Liberty Rebellion
06-11-2009, 02:41 AM
After the Schiff/Daily Show was posted on Youtube, I responded to a comment made that insinuated that Schiff advocated for not having credit in our economy and that we need spending to make our economy work (paraphrasing). I then responded to that comment that credit comes from savings and that Schiff, being an Austrian, would not of course advocate for no credit in an economy because any fool knows that people borrow money ALL the time and that, as an Austrian, that goes against the basic principles of a free market economy. I also mentioned that of course there needs to be spending to have an economy just as a human needs to breath in order to live (paraphrasing again since the video was taken down I can't recover our initial comments). Here's the rest of our convo:
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From: YouTube Service [mailto:service@youtube.com]
Sent: Wednesday, June 10, 2009 8:47 AM
To: LibertyRebellion
Subject: Reply from bounmy on "Peter Schiff on The Daily Show with Jon Stewart 6/9/09: "The Economy""
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xxxxxx has replied to your comment on Peter Schiff on The Daily Show with Jon Stewart 6/9/09: "The Economy":
Well no, credit doesn't actually come from savings any more. Credit comes from the banks.
I'm saying that if we had an economy where everyone saved all their money that would necessarily mean that they aren't spending their money (as much). Nobody would want to borrow because deflation and the interest rates would be much more in favor of saving, which would mean that more money would be idle on the sidelines instead of going back into the economy in the form of spending.
You can reply back by visiting the comments page.
xxxxxx
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Savings/Credit
...
Savings/Credit
I was going to reply on the video, but it was taken down.
Debt/credit is issued by banks, but banks can't issue credit w/o money in deposit, specifically money in savings deposits (the exception being mortgages).
China and Japan which are huge savers and they buy US T-bills which is the same thing as the bank loaning an individual money. Without China and Japan's savings there would be no money for their governments to loan to the US government to operate on like they have. That's soon coming to an end anyways regardless of the savings rate of China & Japan since the US gov't is debasing the currency.
Lack of savings is why we are in this mess. An economy needs to produce things and save money to be healthy, not consume and borrow. If savings and producing were such a bad thing than the US would not have been the economic power-house it was after WWII.
High interest rates would entice people to save for sure. However, interest rates are just the value of money. If demand remained constant and you had a decrease in the supply of savings, then interest rates would rise. Once the savings returned to their previous levels the interest rates would return to where they were. If there was a huge supply of savings on which to draw loans/credit from and the demand remained constant then interest rates would fall. And savings hardly sit idle. That is where the money for investment into R&D and startup businesses come from.
I can see what you're saying with our old, fake, and falling to pieces consumer economy which depended upon artificially cheap credit/borrowing plus the spending binge that propped up the whole facade. However, people are up to their eyeballs in debt and they won't be borrowing/spending like they did anytime soon. The dynamics have changed and we need to go back to a nation of savers and producers. Otherwise, our currency will be destroyed. Too bad the people in government have decided that the latter approach is a good idea.
If you are interested I can send you some links to a couple of great books, blogs, and videos that have opened my eyes to all of this.
Let me know if you're interested.
Peace,
bounmy
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Re: Savings/Credit
...
Re: Savings/Credit
Thanks for your response. I have been exposed to the theories in economics that you're referring to. I agree that they are important parts of the discussion, and probably more right than wrong, but I find the so-called Neo-Keynesian arguments more convincing. I'm more of a moderate, so I get concerned by extremes on either side of the argument.
My point about savings and credit is that during a recession it is helpful for people, and the economy as a whole, to save less and invest more. That is why the Fed drops rates and the government cuts taxes and increases spending. In the long term however, and especially during times of growth, it then becomes necessary to pay back those loans, increase saving, and cut back on current investment and consumption. That is what the Fed encourages when they increase rates, which is helped by the government increasing taxes and decreasing spending. This minimizes the affect of the boom/bust cycle that can be damaging in the long term when the costs to recover from the bust are larger than what it would have cost to maintain steady, moderate growth.
When Austrian economists say that the problem is excessive lending and no saving, they're right, but now isn't the time to implement it. It should have been done during the growth period. The hard part is that politicians (i.e. Bush) push to keep taxes and interest rates low for their own political benefit, thus turning growth into over-inflation and eventual melt down.
That's what I think, anyway.
BTW, I'm a Democrat, but I have a ton of respect for Ron Paul. I think he's the best hope for the Republican party and the only one with real ideas. I think he's wrong, but I respect him.
I'll keep up the dialogue with this person and let you know how it goes... ;)
________________________________________
From: YouTube Service [mailto:service@youtube.com]
Sent: Wednesday, June 10, 2009 8:47 AM
To: LibertyRebellion
Subject: Reply from bounmy on "Peter Schiff on The Daily Show with Jon Stewart 6/9/09: "The Economy""
help center | e-mail options | report spam
xxxxxx has replied to your comment on Peter Schiff on The Daily Show with Jon Stewart 6/9/09: "The Economy":
Well no, credit doesn't actually come from savings any more. Credit comes from the banks.
I'm saying that if we had an economy where everyone saved all their money that would necessarily mean that they aren't spending their money (as much). Nobody would want to borrow because deflation and the interest rates would be much more in favor of saving, which would mean that more money would be idle on the sidelines instead of going back into the economy in the form of spending.
You can reply back by visiting the comments page.
xxxxxx
...
Savings/Credit
...
Savings/Credit
I was going to reply on the video, but it was taken down.
Debt/credit is issued by banks, but banks can't issue credit w/o money in deposit, specifically money in savings deposits (the exception being mortgages).
China and Japan which are huge savers and they buy US T-bills which is the same thing as the bank loaning an individual money. Without China and Japan's savings there would be no money for their governments to loan to the US government to operate on like they have. That's soon coming to an end anyways regardless of the savings rate of China & Japan since the US gov't is debasing the currency.
Lack of savings is why we are in this mess. An economy needs to produce things and save money to be healthy, not consume and borrow. If savings and producing were such a bad thing than the US would not have been the economic power-house it was after WWII.
High interest rates would entice people to save for sure. However, interest rates are just the value of money. If demand remained constant and you had a decrease in the supply of savings, then interest rates would rise. Once the savings returned to their previous levels the interest rates would return to where they were. If there was a huge supply of savings on which to draw loans/credit from and the demand remained constant then interest rates would fall. And savings hardly sit idle. That is where the money for investment into R&D and startup businesses come from.
I can see what you're saying with our old, fake, and falling to pieces consumer economy which depended upon artificially cheap credit/borrowing plus the spending binge that propped up the whole facade. However, people are up to their eyeballs in debt and they won't be borrowing/spending like they did anytime soon. The dynamics have changed and we need to go back to a nation of savers and producers. Otherwise, our currency will be destroyed. Too bad the people in government have decided that the latter approach is a good idea.
If you are interested I can send you some links to a couple of great books, blogs, and videos that have opened my eyes to all of this.
Let me know if you're interested.
Peace,
bounmy
...
Re: Savings/Credit
...
Re: Savings/Credit
Thanks for your response. I have been exposed to the theories in economics that you're referring to. I agree that they are important parts of the discussion, and probably more right than wrong, but I find the so-called Neo-Keynesian arguments more convincing. I'm more of a moderate, so I get concerned by extremes on either side of the argument.
My point about savings and credit is that during a recession it is helpful for people, and the economy as a whole, to save less and invest more. That is why the Fed drops rates and the government cuts taxes and increases spending. In the long term however, and especially during times of growth, it then becomes necessary to pay back those loans, increase saving, and cut back on current investment and consumption. That is what the Fed encourages when they increase rates, which is helped by the government increasing taxes and decreasing spending. This minimizes the affect of the boom/bust cycle that can be damaging in the long term when the costs to recover from the bust are larger than what it would have cost to maintain steady, moderate growth.
When Austrian economists say that the problem is excessive lending and no saving, they're right, but now isn't the time to implement it. It should have been done during the growth period. The hard part is that politicians (i.e. Bush) push to keep taxes and interest rates low for their own political benefit, thus turning growth into over-inflation and eventual melt down.
That's what I think, anyway.
BTW, I'm a Democrat, but I have a ton of respect for Ron Paul. I think he's the best hope for the Republican party and the only one with real ideas. I think he's wrong, but I respect him.
I'll keep up the dialogue with this person and let you know how it goes... ;)