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The Forum > General Discussion > GFC.Why it had to happen.

GFC.Why it had to happen.

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The US $ has lost 96% of it's value since 1913.Our $ has suffered a similar fate.$1.00 US today will only buy 4c worth of goods in 1913.To depreciate a currency by half,you have to double the money supply above pop growth and increases in GDP.The US $ has been depreciated by a factor of 25 times or 2500% over 96yrs.This means that the money supply has been increased by an average of 26% pa but the average inflation rate is only 3.4%.It seemed to me that the maths did not add up until I realised that inflation like interest is compounding.

Do this simple exercise on your calculator.All you need is 'K' or a constant.The compound interest formula simplified.1.034 represents as a decimal the original amount you start with,plus the increase in inflation of 3.4%. Put 1.034 in press X twice,then press the = sign for each yr.As you continue to press =,you will begin to see the expodential growth of inflation.After 70 yrs we have a multiplier of 10,after 96 yrs it grows expodentially to 25.So after 96yrs yrs with just an inflation rate of 3.4% we get a compounded real rate of 100% pa increase in money supply above pop increase and GDP.We are trying to solve the problem by increasing the money supply.

So now we have a situation of over valued assets,low productivity in terms of a manufacturing base and enormous debt.

This crisis is far from being over,and the size of Govt must diminish comeasurate with the real economy.So Kevin had better stop borrowing and reduce the size of Govt,since the future growth won't be there to cover the interest bill.
Posted by Arjay, Tuesday, 28 July 2009 9:23:35 PM
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Look on the bright side Arjay.

If you had a dollar in 1913 and invested it in 4% government bonds you'd have $45 today, and be $20 ahead of the game.

All is relative. Nothing is absolute.

And this sentence of yours refuses every attempt at translation.

>>So after 96yrs yrs with just an inflation rate of 3.4% we get a compounded real rate of 100% pa increase in money supply above pop increase and GDP.<<

It is not easy to find GDP-per-capita figures for 1913, but as recently as 1960, Australia's per head GDP was $1,828

http://www.nationmaster.com/red/graph/eco_gdp_percap-economy-gdp-per-capita&date=1960

And the most recent - from the same source - was 2006, when Australia's GDP-per-capita was $37,434

http://www.nationmaster.com/red/graph/eco_gdp_percap-economy-gdp-per-capita&date=2006

That, on its own, represents an increase of 2000%

You can get out that trusty calculator and do the numbers yourself, Arjay, you don't have to take my word for it.

If GDP since 1960 had increased at the same rate as inflation, 3.4%, it would now stand at a mere $9,408.

How pathetic would that be? We'd be down there, behind Croatia and just ahead of Poland.

Instead, our productivity has raced ahead of inflation. Not just by a little, but by a massive amount

A 6.4% GDP increase, in fact, compared to 3.4% inflation.

The increase that you read in the paper isn't the 6.4%, of course, because they always net out the inflation figure. As, of course, you would, in order to get appropriately comparative figures.

I hope you are taking notes, by the way. This is all valuable stuff, and I'm not charging you a cent.

And congratulations are in order. You now understand the miracle of compound interest.

>>It seemed to me that the maths did not add up until I realised that inflation like interest is compounding.<<

We'll make a financial commentator out of you yet, just wait and see.
Posted by Pericles, Tuesday, 28 July 2009 11:30:13 PM
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"So this sentence of yours refuses every attempt at translation."Pericles after 96 yrs the multiplier goes from 25 X to 26 X in the 97th yr, the compounded inflation rate increases thus by 100% in just 1 yr not by 3.4%.We are throwing money at the problem like there is no tomorrow.There will be further collapses because we are just inflating the bubble to delay the inevitable.

Quoting GDP per capita from different eras means little,since a fair % of that GDP from minerals and mining goes OS today.Aust GDP per capita was $37,500.00 This means that ans average family of 4 should have an income of $150,000.00 This is far from the truth.The average family would earn less than half this.So where did the rest go? GNP or Gross National Product gives us a better indication of we actually get to keep as a nation.Our Govt just gets the taxes/royalities from the resources,much of which are wasted.

We have to reduce the size of govt and a good place to start would be the abolition of the States.
Posted by Arjay, Wednesday, 29 July 2009 6:59:51 PM
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Ok, let's do it your way Arjay.

>>GNP or Gross National Product gives us a better indication of we actually get to keep as a nation.<<

And that number is...

http://www.finfacts.com/biz10/globalworldincomepercapita.htm

Well, well Arjay. $35,990 in 2006.

You may be confusing yourself with all this terminology, Arjay.

GDP is in fact the number that is closest to an "indication of we actually get to keep as a nation", whatever that might mean.

Best swot up a little, I think.

Here's Wikipedia:

http://en.wikipedia.org/wiki/Gross_domestic_product

Don't worry about the title, it does include a comparison of GDP and GNP.

>>We have to reduce the size of govt and a good place to start would be the abolition of the States.<<

That's a Wookiee.

http://en.wikipedia.org/wiki/Chewbacca_defense
Posted by Pericles, Wednesday, 29 July 2009 7:54:39 PM
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You guys have too much time on your hands.

I cant follow any of this. 'The US $ has lost 96% of it's value since 1913'. C'mon man! Stick your head out of the accounting and Economics books and have a look at the much nicer standard of living we have compared to 1913.

Look around Australia and see where else in the world you would want to live. People are in huge debt blah blah blah. There is lots of fat to be trimmed in most households. You could have 80% unemployment for 3 years and people still wouldn't be starving.

They'd probably end up cleaning out the 3 months food in tin cans in their pantry to start with.
Posted by Houellebecq, Thursday, 30 July 2009 9:29:59 AM
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Houellebecq,to simplify it for you,inflation is compounding like compounding interest.If you have 10% inflation on $1.00 the amount of money in the economy is $1.10.In the second yr it is 10% 0f $1.10 increase or $1.21 etc So just a very low rate of inflation of 3.5% has a big impact after 70 yrs since it feeds off itself.

After 96 yrs we get a multiplier of 25 times the original money which we started with,thus the currency is devalued by 25 times.Divide 96c by 4c and you get 25.They don't teach maths very well at primary school these days,that is one of the reasons that people don't understand the function of money.

Pericles,when John Howard lost the last election we had a GDP of $1 trillion,divide that by our pop and the GDP per capita is $49,000.00 or almost $200,000.00 per family of 4.Where did the rest of the wealth go if the averge wage now per couple is less than half this.The averge is not a good indicator,we should be looking at the median wage since the really high salaries are distorting the reality.

Did you see Ben Bernanke squirm when he could not explain where the half trillion $ they loaned out went to? see http://www.youtube.com/watch?v=2_VCy0lMU1g
Alan Grayson is a new democratic Congressman and has not been corrupted by the system.He prosecuted Haliburton for supplying the US defence forces with faulty equipment.The majority if US people now want the US Fed audited and ended.64% of congress now support an audit.There are big changes afoot in the US,and hopefully we will see a better monetary system evolve from the ashes.
Posted by Arjay, Thursday, 30 July 2009 10:54:34 PM
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