[ExI] undercover at Walmart

[Rafal Smigrodzki]

On Sun, Feb 22, 2009 at 5:34 AM, BillK <pharos at gmail.com> wrote:
> On Sun, Feb 22, 2009 at 4:23 AM, Rafal Smigrodzki wrote:
> <snip>
>> But back to the deficit. US "deficit" is denominated in US dollars,
>> meaning that the government can and as we have seen recently, will
>> print enough of them to satisfy foreign demand. I have no idea why
>> this should be a problem. The "deficit" is a monetary artefact, not a
>> feature of differential productivity, therefore it does not affect the
>> standard of living in the long term (at least not directly).
>> -------------------------------------
>>
>
>
> This is an incredible claim.
> The current financial disaster is due to the US deficit creating funny
> money in previous years and artificially inflating the value of
> everything all around the world.

### You are mixing up a lot of things. The financial difficulties are
caused by misallocation of resources, not by "artificially inflating
the value of everything" (Did you think it through to what you really
mean there? Can you spell out the meaning of this statement?). The
CRA, and other government regulations pushed banks into lowering
underwriting standards (moving resources, manpower, materials into too
much home construction, away from useful activities and artificially
increasing home prices) which caused increased risk to be injected in
to the system and induced regulatory arbitrage (trying to circumvent
capitalization requirements ) that led to massive use of credit
default swaps which in turn introduced valuation uncertainty (the
increased risk was not properly accounted for since nobody knew how to
calculate risk on default swaps and few people knew of the incredible
amount of fraud committed by homebuyers) and then many institutions
got poisoned by counterparty risk. Add to it moral hazard ("we are too
big to fail, the gov't won't let us die" - which turned out to be
true) and you get a mildly impaired banking system. Add to it further
massive gov't intervention, massive increases in future taxes which
poison the investment climate by increasing uncertainty ("will they
take 70% of what I can earn or only 50%") and yes, everything
eventually could go to shit.

---------------------
>
> You are correct that as long as people around the world keep accepting
> the false money, then the US can keep printing it.

### You are coming around to the gold currency camp? Kudos!

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 But that time is
> coming to an end.

### Don't bet much on that. Fiat money is too cheap and too useful to go away.

------------------

>
> The 'deficit' has already affected the standard of living. First by
> creating a ten year boom, now by creating (at least) a ten year
> depression.
>
### Read "The Myth of the Rational Voter", read "Carpe Diem",
"Marginal Revolution", stay off Lou Dobbs, CNN and other infotainment,
that's the only advice I can offer.

Rafal