Asset value reset?

[farming101]

Thanks for responding, I was hoping you would share your valued view points. Lots to digest.
When I refer to abundant energy resources etc, I am more referring to them from a price perspective, than in the literal sense. Right now with Western Canadian oil in the single digits, it is essentially free relative to the amount of work it can do, even at hundreds of dollars per barrel, the work it can do compared to what that work would cost at any other time in history still makes it almost free.
What low prices of commodities, and energy( even well below COP) tells me, is that we are no where near our potential, due to consumers or businesses, even governments( can't believe I said that) not having the means to put those resources to use. That didn't come across the way I intend it to, does it make sense at all?

Reasonably priced raw commodities and energy are usually necessary for a nation to support a complex economy. The more expensive and unreliable their supply the less likely it is that there will be good stability in the economy. For a population to spend all their income just to stay housed clothed and fed does not fit with the vast majority of national economies today. (Doesn't say much for grain ever being worth a lot does it?)
On the other hand, when such a widely valued commodity such as energy or grain is so cheap that continued production is in jeopardy there is a big problem. ( See Venezuela where fuel is 10 liters for one US cent and production is about 17% of 1998 levels)
There was also this famous saying: Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country-WILLIAM JENNINGS BRYAN, so maybe there is hope that ag will be appreciated again.

Anyway, my point is that cheap commodities and energy don't in themselves make for prosperous people. Right now the incentive rather than the means is lacking.

[farming101]

No. Otherwise, Zimbabwe would be the richest nation on earth.

Credit with what? An empty promise to pay at a later date? That is not credit.

Credit is when I lend you the use of a tangible capital good for a period of time. You employ the capital good to produce items for which there is actual consumer demand. At the end of the period, the ownership of the capital good returns to me with interest generated from consumer sales.

Paper promises should not to be equated with a factory.

If you have the time could you give a detailed example.

Credit issued by a nation is backed by the nation and the sum total of all of its activity, assets and even intrinsic value.

It is no different with a bond backed by gold. No one ever sees the gold or even really knows if it is actually in the vaults of the nation or not. They have confidence that it is so they buy the bond and trust that the full amount plus interest will be returned to them in the future.

It is an absolute convenience and a way to standardize the business of the nation to issue credit in the currency of the nation. Only when a nation has absolute control of the standard of accepted currency do you have control of the economy. No currency, no control. It could be tiddly-winks if you can make them free from forgery

[AlbertaFarmer5]

Reasonably priced raw commodities and energy are usually necessary for a nation to support a complex economy. The more expensive and unreliable their supply the less likely it is that there will be good stability in the economy. For a population to spend all their income just to stay housed clothed and fed does not fit with the vast majority of national economies today. (Doesn't say much for grain ever being worth a lot does it?)
On the other hand, when such a widely valued commodity such as energy or grain is so cheap that continued production is in jeopardy there is a big problem. ( See Venezuela where fuel is 10 liters for one US cent and production is about 17% of 1998 levels)
There was also this famous saying: Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country-WILLIAM JENNINGS BRYAN, so maybe there is hope that ag will be appreciated again.

Anyway, my point is that cheap commodities and energy don't in themselves make for prosperous people. Right now the incentive rather than the means is lacking.

Thanks you explained that better than my attempt.

What I am really trying to say, is that we could easily become similar to Venezuala, being rich in energy, resources, agriculture, forest products, educated and skilled people, but in abject poverty due to all of our people being unemployed, and government taking all of the income we do make, so no one can afford the products no matter how cheap, in a vicious circle. Yet taking a big picture view, it is inconceivable, that we would end up in that state only due to economic constraints, rather than physical. Even if we were to be completely cut off from exports or imports, we should be the richest nation on the earth(in terms of standard of living), all we need to do is develop the assets we already have.

And technically, it doesn't require money, it requires labour and knowledge, we can't throw dollar bills ( or loonies) into a copper deposit, or an oil formation and expect finished goods to come out. Those laborers, and technical experts ultimately need to be compensated by some means that makes it worth their while, not suggesting we should end up equal to the former eastern block countries where government met only those workers basic needs, and nothing more was available, and no incentive was provided to go above and beyond the bare minimum.
But not letting them get to work to develop the resource because we can't pay them in a specific currency makes even less sense.

[AlbertaFarmer5]

If you have the time could you give a detailed example.

Credit issued by a nation is backed by the nation and the sum total of all of its activity, assets and even intrinsic value.

It is no different with a bond backed by gold. No one ever sees the gold or even really knows if it is actually in the vaults of the nation or not. They have confidence that it is so they buy the bond and trust that the full amount plus interest will be returned to them in the future.

It is an absolute convenience and a way to standardize the business of the nation to issue credit in the currency of the nation. Only when a nation has absolute control of the standard of accepted currency do you have control of the economy. No currency, no control. It could be tiddly-winks if you can make them free from forgery

I am of the camp that thinks that as long as you can maintain confidence in your currency, it doesn't matter what, if anything it is backed by. If your economy is growing, and productivity is increasing, there is no reason why currency cannot be increased out of thin air, to match the increased value of the

activity, assets, and intrinsic value.

The problem comes when we attempt to increase the supply of currency as a band aid for our mismanagement of those same assets and activity, which leads to loss of confidence, requiring printing of more currency.

Alternately, if nations agreed to collectively print our way out of the current debt deflation, and no single currency declined relative to another, could it be done without destroying confidence, or leading to hyper inflation? If there is no better alternative currency, could it be done in an organized manner? Yes, it will destroy the savers, and the pensions, but that seems like the inevitable outcome either way?

[farming101]

I am of the camp that thinks that as long as you can maintain confidence in your currency, it doesn't matter what, if anything it is backed by. If your economy is growing, and productivity is increasing, there is no reason why currency cannot be increased out of thin air, to match the increased value of the

The problem comes when we attempt to increase the supply of currency as a band aid for our mismanagement of those same assets and activity, which leads to loss of confidence, requiring printing of more currency.

Alternately, if nations agreed to collectively print our way out of the current debt deflation, and no single currency declined relative to another, could it be done without destroying confidence, or leading to hyper inflation? If there is no better alternative currency, could it be done in an organized manner? Yes, it will destroy the savers, and the pensions, but that seems like the inevitable outcome either way?

It may be too simple but it seems likely that the sum total of all economic activity including the mismanagement, corruption and outright theft somehow ends up being reflected in the GDP. So, if GDP starts to shrink and the government is still sending out money with wild abandon things could go south in a hurry. Probably not if only one sector was affected. That could be put on life support by the rest of the economy.
I think if there is a worldwide effort by the world's economies that have influence it could be done. Inflation takes off when there is a lot of money chasing too few goods. It could happen under the scenario we are facing now.
Right now most are wanting to be made whole, receive assistance or relief with money. So money is still in favor. I think it will be a shortage of goods that could trigger the greater problem.

[sawfly1]

I know this discussion is not my
Field of expertise. If I have any fields
Of expertise.
I see the point, that full employment
May not be necessary. Automation etc. But what is
The point of delivering 1/2 of the proceeds to
The Top 1/10 of one percent .
Don't they own 1/2 the worlds wealth
Already.
Why not spread the tech benefit around.
Because who will buy the stuff the robots
Are making
And really a lot of things govt.s do actually funnel
Money to the 1/10 %. And Social programs are huge,
I agree and there is a reckoning needed there too

It is not the politics of socialism that Causes problems
You have to have private incentives,
I agree .
Venezuela and Cuba are not models for anything

The problem is if you are living beyond your means.
No matter what system you are under.

Then on to Austrian economics theory that we should
Scrap what we have , and move to the private health care
System that costs 40% more.
I know taxes are bad , but if you pay someone else
40% , more for the same service
Is that not a tax too.

[Austrian Economics]

If you have the time could you give a detailed example.

Credit issued by a nation is backed by the nation and the sum total of all of its activity, assets and even intrinsic value.

It is no different with a bond backed by gold. No one ever sees the gold or even really knows if it is actually in the vaults of the nation or not. They have confidence that it is so they buy the bond and trust that the full amount plus interest will be returned to them in the future.

It is an absolute convenience and a way to standardize the business of the nation to issue credit in the currency of the nation. Only when a nation has absolute control of the standard of accepted currency do you have control of the economy. No currency, no control. It could be tiddly-winks if you can make them free from forgery

If the sum total of the value of a nation's assets are falling, then so must the amount of credit that a nation can issue. You can't get blood out of a stone.

If you have a gold standard but no gold in the vaults, you don't have a gold standard.

You don't need national control of money. Politicians like central banks so they can drive down the rate of interest to levels that a free market in credit would never allow, and hand out free stuff at what appears to be a bargain in financing costs. As the events of this month have shown us, free stuff is not free.

[farming101]

If the sum total of the value of a nation's assets are falling, then so must the amount of credit that a nation can issue. You can't get blood out of a stone.

If you have a gold standard but no gold in the vaults, you don't have a gold standard.

You don't need national control of money. Politicians like central banks so they can drive down the rate of interest to levels that a free market in credit would never allow, and hand out free stuff at what appears to be a bargain in financing costs. As the events of this month have shown us, free stuff is not free.

2008 Canada: GDP down 11.5% and the central bank balance sheet expanded by 25 billion or so

Counterfeiters are still tracked down, government wants and needs to control the money

[AlbertaFarmer5]

It may be too simple but it seems likely that the sum total of all economic activity including the mismanagement, corruption and outright theft somehow ends up being reflected in the GDP. So, if GDP starts to shrink and the government is still sending out money with wild abandon things could go south in a hurry. Probably not if only one sector was affected. That could be put on life support by the rest of the economy.
I think if there is a worldwide effort by the world's economies that have influence it could be done. Inflation takes off when there is a lot of money chasing too few goods. It could happen under the scenario we are facing now.
Right now most are wanting to be made whole, receive assistance or relief with money. So money is still in favor. I think it will be a shortage of goods that could trigger the greater problem.

As a short sighted farmer, who tends to hoard my produce, and prepurchase my inputs(even if that has been the wrong approach the past few years...), with land debt, I am always cheering on inflation, while fearing/planning for deflation.

Not sure what goods are going to be in short supply, unless this stretches out for 6 months or more. But I suspect evidence will point to the futility of that long before that happens. I am concerned that the current crash in oil, and many other commodities will lead the inevitable overshoot, and provide the path to unprecedented prices eventually. I also have little faith in governments/central banks to turn down the fire hose of stimulus soon enough, but whether those dollars find their way into consumer products( which can be ramped up on a dime), or investments, real estate, or tangibles is harder to predict.

[AlbertaFarmer5]

I know this discussion is not my
Field of expertise. If I have any fields
Of expertise.
I see the point, that full employment
May not be necessary. Automation etc. But what is
The point of delivering 1/2 of the proceeds to
The Top 1/10 of one percent .
Don't they own 1/2 the worlds wealth
Already.
Why not spread the tech benefit around.
Because who will buy the stuff the robots
Are making
And really a lot of things govt.s do actually funnel
Money to the 1/10 %. And Social programs are huge,
I agree and there is a reckoning needed there too

It is not the politics of socialism that Causes problems
You have to have private incentives,
I agree .
Venezuela and Cuba are not models for anything

The problem is if you are living beyond your means.
No matter what system you are under.

Then on to Austrian economics theory that we should
Scrap what we have , and move to the private health care
System that costs 40% more.
I know taxes are bad , but if you pay someone else
40% , more for the same service
Is that not a tax too.

All valid points.

As for concentration of wealth, I'm a proponent of offering equal opportunity to everyone to achieve whatever they are capable of within their lifetime.
Best way I can see to accomplish that, is to start everyone from the same level, and provide them with unlimited opportunity, whether they chose to take it or not.

Don't use regressive taxes to punish someone for working harder, and trying to save to start a business venture. Just look at the advantages of incorporating as a farmer, and the disadvantage that puts on someone trying to start out, without the critical mass to justify the accounting/legal fees, let alone the working stiff paying taxes on taxes, then trying to use the after tax dollars to fund a venture.

Probably most important to avoid monopolies and concentration of wealth, and a concept not very popular amongst my fellow farmers, Inheritance/death taxes, our kids are free to build their own fortune if we taught them the right values.

Universal access to education(which doesn't necessarily mean free, it may mean borrowing against future earning the degree will result in, regardless of socio-economic status) to anyone who is capable, and understands the job prospects ( or business prospects)(in other words, not subsidizing basket weaving degrees),

Removing the barriers to entry in business, lets face it, the burden of most environmental, safety, etc regulations favour the established large company over the smaller start up.

As for spreading the benefits around, it really comes down the the equal distribution of poverty, or the unequal distribution of wealth. Is society better or worse off having incentivized Bill Gates, Henry Ford, Mike Lazaridis, Steve Jobs, John Rockfeller, Thomas Edison etc to innovate and create wealth, while getting rich along the way? Would we be where we are today, if not for the massive incentives that motivated those folks?


As for living beyond ones means, how does one define that? If our fellow Canadians can't afford to put made in Canada gas in their car to go the the grocery store to buy made in Canada food that they also can afford because they have no job because we have not enough capital to develop those resources and put them to work doing it, then they are living beyond their means even though they are in abject poverty ?

When there is a surplus of energy, and manufactured products, and food and housing etc etc because no one can afford to buy it due to shortage of what we call currency, so we have to use debt to buy the very products we produce in our own backyard, is it living beyond our means, or something wrong with the concept we call currency? If we automated every industry and no longer needed any workers, we would all be living beyond our means with no income, in an age of plenty.

Living beyond ones means when one, or one's society doesn't produce anything productive is a big problem, and highly unsustainable. But living beyond ones means when one's society is so productive per man hour, that everyone's contribution is no longer required, is completely different, isn't it?

Way back when learning Calculus, and the theory of limits of a function as a variable approaches zero, or infinity, it occurred to me that the concept applies to many situations in life.
Just because we are somewhere between zero and infinite automation(for example), it is still useful to ask what happens as automation approaches either extreme, to get a perspective on where we are right now.

And sorry, I didn't respond as poetically and elegantly ( not to mention eminently readable) as your posts are written, I assume that is iambic pentameter, not sure, poetry was never my strong suit?