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America's Financial Mess

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Wotan

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That would be a wholy incorrect interpretation of what I said, although I can see where one might take that read.

Thank you for clarification.

Outside of the transitional period (which I think maybe prolonged by such measures but perhaps like you said necessary), in my opinion, the only valid free market function which is currently provided by governmental bodies or various type is informational (when I started identifying the examples of valid and necessary functions they all fall into that category). I think that regulatory functions and organized manipulations of economy (by a body X or a group of X, Y, and Z) would be a version of central planning.

If anyone can think of a valid regulatory function I would like to hear that argument.

Edited by ~Sophia~
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Would you be supportive of neoconservative efforts that force you to use a government-funded service, but which allow you to choose who provides that service? To me that sounds like what a transitional system would look like: slowly handing individual responsibility back to the individual (at least for services that were previously total govt monopolies).
I think one may or may not support such a system -- as a temporary transition -- depending on the details. For instance, "charter-schools" fall under the parameters you describe. I think vouchers are better than Charters and a tax-credit is better still. The details of such a plan are important: for instance, does it come with strings attached: rules about curriculum, student-teacher ratios, and so on? I would like to see any such government funding accompanied by a church-state separation provision, but with little control of curriculum. I would be against any concrete plan if I thought it would shift a disproportionate amount of public money into religious-oriented schools.

Another aspect to keep in mind is that sometimes there is already a small private industry competing against the poorly-run government one. When the government introduces some middle-of-road slightly better alternative, it can hurt the private industry. We have a member here who owns a school, and he narrates how opening a charter can hurt nearby private schools.

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What are you referring to Eliot?

Err, sorry, that was a hastily constructed post.

I meant to say that there is no difference in principle between advocating the "get out of the way immediately" position and the "they can't just get out immediately, they have to transition to a free economy" position. The philosophical principle at work is "get government out of the economy", and the difference is in how one should go about achieving that end. It's not really important to the philosopher how the government gets out of the economy, or whether it happens now, or tommorow with a smoother transition. Figuring out the exact manner of implementing the principle is an area of specialization that requires a vast sum of knowledge in economics and law (and probably many other fields as well).

In short: Who cares? Just get them the hell out of the way.

Edited by adrock3215
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Let me make another argument for the transition period that I think Kendall is referring to. Right now, all of the currency used in the United States are Federal Reserve notes backed by the government. If that production of money and government backing ceased in a very short time period with nothing else being used for money taking its place, then it may very well be that no one would accept that currency any longer. I'm not advocating some sort of central money mechanism, as I think sound banks could issue their own money and eventually that would par down to one or two standard notes that are accepted almost anywhere in the United States, similar to the way credit cards are accepted almost anywhere.

However, without that monetary exchange existing now, to cut out the Federal Reserve overnight might cause some sort of currency panic. A transitional period whereby any bank could issue gold-backed money would be better, and then eventually the better money would win out as everyone realizes that money from those banks is backed by real commodities that they can get a certain quantity of from that bank at any time. One reason why the Federal Reserve notes are being used instead of better money is that the Federal government has made better money illegal. And I think one would have to change that first before closing down the Federal Reserve.

One could make a similar argument for other Federal government based assets, such as Social Security, that if cut out immediately would harm those who are getting Social Security and are dependent upon it with no other recourse even though they have paid into it all of their lives. So, stopping payments gradually over time such that those dependent on SS would not suffer while those not yet receiving payments (say in their thirties) would no longer be forced to pay in and would not be guaranteed a payout in the future would be better, since those receiving payments were forced into the system in the first place. In principle, if one wanted a retirement account, then one ought to have paid into it over time, but not by force the way it is done with SS; and cutting those people off would be double injury -- they were forced to pay into it, and then they are not permitted to retire on their SS if no transition period is put into place.

Probably the only time I would advocate a sudden change from slavery to freedom is if we get to the point whereby the United States government becomes so dictatorial that a political revolution en masse with a real civil war would be necessary. Otherwise, I think a phasing out is the better option, since we have a mixed economy and the private sector could do all of the non-legitimate governmental functions, but that would take time to put into place (i.e. money, retirement accounts, schools, streets, utilities, fire departments, etc.).

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Would you be supportive of neoconservative efforts that force you to use a government-funded service, but which allow you to choose who provides that service? To me that sounds like what a transitional system would look like: slowly handing individual responsibility back to the individual (at least for services that were previously total govt monopolies).

I'll make a slightly different distinction than Snerd on this one.

I think one should be very careful about the exact nature of any "transitionary" system. Especially if the people advocating it are NOT advocating it on the principle of full privatization at some point. Here I'm with Eliot.

Economic engineering that "brings market forces to bear on govt problems" such as most of our conservatives currently advocate, are damaging and destructive almost across the board. Not just because of the fact that they don't advocate them on principle, but because of the fact that the systems may actually serve to entrench govts roles.

I am especially opposed to things in the form of special tax refunds to go choose our own services (health care, school vouchers, etc). This is because these programs inherently are egalitarian in the face of progressive taxation and as such are "income redistribution" schemes. School vouchers is like this. THis does hand choice back to the tax payer, but it does so with an egalitarian, nay an economically unjust penalty. These programs are NOT transitionary, they are "money laundering" schemes. Conservatives have fallen trap to pragmatism, and in doing so allow the idea of progressive taxation burdens to be perpetuated. A progressive tax cut is NO MORE just than a progressive tax increase. Conservatives love the former, and they are foolish in advocating them.

Edited by KendallJ
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Let me make another argument for the transition period that I think Kendall is referring to. Right now, all of the currency used in the United States are Federal Reserve notes backed by the government. If that production of money and government backing ceased in a very short time period with nothing else being used for money taking its place, then it may very well be that no one would accept that currency any longer.

There is another potential problem with transitioning from the Federal Reserve notes to another money system, and that is that even though the Feds took all of the gold used as money from the American people, there is no claim by the American people on that gold in Fort Nox. I've even heard that they sold it to foreign governments, so it is not as if they could divide up all of that gold and transfer it to private banks of you choice based on your personal savings or checking account.

Right now, we couldn't even do the transition because ordinary American citizens do not have a cash of commodities available that they could convert into commodities back money. Somehow, we would have to get that gold from Fort Nox based upon the dollars in personal banking accounts, before we could go to a gold backed currency. In lieu of that, we would all be like Dagny in Galt's Gulch -- we would all be penniless!

So there are definitely things that need to be worked out -- like enforcing a gold standard and making Federal Reserve notes convertible directly into gold or some other commodity -- before we could entirely get rid of the Federal Reserve so that the Federal Reserve notes would actually be backed by something that the American people could then collect on and deposit in their own bank.

Edited by Thomas M. Miovas Jr.
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Would you be supportive of neoconservative efforts ...

I'll make a slightly different distinction than Snerd on this one.

In my previous post, I was reading the question as "would you vote for...?" Thinking about this a little more, the term "support" is too broad a term. For instance, in some situations, one might strongly object to some law or some candidate, and yet vote for it/him depending on what alternatives laws or candidates are the realistic alternatives. The while "transition"/support for half-measures thing might make an interesting discussion in its own right, rather than being entangled up in this "financial mess" topic. I wonder if there is a clear answer to the question: what semi-freedom would you support? Still, perhaps one can at least have some guidelines and cautions to go by.

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When it comes to the type of stimulus where I get back some of my money from the government, I'm all for that, and I don't understand why anyone would be against it. At the DFW OPAR Study Group, the next essay we are going to discuss is "The Question of Scholarships" in The Voice of Reason where Miss Rand makes it clear that if one is for capitalism, then getting money back from the government can be considered restitution for high taxes and regulations.

However, there are those who want to impose a world-wide regulatory system -- especially in finance -- after the recent meltdown cause by government regulations.

As world financial leaders gather to grapple with the ongoing financial crisis, British Prime Minister Gordon Brown is calling for a new world order...

Brown and other European leaders have proposed "guiding principals" for this new international system. Its hallmarks, according to Brown, are transparency, sound banking, responsibility, integrity, and global governance. [emphasis added]

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When it comes to the type of stimulus where I get back some of my money from the government, I'm all for that, and I don't understand why anyone would be against it.

There are valid claims against a "stimulus". For instance, the fact that government must borrow the money to fund the stimulus is a strong mark against it. It would be different if government was sending out the stimulus because it had some budget surplus, but that isn't the case.

There are two options available to governments that are considering raising money through the issuance of debt. The first is to borrow from private capital. The effect of this is that government "sucks" capital from the private markets, which therefore drives up interest rates and decreases private investment spending (typically called "crowding out"). The second option is for the Federal Reserve itself to buy the debt obligations of the Treasury, i.e. for the Fed to lend to the Treasury. But remember that every time Treasury bills/notes/bonds are sold to/bought by the Federal Reserve, the funds used to buy them are simply created from thin air (typically called "debt monetization").

Either way the effect is not good. In the first case interest rates will go up which will discourage private investment spending, or in the second case currency will be printed and the dollar will continue to lose value.

Edited by adrock3215
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When it comes to the type of stimulus where I get back some of my money from the government, I'm all for that, and I don't understand why anyone would be against it.

These "stimulus" packages that are being implemented amount to nothing more than borrowing money to give to the American people in the hope that it will encourage current consumption. I'm perfecty capable of borrowing money on my own, I don't need the Feds to do it on my behalf. Of course these stimulus packages are doomed to fail. Cuttting taxes across the board and reducing spending would be helpful, but we know that isn't going to happen.

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I understand that cutting taxes and reducing regulations would be a better stimulus, actually a better policy overall not even as a stimulus. However, as has been pointed out, they are not going to do that; and if they want to send me a check for hundreds of dollars, I will happily deposit it into my account, just as I would accept welfare (if I need it) or any other government "hand-out" so long as I am fighting for capitalism. In the long run, I agree that such stimulus packages cause problems down the road, since the government does not have money just sitting there (we are running a deficit) and they will probably print more bills to cover the stimulus, but they are going to inflate regardless, as they have been doing for 30 years or more; so any advantage I can get legitimately, I will take it.

I suppose some might say it is accepting stolen loot, but if you read that article by Ayn Rand, it's more of a retribution of government intrusion into one's life. And we have a right to live, even in a socialist regime as we fight for capitalism. There are limits on what one ought to accept, as a fighter for capitalism, and she goes into the details in that essay, "The Question of Scholarships", and we most certainly should not take a self-sacrificial role by denying ourselves a little back from the government when it is offered, in spite of the long-term negative consequences on the economy as a whole. The economy is not the standard of deciding what is right and what is wrong; man's life is the standard, not the collective economy.

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There's no suggestion that you must return the check. Nevertheless, it is a bad thing, and ought to be protested in principle, just as one would protest the notion of a government scholarship.

In essence, your tax money has been spent. it does not exist in any form that can be sent back to you. The way this stimulus is funded is by creating money and by creating debt. To the extent it is funded by creating money, you pay for it via higher prices. To the extent it is created by more debt, the burden will fall mostly on the rich who will need to pay higher taxes one day.

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When it comes to the type of stimulus where I get back some of my money from the government, I'm all for that, and I don't understand why anyone would be against it. At the DFW OPAR Study Group, the next essay we are going to discuss is "The Question of Scholarships" in The Voice of Reason where Miss Rand makes it clear that if one is for capitalism, then getting money back from the government can be considered restitution for high taxes and regulations.

I would view this context as addressing such programs where they arleady exist. However when it comes to putting new such programs in place, I'd think you should ask yourself if the new program is in some way consistent with the principles you advocate or a on a reasonable path toward it. If not, then it should be opposed.

The fact that govt gives educational scholarships means taking such money would be ok, but one would never vote to have such programs enacted simply on the basis that they're "getting money back".

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I would view this context as addressing such programs where they already exist. However when it comes to putting new such programs in place, I'd think you should ask yourself if the new program is in some way consistent with the principles you advocate or a on a reasonable path toward it. If not, then it should be opposed.

In principle, I agree, and I oppose any new programs in general; but I don't consider a tax rebate to be a new program, except insofar as the Democrats want to give "tax rebates" to those not even paying taxes, which is simply a wealth redistribution scheme.

For example, I am definitely against the current bail-out Act because it involves even more regulations. However, if the government decided to refund, say, capital gains taxes, I'd be for that, even though it would probably be a new program.

The best policy would be to get the government out of the economy altogether, but it's going to be a while before that happens. In the mean time, if the government offers you money along the lines of a tax rebate, then take it and enjoy a few nights out. I remember for one such stimulus by Bush quite a few years ago, his much touted tax reduction gave me all of $25 back a year -- I mean, that's not even a good steak dinner! And the Democrats were all up in arms about it....

So, in principle, I am all for tax rebates and new laws setting us free, but those are few and far between.

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Now they are going to bail out mutual funds to the tune of $540 billion dollars from the Federal Reserve. They are doing this because people are wanting to take their money out into cash due to the downturn in the stock market. So, yes, I am against this move. Where are they getting all of this money, and is that part of the $700 billion EESA bail-out, or is this something else? If it is the same scheme, then they have basically spent all of the $700 billion already, without buying up toxic assets. Although the article mentions something left-over from the Great Depression era.

The Fed's new program, called the Money Market Investor Funding Facility, will be used to support a private-sector initiative designed to provide liquidity, or cash, to money market investors. The Fed plans to back purchases of short-term debt including certificates of deposit and commercial paper that expire in three months or less from money market mutual funds.

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So, in principle, I am all for tax rebates and new laws setting us free, but those are few and far between.
As long as government spending remains de-linked from tax-cut, supporting tax-cuts is just as principled as supporting half-hearted "de-regulation", the way electricity was deregulated. I think we should leave it to the conservatives.
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As long as government spending remains de-linked from tax-cut, supporting tax-cuts is just as principled as supporting half-hearted "de-regulation", the way electricity was deregulated.

I agree 100%. The real problem is that the government arrogates to itself the right to decide how to spend part of the wealth that has been produced; whether it obtains the wealth directly by taxation or more indirectly by borrowing and then ramping up the printing press makes little difference.

Edited by Capitalism Forever
Added "part of"
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The best policy would be to get the government out of the economy altogether, but it's going to be a while before that happens. In the mean time, if the government offers you money along the lines of a tax rebate, then take it and enjoy a few nights out.

The issue is: Why would I want it if it makes me worse off?

Edited by adrock3215
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The issue is: Why would I want it if it makes me worse off?

I think it's safe to say that most of us here recognize the absolute folly of having the government borrow money so we can get tax "rebates" or so that they can continue to engage in their ridiculous stimulus schemes. However, once they have written the check, I would cash it. When they tax me to service the debt or inflate the currency even further, I'm going to pay for it anyhow down the road. Even if I don't cash the check, they are still going to make me pay.

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Today's WSJ. This only gets weirder and weirder. Allison says he might use bailout money to do some M&A

WASHINGTON -- The federal government's $250 billion plan to bolster U.S. financial institutions is aimed at persuading healthy banks to lend again, but it's likely to foster further consolidation in the industry, with some banks already saying they intend to use the funds to help make acquisitions.

Treasury Secretary Henry Paulson has repeatedly emphasized that the government's investment is to restore confidence in the banking sector, so banks will lend again and private investors will put up capital for banks.

"Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, that capital," Mr. Paulson said on Monday.

If the banks use the government funds to pay for acquisitions, it could prove controversial. Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions probably would provide less of a boost to the economy than would new bank lending.

BB&T Corp.'s chief executive, John Allison, said his Winston-Salem, N.C., bank will "probably participate" in the government capital infusions, in part to help fund acquisitions. "We think that there are going to be some acquisition opportunities, either now or in the near future, and this is a relatively inexpensive way to raise capital" for that, Mr. Allison said in a conference call discussing the bank's third-quarter results.

Mr. Allison didn't say whether government money would prompt BB&T to open its lending spigot. He said regulators were encouraging the bank to apply to the program.

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Allison's move raises the question of what one should do when your competitors are tapping into government funds? In banking, it's very possible that he won't be able to remain competitive unless he follows the same routine. I'd say his choices are rather limited. This is just another example of why the entire bailout is so insidious.

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Well, at a Tuesday meeting Congress and Regulators were outraged at run-amok capitalism.

Former Federal Reserve Vice Chairman Alice Rivlin, now a senior fellow at the Brookings Institution think tank, assured lawmakers at the hearing that recent cries about creeping socialism and the downfall of capitalism were overheated. "But market capitalism is a dangerous tool," she said. "Like a machine gun or chainsaw or nuclear reactor, it has to be inspected frequently to see that it is working properly and used with caution according to carefully thought out rules."

Egads :lol:

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I suppose things could be worse. We could be living in Argentina where Kirchner has just put forth a plan to nationalize several large private pension funds.

http://www.telegraph.co.uk/finance/finance...e-pensions.html

By doing this, Kirchner gets her greasy little socialist hands on the assets today and can then screw the pensioners at some later date out in the future. Bush and Bernanke are gone soon, but how long do you think it will be before Obama, Barney Frank and Madame Pelosi figure they can get away with something like this here? According to Frank, there are plenty of rich people out there they can tax. Of course, paying taxes is also patriotic. :lol:

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