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Comments about ‘Letter: 'Too big to fail' fails when talking about what is really wrong in the country’

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Published: Friday, Nov. 2 2012 5:23 p.m. MDT

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Roland Kayser
Cottonwood Heights, UT

Contrary to the assertion in the letter, there is no move to replace the dollar as the world's reserve currency. It was thought that at some point the Euro could be a challenger, but that is obviously no longer in the cards. The Euro may not even be around for much longer. There is no other currency that could even remotely come close to replacing he U.S. dollar.

Twin Lights
Louisville, KY

Roland,

I agree with you. For now. But an eventual challenger is inevitable. Irrespective of this letter (which I really could not follow all that well) our long term debt policies should not suppose that we will forever have that status.

Roland Kayser
Cottonwood Heights, UT

To Twin Lights: Define "eventual". I think we're looking at a minimum of at least twenty years before China's currency could present a challenge. I agree with you on the need to get our long-term debt under control. As far as currency values are concerned, however, the trade deficit is more important that the budget deficit. We have work to do on both.

Eric Samuelsen
Provo, UT

You do know that inflation right now is essentially nil, right?

SEY
Sandy, UT

This letter is a bit confusing. There are two types of inflation: 1) price inflation and 2) inflation of the money supply. There's no doubt the supply of money has inflated over the years, especially what is called M2 money. The Federal Reserve stopped publishing M3 rates after 2006 for reasons known only to them. As for price inflation, the method of calculation has everything to do with whether or not it is under control or not.

Price inflation is something politicians or Federal Reserve chairmen want to appear favorable when they're in charge. Consequently, the methodology for calculating price inflation has been modified to either a) give a more accurate understanding of the inflation rate or b)to obfuscate it.

Shadow Statistics website has tried to clarify what the actual price inflation rate is today by using methodology in effect in both 1980 and 1990. Based on 1980 methodology, our current price inflation rate is about 9%. The 1990-based rate is about 5.5%. So is inflation rate essentially nil now? Yes, in the minds of central bankers. The rest of us who live in the real world know better.

Twin Lights
Louisville, KY

Roland,

If I knew the timeline I could retire on my own island chain. But more seriously I think that the Euro is not necessarily down for the count and predicting China to be too far back in the pack to matter is a losing bet.

Sure. This won't be in the next 5 years. But 10 or 15 is possible. I think it depends on if and how fast we get our own house in order, how fast the Europeans do the same, and when China will actually adopt the rule of law. But either way we need to start now thinking of how to deal with our debt so that we don't lose reserve status (with the resulting increase in costs). We have a bad habit of kicking the can down the road. This is not a nice road.

I agree wholeheartedly reference the importance of the trade deficit. I have never understood why this is ignored.

Eric,

Yes, for now. But I think we have seeds in the ground and water on the way. We either start dealing with it now or have 10 times the problem later. You know I am a worrier . . .

A view from the Beltway
Purcellville, VA

I don't know what they taught you when you were taking macro-economics, but when I took macro-economics, the formula for determining the money supply was P= mV/Q (where P= general price level, m=the supply of money, V= the velocity of money and Q = the supply of goods and services. Since the Fed cannot control Q (which fortunately changes slowly) or V (which changes quickly) the only thing the Fed can do is change m to keep P as stable as possible. Since decreases in P or even a completely stable P have a nasty habit of causing low margin businesses to go bankrupt, the Fed has set an unofficial goal of 2-3% inflation.

In spite of many people's fears there is little reason to believe that the Fed has changed that basic policy, when the Fed announces that they are raising the money supply, it simply means that they are adjusting for fewer business transactions. Sorry to ruin the fun of a good conspiracy theory, but what you are seeing is simply math at work.

SEY
Sandy, UT

A view from the Beltway provides us with a glimpse into the Keynesian mindset that is determined to drive our economy into the ground. The obsession with maintaining constant price levels through manipulation of the money supply and artificially low interest rates creates the very conditions causing our current malaise. Heaven forbid that low-performing businesses be forced to reconsider their positions! We must pull out all the stops to prevent obsolete or undeserving businesses from closing down! That's the very mentality that supports "too big to fail" and "too big to jail."

The concept of "creative destruction" is antithetical to Keynesians, even though it's the one thing that could bring us out of the doldrums and create productive and profitable businesses. Keynesian doctrine is the source of "zombie" businesses that deserve to put out of their misery.

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