great article on the movement against the FED

[kiryan]

http://www.amconmag.com/article/2009/feb/09/00016/

Under a commodity standard, people could save for the future by accumulating gold and silver coins. The coins’ value appreciated over time because of their natural increase in purchasing power, as the relatively slow increase in the production of precious metals was outpaced by the much faster increase in the production of other goods and services. Today, only a fool would try to save for the future by piling up dollar bills. Everyone is forced to enter the financial markets, which are risky even for knowledgeable investors, in order to prevent the value of his retirement savings from vanishing before his eyes.

Thats my favorite paragraph with an emphasis on the part in bold. That basically sums up the move away from pensions to 401ks and add to that the dynamics of supply and demand, since everyone is forced into the market to protect their savings there is more money chasing the same # of stocks.

The rest of the article is about the growing movement against the fed and tries to make a case that the fed is responsible for bubble economics. I thought it was a good read.

[Sarvis]

If people _really_ want to save for the future, they should stock chickens.

[kiryan]

http://zerohedge.blogspot.com/2009/02/h ... pm-on.html

this is an article about how the fed convinced congress that they needed to pas TARP 1. I actually think that some of the claims in the article are exaggerated, but I do believe this is part of the fear tactics that were exercised.

[Corth]

Nothing is stopping anyone from trading their dollars for commodities. In essence its the same thing as a commodity backed currency. The dollar value of your commodity will vary depending upon its market price.

My idea was to create commodity deposit accounts. You deposit $10,000 into a more or less run of the mill checking account. The balance is then invested in a commodity of your choise.. gold, silver, oil, whatever. The balance of your checking account would then go up and down depending on the market price of the underlying commodity. When you used your debit card at the supermarket you would essentially be drawing upon a commodity backed currency.

[Lathander]

The problem with that Corth is the account would swing in value tied to the commodity. In addition, there would be conversion charges by the financial institution running this that would most likely eat away the benefit. Why not look at an ETF?

[Corth]

Its not a problem that the cash balance of the account would go up and down with the underlying commodity. Thats actually the point. We're talking about a product that synthetically backs the US dollar with a hard currency. Essentially, the goal is to take fiat currency backed by the 'full faith and credit of the united states government', and actually put something real behind it.

A commodity ETF is more practical for someone who wants to hedge against inflation. Its not practical to use to buy groceries at the corner store. If we are creating a synethic asset backed dollar, the debit card is a better surrogate for a currency. It is a portable store of value that can commonly be used to procure material and tangible things.

I agree that this type of account would be more difficult to administate, and thus more expensive, than an ETF. I think costs could be controlled to some extent if several large pooled transactions are made periodically to meet commodity and cash needs rather than a separate market transaction each time someone uses their account. Something similar to sharebuilder.com

[Ashiwi]

If people _really_ want to save for the future, they should stock chickens.

OMG, I laughed so hard when I realized Sarvis and I actually agreed about something!

Hopefully I'll get my investment coop built this year.

[Sarvis]

If people _really_ want to save for the future, they should stock chickens.

OMG, I laughed so hard when I realized Sarvis and I actually agreed about something!

Hopefully I'll get my investment coop built this year.

I was kind of making a joke, if that makes you feel any better...

[kiryan]

http://online.wsj.com/article/SB123811225716453243.html

Several opinions on whether or to what degree the Fed is responsible for bubbles including the current one.

"As Mr. Greenspan pointed out on this page on March 11, there was a surge in savings from other countries. Although he names only China, some of the Middle Eastern oil-producing countries were also responsible for much of this new saving. Shift the supply curve to the right and, wonder of wonders, the price falls. In this case, the price of saving and lending is the interest rate."

This is something I don't think I quite knew or appreciated. Its easy to blame the fed for low interest rates... but investors were the ones buying subprime mortgages without getting compesnated for their risk (sure based on Moody's ratings, but still). Translate investors into "savers" into "foreign savers" and you see the Greenspan argument. More savings around the world = an increase in money available for investments = a higher "price" for those investments (which is to say a lower interset rate). its almost the same argument I make on 401ks... more people forced into saving for retirement in teh stock market = more money chasing stocks = higher stock prices without changes in the fundamentals.

[Corth]

The word 'subprime' is a distraction. Prime and Alt-A paper mispriced risk just as bad, and there is a lot more money involved in it.

Low rates by the fed got the ball rolling. Moral Hazard in the form of the "Greenspan Put", and Long Term Capital Management laid the groundwork for the excessive risk taking that made the ball accellerate.