helped a lot. It still does, no doubt.

 

I am skeptical of the CPI as being a good explanation of where today's problems lie.

[Al_U_Card]

http://www.bankrate.com/personal-finance/smart-money/is-inflation-higher-than-you-think/

 

Wha? I had to double check your story about gas and food not being included in the core inflation calculation (CPI). Where is the super-like button again?

 

Man, am I wiping eggs off of my face. The Bureau of Labor Statistics ran a fast one on me. UGH! You learn something new every day. Thanks for that information.

There is John Williams ( Shadowstats ) who has been "keeping track" of the original lists, to show "real" inflation rates. This is why our income doesn't seem to buy as much as it used to....

 

http://www.shadowstats.com/imgs/charts/alt-cpi-home2.gif?hl=ad&t=1502465391

[Al_U_Card]

Using the pre-1980 method is even more startling. I don't suppose that corporate COLA (cost of living adjustment) pensions and benefits have anything to do with it?

 

http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1502465391

[RedSpawn]

Using the pre-1980 method is even more startling. I don't suppose that corporate COLA (cost of living adjustment) pensions and benefits have anything to do with it?

 

http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1502465391

Fascinating. . .talking about managing the inflation rate with smoke and mirrors.

[Al_U_Card]

It is reasonable that SOME elements of the CPI change over decades.....but food, lodging and transportation seem to be pretty much essentials that we must have to exist. Clearly, the intent is to reduce the apparent inflation rate. No wonder the Federal Reserve Bank can reduce interest rates (to inflate the current stock market asset bubble) and not increase inflation......what a farce and a crime.

 

[blackshoe]

The answer to the question posed in the title of this thread is both simple and complex. The simple answer is "no". The complex answer speaks to why the simple answer is no - and people have written books on it. I'm a simple guy, I'll stick to "no".

[Al_U_Card]

In fact, it is a fiat currency and has been a bubble economy since bankers have been getting rich...

[RedSpawn]

In fact, it is a fiat currency and has been a bubble economy since bankers have been getting rich...

Yuppers.

 

http://www.businessinsider.com/the-age-of-fiat-currency-2011-7

 

There is absolutely no safe store of value since confiscation of wealth through inflation is the fiat debt money trap.

[Al_U_Card]

Yuppers.

 

http://www.businessinsider.com/the-age-of-fiat-currency-2011-7

 

There is absolutely no safe store of value since confiscation of wealth through inflation is the fiat debt money trap.

The "Gold bugs" also insist that the quantity of mined gold has historically kept up with inflation and, as such, would provide a realistic form of currency. The number of humans has, however, somewhat increased in the interim and the per capita gold would severely limit commercial activity unless gold would be quite a large value per unit.

 

Money, in reality, represents the value of human capital. How much work, of value, that you can perform in a unit time. Any currency based upon that metric might well have a chance of success.

[RedSpawn]

The "Gold bugs" also insist that the quantity of mined gold has historically kept up with inflation and, as such, would provide a realistic form of currency. The number of humans has, however, somewhat increased in the interim and the per capita gold would severely limit commercial activity unless gold would be quite a large value per unit.

 

Money, in reality, represents the value of human capital. How much work, of value, that you can perform in a unit time. Any currency based upon that metric might well have a chance of success.

Sigh....you always give me something to think about and your analysis is spot-on. Very cogent observation.

 

But you know I can't let go of my monetary hegemony.

 

http://www.huffingtonpost.com/dr-nasser-h-saidi/the-brics-bank-signals-th_b_5604294.html

http://thebricspost.com/brics-bank-announces-first-set-of-loans/#.WZmqEeQpBoM ===> Keep an eye out on BRICS --> they are "competition"

This is an EXCELLENT article that talks about how the world is slowly but surely trying to bring an end to our petrodollar monetary hegemony.

 

I'm surprised I missed this article earlier, but the rise of the BRICS loan facility plus the internationalization of the renminbi are tell-tale signs we should NOT miss. But then again, Harvard University has a thing or two to say about the winds of change. . .

 

https://scholar.harvard.edu/frankel/publications/internationalization-remnibi-what-does-history-tell-us-about-its-precedents

[Al_U_Card]

Empires follow arcs that have many common elements. Militarism, internal oppression, information control and currency debasement. The US is right there and the (supposed) barbarians are at the gate. Plunder and the accumulation of treasure has many faces, including the current debt-based economy and the existence of a creditor (China) who will play the game until they are ready to supplant the US as #1 world superpower.

[RedSpawn]

Empires follow arcs that have many common elements. Militarism, internal oppression, information control and currency debasement. The US is right there and the (supposed) barbarians are at the gate. Plunder and the accumulation of treasure has many faces, including the current debt-based economy and the existence of a creditor (China) who will play the game until they are ready to supplant the US as #1 world superpower.

Yuppers. Good call.

http://thebricspost.com/china-is-the-largest-foreign-holder-of-american-debt-again/#.WZreL-QpBoN

[PassedOut]

And back to the basics: Fiat Currency: What It Is and Why It's Better

 

It's fair to argue that the Federal Reserve's efforts to limit the impact of economic crisis could have unforeseen long-term effects, based on the additional money that has been put in circulation, versus a gold or silver standard that limits how much money circulates. The problem gets back to times of major economic crisis: When governments need tools to stop or reduce the harm, a commodity standard has historically had the opposite effect as people hoard it.

 

By severing the tie between a commodity that people tend to hoard in times of crisis and the value and supply of money, a fiat currency is a better alternative, but only so long as those pulling the levers of monetary supply keep the balance between supply and demand stable.

 

Here's the bottom line: Currency is a tool of trade. People tend to hoard gold and silver when things are uncertain, and that's harmful when it limits currency flows on a large scale. Removing the relationship between a currency and commodity doesn't create "worthless money."

 

It simply keeps panic from causing greater economic harm in times of crisis when people hoard the underpinning of a commodity currency and stop the wheels of commerce. And that makes a fiat currency far better than a gold standard.

But it's important to have rational people at the fed.

[Al_U_Card]

And back to the basics: Fiat Currency: What It Is and Why It's Better

 

 

But it's important to have rational people at the fed.

Foxes guarding the chicken coop, you mean? The day that interest is only charged on REAL reserves (deposits, precious metals etc) and the currency is based on some tangible item (GDP, whatever...) will mean that debt is a choice and not a condition.

[PassedOut]

The day that interest is only charged on REAL reserves (deposits, precious metals etc) and the currency is based on some tangible item (GDP, whatever...) will mean that debt is a choice and not a condition.

Have you been forced into debt against your will? Sad.