[Permanently_Baffled]

$this->bbcode_second_pass_quote('MonteQuest', '
')
Are you kidding? $7/gal gasoline would utterly destroy any economy. conditioners, and go on vacation when gas is $7.00 a gallon? This isn't a cold where you can take two aspirins to get over, this is a full blown raging virus. End of rant. :D

[Markos101]

PB's right; crude is actually only 11% of the petrol price here in the UK. 76-79% of it is actually tax.

But it doesn't suggest that rising petrol prices won't be a problem in other countries - remember that the 79% goes directly to the government which is recirculated into public services. If there was no duty and 100% of the price was crude, at $7, that wouldn't go back into the UK economy, it would go straight to the oil companies.

The advantage here is that a 100% rise in the cost of crude oil will only mean an 11% rise in price here, for consumers. That doesn't include industry who don't pay so much tax on fuels.

Mark

[davidyson]

The reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.

Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).

Davidyson

[MonteQuest]

$this->bbcode_second_pass_quote('davidyson', 'T')he reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.

Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).

Davidyson

[Permanently_Baffled]

$this->bbcode_second_pass_quote('MonteQuest', '')$this->bbcode_second_pass_quote('davidyson', 'T')he reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.

Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).

Davidyson

[nero]

$this->bbcode_second_pass_quote('MonteQuest', 'T')his is how I see it:

Actions:
1. The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”

This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created."

[Whitecrab]

Monte, thanks a lot. I think I kinda get everything. I understand what happens once we get to the level of the bank loaning me money, it's just the FED/Gov't dance that's still a bit bewildering.

$this->bbcode_second_pass_quote('MonteQuest', '1'). The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”

This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created."

[MonteQuest]

$this->bbcode_second_pass_quote('nero', ' ')
Hey I think we agree here on the mechanics. Don't you think? My 4 actions amount to the equivalent of the first 5 steps of your actions. I didn't include the 6th action cause we both understand how the banking system increases the apparent volume of money through lending with fractional reserves.

But you seem to not answer my point that the net effect is that the central bank gives the government free money to spend with the knowledge that it is never going to have to pay off that particular debt. you miss the point that there are some debts that are never going to be repaid ie the government debts held by the central bank. This debt is a polite fiction between the central bank and the federal government.

[MonteQuest]

$this->bbcode_second_pass_quote('Whitecrab', 'M')onte, thanks a lot. I think I kinda get everything. I understand what happens once we get to the level of the bank loaning me money, it's just the FED/Gov't dance that's still a bit bewildering.

[nero]

$this->bbcode_second_pass_quote('nero', ' ')
This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.

[nero]

$this->bbcode_second_pass_quote('monteQuest', 'I')'m not advocating the govt issue debt to the central bank. Read my last post to WhiteCrab. I am saying the govt should spend the money into existence for its own needs 10%, while the Fed does the rest.

[jato]

$this->bbcode_second_pass_quote('', 'S')o you admit your position is not backed by any evidence.

[MonteQuest]

$this->bbcode_second_pass_quote('nero', '')$this->bbcode_second_pass_quote('monteQuest', 'I')'m not advocating the govt issue debt to the central bank. Read my last post to WhiteCrab. I am saying the govt should spend the money into existence for its own needs 10%, while the Fed does the rest.

[MonteQuest]

JohnDenver quote:

$this->bbcode_second_pass_quote('', 'T')hat's an awfully big "I don't think". I think we need a little more substantial proof than that before everybody panics. Where does your pessimism come from? Do you have any reasoning at all to support it? All those sources have massive untapped reserves which will not be peaking for a very long time. Why wouldn't we tap them, when not doing so is suicide?

[backstop]

Dear Monte, I liked, but am unable to take as hypothetical, your overview using water supply as a 'peak' issue. As you're clearly aware, it is in reality one of the critical limits to a global society's survival, since the 'mining out' of the aquifers in numerous countries together with increasingly unstable rainfall patterns directly threatens global food security.

The dependence of economic growth on rising energy usage is to me an issue of investor confidence. I wouldn't invest in a deeper borehole to water my commercial crops, let alone invest in any energy-intensive business, if I've got information that energy costs are heading into turbulence within the payback period.

Similarly I wouldn't invest in any developments in areas prone to intensifying destructive weather events, not simply through fear of loss of earnings but potentially of loss of assets' insurability, and hence the overnight loss of their collateral value.

Given that the Bush regime has now formally acknowledged that man-made Global Warming and resulting Climate Change began over fifty years ago, the issue of climatic destabilization can no longer be ignored by the intelligent investor. What has yet to be recognized is the exponential rate at which that destabilization is intensifying.

Given the steady decline of the sustainable energies' global market share since the '70s to their present level, and the cosmetic scale of present investment in them, if ASPO is correct in positing peak oil in 2008 there seems to me little chance of avoiding a fundamental collapse of investor confidence.

Moreover, given the difficulties of mounting a major investment program in innovative technologies during the resulting depression, and the probable collapse of the petro-dollar, I see little prospect of global economic growth being resumed this side of the bankrupting of America.

regards,

Backstop

[MonteQuest]

$this->bbcode_second_pass_quote('backstop', 'D')ear Monte, I liked, but am unable to take as hypothetical, your overview using water supply as a 'peak' issue. As you're clearly aware, it is in reality one of the critical limits to a global society's survival, since the 'mining out' of the aquifers in numerous countries together with increasingly unstable rainfall patterns directly threatens global food security.

The dependence of economic growth on rising energy usage is to me an issue of investor confidence. I wouldn't invest in a deeper borehole to water my commercial crops, let alone invest in any energy-intensive business, if I've got information that energy costs are heading into turbulence within the payback period.

Moreover, given the difficulties of mounting a major investment program in innovative technologies during the resulting depression, and the probable collapse of the petro-dollar, I see little prospect of global economic growth being resumed this side of the bankrupting of America.

[nero]

[quote'"MonteQuest"]If the Federal govt did not continued to raise the debt ceiling, the issue of some debt would be quite acceptable. But when this debt grows so large as to put the world economy at risk, especially when the dollar is the currency of account, there needs to be a monetary policy change. In effect, we are exporting a level of financial terrorism to the rest of the world. They continue to support our ridiculous debt only because if they didn't, we would collapse, taking them with us. No other country can operate like this. Only us, because of the dollar hegemony. If you can't see that as a continuing problem, then I anything I say will be meaningless statement. I'm not an economist, and I don't know exactly what the best policy would be. Do you agree that the current monetary policy world-wide is not working? What do you suggest as a replacement?[/quote]

You seem to be confusing the fiscal and monetary policy. The size of the fiscal deficit of the government or the absolute size of the entire government debt is a separate issue from how money is created in a modern monetary system. The debt held by the central bank that will never be repaid is only a small fraction of the the government debt. For the purposes of default risk you can subtract off this central bank held debt from the total debt since the central bank has no interest in having the debt repaid.

I do not believe there is a dollar hegemony* and I don't believe that any problems associated with the current over valuation of the american dollar has anything to do with the mechanics of how the monetary system operates.

Note: * hegemony is too strong a word. The american government does receive benefits from the fact it controls the dominant currency in the world.

[MonteQuest]

$this->bbcode_second_pass_quote('nero', ' ')
You seem to be confusing the fiscal and monetary policy. The size of the fiscal deficit of the government or the absolute size of the entire government debt is a separate issue from how money is created in a modern monetary system. The debt held by the central bank that will never be repaid is only a small fraction of the the government debt. For the purposes of default risk you can subtract off this central bank held debt from the total debt since the central bank has no interest in having the debt repaid.

I do not believe there is a dollar hegemony* and I don't believe that any problems associated with the current over valuation of the american dollar has anything to do with the mechanics of how the monetary system operates.

Note: * hegemony is too strong a word. The american government does receive benefits from the fact it controls the dominant currency in the world.

[MonteQuest]

$this->bbcode_second_pass_quote('', 'Y')ou seem to be confusing the fiscal and monetary policy. The size of the fiscal deficit of the government or the absolute size of the entire government debt is a separate issue from how money is created in a modern monetary system.

[MonteQuest]

Sorry, typo. That was Bretton Woods, July of 1944 when the US dollar was set as the currency of account. Later OPEC agreed to set all oil sales in dollars. Last month OPEC announced it would withdraw a million barrels of crude a day from the market because of the weakening value of the dollar. OPEC sells oil for dollars and the oil-producing countries are losing revenue as the dollar continues to erode. Because oil-producing countries purchase much of their goods and services from the EU, their purchasing power deteriorates. Every nation needs to get dollars to import oil, some more than others. This means their trade targets dollar countries, above all the U.S. Because oil is an essential commodity for every nation, the Petrodollar system, which exists to the present, demands the buildup of huge trade surpluses in order to accumulate dollar surpluses.

There is your dollar hegemony.