Geithner's Toxic Asset Plan.... Info Inside.

Economics Economics Questions
1

When I hear T. Geithner talk I tremble. All I sense is total incompetence and I fear the absolute worst. It really does blow me away that they have him pulling the levers.

In this interview they’re discussing the Geithner plan.

For anyone wanting to understand the math behind the plan, look at these videos. You will see that this is basically a huge leveraged risk and the tax-payer and dollar holders will be the ones left holding the bag.

Enjoy, discuss and vent your frustrations.

2

I bet that this is what the gov. wants to do anyway-they want to increase the money supply discretely, and this is basically pretty close to it. I think monopoly money will be worth more than US Dollars at this rate.

3

I’ve been wondering when I should start stocking up on stuff & this doesn’t encourage me one bit. I’m guessing the latest I’ll be able to do this without inflation making it almost futile would be September 09 or Jan 2010.

Although, I might not do much preparation now if I manage to move out of state (many are being considered, New Hampshire in particular, but anything remotely better than Maryland would be an improvement) at some point, especially if the state I move into has less gun regulation, etc.

Hmm…

4

Good stuff bearing! Khanacademy.org roolz!

5

I was in CBS’s Washington studio Geithner appeared on Face the Nation the other week. I actually had the opportunity to be in the control room. It was amusing hearing the interview live and seeing Geithner trying to step around the questions being asked. The only truthful thing I heard from him came before the show when he was discussing the convenience of Kindles with Bob Schieffer.

He was also much shorter than I was expecting, and apparently he doesn’t like when commoners make eye contact with him [:O]

6

Thanks for turning me on to those Khan videos, I’ve learned more about finance from those videos than I have all my years of schooling combined. I ran into some problems when viewing his banking/macro economics videos. For example, this video on Gold

I sent him this email, and I was wondering if I had the right idea, and if so, if it came across in an intelligible manner. Thanks

"First, I would like to say I enjoy your videos immensely. I have watched all your finance videos and several of your macro economics videos. It is on your video regarding the Gold Standard that has compelled me to write you.

While it is true that Gold has no intrinsic value, its use as a measurement of value is facilitated by its scarcity. Not to say that it is a perfect monetary unit; as you pointed out, there were periods of inflation when gold reserves were discovered. Nevertheless, its relative scarcity is what makes it such a great monetary metal.

More importantly, you appear to assume that a small amount of inflation is necessary in a growing economy. This betrays an uncritical acceptance of conventional wisdom regarding monetary theory. Are you familiar with the Austrian or French Liberal schools of economic thought? I believe your confusion stems from the idea that stable prices are economically desirable, whereas in reality a stable money supply is optimal. Falling prices are not deflation, and as the technology industry should illustrate, are not necessarily detrimental to an economy. Falling prices brought about through a contracting money supply does of course stifle economic growth, but the answer is a stable money supply, not consistent inflation that relies on some theory of rational expectations.

To put it another way, do you agree that any given supply of money in an economy (within obvious limits) is sufficient to fulfill its purposes, assuming goods are allowed to rise and fall relative to the monetary unit freely? As an example, see how Paul Krugman’s Babysitter analogy falls apart after allowing prices to fluctuate unhindered. http://www.amconmag.com/article/2009/jan/12/00031/

Is there a reason an increase in the money supply is beneficial to an economy in the long term? It seems to me that any industries stimulated through credit expansion not backed by deferred consumption (IE savings) do so at the expense of other sectors who are competing for those resources. I defer to F. A. Hayek for an excellent illustration of this fact. It seems that the difference between hyperinflation and an “optimal” amount of inflation is different only in degree.

Thanks for reading, please realize that I have learned much from your videos and am not bringing your intelligence into question. I respect what you do for people and would like to hear your thoughts on this subject. If you are unaware of the Austrian school, I believe you would find it illuminating."

7

I think what you wrote to him was good.

As for your comment, perhaps in response to this remark he may have made (I didn’t see his video) “While it is true that Gold has no intrinsic value” I have to disagree. Fiat money has no intrinsic value. Its only value is for whatever goods or services it can buy. It exists only because of gov’t legal tender laws (Fiat money was not chosen by the free market, gold was. Fiat is government imposed). Without goods or services to buy, it’s only paper. Gold on the other hand does have intrinsic value. It took labor, land and capital to extract from the earth and extract from an ore. Gold has industrial uses from being a noble metal (not reactive or prone to corrosion) and being an excellent electrical conductor. From its use in tooth fillings to being used as wires inside computer chips. And there’s jewlery and the historical perception of gold (as say diamonds or artwork) that it is a store of value. Whereas the dollar has proven to be a poor store of value, considering it has lost 95% of its value since the creation of the Federal Reserve in 1913.

8

I wouldn’t consider that intrinsic value, that would still be subjective or agent relative value. For example, a billion worthless fiat notes has no intrinsic value. However, they might have relative value, in the case of using them to start a campfire, crafting an nifty suit, or wallpapering your house.

I guess my point was that gold has no instrinsic monetary value.

9

Another Toxic Asset Plan Interview:

Jim Willie

The Public Private Partnership Investment Program is a revamped TARP sham

http://www.contraryinvestorscafe.com/broadcast.php?media=217

10

Intrinsic value is not the correct term, but bearing01’s point is still valid. Gold is a commodity so gold-money gets its value from gold’s ‘intrinsic’ value as a commodity. Paper money is just printed paper - it’s valuable because the government says it is valuable – or alternatively it’s valuable as scrap paper. I wonder how much a ton of scrap paper is worth ? And a ton of gold ?

11

But don’t you see that the commodities value as a production or consumer good is irrelevant to its monetary use? The instant a unit of gold or paper is used either for production or consumption, it ceases to be money.

12

No, I don’t see it because that’s not the case. As a matter of fact, what happens is just the opposite. Commodity money has value by virtue of being, well, a commodity.

I don’t know what you mean by “using a unit of gold for production (or consumption)”.

13

During the gold standard, gold was both a money and an industrial commodity. Gold dust can be traded for goods. Then someone can melt down the dust and make jewelry. Then someone can trade their jewelry for goods - if they want. If the gold is used in a chemical reaction and is flushed down the drain, then it’s gone. But it is likely that the gold will be formed into something and that thing is considered to have a usefulness besides the value for the quantity of gold it contains. If you buy a gold vase it will cost you more than the weight of gold in it considering the labor to make the vase. In the future it will hold its value as well. The vase won’t be thrown out. Someday it may be traded for something else, or melted down to make something else. Maybe a coin or maybe a wrist watch. The supply / demand for gold is based on the demand for money and the demand for industrial purposes.

You also need to understand what intrinsic value means. Monetary value is an extrinsic value. An items usefulness due to physical/chemical properties is an intrinsic value. Many things can serve as money, but nothing can replace gold for its physical/chemical properties. Many people have tried to create gold chemically from other chemicals, but you can’t because it’s a pure earth element on its own. If cigarettes are used as money (in jail) then its intrinsic value is that it can be smoked. Chewing gum traded as exchange for other things in school (say a pencil or answer on a quiz) can and is eaten. Gold’s intrinsic value is its non-monetary usefulness. It can be extrinsically valued as money and still used for purposes besides money. Mind you, people don’t melt down their gold eagles and use it for making computer chips because you pay a $50 premium on a one ounce gold coin because it took effort to stamp out and make the coin. But the gold bars themselves can be used as monetary collaterial or melted down for industrial purposes. As for fiat money, much of it is electronic money and is just a record stored on a computer disk at the central bank. It’s not even paper. As for the examples of intrinsic value of fiat dollars - it being only paper - the intrinsic value has been the consideration of the usefulness of paper. Yes you can burn it (heating value) or can use it with paste to make paper mache, but that has nothing to do with fiat money. Newsprint is just as good - maybe even better - considering you can read and learn from it. Intrinsic value has been added to news paper by the information printed on it. What’s the difference in intrinsic value of say a $1 note or $100 note? The difference is the $100 note uses a bit more ink to give two zeros. Other than that, the intrinsic value is the same. Gold, however, if you have 100 ounces verses 1 ounce then the former you have one hundred times as much and therefore it’s one hundred times more uses.

14

Anyone know how he makes the videos? software and how does he get fairly neat writing, dont think he is using a regular mouse?

I think these videos are excellent, why dont we start working on our own and spam youtube?

15

He’s using a writing tablet, not a mouse, to get neat hand writing on the screen. As for the ability to make video, I don’t know. Maybe it’s part of the software that comes with the tablet.

Ebay Writing Tablet

16

Ok that makes sense. I really think it would be great if we (or the more knowledgeble ppl on this board) start putting out videos to explain the application of AE in a simple manner. Then the youtube video could link back to mises.org and everyone will be happy ever after.