Could Credit Unions Be the Solution to Economic Stability?

[brainstorm]

Yes, but you can melt your gold down and mold it into a variety of objects. You can even wear it. Look at all the money you can save on jewelry and ornaments.

But if the price goes down, you could lose a significant percentage of your savings.

 

[russ_watters]

Well I never said anything about investing. What I said was, if I left money in savings for 50 years it would be worth half as much when I took it out because of inflation.

Well no, you said:

What I am saying is that if the dollar is going to keep being devalued by our current monetary system why not invest in something more stable like precious metals...

If you meant "save", then you misspoke, but fine, now I understand what you meant.

I shouldn't have to invest in anything. No one should have to invest in order to save.

It's a free country - no one "has to" do anything with their money. You can bury it in the backyard if you want! What the right course of action is depends on your needs/wants. For the vast majority of people, the primary goal for their largest chunk of cash is long-term saving for retirement and the best strategy to maximize return while minimizing risk is through investing most of it in the stock market.

Investing has risks, risk is a choice.

Everything you do in life has pros and cons, risks and rewards. Everything is a choice. Savings has risk - the risk, obviously, is loss of value due to inflation.

I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance.

Well instead of a fighting chance, how about a guaranteed return like a government bond or CD? The only way for them to lose money is with a collapse of the US government - and if that happens, the value of your bonds will be the least of your worries! If you're that risk averse, that's the only way to go.

 

[russ_watters]

So you think precious metals are stable? http://goldprice.org/inflation-adjusted-gold-price.html

Yea that definately doesn't look to stable. This is interesting:http://www.onlygold.com/TutorialPages/prices200yrsfs.htm"

What happened?

Your link doesn't have the numbers adjusted for inflation, for starters.

 

[BilPrestonEsq]

Your link doesn't have the numbers adjusted for inflation, for starters.

I was agreeing with you. The graph you posted only goes back to the 70's. I posted that site because I thought it was interesting that the price remained stable until 1932. So what happened between 1792 and 1932. What made the price unstable after 1932?

 

[brainstorm]

Everything is a choice. Savings has risk - the risk, obviously, is loss of value due to inflation.

Savings is always beneficial because saving is fiscal discipline. As you adjust to lower levels of spending, you become better insulated against income loss. Saving is therefore an investment in withstanding income loss. Likewise, if your income goes up the increase is that much more of a premium if your fixed costs have decreased. I.e. income changes are relative to one's cost of living. If one's cost of living has been reduced, income increases are proportionately greater. If they decrease, you're insulated against the loss by lower costs/debts/bills.

 

[BilPrestonEsq]

"Investing has risks, risk is a choice." BilPrestonESq

"Everything you do in life has pros and cons, risks and rewards. Everything is a choice. Savings has risk - the risk, obviously, is loss of value due to inflation. "Russ Waters.

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

 

[BilPrestonEsq]

That top quote from me is taken out of context, that was not just a statement on it's own.
I was comparing investing to saving.

 

[BilPrestonEsq]

"I shouldn't have to invest in anything. No one should have to invest in order to save". ME

"It's a free country - no one "has to" do anything with their money. You can bury it in the backyard if you want! What the right course of action is depends on your needs/wants. For the vast majority of people, the primary goal for their largest chunk of cash is long-term saving for retirement and the best strategy to maximize return while minimizing risk is through investing most of it in the stock market." RUSS

Again, not sure why you pulled that out of context and missed the point as if it was a statement by itself. Again I was making a point about inflation, asking why I have to invest in order to avoid the depreciation of my savings.

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

"Well instead of a fighting chance, how about a guaranteed return like a government bond or CD? The only way for them to lose money is with a collapse of the US government - and if that happens, the value of your bonds will be the least of your worries! If you're that risk averse, that's the only way to go." RUSS

Of course if they run out of money they'll just print more! Do you see the irony here?
__________________

 

[russ_watters]

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

[shrug] Why should anyone accept gravity? You're arguing against reality here.

 

[WhoWee]

" "I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

The point I was trying to make about gold (attempt of humor aside) was that it has other uses. The find of a new gold mine might not devalue reserves - it might create manufacuring opportunities that would consume all of the new supply (none going into reserve).

 

[brainstorm]

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

It is not a necessary evil. It is the result of market activity that is supply-side friendly in the sense of allowing, fostering, and/or promoting conditions that allow producers (including workers) to maintain or raise their prices/wages. You could also ask why anyone would accept market fluctuations in the price of gold or other commodities as a necessary evil.

"I shouldn't have to invest in anything. No one should have to invest in order to save". ME

Saving currency (under your mattress if you like) is a diversified investment in all the commodities of a future dollar-economy (or whatever currency you're saving). I can't think of any form of saving that doesn't double as some form of investment.

"It's a free country - no one "has to" do anything with their money. You can bury it in the backyard if you want! What the right course of action is depends on your needs/wants. For the vast majority of people, the primary goal for their largest chunk of cash is long-term saving for retirement and the best strategy to maximize return while minimizing risk is through investing most of it in the stock market." RUSS

First of all, it's not that it's a free country or other demarcated region. It's that people are free prior to encounters with various forms of social control. Second, buying stocks or commodities does not minimize risk because these commodities have absolutely no guarantee on their prices. FDIC will at least attempt to insure your deposit. Who is going to attempt to insure that your gold, stocks, or other commodities hold value or appreciate?

Again, not sure why you pulled that out of context and missed the point as if it was a statement by itself. Again I was making a point about inflation, asking why I have to invest in order to avoid the depreciation of my savings.

Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

No new gold has to be discovered for gold to boom/bust. If many people see the price of gold rising and buy into the trend, that causes the price to continue rising until people worry that the trend can't last forever and start selling to get the highest price. At that point, the price descends and if it descends below the price you bought in at, you either sell for a loss or hold your gold and wait for the price to re-appreciate above the level you bought it at, which could be years, centuries, or never.

Of course if they run out of money they'll just print more! Do you see the irony here?
__________________

If that's what they honestly believe is the best way to maintain the economy, then that's the only thing they can do to prevent the dollar from losing value. If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain. If you say the government could spend less and use other means to ensure that people get access to resources that allow them to be economically productive, I would agree from an idealistic perspective. However, if you recognize that in the absence of stimulus spending, people would become unproductive or even destructive, do you allow that to happen rather than print and spend stimulus money? My opinion is that there are paths to reducing spending while maintaining productivity, but they are not easy. They require diligence and discipline, and often people get spooked and react violently to the economic pressure of living with less, which increases the costs of restructuring.

 

[WhoWee]

Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

It might be a good idea to calculate the level of income desired at a future date - factoring in comfort level expectations - and invest accordingly. The best hedge is to be diversified.

 

[BilPrestonEsq]

[shrug] Why should anyone accept gravity? You're arguing against reality here.

INFLATION IS NOT NECESSARY! Comparing Inflation to gravity really shows excatly how much you don't know about the subject. Could your argument be any more nearsighted? So raising the reserve requirements would be like building an anti-gravity machine?

 

[BilPrestonEsq]

The point I was trying to make about gold (attempt of humor aside) was that it has other uses. The find of a new gold mine might not devalue reserves - it might create manufacuring opportunities that would consume all of the new supply (none going into reserve).

No I got you.

 

[BilPrestonEsq]

BRAINSTORM It is not a necessary evil. It is the result of market activity that is supply-side friendly in the sense of allowing, fostering, and/or promoting conditions that allow producers (including workers) to maintain or raise their prices/wages. You could also ask why anyone would accept market fluctuations in the price of gold or other commodities as a necessary evil.

Well put but I disagree. Inflation only hides it's true purpose behind this expaination.

Saving currency (under your mattress if you like) is a diversified investment in all the commodities of a future dollar-economy (or whatever currency you're saving). I can't think of any form of saving that doesn't double as some form of investment.

I hear what your saying that statement was meant to be taken in its most simple form though


First of all, it's not that it's a free country or other demarcated region. It's that people are free prior to encounters with various forms of social control. Second, buying stocks or commodities does not minimize risk because these commodities have absolutely no guarantee on their prices. FDIC will at least attempt to insure your deposit. Who is going to attempt to insure that your gold, stocks, or other commodities hold value or appreciate?


Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

Agreed

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

No new gold has to be discovered for gold to boom/bust. If many people see the price of gold rising and buy into the trend, that causes the price to continue rising until people worry that the trend can't last forever and start selling to get the highest price. At that point, the price descends and if it descends below the price you bought in at, you either sell for a loss or hold your gold and wait for the price to re-appreciate above the level you bought it at, which could be years, centuries, or never.

True, but only when comparing it with the dollar, which I was. Gold on it's own would not fluctuate that way, not to such extremes.Meaning if our currency was gold and it was not manipulated. Just wanted to point that out.

Of course if they run out of money they'll just print more! Do you see the irony here?
Still funny to me

If that's what they honestly believe is the best way to maintain the economy, then that's the only thing they can do to prevent the dollar from losing value. If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain. If you say the government could spend less and use other means to ensure that people get access to resources that allow them to be economically productive, I would agree from an idealistic perspective. However, if you recognize that in the absence of stimulus spending, people would become unproductive or even destructive, do you allow that to happen rather than print and spend stimulus money? My opinion is that there are paths to reducing spending while maintaining productivity, but they are not easy. They require diligence and discipline, and often people get spooked and react violently to the economic pressure of living with less, which increases the costs of restructuring.[/QUOTE]

I think a whole new system of trade needs to be established because there IS no other way If there was no stimulus plan, then we wouldn't be doing so hot right now! The situation cannot be fixed any other way.What happens as the effect of this stimulus bill? A need for another stimulus bill in the future. It's like a runaway train. On the topic of government spending, yea we could start by cutting the deficit to 0! How do you spend money you don't have. Our govenment has the spending habits and the insight of an irresposible college student with a wallet full of fresh credit cards. How is this acceptable? The question you posed to me should be a new thread

If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain

 

[brainstorm]

True, but only when comparing it with the dollar, which I was. Gold on it's own would not fluctuate that way, not to such extremes.Meaning if our currency was gold and it was not manipulated. Just wanted to point that out.

Gold or any other commodity is not the basis for the pricing of that commodity but rather the market discourse and speculative-investment in the commodity that determines the price. You are making the same logical fallacy that people made when they believed that real estate was a "more solid" investment than IT after the dot-com market bust. It was precisely because so many people believed that real estate was "more solid" than IT that speculation increased and drove up property-values to the point of meltdown.

The same thing could happen with gold. If governments started buying up gold to create currency reserves, that would drive up the price of gold very high as investors would speculate on its appreciation due to large scale buying. This in turn would continue to push the price up until people would start deciding that gold had become overvalued as a result of the trend, at which point they would stop buying and start selling to get out before the crash. That would then cause the price of gold to depreciate until people stopped selling.

I think a whole new system of trade needs to be established because there IS no other way If there was no stimulus plan, then we wouldn't be doing so hot right now! The situation cannot be fixed any other way.

I don't know about that. What if there had been a "consolidation plan" instead of a "stimulus plan," whose mission was to soften the blows of recession and help people cope with bankruptcies or otherwise mitigate unpayable debts? In a way, I think that was actually the point of the various bailouts and stimulus activities, i.e. to help people continually refinance and slowly reduce their debts that way, but too many people maintain the expectation that stimulus is supposed to result in something other than consolidation of bills and continuous reductions in consumption and spending/expenses.

What happens as the effect of this stimulus bill? A need for another stimulus bill in the future. It's like a runaway train.

It wouldn't be a runaway train if people would use the stimulus as band-aids instead of a life-support system or rather a performance-enhancement drug for the economy. The problem is that too many people have experienced a boom economy as a positive thing and they think that economic boom should occur constantly. It's like a person who likes the feeling they get from the high salt, sugar, caffeine and fat content of fast food and thinks that eating that way all the time is healthy because it makes them feel "peppy."

On the topic of government spending, yea we could start by cutting the deficit to 0! How do you spend money you don't have. Our govenment has the spending habits and the insight of an irresposible college student with a wallet full of fresh credit cards. How is this acceptable? The question you posed to me should be a new thread

It's not, but people still do everything they can to make money in a deficit-driven economy. It's like having a bar in a college town where the students go out to bars a lot to spend their student loan money. The bars don't go into debt the way the students do, but they prosper from the spending of those loans. Then the students have to generate money to pay back the loans later, while the bar is just adding to its wealth.

If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain

I don't know if currency value can or should be maintained. If anything, I think it is a natural result of conservation and efficiency that more value gets produced with less labor and energy, which could result in more value per unit currency if some other path to inflation is not found and pursued by businesses and consumers.

You can basically look at any micro-level economic situation on a continuum from total dependency to total independence. A totally dependent situation requires high amounts of expenditures to even approach satisfaction. A totally independent situation, conversely, requires no expenditure to gain total satisfaction. Obviously, neither pole of this continuum is ever achieved in an absolute way. However, I believe the more specific economic situations and processes evolve toward relative independence, the less expenditures are needed to achieve economic results/(satisfaction of demand/needs/wants). So this is the best measure to resist inflation, imo.

 

[BilPrestonEsq]

I don't know if currency value can or should be maintained. If anything, I think it is a natural result of conservation and efficiency that more value gets produced with less labor and energy, which could result in more value per unit currency if some other path to inflation is not found and pursued by businesses and consumers.

I think we agree. You misunderstood me. In the first paragraph of your reply, that is still housing in relation to the dollar. I was saying gold on it's own finding it's 'own value' if you know what I mean and I think you do because the part I quoted above. Currency that's not manipulated will not fluctuate wildly. I was saying if gold was the currency, not manipulated.

 

[brainstorm]

Currency that's not manipulated will not fluctuate wildly. I was saying if gold was the currency, not manipulated.

I don't understand. If gold was the currency, wouldn't banks, including central banks, manipulate its value by buying to increase reserves or selling to decrease them? I suppose your point is that they can only sell so much before they run out. Then what happens? They have to get more through taxes. Oh, I see, so your point is that using gold as a currency forces to the government to run a surplus instead of a deficit? But how would you prevent people from bartering using other standards than gold? Businesses/banks could still run a deficit by producing a lot and giving it away on credit, no?

 

[BilPrestonEsq]

Imagine a world without central banks.Imagine a bank that you pay to keep your money safe. A bank that offers 5,10,20 year CDs, that way banks could loan out money without creating it. The idea that banks are only required to keep 10% of their reserves is insane. So no banks (government run or not) buying and selling to manipulate currency, just let the chips fall where they may. Let traders decide how much its worth. By traders I mean anyone involve in trade on any level, so anyone. Why would you need to stop people from bartering in other things beside gold or whatever the form of currency?

 

[brainstorm]

Imagine a world without central banks.Imagine a bank that you pay to keep your money safe. A bank that offers 5,10,20 year CDs, that way banks could loan out money without creating it. The idea that banks are only required to keep 10% of their reserves is insane. So no banks (government run or not) buying and selling to manipulate currency, just let the chips fall where they may. Let traders decide how much its worth. By traders I mean anyone involve in trade on any level, so anyone. Why would you need to stop people from bartering in other things beside gold or whatever the form of currency?

Probably some large corporations would figure out that they could get investment capital by offering interest on savings and the most powerful would act as central banks. Would you want to actively destabilize lenders that became that powerful?

 

[BilPrestonEsq]

Probably some large corporations would figure out that they could get investment capital by offering interest on savings and the most powerful would act as central banks. Would you want to actively destabilize lenders that became that powerful?

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

 

[russ_watters]

If the reserve requirement were 100%, how could people ever buy houses? There wouldn't be enough credit available.

 

[brainstorm]

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?

If the reserve requirement were 100%, how could people ever buy houses? There wouldn't be enough credit available.

They could save or owners could finance an amount beyond an initial (down)payment.

 

[russ_watters]

They could save or owners could finance an amount beyond an initial (down)payment.

In other words, most people couldn't.

 

[BilPrestonEsq]

You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?

Where are they getting this money from?

 

[BilPrestonEsq]

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

 

[BilPrestonEsq]

That's not to say a private company or bank can't loan out their money. They just can't loan out your money.

 

[brainstorm]

In other words, most people couldn't.

In a free market, prices are set at the intersection of supply and demand curves. So, one way or the other, houses would be traded in the absence of bank-financing.

Where are they getting this money from?

In your gold-standard economy, they're getting it wherever gold can be gotten. They either mine it out of the ground or offer labor in exchange for gold.

That's not to say a private company or bank can't loan out their money. They just can't loan out your money.

When you save your money at a bank by buying deposit certificates, the interest you're getting paid is compensation to lend out your money. When you want to withdraw money at any time without leaving a reserve, you use a checking account with no minimum balance. Those typically don't pay interest. To get interest, you agree to a minimum-balance savings account. To get higher interest, you agree to CDs with penalties for early withdrawal. These various bank products create incentives for people not to withdraw money. Banks with large numbers of deposits estimate the likelihood of withdrawals and debt-defaults and plan reserves and debt-collection policies accordingly.

Are you saying that FDIC does not really have a sound basis for insuring all deposits up to $100K or $250K or whatever it is these days? Do you think FDIC should lower the amount it insures? Do you think this would stimulate banks to keep higher percentages than 10% in reserve?

 

[WhoWee]

Are you saying that FDIC does not really have a sound basis for insuring all deposits up to $100K or $250K or whatever it is these days? Do you think FDIC should lower the amount it insures? Do you think this would stimulate banks to keep higher percentages than 10% in reserve?

Was the printing press re-possessed?

 

[BilPrestonEsq]

To brainstorm: I made my response confusing, my bad. You posted this:

" You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?"

I got confused with the part in bold then I read it again. Are you calling their investment capital, reserves? If this money that you called reserves was actually just their profit they can do whatever they like. If this money is reserves as in the money that people place in there checking acounts then that's not ok, because there would be the 100% requirement.
Basically if you have a checking account you and everyone else that's a customer of the bank has to be able to get their money out whenever they want. And that last part that I underlined, exactly, how are lenders going to create a destructive housing bubble in that case? It wouldn't happen, it would be a bad business choice to lend out money to people that can't pay it back. But you did use the word reserves which is what confused me. So there could still be private lenders that make loans for profit but they wouldn't be willing to make bad decisions. So banks can still exist and make money under these regulations they can still loan money too. You would just have to pay for the convenience of the things they can offer, keeping your money safe, managing your money, online transfers,etc. and they can use that money to make loans to make more money, they are not going to loan to just anybody though obviously because now they would have something to lose. The FDIC I think should still be in place incase the bank gets held up or some other unforeseen event. There could be a federal fund in place, created from budget surplus. So no new money could ever be created from nothing. Thats the bottom line. This would effect all kinds of things, for instance: the ability of countries to go to war with each other, because who would have the money for that!