Economics question

[67GTA]

I have always pondered something about how economics will work in the future as far as the price of things, and how they are always going up. I'll use bread as an example. Bread prices are mostly affected by the price of wheat/inflation/value of the dollar. Wheat prices are mostly affected by supply vs demand/stock trading price/value of the dollar. The dollar is only worth what someone else is willing to pay for it. Using this logic, one day we will all be making gazillion dollars a year, and bread will be $500,000 a loaf. How can the current system be sustainable? Maybe I'm missing something. I know the current US and other world economy paths/spending are NOT sustainable, which in turn affects inflation/prices. I'm merely looking at the conventional inflation theory. Both capitalist and socialist economies have inflation, but deal with it in different ways. Please don't turn this into a "VS" thread. Any thoughts on the subject?

[GreyGeek]

.... Any thoughts on the subject?

The USA has been printing TRILLIONS in Dollars since 2008 as a way to "stimulate" our economy. They could do it because the Dollar was a World Reserve Currency. That meant that even though the US was printing money and devaluing it, other countries had to convert their currency into Dollars in order to do business on the International markets, thus devaluing their currency as well and transferring value from their economy to ours just because they had to buy Dollars. The other countries got tired of it and decided to make deals between themselves to use their own currencies when doing business. The BRICS started the process and now Japan, England, Australia, France and other countries are joining in. When the Dollar is finally dumped as a WRC, it's value will plummet like a rock. I suspect that it will happen something this fall. I leave it to you to decide what may happen in the USA when that event occurs. However, we are not without examples. Wikipedia has several examples of countries experiencing hyperinflation.

Some form of bartering system will probably arise at the local level among people with few assets, but it will discouraged by the government because it is essentially nontaxable. It is any body's guess as to what the US gov will do with private ownership of precious metals. Gold ownership in the USA was outlawed in 1917 by envocation of Executive Order 6102, and never reinstated until 1975, when Nixon unlinked the Dollar from Gold. The intrinsic value of the Dollar has been declining every since.

Sometime in the early 1980s I read a small book by "Adam Smith" called "Super Money". In it the author predicted a stock market at over 10,000 and a drastic devaluation of the Dollar within the next 25 years. He said that stocks would become the "new" money and countries around the world would take on large debts.

Here is a graph from the TARP testimony:



You can see that the debt vs Gross Domestic Product for the UK is at about 950%. For the US it is at about 300%.

Basically, the whole world is in financial trouble. That report shows information on China, Russia, India and other "beneficiaries" of America's exporting of its industries and jobs. Not a pretty picture.

However, this too shall pass. Each day has its own problems, so enjoy life while you have it. I'm setting here at 70 and when I think about it I am stunned by how fast those years have sailed by. It seems like yesterday that I was pursuing my lovely bride of 50 years. I can still see my daughter, fresh from the womb, hanging upside down by her ankles, being smacked on the butt by the doctor, and screaming her head off in outrage! My son is two years away from 50 and my daughter is not far behind. The Lord willing, I hope to see my three grandsons reach manhood and become successful. But, if you extend the time line far enough into the future the survival rate for everyone drops to 0. :grin:

[SteveRiley]

But, if you extend the time line far enough into the future the survival rate for everyone drops to 0. :grin:

Life: a sexually-transmitted disease with a 100% mortality rate.

[GreyGeek]

ROF,LLLL That about sums it up!

(One may balk at the "disease" connotation but when one considers how many life forms we play host to, both inside and out, it's true. I would suspect that possibly as much as 5% of our body mass is bacteria. About half of our fecal matter is E. Coli and other organisms. IF we didn't have E. Coli our digestion wouldn't work as well as it does.)

So, as I said,
enjoy your family,
enjoy your life,
enjoy Linux
(eschew Microsoft, life is too short!)

[rms]

Life: a sexually-transmitted disease with a 100% mortality rate.

[SteveRiley]

About 2 kilograms. And, if you're so inclined, you can join a social network to exchange information about your personal microbiome with others.

[rms]

(eschew Microsoft, life is too short!)

@67GTA
Eschew thinking about matters that don't depend on your will, for the same reason.

Edit: Man, we could easily make it into a new 10 commandments.

[67GTA]

Life: a sexually-transmitted disease with a 100% mortality rate.

Never thought about it from that perspective! I might make that my new sig.

[67GTA]

I agree with your assesment Grey Geek. I'm stocked up on ammunition and food. I don't think it will be very pleasant. Too many people without the basic knowledge of survival. They don't have an app for that. I was just curious what the theory behind basic inflation is, and the predictions for the future (in an economy without certain demise). I would just like to pick the brain of an economic expert and see how they would justify the never ending inflation creep when a loaf of bread costs half a million dollars. Maybe the answer is they just don't expect it to last that long?

[rms]

I would just like to pick the brain of an economic expert and see how they would justify the never ending inflation creep when a loaf of bread costs half a million dollars. Maybe the answer is they just don't expect it to last that long?

They don't give a damn. If things come to that point, you'll hear "the experts" saying *who could foresee that?* and when it is no longer in the best interest to those at the top, excessive zeros will be erased and you'll have again your 5$ bread and the inflation merry-go-round starting afresh. I hope only that it is not a prelude to yet another war.

Been there, saw that...

[GreyGeek]

....
I would just like to pick the brain of an economic expert....

I have a friend who earned a PhD in economics. Brilliant fellow. He now spends his days forecasting projected tax revenues for our state, and since our State Constitution forbids the legislature from spending money it doesn't not have (borrowing it), they need to know as best they can how much money they can spend next year when they create legislation this year. We worked together on some projects and we often discussed population growth versus resources. Try as I may I could never dissuade him of the idea that our natural resources were limitless, or that population was a problem, so strong did he believe in the invisible hand of the market. He has an unshakable belief in the idea that regardless of the population on this planet we will always be able to find oil, or any other resource, in what ever amounts that we need when ever we need it.

The amazing thing is that he understands compound growth when one puts money into a savings account or the stock market. Equally amazing is that he uses R to compute statistics and revenue growths and declines, but could never extrapolate that math to population growth, economically recoverable resources, their rates of consumption, and the effect the growth of those rates would have upon the resources. I see that selective blindness all the time, especially with "visionaries" and flimflam artists. Their solution to everything is "growth". It is their god.

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Ideally, to insure that our children, their children and their children have access to the resources we use today, we must decrease our use of the resources at the rate of -3% per year. In the next 25 years we should use only half of what we used in the previous 25 years. If the population increases we must discover enough reserves to add 3% to our resources in order to sustain a 3% decrease in usage. What we are actually doing is just the opposite. The population is growing and our use of the resources is growing as well. There is a little math trick that helps to understand our rates of consumption and how much of a resource we'll need in the future. The doubling of the rate of growth or consumption is determined by dividing the number 70 (which approximates 100 X ln(2) ) by the annual percentage of growth or decline. Say we are consuming oil world wide at a rate that is growing at 2% per year. 70/2 = 35 years, the time of doubling. In the next 35 years we will need to find as much oil as we consumed in all the previous history of our oil consumption. To see that this is true consider a chess board and some grains of Rice. One grain goes on the first square, 2 on the second, 4 on the third, 8 on the fourth, 16 on the fifth, 32 on sixth, etc.... A square is the time of doubling. On each square is placed twice as much rice as the square before it. Assume you are on the fifth square and have consumed all the rice on that square and the ones before it. To sustain your growth in consumption of 2% how much rise will you need to fill the sixth square? 32 grains. Add up all the grains of rice that were on squares 1 through 5, before you consumed them. The total? 31 grains. No matter what square you are on, to fill the next square you will need as much rice as was on all the squares previous to the next one. That's what doubling times mean. If you rate of consumption is 8%, like it is for coal, then you have to find during the next 9.75 years (70/8 ) as much coal as has been burned in the past. Negative consumption rates merely means playing the rice-chessboard game backwards. By the way, if the rice continued to double for all the 64 squares of the board how many grains of rice would need to be placed on the 64th square? On the 64th square of the chessboard alone there would be 2⁶³ = 9,223,372,036,854,775,808 grains of rice, or more than two billion times as much as on the first half of the chessboard! How much would they weigh? 461,168,602,000 metric tons, a 1,000 times the global production in 2010 and a heap that would be bigger than Mt Everest. (Wikipedia).

The First Law of Sustainability is: population growths and/or growths in the rates of consumption of resources CANNOT BE SUSTAINED.

Stopping population growth is necessary, but not sufficient. It is intellectually dishonest to talk about sustainability without stopping population growth, or allowing uncontrolled consumption of resources. Contrary to some opinions, technology cannot save us from either the problems of population growth or of exhaustion of resources, regardless of the resource in question. It may prolong our situation a while but sooner or later we'll have to pay the piper.

Isaac Asimov responded to Bill Moyer's question about the problems of population growth, "What happens to the idea of human dignity if the population growth continues at its present rate?" Asimov answered: "It will be completely destroyed. I like to use what I call my bathroom metaphor. If two people live in an apartment that has two bathrooms then both have complete freedom of the bathroom. You can go to the bathroom anytime you want, stay as long as you want for what ever you need. And everyone believes in the freedom of the bathroom. It should be right there in the Constitution. But, if you have twenty people living in the same apartment with only two bathrooms, no matter how much you believe in freedom of the bathroom there is no such thing. You have to set up times for each person. You have to bang on the door and ask "Are you through yet?", and so on. In the same way democracy cannot survive overpopulation. Human dignity cannot survive overpopulation. Convenience and decency cannot survive overpopulation. As more and more people are added to the earth the value of life not only declines, it disappears. It doesn't matter if someone dies, the more people there are the less one person matters."


Storing food? Guns? Ammo? Those are really short sighted solutions for the collapse of a nation. They remind me of the atomic bunker scares in the 1950s. There were those who could build them and those who could not afford to, but would come knocking on the bunker doors of those who could, asking to be let in. Even if they were stocked with food and water all of those bunkers had to have ventilation. Many said that if they were not let in they would block the ventilation shafts of the bunkers, pour gasoline down them, or build fires outside the doors, or both, just to kill those inside out of spite. Of course, that is a classic example of what would happen when too many people are chasing after too few resources. Population growth in a bunker microcosm.

As I've said before, modern agriculture is merely a way of using land to convert oil into food. Essentially everyone, including farmers, get their groceries off of grocery market shelves. Most people rarely keep more than a weeks worth of groceries in their house. If oil runs short, or is cut off, people will begin starving about 7 days after their last meal. Between the 7th and 30th day more and more people will get desperate in their search for food. As long as they have strength they'll break into any home or building in a search for food, and risk any danger doing so. Bodies piling up outside will mean someone is defending something on the inside. That will encourage more to come and see. Those that load a bunch of stuff into their car and take off aren't in any better of a situation, except that they are now strangers in the area and they aren't as familiar with the land or its inhabitants. After 30 days bodies will start piling up, no one will bury them, vermin will spread disease to the living and the odor will last for months. This kind of scenario assumes that there is a total breakdown in government authority and military power. That's nonsense.

The "I'm going to grab my gun, my ammo and fill the back of my van with dry goods and head to the hills" is a movie script scenario (Red Dawn?) with a zero chance of insuring survivability. One BIG reason why is that our government (federal or state) won't allow our society to break down that way without intervening, and their guns are bigger than yours, they have more bullets, they have better night vision, they wear better body armor and they have air cover. How big are your planes, and do they have FLIR? If the situation ever reached that difficulty the government would declare martial law. and confiscate weapons. They would regulate travel, and what you could carry when you travel, if you were allowed to travel farther than to a resource center to pick up a week's supply of food and/or water. Curfews would be strictly enforced and violators would be shot, no questions asked. That's what those military exercises that have been taking place around the country during the last year are for ... to train the troops in population control. Things could be bad at first, especially if some get hysterical, but local national guards will quickly regain control and rabble rouser will be dealt with quickly. I had fun with "FEMA Detention Facilities", as if they were real, but they are not. FEMA and the DHA don't need them. Any building with all exits blocked with armed guards could be used as a temporary detention facility to give hot heads a chance to cool down and consider what they are facing and what would be prudent measures to take.

If things were so bad you had no source of food but your 3 months supply what do you do after you eat it? And, have you taken into account that you could die of thirst before you die of starvation, if you don't have access to clean potable water? Or of cold? Or heat? What I think might happen, if anything does at all, depending on the political climate in the mid-east, is localized but temporary food and gasoline shortages, rolling power blackouts, travel restrictions to limit fuel consumption, and the establishment of aid centers to help out. There are models of these events in several South American countries during the last 25 years. Some local hotheads may try to exploit the situation but they won't last long. Most people will pitch in to help each other get past the troubles. If such difficulties come they will be game changers for sure. Folks won't look at their lives in the same way, and their priorities will make drastic changes.

What I would do and have done, besides staying home, is keep a rolling supply of about 3 months of dry and canned goods, to supplement the sparse times, a water purification unit (ceramic cartridge good for 4,000 gallons) and some medical supplies (iodine, bandages, aspirin, laxative, prescriptions, etc...), rechargeable AA NiCad batteries. a solar recharging unit for them, 3 watt LED flashlights, small 5 band radio with emergency light and attached generator for power, a 12" portable 12V TV, a bicycle or two with pump and patches and tools, Don't forget TOILET PAPER! And, perhaps, a portable toilet seat and a shovel. For a few continuous days without power I'd have a power generator/inverter handy. Mine is a WEN 3500. Don't forget a stash of oil and gasoline for it. Earth quakes I don't have to worry about, but you never can tell, where I live, if a tornado will come by. That is a greater concern to me, and more probably, than our nation collapsing. It certainly makes for more interesting discussions, and I've discussed it a few times, but if one spends a lot of time listening to pundits on the Right and Left one would think the sky was falling. Here's a news flash. They are in it for the money. IF things got as bad as they claim it will get then a gun won't help much. As poor as it is getting, my brain is still a better weapon than a gun. So is yours. Dying is not a matter of IF, only when. Living takes a brain, not bullets.

FEMA has an excellent book giving information on emergency supplies. You paid for it. Might as well take advantage of it:
http://www.fema.gov/plan/prepare/basickit.shtm

[whatthefunk]

I have always pondered something about how economics will work in the future as far as the price of things, and how they are always going up. I'll use bread as an example. Bread prices are mostly affected by the price of wheat/inflation/value of the dollar. Wheat prices are mostly affected by supply vs demand/stock trading price/value of the dollar. The dollar is only worth what someone else is willing to pay for it. Using this logic, one day we will all be making gazillion dollars a year, and bread will be $500,000 a loaf. How can the current system be sustainable? Maybe I'm missing something. I know the current US and other world economy paths/spending are NOT sustainable, which in turn affects inflation/prices. I'm merely looking at the conventional inflation theory. Both capitalist and socialist economies have inflation, but deal with it in different ways. Please don't turn this into a "VS" thread. Any thoughts on the subject?

Better inflation than deflation. A small inflation rate is probably alright...and really the US inflation rate today is much lower and much more stable than it was in the past.


It isnt really a problem as long as wages rise accordingly. When it becomes a pain in the butt to buy a loaf of bread for $1,000, the government can reevaluate the currency and chop some zeros off. As far as the US falling into hyper inflation soon, I dont think it will happen, but if it does, having a bunch of guys hoarding food and running around with guns is likely to cause more trouble than the hyperinflation itself. I was in Zimbabwe when they were experiencing hyper inflation....bought 50 trillion Zimbabwe dollars for a couple US dollars. Minutes after I bought it the value of it had already decreased. People got by though. I wonder if Americans could get by without their manicured lawns and flat screen TVs...

The bigger problem is that the so-called developing world is only developing because of the so-called developed world's appetite for material goods. Many of these goods are currently being bought with debt of some form, which is of course not sustainable. If the economies of the US and Europe fall, countries like China, Brazil and India will loose markets for their goods and their economies will subsequently decline.

But people will get by. Dont forget that the US economy collapsed once before. Yes, it was of course tough for a decade or so, but people got by.

[woodsmoke]

I have always pondered something about how economics will work in the future as far as the price of things, and how they are always going up. I'll use bread as an example. ?

Hi 67GTA

I'll keep this short.

You are prey to the information that has been provided to "most people" and to your "logical thinking".

Your post is very well thought out, but, as I said, you are "logical" and that is not what is really happens in the food industry.

I used to show a film to my students which has curiously disappeared but it was about "the cost of a loaf of bread".

It was made in the sixties, and I have had it verified by a lot of people in the food industry from a variety of perspectives.

Basically it is this:

a) whatever anyone says on t.v. or in books or in college classes, the food industry (as opposed to most (not all) other industries, operates on a "fifty percent markup" model because the food is perishable. The operative term is "perishable".

So, if a loaf of bread has a MINIMUM cost of one dollar USD.

Then the store pays fifty cents for it.

The "dealer" pays 25 cents for it ( however this has changed somewhat because now the large "chains" deal directly with the baker) (And, as of about a year ago, the "percentage" has changed because of the present "government" attitude toward business).

But, then the baker pays (let us say) 12 cents for it.

The flour provider gets pays 6 cents.

The grain provider pays 3 cents.

The "broker"(read speculator in terms of talking heads on television trying to get the viewer worked up about something). pays 1.5 cents.

The grain elevator operator pays about three quarter (.075) of a cent to the farmer.

So.....for a dollar loaf in the store, the farmer gets three quarters of a penny.

That is just the way it is,

Now, any OTHER KIND OF BREAD...... in which the bread is some kind of "enhanced" bread that is a higher price the amount ON TOP OF, the one dollar is then split "halfies" through the dealer to the bakery.

The farmer still gets three-quarters of a cent no matter what.

And, this is because of SUBSIDIES by the government. Both Republican and Democratic administrations and Presidents.

You see......the farmer gets a SUBSIDY from the government, paid by the tax payers, so that he gets chump change for his product, but is able to "live".

AND THAT IS WHY THE SMALL FAMILY FARM IS GONE....I don't care what ANY bleeding heart "person" wants to come back with.

If the subsidies were not there then the farmers would HAVE to charge what they needed/wanted and the next level up would have to pay.....simple as that.

otherwise....no food.

A prime case in point.

Here is something that even Grey Geek doesn't know I think.

Over fifteen years ago.....private industry.....perfected two things about milk.

a) "flash pasteurization" which would make a "shelf stable" milk that would last for months, maybe years, at ROOM temperature....

It was supposed to be the "boon to mankind".

But, the Clinton Administration's FDA said.....noooooooooooooo

b) There are two machines in the world that will separate milk into it's substituent components. That means that....it will separate milk into water, "whey", "fat", "whatever". The end product of this machine produces materials which can be used for......ANYthing.

Have you ever wondered just how it is that on a package of something like "cheese" that it says: "milk products" or "milk by-products"?

Probably not, the sheeple, like you and me are not supposed to ask questions we are just supposed to TRUST THE GOVERNMENT.

Well.....of these two machines.

I know a guy that supervised the STORAGE of one of them here in the U.S. Yes, storage. It is not used, it sits. Taking up a lot of space.

However, the OTHER one is in "South America". And guess what..... the MASSIVE amount of "milk products" that we use in the U.S.?

Part of it, yes, is produced right here in the U.S. of A, by good old U.S. mega-farmers.

But the rest is produced in South America and shipped to the U.S. and does not have to be NAMED "milk" because it is a "substituent" product....not milk.

Now, according to my buddy, the reason for this is "the bigger picture of geopolitical considerations".

If EITHER of the above two cases were "changed"....by the

OH SO WONDERFUL DEMMICATS and THE WONDERFUL REPUBICANS....... we would have twenty cent a gallon milk, the farmers would have their income tripled and

THE REST OF THE WORLD WOULD HAVE A GLUT OF MILK to feed to all those poor....starving...kids that are so GLORIFIED on U.S. television.

BAAAHHH HUMBUG TO EVERY POLITICIAN THAT IS PRESENTLY IN OFFICE!!!

sorry...it is a rant, finished with rant now.

woodsmoke

[PhilT]

Here's a wondeful video about the corruption and problems with the Federal Reserve:-

http://video.google.com/videoplay?do...002553&q=mises

It's about 40 minutes long, but really worth the time spent (IMHO)

[GreyGeek]

It is good. Here is a comical version explaning the same thing in under 8 minutes.