Re: Aggregate debt

From: Johnny Marcos (johnny5_at_yahoo.com)
Date: 06/20/04 

Date: Sun, 20 Jun 2004 20:37:06 GMT

William F Hummel <wfhummel@comcast.net> wrote in
news:9ifbd09m4ecslhd6e8fip809mghrf4s5nn@4ax.com:

>>In 1945 there were 41 workers to every social security beneficiary.
>
> In August 1935 as FDR signed the Social Security Act, there were no
> beneficiaries, which means the ratio of workers to beneficiaries was
> infinite. That's even more remarkable.

That is true. Stop social security payouts and the pendulum swings the
other way to infinity - what I read in many places may very likely
happen in the future. There will be no social security problem when
there are no more payouts. The problem I have is that the people that
paid or are paying in are getting the shaft it seems. Each generation
was supposed to pay it's own retirement right?

> Are you claiming the Japan and Argentina have failed?

Economically - yes - they had hard times that the smart guys in charge
didn't prevent - really smart guys fully educated in modern economic
theory. This hurt thier citizens. Barrings bank had smart guys - they
failed economically too.

> Japan is the second largest economy in the world and showing no real
> signs of failure.

Spain was the largest economy in the world at one point - they are
showing no real signs of failure today either - but thier citizens do
not enjoy the highest standard of living. The nikkei was what 39,000 at
one point and its around 10K now right?

http://www.gold-eagle.com/gold_digest/kutyn111597.html

"Since 1990, the world has witnessed a large economic expansion in the
U.S., and explosive growth in South East Asia and China. Within Japan,
short term interest rates were decreased to 0.5% and the government
initiated the largest fiscal stimulus program the world has ever seen.
Has anyone questioned why the second largest economy in the world, with
all of its major trading partners having sustained growth, with the
lowest interest rates the world has ever seen, with the largest fiscal
stimulus package the world has ever seen, has not grown and now the
economy is contracting at an annual rate exceeding 11%?

To begin to answer this question, one must return to pre-bubble Japan,
when the Nikkei was near 40,000 when land values at Ohtemachi and
Toranomon in central Tokyo would have bought all of Canada or all of
California, and when Tokyo was worth more than the United States. On the
basis of these valuations, trillions of dollars were lent by the
Japanese Banks, making them some of the largest corporations in the
world. These loans were not supported by the income of the borrowers,
but by the assets they pledged for security. Today, the Nikkei is below
16,500 and dropping, and commercial land prices are down 70% and
dropping. The loans are still outstanding, but with borrowers unable to
repay loans from income and realizable asset values far below loan
values, these loans remain on the books as the losses, and most likely
far exceed the banks capital. The size of total losses is unknown.
However, during November/95, Japan's finance ministry announced that non
recoverable loans at the Osaka based Kizu credit co-operative were 960
billion yen representing more than 70% of total loans. A further 230
billion yen were thought to be doubtful leaving less than 10% of Kizu's
loans as performing assets. Does this tell us anything about how the
balance sheets of the large banks really look? The loss of net worth
represented by the collapse of the Japanese stock and real estate
markets represents many trillions of U.S. dollars. At the height of the
bubble, Japanese land values were estimated to be between 16 to 20
trillion U.S. dollars. A 70% decline represents a $11 to $14 trillion
dollar loss in the real estate market alone. When the banks start
selling real estate to repay bank loans, look for the market to drop
even further. Add this to the losses totaling trillions of U.S. dollars
on the stock market and the potential loss exposure of the Japanese
banks is staggering. When the bubble in Japan burst and banks were
facing massive loan losses and negative growth prospects, a new source
of revenue had to be found. This led to a large increase in lending to
South East Asia which helped fuel a bubble in these economies. In
addition, exposure to derivatives increased to trillions of dollars.

> As a historian, perhaps

I am just a dumb citizen trying to learn - I am sure my economics
education has a long way to take me.

> you can name some and show how their failures were due to using fiat
> money rather than due to war, famine, plague, or other catastrophe.

Japan had no wars that I am aware of - or plague - why didn't thier
educated smart guys prevent thier recent economic collapse?

> On the other hand, there many examples of gold-based money systems
> that have failed. The most recent is the international Bretton Woods
> system which stumbled along for much of its 27 year existence and
> finally collapsed in 1971.

I think Nixon had to delink gold from the dollar more for the dollars
benefit than because of the failure of gold backing. That golden roman
coin that is ancient still has much value that all the ancient paper
monies do not - at least beyond collector value.

  Another noteworthy example is the British
> sterling era which finally collapsed in 1931. In both cases, their
> failures can be directly traced to the strongly held belief by most
> politicians and economists that gold was the true measure of a
> nation's wealth.

A nation's income and profits should mean more than shiny metal.

  Protecting the nations gold stock and its exchange
> value took precedence over all else.

Income and profits should take precedence.

> Prime MInister Disraeli said in 1895: "It is the greatest delusion in
> the world to attribute the commercial preponderance and prosperity of
> England to our having a gold standard. Our gold standard is not the
> cause, but the consequence of our commercial prosperity."

True, a nation of great income and profits can buy lots of shiny metal -
just because you have lots of shiny metal or lots of black liquid or
lots of homes doesn't mean you have great income and profits.

> Vigilance is certainly important. Also important is the understanding
> that a gold standard "works" only when conditions are just right. The
> gold standard has usually been suspended during periods of high
> stress, especially during and immediately after wars. Today, most
> economists recognize that gold is just another commodity.

Gold trade today is not what it was 300-400 years ago - oil has replaced
it in that regard - I agree though the gold bugs want to overemphsize
it's need by nations or industry. I still believe what happened in
Japan and other modern economies can happen here - and you still believe
it can't right?

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