I miss tan M&Ms too random commenter.
US Federal Government Shutdown | Shutdown Shutdown, Debt Ceiling Raised
- Thread starter Jarmel
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empty vessel
Member
This isn't quite true. On June 5, 1933, the US government committed an immense default. From the CRS:
In 1933, the gold standard was ended for the United States. Despite the creation of the Fed, a wave of bank runs resulted in massive bank failures over the period 1930-1933. The Fed failed to provide sufficient liquidity to enable the banks to meet their customers’ demands for cash.
This failure was due in part—and possibly largely—to the gold standard. For the Fed to generate enough cash to meet the public’s changed demand for it, it would have had to create much more money and to lower interest rates. Lower interest rates, however, would have sped up the export of gold from the country as investors looked abroad for higher returns. Creating more paper money, moreover, would have created doubts about the ability of the United States to remain on gold. The greater these doubts, the greater the incentive to export gold, reducing gold reserves, and making it harder to maintain the dollar at its legal gold value. Hence, to keep the economy from collapsing, the Fed needed a policy of expansion. To stay on the gold standard, it needed one of contraction. Until 1933, it largely went with the latter.
With the inauguration of Franklin Roosevelt, the government’s policy changed. In a series of executive orders, legislative actions, and court decisions, the United States was taken off the gold standard. Convertibility into gold was suspended. Private holdings of gold were nationalized. A new parity with gold was established amounting to a devaluation of approximately 40%. This parity was only important for international transactions, however. Because Americans could not hold gold, their dollars were not convertible. The gold value of the dollar was largely meaningless. With no convertibility, the result was a quasi-gold standard.
Shortly after taking office, President Roosevelt closed the banks in order to stop the bank runs and the export of gold from the country. His order also prohibited the banks from paying out gold or dealing in foreign exchange. He did this based on the Trading With the Enemy Act of 1917, which gave him broad powers over banking and currency. Although the 1917 act appeared to confer these powers only in wartime, President Roosevelt acted on the basis of a “national emergency” and summoned Congress to a special session to prepare legislation to confer the powers he wanted to deal with the situation.
Three days later, Congress passed the Emergency Banking Act, which amended the 1917 act to include national emergencies, retroactively approved the President’s actions of the previous three days, and granted him power to regulate or prohibit the payment of gold. President Roosevelt promptly used these powers to continue the prohibition on gold transactions, even for banks that reopened. By executive order, on April 5, 1933, the “hoarding” of gold was forbidden. Gold had to be turned in to the government at the official price of $20.67 per troy ounce. Essentially, the country’s gold was nationalized.
This action was endorsed by Congress in a joint resolution. The resolution called for a suspension of the gold standard and abrogated gold clauses. The Thomas Amendment to the Agricultural Adjustment Act of 1933 granted authority to the President to alter the gold content of the dollar, with power to reduce it to 50% of its previous value.
In addition, the amendment gave the President power to authorize the issuance of up to $3 billion in U.S. notes, and the power to compel the Fed to issue money to finance up to $3 billion in government borrowing. It also set out new conditions for the issuance of more silver certificates.
Under the authority of the Thomas Amendment, the market price of gold was allowed to increase to $35 by January 1934. At that time, the Gold Reserve Act was passed, and the President thereby empowered to fix the new value of the dollar at not less than 60% of its previous value. The Gold Reserve Act also gave legislative force to the nationalization of gold. Under its terms, title to all bullion and coin was vested in the U.S. government, gold coin was withdrawn from circulation, and the Treasury Secretary was given control of all trading in gold. Private holdings of gold were outlawed (except for numismatic and various industrial/artistic uses).
In June 1934, the Congress passed the Silver Purchase Act. The act called for at least one-fourth of the United States’ monetary stocks to be held in silver, so long as the government did not have to pay more for the silver than its official monetary value. The silver could be coined or issued as silver certificates. Silver certificates were exchangeable for silver coin. Because the market value of silver was below its monetary value, this law provided for the issuance of a limited quantity of another form of what amounted to fiat money.
The government’s abrogation of gold clauses in contracts was upheld by the Supreme Court in February 1935. Thus, the government could discharge all its interest and principal due in paper money. Because the dollar had depreciated due to official policy, it meant that the outlawing of gold clauses effectively reduced the amounts the government paid on its debts relative to what it would have paid in gold.
This failure was due in part—and possibly largely—to the gold standard. For the Fed to generate enough cash to meet the public’s changed demand for it, it would have had to create much more money and to lower interest rates. Lower interest rates, however, would have sped up the export of gold from the country as investors looked abroad for higher returns. Creating more paper money, moreover, would have created doubts about the ability of the United States to remain on gold. The greater these doubts, the greater the incentive to export gold, reducing gold reserves, and making it harder to maintain the dollar at its legal gold value. Hence, to keep the economy from collapsing, the Fed needed a policy of expansion. To stay on the gold standard, it needed one of contraction. Until 1933, it largely went with the latter.
With the inauguration of Franklin Roosevelt, the government’s policy changed. In a series of executive orders, legislative actions, and court decisions, the United States was taken off the gold standard. Convertibility into gold was suspended. Private holdings of gold were nationalized. A new parity with gold was established amounting to a devaluation of approximately 40%. This parity was only important for international transactions, however. Because Americans could not hold gold, their dollars were not convertible. The gold value of the dollar was largely meaningless. With no convertibility, the result was a quasi-gold standard.
Shortly after taking office, President Roosevelt closed the banks in order to stop the bank runs and the export of gold from the country. His order also prohibited the banks from paying out gold or dealing in foreign exchange. He did this based on the Trading With the Enemy Act of 1917, which gave him broad powers over banking and currency. Although the 1917 act appeared to confer these powers only in wartime, President Roosevelt acted on the basis of a “national emergency” and summoned Congress to a special session to prepare legislation to confer the powers he wanted to deal with the situation.
Three days later, Congress passed the Emergency Banking Act, which amended the 1917 act to include national emergencies, retroactively approved the President’s actions of the previous three days, and granted him power to regulate or prohibit the payment of gold. President Roosevelt promptly used these powers to continue the prohibition on gold transactions, even for banks that reopened. By executive order, on April 5, 1933, the “hoarding” of gold was forbidden. Gold had to be turned in to the government at the official price of $20.67 per troy ounce. Essentially, the country’s gold was nationalized.
This action was endorsed by Congress in a joint resolution. The resolution called for a suspension of the gold standard and abrogated gold clauses. The Thomas Amendment to the Agricultural Adjustment Act of 1933 granted authority to the President to alter the gold content of the dollar, with power to reduce it to 50% of its previous value.
In addition, the amendment gave the President power to authorize the issuance of up to $3 billion in U.S. notes, and the power to compel the Fed to issue money to finance up to $3 billion in government borrowing. It also set out new conditions for the issuance of more silver certificates.
Under the authority of the Thomas Amendment, the market price of gold was allowed to increase to $35 by January 1934. At that time, the Gold Reserve Act was passed, and the President thereby empowered to fix the new value of the dollar at not less than 60% of its previous value. The Gold Reserve Act also gave legislative force to the nationalization of gold. Under its terms, title to all bullion and coin was vested in the U.S. government, gold coin was withdrawn from circulation, and the Treasury Secretary was given control of all trading in gold. Private holdings of gold were outlawed (except for numismatic and various industrial/artistic uses).
In June 1934, the Congress passed the Silver Purchase Act. The act called for at least one-fourth of the United States’ monetary stocks to be held in silver, so long as the government did not have to pay more for the silver than its official monetary value. The silver could be coined or issued as silver certificates. Silver certificates were exchangeable for silver coin. Because the market value of silver was below its monetary value, this law provided for the issuance of a limited quantity of another form of what amounted to fiat money.
The government’s abrogation of gold clauses in contracts was upheld by the Supreme Court in February 1935. Thus, the government could discharge all its interest and principal due in paper money. Because the dollar had depreciated due to official policy, it meant that the outlawing of gold clauses effectively reduced the amounts the government paid on its debts relative to what it would have paid in gold.
http://www.fas.org/sgp/crs/misc/R41887.pdf (PDF)
Yeah, that is supposedly how the gold standard is supposed to work.
As for deflation, it is really bad because money actually starts to become worth more which provokes hoarding. Money is supposed to be spent as a means of driving the economy, if it is hoarded then it no longer serves that purpose.
empty vessel
Member
That is correct.
Let's say we have a society with a population of 100 and it has in aggregate $100,000 at Year 1. Each person has $1000 to spend on average (although of course the distribution could be skewed). At year 5, it has a population of 200 people, but the amount of money does not change. Now each person has on average $500 to spend. At year 10, it has a population of 500, but the amount of money still does not change. Etc. As money becomes scarcer, its value relative to real goods and services rises. Thus, the prices of goods and services fall. But as the price of goods and services persistently falls over time, this gives individuals an incentive not to spend their money at any given time. After all, the bike that costs $X today will cost even less $ next year as prices continue to fall over time. This sapping of aggregate demand slows business production, because a business has no reason to produce goods or services it won't sell.
Byakuya769
Member
Think the shedding of light on the House's flim flam move on who can call a vote will do some damage?
Oh wow, really informative stuff.
Deflation means that if I have $100, I can consume some stuff now or I can wait a little while and consume more stuff. So it makes a lot of sense for me to sit on my cash and wait - I don't really need a new car this year when I could get a much nicer new car next year for the same amount of money. But suppose everyone does that - then Ford and GM don't sell any cars this year and don't need any workers. Inflation slows down when the economy gets worse, generally, so this can even snowball.
I think that another way to look at it, which ties in with broader concerns about interest rates, is that it's a zero lower bound thing. There's a natural risk-free interest rate that, given everything else going on in the economy, balances consumption now with consumption later. But nominal interest rates can't go below zero, because people always have the ability to just sit on cash, which is an interest-bearing asset with a rate of zero. Deflation means that cash has a positive real interest rate. If the optimal risk-free real interest rate is lower than that, then there's no way to achieve it. It seems to actually be the case that the optimal real interest rate is negative, at least now, and even usually is a small number, so deflation tends to mean that interest rates are too high - this slows growth by making it harder to get access to credit.
makingmusic476
Member
I hope. That video is almost at 1.5 million views, which is a lot for a video of that type, but that's a tiny fraction of our voting population, and I'm sure many people viewed the video multiple times (like me, occasionally clicking it to see its views).
Ether_Snake
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Deflation can be good when applied to specific things. For example, low house prices favors economic development (money usually spent on mortgage would be spend on structural expansion, or amenities). Ford's production lines caused car prices to collapse, etc. Price destruction is good for the economy when it occurs selectively, even if there are always losers on the short term. Another good example is China's recent "unfair" practices in the solar sector, which have resulted in a solar energy boom after an initial series of bankruptcies resulting from the fall in price of the tech.
The thing is in general, sectors that merit price destruction should first be developed by the states, until price destruction can take place, which then allows the private sector to enter much more easily. If the private sector is fully in charge, then price destruction or "deflation" leads to bankruptcies, job losses, etc., during an adjustment period.
Space exploration is mostly handled by state-owned societies, so the destruction of Earth-to-orbit transport price will not be bad and we will transition easily to a new era of cheap Earth-to-orbit transportation without bankrupting countless companies.
For green energy the same should have happened, but sadly due to lobbying the sector was never strongly developed by states.
The thing is in general, sectors that merit price destruction should first be developed by the states, until price destruction can take place, which then allows the private sector to enter much more easily. If the private sector is fully in charge, then price destruction or "deflation" leads to bankruptcies, job losses, etc., during an adjustment period.
Space exploration is mostly handled by state-owned societies, so the destruction of Earth-to-orbit transport price will not be bad and we will transition easily to a new era of cheap Earth-to-orbit transportation without bankrupting countless companies.
For green energy the same should have happened, but sadly due to lobbying the sector was never strongly developed by states.
I don't think anyone really wants it to happen.
Frankly, I wish they'd come up with a deal that would take Obamacare off the table until next election while signing off on the debt increase now. Let them defund it for a few years..it's not like the Republicans are going to win another election in this century anyhow.
No.
Moderate Republicans are scared of the Tea Party primaring them and taking their seats. The Tea Party is completely batshit insane. The Republicans are acting in the interest of themselves (More specifically individual members losing their seats) by capitulating to the Tea Party, not the best interest of the American people.
Edit: If it helps, the Tea Party thinks it's helping America by (Tell me if I miss anything GAF):
Impeaching the President; A Muslim, commie, socialist, fascist, atheist, Kenyan (Seriously)
By repealing ACA Eg: Obamacare Eg: Hitlercare (Seriously)
And by lowering or eliminating entitlements for the 47% or "moocher class" Eg: the poor, the young, the old, the disable, and veterans (Seriously)
These people control or at the very least have significant influence in the Republican party.
Oh and they want to lower taxes or something too.
I believe they'd like to abolish taxes completely, but that is a dragon I think only their most insane members think they could vanquish. To them the Federal Government is corrupt and inept and should be kept out of everything but national defense.
Tesseract
Banned
you pretty much nailed it.
davepoobond
you can't put a price on sparks
then we might as well make it so that the people who are allowed to vote must also get a degree so that they can make an informed vote, and no one else is allowed to vote because they're all idiots and now they have taxation without representation and all that good stuff.
even the 1/4 rule for slaves is less biased than what you are proposing.
Yar. I'll hand you a philosophy curriculum and you scrub the ideology off it until it's all shiny.
Fucking absurd. Fucking absurd that you don't recognise its fucking absurdity.
davepoobond
you can't put a price on sparks
i dont even know how something like that can be changed. isn't it something that the house makes up rules for themselves?
Lagspike_exe
Member
How naive. The Tea Party is anything but insane. They are a purposely created organization funded by the ultra rich to promote their agenda. They are just exploiting the general stupidity to promote their goals by spreading FUD.
Their funders are doing it out of self interest, But it doesn't make the members of the Tea Party any less batshit.
Edit: Yep. If the past few weeks are any indication, they've completely lost control.
So what do the ultra rich gain by putting the country inches away from default every couple years? A nice hit to their stocks? Helping lose elections that could have helped further their interests?
The ultra rich who helped start the Tea Party aren't insane, but they obviously can't control the insane monster it created.
Lagspike_exe
Member
They try to ram through safety net slashes across the board. Also, they further radicalize the political spectrum, pushing the equilibrium to the right, so the "new normal"becomes even more right wing. By doing so, they push the Democrats further to the right.
Koch brothers are super smart. They wouldn't have nearly $100b between them if they weren't. And I bet there's a group around them of equally wealthy and powerful individuals who are pushing this policy through.So I really, really doubt that they ever lost control over the entity they created and funded.
Or they're just populist riding the wave of anti-Obama support.
Shake Appeal
Member
A minority of Republicans have convinced themselves that default either won't be so bad, or that it won't happen even if the debt ceiling is not raised.
An even smaller minority seem to think a default would be like some sort of healing detox that is required to cure America of its spending "addiction".
You're joking right?
Lagspike_exe
Member
Noup. Care to say why I'm wrong?
I will, you're wrong. They got most of the wealth from daddy.
Vicetrailia
Banned
A little too easy when everything is done for you. The parasites even sued each other over control...
Because it's a family business. Their wealth is inherited.
Lagspike_exe
Member
Not true. They did inherit a large company, but it was no way near as large as it is right now. They grew it hundreds of times in size. They did inherit a lot of money, but many others did as well, and rarely anyone managed to increase their wealth as much as the Koch bros did.
Vestal
Junior Member
So this is how you fuck up your fuck up. GOP bringing a new meaning to the word idiot.
SteveWinwood
Member
Takamura-San
Member
Jesus christ... is this a joke?
Sadly no. Apparently Cruz has been trying to sink the deal. Blame him.
Epsilon-delta
Banned
It got worse...
The Technomancer
card-carrying scientician
Oh lord
Takamura-San
Member
Welp.
Baraka in the White House
2-Terms of Kombat
Yes YESSSS keep shooting yourselves in the feet. Let's see if we can get those approval numbers for the GOP a little lower.
Takamura-San
Member
They only have to bring it up for a vote. Jesus... why is that so hard?
Then STOP LISTENING TO HIM. THAT'S ALL THEY HAVE TO DO.
It isn't looking like it. Everyone who votes for the deal is getting primaried, so Cruz and the Tea Party are basically holding the hostage takers hostage.
Yea well, they're dipshits who don't want to get primaried.
Epsilon-delta
Banned
Well, looks I have to help out my dad because if the deal doesn't go through today, veterans won't be receiving their disability checks on the first of November.
And uninformed veterans vote these quacks into office.
And uninformed veterans vote these quacks into office.
They will have no foot to stand on if this compromised deal is shot dead. They've been saying 'Negotiate' over and over again for 2 weeks and now finally there has been some form of negotiation.
If they don't get this passed then even the most blind and idiotic Americans will have to face the fact that the Republicans don't actually want a negotiation, they want capitulation.
If they don't get this passed then even the most blind and idiotic Americans will have to face the fact that the Republicans don't actually want a negotiation, they want capitulation.
Takamura-San
Member
Aren't those who marched with Cruz Yesterday?
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