Comments by "Wojtek The Bear" (@wojtekthebear4958) on "Extra History"
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OmegaFoxxtrot Not really, the gold standard has serious problems with it besides the fact that it stops countries from going to war. For one, it is very unstable, forcing countries to go through intense periods of inflation and deflation. Deflation, as you may know, is terrible for an economy, and almost always involves in contracting. This is widely blamed for causing the Great Depression, as most of the European countries entered this deflationary environment at the same time, severely hampering the exporting industry of the United States. Sources: http://isites.harvard.edu/fs/docs/icb.topic467999.files/October%2022%20and%2027%20-%20Trade%20Money%20and%20Finance/Eichengreen.pdf
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http://www.nber.org/papers/w16350
Also, as the latter shows, it isn't hard for one entity to control most of the world's gold stock. The United States did so after both World War 1 and World War 2 after all.
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Joe Vasicek Haven't I seen you before? Heck, I'm pretty sure I've debated you on this before. I am talking about short term inflation and deflation; you are talking about long term. As Keynes said: In the long term, we are all dead (something like that anyway).
The average inflation rate under fiat currency has been 2%, which is very good and stable in the short term. In fact, it benefits the economy, not hampers it, as it encourages consumer spending and offers a buffer against deflation.
Let's compare the Great Depression and the Great Recession, shall we? Until the repeal of the gold standard in 1933, the US economy experienced deflation of about 1.5% a year. (http://www.doctorhousingbubble.com/wp-content/uploads/2008/06/greatdepression-deflation.jpg)
During the Great Recession under fiat currency and greater monetary control, the US (and EU) were largely able to escape entering deflation (http://www.gallatinrivercapital.com/wp-content/uploads/2014/09/Inflation-Rate-Chart-e1410975437193.jpg)
To know more about why deflation is bad besides the link I provided previously, look here (http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-4) and here (http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/?_r=0).
To see why low amounts of predictable inflation is good, look here (https://www.federalreserve.gov/faqs/economy_14400.htm) and here (http://www.investopedia.com/ask/answers/111414/how-can-inflation-be-good-economy.asp)
Finally, I do want to point out that fiat currency does not necessarily mean inflation. The Fed could target an inflation rate of zero and not really create currency (unless the velocity of money falls), but they instead find the 2% rate to be beneficial as one of the links I provided shows.
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Joe Vasicek Oh, you had more to your argument. Sorry, I'll address those too.
1. Deflation equals market correction.
No, no it doesn't. The economy didn't fully recover until 1941-1942, when the United States entered World War 2. As you can see from this chart though (http://3.bp.blogspot.com/-ULZmy2UuiOU/UTecwCW40-I/AAAAAAAAC-w/yCgkboCwmUA/s1600/great+depression.jpg), there was no deflationary pressure "correcting" the market at the time. You're treating deflation as a medicine for the economy, when in reality its a symptom of the problem.
2. Something Something Labor Force Participation Rate
The downward effects on the LFPR have little to do with discouraged workers from the economy. Don't believe? Type in "On the Causes of Declines in the Labor Force Participation Rate" into Google and you'll get a pdf from the Philadelphia Federal Reserve. I'd love to link it directly to you, but as a pdf I can't directly link it to you. Anyway, they cite three main reasons for the LFPR to have been declining.
a. Disability payments have been rising since 2000, resulting in more people leaving the labor force.
b. The baby boomers, the generation making up the largest segment of the population, are finally reaching the age of retirement, also lowering labor force participation rate.
c. The younger generations require more years of education/training to acquire there specialized job (think college) so they aren't able to enter the workforce as quickly.
Of these, the baby boomers make the greatest impact, but all three put together make up the fast majority of the downward pressure on the LFPR, not discouraged workers.
3. Are you blaming all that on fiat money? I can tell you the gold standard isn't going to stop the business cycle if that is your argument.
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Joe Vasicek Our monetary policy isn't Keynesian. Mainstream economics doesn't follow the Keynesian or Neo-Keynesian schools of economics. Instead it's a mesh of different monetary ideas.
Actually, besides the economic recession, which is a statistical outlier, we are in a great place! Here's the growth of one of our stock market indexes since the 1970's (http://www.bankonyourself.com/wp-content/uploads/Dow-Growth-0173-to-08111.jpg). It grew exponentially Here's our GDP per capita (http://www.tradingeconomics.com/united-states/gdp-per-capita). Also grew by a large margin. Here's our GDP since 1900-ish (http://users.econ.umn.edu/~tkehoe/U.S.GDP.gif). I'm not saying this proves me right, but its interesting to note that the GDP growth actually looks a little steeper after the Great Depression than before. And here is the US inflation rate since 1916 (http://www.aboutinflation.com/_/rsrc/1369736776695/inflation-rate-historical/us-inflation-rate-historical-chart/US_Inflation_Rate_Historical_1916_2012.png). It has stabilized a lot. It also shows you how unstable our monetary system was under the gold standard, though we were more stable under Bretton Woods. What else is there? Unemployment? (http://2.bp.blogspot.com/-mnJY5hilQEM/UJBQMUrjDNI/AAAAAAAABGY/6t4th1t6WRw/s1600/US+Unemployment.bmp) Still nothing seems to have changed. So, I fail to see how this has been a detriment to our economy.
Inflation does not hurt the poor more, far from it. Inflation hurts savers more as the money they save loses value. As the poor usually spend their money instead of saving it, it doesn't affect them as much.
Example 1: If both me and a saver both earn $100 and I decide to spend it immediately while the saver saves it, who is most effected? Well I get the full value of the $100 and buy it on whatever. The saver deposits it in his bank and waits, I don't know, five years to spend it. Average inflation is 2% a year, so the value of his deposited money is $90. Well actually it's a little more as the 2% isn't always coming off of the full $100, but I'm not doing that much math and the result is still the same. The saver has just lost money.
Here's another reason your argument doesn't work. No matter how many assets I own, inflation is still going to eat the same percentage of it, so inflation isn't eating any more of the assets of the poor as a percentage as the rich.
Example 2: Inflation rate of 2%. I, a poor person, have $100 to my name. Mr. Schmoe, a rich person, has a $100,000. At the end of the year, how much does inflation eat up? Well 98% of $100 is $98, and 98% of $100,000 is $98,000. Which one of us was effected more? Well as a nominal value the rich person actually, but as a percentage of our assets it's the same.
Also do you have a source for your Romance example? It's not that I doubt you; I'd just love to read about the topic myself as it's a question I never really considered.
Actually the USD is an excellent store of value as it's so stable. Don't believe? Why do you think countries like Guatemala have adopted it as their official currency? Or why doing you thin 85% of FX trades are done in it? (http://www.bis.org/publ/rpfx13fx.pdf). This is also shown in our low interest rates on government bonds. If the currency was more unstable, the investors wouldn't buy the bonds unless they were sold at a higher rate.
Ironically many economists would probably argue the exact opposite of your conclusion. You're conclusion seems to be Keynesian economics fails and we should let the free market reign supreme (which it mostly already does) as then the rich won't be so powerful. While European countries, which follow a more socialist route, don't have the issue of the rich and the poor as incomes are much more evenly distributed, the US, which is much more free in its markets, has a more unequal system. Therefore, some would say, the US should move closer to their economic systems.
Note: I do not subscribe to socialism or communism as I don't find the inequality to be much of an issue.
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Joe Vasicek Uh yeah, just about everyone knows about the business cycle. I'm glad you know too?
Uh, no, WW2 definitely ended the Depression and I find it strange that you would say otherwise. I mean just think of all the war materials as ordinary goods and the US government as a business. The draft and enlisting into the army decreased the unemployment rate as men found jobs in the army. Goods were being churned out of factories to fuel the war effort, going to China, Britain, Russia, Norway, etc. This improved the profits of these factories, who paid their workers, who then used the money to buy crap, like food and war bonds. Here's the unemployment rate dropping from 10% to 2%, which is considered well within full employment (http://betweenthenumbers.net/wp-content/uploads/2011/10/unemployment4.jpg). Note, full employment does not mean 0% unemployment as there will always be frictional unemployment. In 1941 and 1942 the economy grew by 18% and 16% respectively (http://economics-charts.com/images/gdp-1929-2004-semilog.png).
Heck, we head so many things being produced that we needed people in the workforce, which is why women began working in factories during WW2. So yes, the war definitely was a boost to the American economy and ended the Great Depression. Sure, the economy needed to transition from a war economy to a consumer focused economy after 1945, but that was a different issue, namely a new depression in 1946 (http://cepr.net/blogs/cepr-blog/clearing-up-some-facts-about-the-depression-of-1946), not a continuation of the Great Depression.
I do agree that on the net wars destroy wealth, not create it, but the wealth was destroyed in Europe, not the United States. Instead, the United States economy (not the government) was able to profit off of the war by selling war supplies, which did generate wealth.
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Joe Vasicek I'm not here to argue the morality of such decisions, only the economic effects they caused. In other words, it's irrelevant to the topic of conversation.
Actually GDP probably wouldn't go up to much of a degree if people got cancer. After all, where's the money to pay for it coming from? If people are paying for medical treatment, they have less money for other activities. It's not like an individual has an unlimited quantity of resources that they can just spend on whatever they need/want.
Similarly, the job to dig holes and fill them up would only boost GDP if the money wasn't being used previously as otherwise the same money would be spent on something else, like cancer research for the giant cancer epidemic that has effected everyone.
Long term GDP is only effected by the supply curve in the long term as the supply curve is completely inelastic. It doesn't matter how much demand there is for goods in the long term, the economy can only produce so much, giving us said inelasticity. This means that to reach a short term goal, like getting out of an economic depression, they might try to bolster aggregate demand, to reach a long term goal they wouldn't.
As already shown with two different academic sources on the topic, the depression was caused by a contraction in the economies of the European nations due to deflationary pressure as they didn't control enough gold stock. This hurt the exporting industry of the United States, which hurt other industries in the United States, which brought on Black Tuesday, the worst day of the American stock markets in history. Black Tuesday was therefore caused by the hysteria over the decreased expectations of the stock market, leading to a decrease in consumer spending and the velocity of money, bringing along with it deflation, banking panics, etc.
Do you know what a business cycle is? The repeated boom and busts brought on by the increasing and decreasing expectations of the economy, and the hysteria that can happen when these expectation fall (http://www.investopedia.com/terms/e/economic-cycle.asp?lgl=bt1tn-baseline-below-textnote).
Let's go over some busts in history shall we?
Panic of 1837- caused by a closing of the National Bank of the United States and leading to a deregulation of the Banking industry. This brought on deflation, huge unemployment (possibly worse than Great Depression), and the bankruptcy of almost half the banks in the United States (https://en.wikipedia.org/wiki/Panic_of_1837)
Long Depression- caused by the United States leaving the silver standard as a huge portion of the money supply vanished, causing inflation. This lead to the largest economic contraction in history, bankruptcies of even more banks, 18,000 businesses, and a decline in manufacturing by about 10% (https://en.wikipedia.org/wiki/Long_Depression).
Panic of 1907- Caused by a reduction in the availability of money due to banks overleveraging themselves, and a loss of confidence in their depositors. This lead to a near collapse of the stock market, many trusts going belly up, and J.P. Morgan (and others), stepping in to personally insure the deposits at banks (https://en.wikipedia.org/wiki/Panic_of_1907).
These are just a few of the major economic downturns in American history. None of these were caused by economic regulation by the government, in fact the Panic of 1837 was caused by deregulation. So, as the economic consensus goes, no one entity causes the business cycle, it has existed since forever. We can even go all the way back to the Tulip bubble, one of the first in history, to see that. What causes the booms and busts in the change in expectations of the economy, which can turn into hysteria is expectations change to rapidly.
I decided to ignore your comments on FDR because I'm 90% positive I already talked to you about him before and this would just be going in circles then.
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Backing up an assertion with another assertion does not somehow support the original assertion. Also your supporter is an Austrian economist, one of the most heterodox schools of economics that is in no way supported by economic theory. I mean he's calling the gold standard sound money when, in fact, it's been proven several times over by economists like Milton Friedman, Irwin, and Eichengreen that the gold standard lead to the Great Depression. Sources include Friedman's Free to Choose documentary (https://www.youtube.com/watch?v=MvBCDS-y8vc), Eichengreen's paper on the matter (http://isites.harvard.edu/fs/docs/icb.topic467999.files/October%2022%20and%2027%20-%20Trade%20Money%20and%20Finance/Eichengreen.pdf), Irwin's paper on a subject relating to the Great Depression (http://www.nber.org/papers/w16350), Bernanke's paper on the matter (https://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm), and the freaking GDP per capita data collected during the Depression (https://upload.wikimedia.org/wikipedia/commons/b/b5/Graph_charting_income_per_capita_throughout_the_Great_Depression.svg). Hell, of the 50 or so economists polled here (http://www.igmchicago.org/surveys/gold-standard), 100% of them said that our currency would be no more stable nor our employment better, if we switched over to a gold standard. FYI: This is a beautiful quote from an economics professor at MIT after answering he survey, "All insights from the past and current crises go against a gold standard.".
But no, a gold standard would TOTALLY work. What do economists know, right? They've only been studying this, eh, most of their life?
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Antilli
Does the Treasury participate in fractional reserve banking? No.
Isn't money lent out with interest and has to be paid back? Yes, but that has little to do with anything. Money doesn't just disappear when it's used up. My dollar isn't burned by the government when I pay taxes or buy something from the store. Instead it is then used by the store owner/government and may eventually end up back in my hands. This means that it is possible to pay back all of the debt owed to banks as the circulation of money will eventually bring it back to you.
Think about it this way. there are currently 1.2 trillion US dollars circulating, and yet the US GDP is approaching $18 trillion. How can the US sell so much worth of goods with such little currency? Because the currency continues to flow after a single transaction and isn't just burned up.
Moving on to inflation. Inflation is the increase in prices due to the increased liquidity of currency. Basically, as money is used more, demand for products rises, meaning that firms raise prices to keep their goods at their equilibrium point. This increase in price is called inflation. Inflation isn't only caused by an increase in the money supply though, but also the velocity of money, or how quickly it circulates throughout an economy. It is talked more in depth relative to inflation here (http://www.investopedia.com/terms/v/velocity.asp?lgl=no-infinite).
As another example, why did we experience very little inflation even after the quantitative easing imposed? The Fed injected the economy with over a trillion dollar worth of debt forgiveness and bond purchases (http://www.heritage.org/research/reports/2014/08/quantitative-easing-the-feds-balance-sheet-and-central-bank-insolvency), and yet inflation barely rose above 2%, the target rate. It's because after the initial injection, banks did very little with the money, and consumer spending already fell, so the speed and which the dollar was circulating fell drastically. This lead to the liquidity injection bringing very little inflation along with it.
Taxation is definitely a service you can cancel. Just leave. Otherwise, the government performs several key functions to the people that require money to maintain. If you don't like it, show that through your vote. Ironically as we live in a democracy, it is literally something you agreed to. It's even written into the US constitution that Congress will control all taxing and spending. Last I checked it was ratified by every single state.
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waldosan You have some fundamental misunderstandings of our financial system here. First, your savings account interest rate is almost never supposed to be over inflation. Banks wouldn't make money that way. You have to remember that the same inflation that eats into your interest also eats into the bank's interest on a loan. The interest in your savings account is just an incentive for you to store your money there, not a way to make money. Anyway, our inflation rate is not nearly as large as you think it is. As +mkvenner2 said, it's targeted at 2% a year, and over the past couple of years has been less. In 2015 it was .12% (http://inflationdata.com/inflation/inflation_rate/currentinflation.asp). Yes, it didn't even reach 1%, much less 2. Even if it was 2% inflation though, it would take 50 years for the value of the dollar to be halved, which is still within reasonable grounds for it's use. Sure, we might get rid of the penny, but considering we still use that and other such coins, the dollar has a long ways to go before it's value deteriorates too much.
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In terms of the net change, fractional reserve banking doesn't mess anything up. You have to remember the large scale this is being done at. Due to the Law of Large Numbers, fractional reserve banking becomes a lot safer at such a large scale. That's because there's (normally) not huge fluctuations in things like deposits or withdrawals, so banks know how much money to keep on hand to meet the withdrawal requirements for their depositors while still having money to lend out at a profit. If this was a smaller scale, the fluctuations would be much larger, making the banks have a hard time meeting the withdrawal requirements safely. I hope that made sense. If you have any question about this, I'll try to explain it better.
You are right that this system does break down, but it is rare to happen and there are safeguards put in place by the central banks. First instance, the FDIC here in the USA personally guarantees up to $250,000 of any deposit at a bank. So if the bank isn't able to pay it back and goes bankrupt, the FDIC will pay it in their stead. Similarly if a bank has loaned out too much money and doesn't have enough to meet the daily withdrawal requirements of their depositors, then they can use the Federal Reserve, our central banking institution, as a lender of last resort, and ask for a loan from them. These loans have a smaller interest attached to them than a normal commercial bank gives, and they allow the bank to meet the daily withdrawals in case of an emergency. So in rare instances the system can take a beating, like the 2008 Financial Crash we were in, but normally the government has some way of alleviating the problem.
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Except it still 100% is. First, fractional reserve banking is the only reasons banks are profitable in the first place. If a bank was required to hold 100% of someone's reserve and couldn't reinvest it, they'd make no profit, meaning they have no purpose for even existing (businesses need to at least break even, which a bank can't do without profit). Furthermore, it would heavily restrict our monetary supply as money would effectively disappear from the economy. Sure, eventually the central bank might be able to bring the amount of currency around to a similar level of before, but that instability would have a long term impact on the economy as people would no longer trust the value of the dollar as they had previously. If the price of milk suddenly skyrocketed to $50, even if only for a day, you'd be a little wary of it's price in the resulting weeks. Finally, the underlying problem you laid out of fractional reserve banking, that being a bank run, has mostly been solved. Thanks to the FDIC and similar institutions in other countries, people aren't worried about banks not having enough money to cover their withdrawals as they are insured up to $150,000 (or whatever the amount it) anyway. As people aren't worried, bank runs don't happen.
This is evident in the Financial Crisis when, even though there was huge instability in the economy, and especially the banking sector, there was no news of an actual bank run in the United States.
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What? No, not at all. Even without inflation, the Entente powers during World War 1 were able to pay for their war effort through foreign loans, namely loans from the US. You could say this was some nefarious plot to promote war, but at the same time when you native home is at war, you tend to want to help them however you can. So why are monetary systems almost always handled by a singular entity somehow tied to the government? Because that's the best way to create a stable currency. If private banks were to print their own currency, the currency would no longer be as stable as private banks have perverse incentives. Basically they are for profit. What if their profits don't look good enough? Well they could just print more money. Who really cares that this leads to inflation as long as our financial statements look nice! This also makes banks nearly impossible to regulate. What's the FDIC supposed to do when a bank that uses its own currency collapses? Pay the depositors in the now worthless bank currency? Use a different currency entirely? Not do anything and cause banking panics?
Another thing to note is that central banks, while a part of the government, rarely are influenced directly by it. For instance the Federal Reserve has a dual mandate: keep inflation and unemployment low. As long as these objectives are met, they are no obligated to do anything else. They also have little reason to do anything else since, while facing some oversight from Congress, Congress has no direct authority over them. The only thing that can happen is that the Fed chair can be replaced by someone else, but they are only one of nine members on the regulatory committee.
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oasntet As the video said, the US, along with just about every other nation, got rid of the gold standard during the Great Depression. They would later revive it after WW2 through Bretton Woods, though that wasn't much of a gold standard itself. Anyway, Keynesian economic thinking was starting to become huge in the 1930's, and Keynesian economics didn't work well under the gold standard. Currency's couldn't be devalued, it was harder to run a deficit, and deflation was just as common as inflation. All these factors hampered the recovery during the Great Depression and were all attributed to the gold standard. It was only after most countries got rid of it did they start to notice a better recovery, but that would end with a new recession in 1937 (https://en.wikipedia.org/wiki/Recession_of_1937%E2%80%9338). By the way, Keynes himself called the gold standard a barbaric relic of the past. I'm not saying he was right, just that it shows how much he hated it.
Finally, many economists today blame the gold standard for the Great Depression as indirectly talked about here: http://www.nber.org/papers/w16350
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+Extra Credits At 6:30 you made a critical error in describing fractional reserve banking. Namely, it does not let a single bank lend out more money than what was deposited. True money is "created", but it's due to the repeated depositing and lending of the same money through multiple banks.
So as to your example. If someone deposits $100 into a bank, the bank may only be required to hold 10% of it as a reserve in case someone wants to withdraw their money. See? A fraction of the deposit is kept as reserve. Fractional reserve. Anyway, the bank is still able to lend out $90, so they make a loan out to another person. This person isn't going to carry a crap ton of money around with him though, so he too deposits it in another bank. Now this bank is also going to take 10% off of it as for their reserve ($9) and will lend 90% of it ($81). Now if we go back to the start, we can see that out of the $100 deposited, $171 ($90+$81) was loaned out. Money was therefore created. A single bank has no ability to create $1,000 from $100 though as that would require them to literally create money, something they are forbidden from doing.
Sources:
http://www.investopedia.com/terms/r/reserveratio.asp
https://www.frbatlanta.org/education/classroom-economist/fractional-reserve-banking/economists-perspective-transcript
The second source is from the Federal Reserve itself.
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Hans Smirnov No, just no. That is horrible economic thinking. What you said doesn't even make sense. Deflation means your economy is stronger? So if we destroyed every single dollar in the economy but one, our economy would be at its strongest point? No, that's insane. It just means that the dollar is worth our entire productivity.
Now deflation is bad because it incentivizes saving over spending. In a consumer oriented economy likes ours (or every developed nation), consumption is everything. When consumption falls, the entire economy takes a hit. This is why the Fed targets 2% inflation. Because 1: It creates a buffer for deflation, and 2: inflation incentivizes spending, improving the economy in the short term. It doesn't help that deflation usually occurs during an economic downturn, further hurting the economy.
On a related note, do you know what caused the Great Depression? Many countries had so much money in supply that they were no longer supported by gold, the US included, so they all underwent a period of deflation to keep on track with their gold reserves. The problem was that they all did this at nearly the exact same time, creating a huge slump in consumption. This devastated the foreign markets for US industries, causing an economic downturn for us, which spread just about everywhere. This paper by the National Bureau of Economic Research indirectly talks about it here: http://www.nber.org/papers/w16350
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Joe Vasicek Yeah, and I already explained the title. The US middle class is shrinking because those that were once middle class are now upper class. There's no way they're getting poorer as the lower class has also decreased by a point. Of the three classes lower, middle, and upper the only one to show an increase in the percentage of the population is the upper class. What does that say about the percentage of Americans who went from middle to upper class? They also increased.
You mean inflation, a measure that calculates the average increase in price of all the goods in an economy, only measures the price of all the goods in an economy? Wow, color me shocked. That means the increase in healthcare and housing are rising in price not due to inflation, but other factors. Like, I don't know, increased problems due to asymmetric information and monopolistic tendencies for healthcare insurers, or an increased demand for housing that outpaced the supply as consumer confidence increased.
FYI: If you want to make a credible argument, don't link to non-reputable sources like Zerohedge. You could've just taken an article from the New York Times or the Wall Street Journal, both credible sources and the latter right-wing, about the subject, as they both have written on healthcare and housing costs.
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Joe Vasicek 1. That wouldn't break the back of the petrodollar as of the BRIC countries (and Iran) the only oil exporters are Iran and Russia. Their oil exports together equal Saudi Arabia's (https://en.wikipedia.org/wiki/List_of_countries_by_oil_exports), which is only a fraction of the total oil exports of OPEC. So they have a ways to go to compete with OPEC
2. That would go against Saudi Arabia's interests as they're only concerned about selling oil for as much as they can. They wouldn't intentionally cut the price of their largest export unless they thought they could drive away competition, which didn't happen. The US fracking industry contracted during the fall in oil, but has rebounded very well since then. Saudi Arabia has even called for the OPEC nations (and others) to stop producing so much, but, as game theory would tell us, no country wants to be the first to cut production as they'd be at a huge disadvantage against their competitors.
3. This doesn't make sense. The Iraqi government was already being influenced by the US, and already traded oil in the dollar as they are a part of OPEC. Also ISIS more had to do with the oppression of Sunni's under the Shiite Iraqi government after the Shittes were oppressed under a Sunni Iraqi government. ISIS also go its funding from Al Qaida as they were once a sect of them.
4. Restore the dollar where? Iraq? It's already used there. Syria? Already used there. Iran? They're not even close to reaching them. They are also doing a bad job at aiding ISIS considering they are supplying the Kurds, Iraqi government, and Syrian rebels to fight them.
5. That's true.
More like, once the rebels in Aleppo falls, the Syrian opposition basically falls apart. That's why the Aleppo siege is getting so much media attention. Then ISIS is also falling apart under the attacks from all sides. Furthermore the petrodollar wouldn't protect us against a recession. I'm also not sure how any of this has to do with the Bretton Woods system either. Because the global economy collapses, all the nations will be forced to peg their currency to a single nation's currency which is pegged to gold? You realize that failed right? And it was enacted after WW2, a period of growth in the world economy, not a depression.
Notice I never used the term petrodollar. There's a reason for that. The petrodollar just means that the USD in some way gets its value from oil. It is not some currency of its own. Also, if the USD were attached so closely to oil, the value of the USD should fluctuate with the value of oil, but as my statistical test showed, the USD and the price of oil are not correlated. For that reason, I don't think this dollar valued mostly through oil exists.
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+Joe Vasicek
1. First, OPEC is an oligopoly. They are multiple countries colluding together to gain market power. That's an oligopoly. Second, it would be nowhere near enough. In fact the devaluation of oil did more to hurt OPEC as the OPEC countries weren't even following their own quotas and overproducing beyond their limits to try and make more money, leading to an oversupply of oil.
2. Their only political interest in oversupplying the market with oil and collapsing the Russian economy would be affecting Russia's influence in both Iran and Syria, but considering an economic collapse is a huge if and Iran was already opening up to western powers like the US at the time, therefore growing no matter what happened to Russia, it makes very little sense. Then their economic interests go directly against that, so it's not hard to assume what they'd do in that situation, especially since once against they tried to call the oil exporters together to stop the overproduction of oil because they were losing so much money (http://flapship.com/2016/11/iran-pumps-more-crude-as-saudi-minister-calls-for-opec-cuts/)
3. Not so much before the rise of ISIS. They were getting all their military aid from the US and the president himself was coached by Bush on how to be a leader. They had no need to go to Iran for anything. It was only after the rise of ISIS that they needed support from Iran, so it once again doesn't make sense why the US wouldn't want to get rid of them as quick as possible. There's only so much we can do though without deploying frontline troops.
4. No, just no. The First Gulf War was caused because of the humanitarian nightmare that was Iraq invading Kuwait and installing a puppet government from Saddam's own family. Funnily enough the international community doesn't like invasions and annexations of countries. When Saddam realized the shit he got himself into, he even tried to negotiate a treaty with the US, giving us oil at a huge discount if we just let them be, and we didn't (https://www.scribd.com/document/38969813/MIDDLE-EAST-CRISIS-Secret-Offer-Iraq-Sent-Pullout-Deal-to-U-S-ALL-EDITIONS). So the war was not fought because the US was worried about oil as the Iraqis tried to use that as their way of avoiding war and failed.
5. Yeah, I know, but you don’t seem to realize what keeping the dollar means in an economic context. By having oil transactions only through the dollar, they are forces all parties to carry the dollar as you said. These means that every country demands more dollars, increasing the demand for them. This shifts the demand curve to the right, increasing the value of the dollar as shown here (http://mrski-apecon-2008.wikispaces.com/file/view/shift_in_demand_curve/41646057/shift_in_demand_curve). Just change price in that graph for value of the dollar and it’d be perfect. Once again though, my analysis showed that foreign consumers still demanded just as much of the dollar when the price of oil fell by over a half, something that shouldn’t have happened if they were significantly related. Finally, for the petrodollar system, if it existed, to be anything like Bretton Woods, the US would need to control the production of oil so that they can stabilize it to the dollar, but we can’t as we don’t control all the oil in the world. Also, again, 87% of FX trades are done using the dollar, not just oil transactions.
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Joe Vasicek Turkey is fighting with Saudi Arabia over regional hegemony? Huh, I always thought they were a little more buddy buddy than that.
As for Iran, I know that but that isn't making the overproduction of oil any better for the infantile oil industries in other countries, like fracking in the US for instance. Ironically after trying to find anything on an oil production quota for OPEC I came across this article (http://money.cnn.com/2016/06/02/investing/opec-oil-decision-saudi-arabia-iran/index.html). It basically says that in their latest conference (relative to the article), Saudi Arabia was basically the only OPEC nation to call for a quota as all the other nations are using their overproduction as a way to gain market share. It's typical game theory. That was off topic though.
Actually Saudi Arabia isn't cutting production. Nor was their 2012 production any greater than usual. Here's a chart of their oil production since 1972 (http://www.tradingeconomics.com/saudi-arabia/crude-oil-production). From what I can tell, their production has remained fairly constant, with slight upward growth since 2008. This is for much a prisoner's dilemma type situation though (more game theory). Saudi Arabia won't cut production unless everyone does or else they would lose big time. If they did cut production and no one else did, then they lose out on export revenue and market share while the per barrel price of oil doesn't gain by much. The other countries on the other hand, gain from the market share and the slight uptick in oil prices. This is similar to how, while nuclear disarmament is a great idea (on paper at least), no major power wants to be the first to do it because they'd then be at a huge disadvantage.
Do you have a source for the Kremlin claim? I don't know anything either way on that issue.
Wow, you've lived an interesting life. All I can say is that I'm currently getting a degree in economics at a university. Nothing like what you've said.
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It's fiat actually, and there's an interesting point to mention. If there is little faith in a currency, the currency has little foreign demand, meaning that the valuation of the currency is extremely low. This can actually be good for a country though, especially a country with a developing economy. The low valuation of your currency means that your products are cheaper abroad (as the domestic currency can buy more of your own), giving your exporting industries a boast. As your economy grows, the faith in your currency will then grow, allowing you to become more consumption focused. Because of this, it is probably a better idea for an infant economy to use a lower value fiat currency than one pegged to the gold standard, especially because that would require them to actually buy gold, which can be a drain on the government's resources.
That's one of the reasons China has such a great exporting industry. They have been intentionally devaluing their currency in order to make their exports cheaper abroad. Now that their economy is great though and they have started experiencing a slowdown, they have instead stopped devaluing it so much and are not allowing it to gain some value, similar to the theoretical scenario I gave above.
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Antilli First, no single family owns the Federal Reserve. The chairman and board are appointed by the president and approved by the Senate. Second, the Federal Reserve doesn't keep any of their revenue. Instead it's given as remittance to the Treasury. Bottom of page four on their financial statements (https://www.federalreserve.gov/monetarypolicy/files/combinedfinstmt2015.pdf) show that they had a revenue of about $99 billion before remittance, and then a net loss of $17 billion after the remittance. Yes, they actually lost money. Finally, unless you think taxation is theft, this is nowhere even close to theft, especially since the supply of money isn't the only thing that decides inflation, but the speed of the circulation of money does also. If my dollar ends up in 20 transactions by the end of the day compared to last year where it was only in one, then the inflation rate has increased. So would you then be stealing from yourself? The government has no part in that part of inflation after all. Well, besides stemming it if it gets too bad.
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I'd say you're more wrong than right. First, we didn't supply everyone fighting. In WW1 we supplied the Germans a teeny bit in the beginning as the British blockade wasn't fully up yet and there are a lot of German Americans in the United States, but during WW2 we gave absolutely no support to the Axis powers.
Furthermore, the downfall of the US is only a downfall relative to the rest of the world. After World War 2 the only other developed area in the world was left completely devastated and several huge economic powers were now in shambles. Because of this and the boost in production from the US becoming the "Arsenal of Democracy" they rose to have about 40% of the total world GDP in 1945.
Of course the ruined nations wouldn't be ruined forever and, with some help from the US through the Marshall Plan, quickly got their economic infrastructure back in shape. Of course as their economies improved, the US' share of World GDP shrunk. It's a similar story for other nations like Japan and South Korea. Both nations were hurt by WW2 and both nations still had a ways to go in economic development after WW2. During the post war period, both nations saw huge exponential growth. Then there's the sleeping giant nations like China which have started developing too.
All the while the US economy has been growing at a steady pace though (http://ritholtz.com/wp-content/uploads/2011/03/RealGDPperCapita.png). If I were to sum everything I just said up, I'd say it all has to do with the basic concept of the catch-up effect. Undeveloped and developing nations experience a lot more growth in GDP than developed nations as, well, developed nations can't develop much further, so the US was bound to lose its huge share of world GDP no matter what it did.
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*****
Sorry, I didn't realize that economists were all politicians who worked in the government. And here I thought they held many jobs like working for banks, the Federal Reserve, private businesses, regulatory agencies, consulting firms, and even professorships at colleges. Shows what I know.
Let's look at some basic facts though, shall we? This is a graph on the income per capita for countries during the Great Depression (https://upload.wikimedia.org/wikipedia/commons/b/b5/Graph_charting_income_per_capita_throughout_the_Great_Depression.svg). As you'll see, the income per capita of almost every nation increased as soon as they left the gold standard, especially the United States. Furthermore, here are two professors who criticize the system here and blame it for causing the Great Depression (http://isites.harvard.edu/fs/docs/icb.topic467999.files/October%2022%20and%2027%20-%20Trade%20Money%20and%20Finance/Eichengreen.pdf). Last I checked neither were government employees. Here is another academic paper published by the National Bureau of Economic Research on a similar topic except only in relation to France (http://www.nber.org/papers/w16350). Still not government employed of course. Here is famous free-market economist Milton Friedman criticizing the system here (https://www.youtube.com/watch?v=MvBCDS-y8vc). Of course he also wasn't employed by the government.
Finally, here is an IGM poll of 40 economics professors from prestigious universities all across the control including Yale, MIT, and Chicago, which is the number one university for such a major (http://www.igmchicago.org/surveys/gold-standard). When the professors were asked if replacing our current system with a gold standard would benefit the average American, 100% of them said no, with over half of them disagreeing strongly with the claim. Once again, none of the 40 professors were primarily employed by the government. So what was this about our fiat monetary system only being in place because it benefits the government?
As for your other claims, well a claim without evidence can be dismissed without evidence. In other words, first you have to prove our currency is based on oil or that our money is worthless. Good luck with that considering next to no economist believes either claim.
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***** It's not a straw man when that's the only argument you provided. When I said fiat money is considered better by economists than the gold standard, your refutation was government interests. Okay, then you're implying that said economists are part of the government to be affected by their interests.
Milton definitely was complaining about the gold standard. The title of the video is even called "Milton Friedman on the Gold Standard." If that's not enough for you, here's a quote from the video, "Worse still, America's depression would become worldwide because what lies behind these doors". Of course the video then shows a bunch of gold. Huh, I wonder what he was trying to say there.
You also ignored all my other evidence proving your part wrong. Did you just not have an argument against them? That's usually when one is supposed to find their claim indefensible.
Keynesianism? What does that have to do with anything? It died in the 70's and has been subsequently followed by new schools of economics, like Monetarism, the Chicago school, Austrian economics, Smith-ian economics and Neo-Keynesian economics. These have all been meshed together to form neoclassical, or mainstream economics. Even if it was still the main ideology today, you have yet to show how Keynesianism somehow means the gold standard was the true monetary system after all. That's like me saying your argument is stupid because you're just a gold bug. I didn't actually address your claim.
Finally, even though I already know what it is, I decided to search the Petrodollar anyway. Do you know what I found? A bunch of conspiracy sites with horrible economics and no reputable sources. Far from trustworthy outlets themselves. Hell, one was called EconomicCollapseBlog. Yeah, that sounds like a good source of information with no agenda of their own.
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***** Actually a made several points with the private colleges only being one of the minor ones. So because the government funds the research for the physics department of NYU in their search for a habitable planet or whatever, that means that everyone working in the economics department must have views that completely agree with the government? That's laughable at best. FYI: NYU has one of the biggest Austrian economic programs in the country, which is very much anti-government.
Workers' wages have not decreased over time. At worst they remained stagnant, and data seems to point that they have actually increased, if only by a small margin. For instance in 2015 average real wages went up by about 2% (https://www.ssa.gov/OACT/COLA/AWI.html). The numbers for the chart show differently, but that's because they haven't been adjusted to inflation. Once you adjust them, you'll get that 2% figure. Back to your main argument though, the percentage increase in sales and profits increase to a similar extent for both small businesses and huge corporations. After all, no matter what their customer bases are, the bases will increase their demand by the same extent. Do you know how I know this? Because that's what inflation is.
Inflation isn't some evil concept. It's just the increased liquidity of money pushing the equilibrium price of a good above its current price, causing the store to increase the price of the good. In other words, this (http://wizznotes.com/wp-content/uploads/2010/11/image010.jpg)
Depends on what you mean by politically independent. Obviously every economist has a political ideology as they all have economic measures they prefer over others. If one of them likes the EITC, they'd be considered liberal. If they like lowering corporate taxes, they'd be considered conservative. FYI: Most economists support both measures, but that's getting off topic.
What about Daron Acemoglu though? He was the professor from MIT in the IGM poll. As far as I can tell he's a purely academic economist with little influence from the government besides his research grants, which are unrelated to his view on the gold standard.
Alberto Alesina also showed up on the poll and is the professor from Harvard. He too is mostly an academic economist and I can already name one view he has that the government doesn't support: he finds austerity measures to be good. That goes strictly against the Federal Reserve's stance on the issue, as they have criticized the ECB for their austerity measures during the Eurozone Debt Crisis (http://www.cnbc.com/id/44441678).
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***** Yes, I obviously disagree on both accounts. Inflation hurts savers because, as you would expect, the value of the money being saved decreases. So any money the company doesn't spend is also losing its money. Don't forget that big businesses are controlled by many people with a lot of money too. As this money is also being saved, high inflation just eats through that. Also, as I already stated, as inflation works in percentages, it effects everyone equally. A rich person just like a poor person will suffer the same percentage loss of the money they have saved up, and customers for small businesses and big businesses alike benefit from the same increase in demand as money was made equally more liquid for the both sets of customers.
You know what? I'm done here. This is just getting tedious with me just repeating the same points over and over. Why do I constantly have to prove myself to you when you can't even do the same? You have not made one specific claim, much less give any evidence for your claim.
You make a claim like, I don't know, the petrodollar is a thing, and then I provide multiple sources, many of them primary data, showing that it's not, even though you never once provided a source showing it does exist, much less a verifiable one. And then your next message will still say the petrodollar is a thing without providing one reason for why I'm wrong. It's complete bull crap and you're just acting irrational and stubborn.
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***** Actually your goal was to prove that the gold standard is more stable, reliable, or beneficial in some other capacity than a fiat based monetary system. That's how this whole argument started after all. Inflation was only a minor sub argument.
As for inflation though, you fail to see that the rich tend to save a higher portion of their income than the poor. This is known as the propensity to save. Ironically I'm going to use the same source you did to cite that (http://www.investopedia.com/terms/m/marginal-propensity-save.asp). Because of this, the upper class tend to be more savers than the middle and lower class, meaning they are more affected negatively by inflation than the poor and middle class too. So, while the business as an entity will do better from small amounts of predicted inflation, the financial stakeholders will be negatively affected. Because of this, it is in the interests of the owners to not seek such a high inflation. Keep in mind also that the inflation has to be both small and predicted for a business to see profit. Anything else and the stability of the currency will come into questions, people will panic, and, well, something similar to the 1929 stock market crash might occur.
Also, Investopedia's definition of a Petrodollar is very different from the definition you or I have used. You'll notice that if you read the article. Especially since they are only crediting the oil deal with Saudi Arabia with elevating the USD to global reserve currency status, which, technically, isn't even true as the USD was already the global reserve currency under Bretton Woods (http://www2.econ.iastate.edu/classes/econ355/choi/bre.htm) and (http://www.federalreservehistory.org/Events/DetailView/28). Take this quote from the Federal Reserve for instance: "Countries settled international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. " Sounds like the USD was already the global reserve currency. Even then though, the article never once mentions that the USD gets its actual value from the trading of oil by OPEC. Heck, the article itself mentions that today 87% of foreign exchange trades involve the dollars and uses a similar source I did, once again showing how far beyond the oil market the dollar reaches.
Congrats though. You were able to successfully incorporate an economic theory, that being that inflation incentivizes people to spend, and linked to a credible source.
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+stardude692001 You're not even listening to what I'm saying anymore. Communism is a worse system than capitalism. That's obviously true. But more economists would be needed in a centrally planned society than a capitalist society. That's all I was trying to say.
As for your part about the bottleneck, no, that's not what I was saying at all. In fact, the bottleneck to produce goods is land, labor, and capital. You know, the three factors of production. A lot of our GDP growth is attributed to our population growth, the rest capital usually.
I also don't think loaning money solves the problem at all. My argument was that fractional reserve banking isn't a bad thing, thereby I was also arguing that loans aren't a bad thing and have numerous benefits. That doesn't mean they'll solve all the world's problems though.
You're second to last paragraph makes me question if you know what fractional reserve banking is. The only revenue a bank is through the interest they make on their loans. The call it fractional reserve because when someone makes a deposit in a bank, the bank only must keep a certain amount of it in their reserve. The rest they can loan out at an interest for profit. That’s all fractional reserve banking is. Your reserve is then guaranteed by the FDIC and through liquidity loans given by the Federal Reserve to banks if they run low on reserves.
Finally, while your NPR podcast was right, that wasn’t the only reason the Fed keeps a low inflation target. Low inflation also gives an incentive for consumers instead of savers, helping the economy in the short term, and giving them another anti-economic downturn mechanism. This Economist talks more about it here (http://www.economist.com/blogs/economist-explains/2015/09/economist-explains-7)
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+stardude692001 So I'm going to skip over the communism part because I feel like we're going to go around in circles and it really doesn't have anything to do with the financial sector.
I was pressed for time in my explanation of fractional reserve banking, but now I can show you how it "creates" money and why people think it's bad. So back to the previous scenario. Guy A earned $100 and puts it into his bank account. The Federal Reserve then tell the bank that they are required to hold 10% of his money in reserve in case he or someone else wants to withdraw their money. That's why banks always have cash for people to withdraw from. Now the bank is still able to loan out 90% of the original deposit, so they give a loan of $90 to Guy B. He plans on using the money at the end of the month though, so he takes the $90 that was given to him as a loan and deposits it into his own bank. That bank then does the same procedure as the first. They take 10% ($9) off of the deposit to hold as reserve and then loan out the remaining 90% ($81). So there is a total of $171 ($90+$81) being loaned out on a deposit worth only $100. That's why people say money is created. You can also see that they call this fractional reserve banking because the bank is required to a hold a fraction of all deposits as reserves. For more information, look here (http://www.investopedia.com/terms/f/fractionalreservebanking.asp). I hope my explanation was good enough though.
There's an equation to go along with it to find out exactly how much money is being created, but I forgot it. Eh, it's been a while since I learned about it.
Huh, if we got rid of the financial sector? That's a new one. Can't say I've heard that before. Now once again I'm no expert, but I'll try to answer it to the best of my abilities.
First let me address your point about making money. On a macro level rarely do economists care about making more money. Well there is an exception to that, but it would involve more of what you consider economics word salad, so I’ll just skip it. What economists really care about is our GDP, which is the value of all goods produced in this country. Basically, our productivity. In the long term, this only changes due to investment and changes in technology as discussed here (https://www.stlouisfed.org/on-the-economy/2015/june/what-drives-long-run-economic-growth).
This brings us to the financial sector. True, they don’t produce crap, but they do invest in businesses. Many startups raise their funding through their initial public offerings (selling their stock for the first time) and even the biggest companies like Walmart and Microsoft still regularly sell their stock on the stock market to raise capital. This allows them to expand their operations, invest in more machines, and become more automatized, greatly increasing their productivity. As an example, look at the manufacturing sector (https://rejblog.files.wordpress.com/2011/10/mfg1.jpg). Their output is rising even while those hired are falling. While sad, it’s what you wanted, a higher productivity.
Thinking about it you might have just been talking about banks… Whoops. Usually when people mention the financial sector they are talking about the stock market. Same principle still applies though. Loans help people get educated, businesses make investments, etc.
Now if we were to throw these investors in some goods making sector and told them to get a job, well what would happen? The manufacturing and related sectors are already highly competitive the way they are (look back at the decreasing employment), so you wouldn’t be making the country any more productive, just adding wood to the fire that is the growing discontent of the workers in the manufacturing sector.
It should also be noted that the financial sector is added to GDP, which is how economists measure productivity. GDP is consumption + investment + government spending + net exports, so they are considered to be a part of investment for the most part with some of their activities probably falling under consumption. Finally, the three factors of production are once again land, labor, and capital. The financial sector provides one of these (capital)
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Dude, what? The industrial revolution started in Britain in the late 18th century and didn't spread to rest of the world until around the beginning of the 19th century. Similarly the steam engine wasn't reliably viable for ships until 1807, and those were nowhere near the size of warships. Of course the engine would need perfecting until it could handle a warship. The ironclad, that being shapes made entirely from iron, began construction in 1856 originally by the British. Keep in mind the first warship to use a steam engine wasn't built until 1850 by the British, so the steam engine was barely up for such a task. This is also evidenced in the first battle between ironclads in history during the American Civil War where the Union Monitor was mostly under the water and it's main gun turret was only just over the waterline. They were also both incredibly slow.
Finally, most navies aren't modern? Over 140 ships are powered through nuclear energy, the UK has 74 active ships, France has 86 ships including four ballistic missile submarines (one of the most advanced ships to exist, behind aircraft carriers and nuclear submerines), China has an aircraft carrier, is building another, and is pumping out cruisers like nobody's business, India also has a crapload of ships including a nuclear powered submarine, a ballistic missile sub, an aircraft carrier, etc. Then there's Japan, which has 154 ships and over 300 aircraft dedicated to its navy, not airforce. See, this is why making sweeping generalizations is often stupid, because you come off as an ignorant idiot when you're proven wrong. Sure, countries like Egypt might not have the most advanced ships ever, but they're also not a fully developed country, nor do they have the stability to really support one when their problems are at land.
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You really like your conspiracy theories don't you? You realize 95% of foreign exchange trades involve the dollar right? It's not some random conspiracy that the Middle East trades their oil in the dollar. It's because the dollar is an easily abundant currency that is not regulated and whose value is recognized by everyone, making it the perfect currency for foreign trade. Other currencies like the euro and pound-sterling are plentiful enough to achieve this, China's currency is too heavily regulated (they have a different value for their currency depending on its use). It also helped that the US was their biggest customer at the time, so they already had plenty of dollars for already selling their oil.
Otherwise you just talk more aobut how the US is controlled by banks, which is a bit ignorant. First, the Federal Reserve is considered a private entity within the US government as, while their day-to-day activities are handled in house, they still face oversight by the government, like how their chairman and board of governors is appointed by the President of the US and approved by the Senate, or the aforementioned remittance to the Treasury in my other comment. Furthermore, the Fed isn't even made up by mostly bankers, but economists and researchers. This is because they are supposed to conduct monetary policy, not handle typical operations of a commercial bank.
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Unlike what a lot of Trump supporters will tell you, the tax breaks are almost definitely a net negative. In economics there is what's known as the Laffer Curve: http://blogs.discovermagazine.com/cosmicvariance/files/2009/09/laffer-curve.jpg
Basically at a 1% tax rate on income the government just isn't making enough revenue, and at a 99% tax rate on income people aren' incentivized to work for an income, meaning the government still doesn't get enough revenue. Somewhere between the two is a point where the government can maximize revenue without hurting incentives too much. The US current tax system is to the left of this point. Because of this, the tax cuts will be revenue negative for the US government. As our government provides critical resources to the economy and already runs a deficit, this is definitely not a good thing. Some countries like France are probably to the right of this maximum point and could increase revenue from this, but we are not France.
Recent economic history: China's industry grew way faster than economists in the US thought it would, leading to a lot of displacement in the US work force due to our trade with China. That was the early 2000's anyway. Since before even the Financial Crisis automation has been the main job displacer (not job killer. Big difference). This has resulted in a lot of the US' unskilled workforce being left unemployed and without sufficient means to acquire a new stable job. Even when the economy started to improve after the Financial Crisis and jobs began to return, they didn't return in these unskilled industries, leading to a dissatisfied workforce in some areas. Trump blamed the immigrants and unfair trade deals (which is laughable to most economists), committed a huge lump of labor fallacy: https://www.investopedia.com/terms/l/lump-of-labour-fallacy.asp and so here we are, undoing a lot of the work we helped create, and annoying our trade partners in the process.
99% of economists support free trade with government programs set up to help the disadvantaged. The problem was that these programs weren't prepared for the amount of worker displacement seen because of China's growing industry. Even then, this is still a big slap in the face for a vast majority of economists: http://www.igmchicago.org/surveys/free-trade
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