Tapering called off

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Kshartle
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Re: Tapering called off

Post by Kshartle » Thu Sep 19, 2013 3:33 pm

MediumTex wrote:
Kshartle wrote:
MediumTex wrote: Which country do you think will be the first to return to a gold standard?

When do you think this will occur?
I really don't know. I'm not even an advocate of the gold standard.

Perhaps China will peg the RNB sometime in the next few decades.

So many factors, I can't even be sure it'll ever happen. It's more likely some government might allow people to use gold without taxing them on it, or just not enforce the rules.
Why are you not an advocate of returning to the gold standard?

According to your worldview (as I understand it) that would seem like an obvious cure for many of the problems we are facing.
I advocate no use of force. Therefore, no standard. The standard should be only what two individuals agree on. I'm confident that together people all over the world will discover what works best as money. I'm certain it won't paper backed by nothing. That is laughable. It might be gold, might not.

I like the following little chart from page 70 of Browne's book yada yada:

Advantages of Gold and silver as money:                            Advantages of paper as money:
1. Durable                                                                              1.
2. Divisible                                                                            2.
3. Convenient                                                                        3.
4. Consistent                                                                        4.
5. Accepted Value                                                                  5.
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 3:35 pm

MediumTex wrote:
Kshartle wrote: All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.
Are you saying that wages and prices didn't drop during the 1930s?
They didn't drop enough to clear the market, because the government did everything in its power to stop them from dropping, including throwing a tailor into jail for charging "too little" to press a pair of pants:

'A more dramatic jailing was that of 49-year-old Jacob Maged of Jersey City, New Jersey. Maged had been pressing pants for 22 years, and his low prices and quality work had kept him competitive with larger tailor shops in the better parts of town. The NRA Cleaners and Dyers Code demanded that he charge 40 cents to press a suit. Maged, despite repeated warnings, insisted on charging his customers only 35 cents. “You can’t tell me how to run my business,”? he insisted.

Not only was Maged thrown in jail, he was also slapped with a $100 fine. “We think that this is the only way to enforce the NRA,”? said Abraham Traube, a director of the NRA code authority for the Cleaners and Dyers Board of Trade. “If we did the same thing in New York City we would soon get the whole industry in line.”? Many editorialists, however, sided with Maged. “It didn’t matter,”? the Washington Post said, “if Maged had to charge less than the bright and shiny tailor shop up the street if he wanted to continue to exist. The law said he couldn’t.”? “For a parallel,”? the New York Herald Tribune said, “it is necessary to go to the Fascist or Communist states of Europe.”?

Read more: http://www.fee.org/the_freeman/detail/t ... z2fNBQu8Pd
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 3:35 pm

Libertarian666 wrote:
moda0306 wrote:
Libertarian666 wrote: One more time: No, limiting debt to the amount of gold in existences would NOT hamper investment. The total amount of goods in existence is NOT increased by printing money. All printing money can do is to REARRANGE existing goods. Thus, there is no increase in REAL investment available by printing money.

Of course NOMINAL investment can be increased by printing money; that is one of the effects of the "money illusion". But real investment cannot be increased other than by saving (spending less than one earns).

This is elementary, people.
Generally, entrepreneurs can't build a widget factory unless there is debt to help them pay for the cost of it. Lack of credit prevents investment from occurring that otherwise could have.  If I have a great idea, but instead of our economy being limited by productive potential it's limited by not enough quantity of medium of exchange, we have a situation where we're far less productive than we otherwise could be.

This, my friend, is elementary.  Not only is an economy's growth limited by insufficient monetary expansion, but it's actually a policy decision.  As some of the other threads have shown, gold was a store of value initially used to help governments, not individuals.

I'm not saying that simply printing gobs of money will miraculously make our economy a utopia.  But it's monetizing an economy in the first place that leaves us exposed to the Mexican standoffs that we call recessions.  Having a fixed money supply amidst a growing economy is a recipe for disaster.  We might as well use bartar at that point.
This is completely wrong. In a free market economy with gold money, whoever has gold can lend it if he wishes to do so, which he is likely to do if he thinks the reward outweigs the risk. Doubling the amount of "money" by printing an additional amount of warehouse receipts equal to the actual monetary gold will not increase the amount of wealth; all it will do is rearrange the wealth in favor of the printers.

So if someone wants to build a widget factory and they can't afford the equipment, etc., they have two choices:
1. Take an equity partner who will accept part of the profit and part of the loss in exchange for supplying money; or
2. Take on debt, agreeing to pay the money back regardless of the profit or loss, presumably from other sources of wealth if there is a loss.

Neither of these is helped by money printing... other than by allowing the parties to the transaction to extract wealth from others via dilution of the money due to the printing. But of course in that case they don't even need to build the factory at all; they can just live off the extracted wealth, as the government does.

Again, this is elementary logic, not even moderately complex economic theory. You can't get something for nothing unless someone else gets nothing for something.
Well good thing that people aren't getting "something for nothing," because "monetizing the debt" trades "something for something of equal value."  No wonder we've seen none of the economic indicators Austrians have been predicting for decades.  They forget that this is a trade of financial assets, not a helecopter drop, and refuse to be reminded of it.

So "printing money" should probably be called "printing some money and tearing up other money, all of which is essentially government-issued fiat purchasing power."  Sounds a lot less scary if you actually word it correctly.  You make it sound like what they're doing is a double assault... printing money AND artificially lowering rates.... when it's really all-the-more meaningless because they buy those bonds that move rates.


But really, back to the subject of a fixed reserve system.  It's bound to fail... it's bound to induce deflation (which is giving holders of gold a positive real return while taking no risk)... it's therefore bound to limit economic growth (people have to work extra hard for funding, whether it's an equity or debt position).  And in the end, if you think about it, what you're arguing is that eventually an ounce of gold, given enough economic growth, could be enough to purchase an entire beach-front home, or space-station, or island resort, simply because the growth you said would still occur under a gold based monetary system would lead to the same amount of gold purchasing more and more goods.

And let's not forget this idea of a metal-based fixed monetary system is a statist invention, not something that arose around free exchange.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:37 pm

Kshartle wrote:
MediumTex wrote:
Kshartle wrote: All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.
Are you saying that wages and prices didn't drop during the 1930s?
Some prices dropped. Many were prevented from dropping by law. I won't bother you with links, if you're interested to learn about how the recession was turned into a depression that information is all out there.
I think that a LOT of prices dropped.  Even where there were price controls in place, if no one could afford to buy something at the regulated price, that would have felt exactly like a price drop to someone who was selling it.

It seems to me that part of the problem in the 1930s was that asset prices were mostly allowed to drop...and drop...and drop.  Of course, this set in motion a wave of defaults on loans that were initially used to purchase these assets, which caused banks to fail, which led to a shortage of currency in circulation.

The thing I've never been able to figure out about the 1930s, though, is where all of the entrepreneurs were who were supposed to come into the market and buy assets at depressed prices and then allocate them more efficiently.  Ultimately, it seems like it was only when the government introduced a wave of demand into the economy when it needed to buy guns and jeeps and airplanes in 1941 that these entrepreneurs came out of the woodwork.

Why hadn't they come forward earlier?

I don't know what the cure is exactly, but it seems to me that a deflationary spiral can just continue spiraling until literally every single outstanding loan has been defaulted on, unemployment is incredibly high and a vast amount of productive capacity is sitting idle.

The problem, of course, is that sometimes while you are waiting for the entrepreneurs to gallop to the rescue John Galt-style, a revolution breaks out and they are forced to flee the country with whatever capital they have left, which obviously makes things even worse for the economic refugees who can't afford to leave.

I don't have the answer to how this type of situation should be addressed, but I think that the Austrian "let the market clear" narrative leaves out a lot of ugly non-economic stuff that can happen along the way to the "market clearing."
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 3:40 pm

Kshartle wrote:To quote Browne from page 34 of yada yada - "3. That brings us to the most subtle method (he's referring to the government financing his purchases). It is inflation. The government, in effect, merely prints extra money substitutes and spends them for whatever it wants. We have seen, however, that these money substitutes only take on purchasing power at the expense of the other money substitutes which are thereby reduced in purchasing power. Prices are higher than they otherwise would have been"
You probably aren't aware of this, but Browne evolved his understanding of inflation over time — particularly since that book was written.

Here's how Harry Browne explained it on his investment radio show (recorded on 12/12/04):
Harry Browne: Inflation results from the supply of money increasing faster than the demand for money. Now, mostly what we hear though is that inflation results from the increase supply of money. In other words, an increase in the supply of money is "A" and inflation is "B". When you get "A" then "B" follows. But what happens is periods like the past few years when the money supply has been increasing at a fairly rapid rate, and yet, we do not see any appreciable price inflation whatsoever. So, what we're seeing here is that the money supply has increased, but the consequence has not ensued. And that's because of two things. One of which is timing, and the other is that other factors can be introduced. So, what we do mean to say, really, is that an increase in the supply of money makes the inflation rate greater than it would be without that increase in the supply of money. We also take into account the demand for money — the desire of individuals to hold money in their pocket, to hang on to money, rather than spending, saving, or investing it. And if that is increasing as fast as the supply of money, then there is no increase in the inflation rate. So, all other things being equal, the increase in the supply of money leads to an increase in the price inflation rate. But, there are other things that have to be considered and that case, mostly the demand for money. These other factors always play a part, but we can't always see them.

Source: https://web.archive.org/web/20160324133 ... -12-12.mp3 (skip to 13:20)
And I suspect he would have changed his explanation even more after 2008 — as many economists did — when the entire world got to see what happens when you spike M0 through the roof and take away assets of equal value.... Barely anything except a few FIRE assets that were bid up.
Last edited by Gumby on Thu Sep 19, 2013 3:46 pm, edited 1 time in total.
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Re: Tapering called off

Post by moda0306 » Thu Sep 19, 2013 3:43 pm

Kshartle wrote:
MediumTex wrote:
Kshartle wrote: I really don't know. I'm not even an advocate of the gold standard.

Perhaps China will peg the RNB sometime in the next few decades.

So many factors, I can't even be sure it'll ever happen. It's more likely some government might allow people to use gold without taxing them on it, or just not enforce the rules.
Why are you not an advocate of returning to the gold standard?

According to your worldview (as I understand it) that would seem like an obvious cure for many of the problems we are facing.
I advocate no use of force. Therefore, no standard. The standard should be only what two individuals agree on. I'm confident that together people all over the world will discover what works best as money. I'm certain it won't paper backed by nothing. That is laughable. It might be gold, might not.

I like the following little chart from page 70 of Browne's book yada yada:

Advantages of Gold and silver as money:                            Advantages of paper as money:
1. Durable                                                                              1.
2. Divisible                                                                            2.
3. Convenient                                                                        3.
4. Consistent                                                                        4.
5. Accepted Value                                                                  5.
Well I love Browne, but let's analyze his list.

1. I guess my bank account isn't durable in a traditional sense
2. My fiat money is divisible.
3. My fiat money is far more convenient than carrying around a metal.
4. My fiat money is the world's reserve currency... not sure if this counts as "consistent" or not.
5. My fiat money has a very accepted value.  In fact, the markets around my money are unbelievably dynamic and efficient and people have tons of other options of stores of value to use.

So yeah it seems to me he was getting a little hyperbolic in bringing his political opinions into his writings here.

Let's also not forget that people can choose to hold gold/silver as a store of value and index their contracts to them or CPI or whatever they wish, but usually choose not to.  So that indicates to me society sees huge advantages not only to paper money as a medium of exchange in the short term, but a store of value and unit of account in the longer term.
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 3:48 pm

MediumTex wrote:
Kshartle wrote:
MediumTex wrote: Are you saying that wages and prices didn't drop during the 1930s?
Some prices dropped. Many were prevented from dropping by law. I won't bother you with links, if you're interested to learn about how the recession was turned into a depression that information is all out there.
I think that a LOT of prices dropped.  Even where there were price controls in place, if no one could afford to buy something at the regulated price, that would have felt exactly like a price drop to someone who was selling it.

It seems to me that part of the problem in the 1930s was that asset prices were mostly allowed to drop...and drop...and drop.  Of course, this set in motion a wave of defaults on loans that were initially used to purchase these assets, which caused banks to fail, which led to a shortage of currency in circulation.

The thing I've never been able to figure out about the 1930s, though, is where all of the entrepreneurs were who were supposed to come into the market and buy assets at depressed prices and then allocate them more efficiently.  Ultimately, it seems like it was only when the government introduced a wave of demand into the economy when it needed to buy guns and jeeps and airplanes in 1941 that these entrepreneurs came out of the woodwork.

Why hadn't they come forward earlier?


I don't know what the cure is exactly, but it seems to me that a deflationary spiral can just continue spiraling until literally every single outstanding loan has been defaulted on, unemployment is incredibly high and a vast amount of productive capacity is sitting idle.

The problem, of course, is that sometimes while you are waiting for the entrepreneurs to gallop to the rescue John Galt-style, a revolution breaks out and they are forced to flee the country with whatever capital they have left, which obviously makes things even worse for the economic refugees who can't afford to leave.

I don't have the answer to how this type of situation should be addressed, but I think that the Austrian "let the market clear" narrative leaves out a lot of ugly non-economic stuff that can happen along the way to the "market clearing."
The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:49 pm

Kshartle wrote: I advocate no use of force. Therefore, no standard. The standard should be only what two individuals agree on. I'm confident that together people all over the world will discover what works best as money. I'm certain it won't paper backed by nothing. That is laughable. It might be gold, might not.

I like the following little chart from page 70 of Browne's book yada yada:

Advantages of Gold and silver as money:                            Advantages of paper as money:
1. Durable                                                                              1.
2. Divisible                                                                            2.
3. Convenient                                                                        3.
4. Consistent                                                                        4.
5. Accepted Value                                                                  5.
Here is an interesting mental exercise:

Let's say that you were the chief on an island and you needed to set up a currency system to facilitate trade among your subjects (let's assume you have already decided you wanted to do this--you can't say "I wouldn't do that as island chief").

You have vast holdings of commodities and finished products and you are trying to figure out how to convert some of that property into a currency that will facilitate trade.  You know of two other islands that you could trade with for possible acceptable forms of currency.

The first island has vast supplies of gold that they would love to sell to you in exchange for some of your commodities and finished products.  The gold you could get from this island would be plenty to seed the currency system on your island and make the economy run more efficiently.

The second island has vast supplies of guns and paper that they would love to sell you in exchange for some of your commodities and finished products.  To sweeten the deal, they would even print up "island chief notes" in various denominations for your use as your island's currency.  If you selected this option, you might find that once it was in place other islands would also be happy to accept your island chief notes in exchange for their goods and services if you provided a guarantee that you would use your guns to protect their islands as well from foreign aggressors. 

You think about the two islands and the pros and cons of each transaction.  Which one would you choose if you only had those two choices?

Consider that if you took the guns and paper you would have the ability to provide strong protection of your island against any potential foreign aggressor, which would potentially provide your economy with much more stability.  OTOH, if you took the gold, your island would now not only be less safe against foreign aggressors, but it would also suddenly have a lot more portable and liquid wealth sitting around that might make it a bigger target for foreign aggressors.

Which would you choose?
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 3:56 pm

Libertarian666 wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 4:05 pm

MediumTex wrote:
Libertarian666 wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 4:27 pm

Libertarian666 wrote:
MediumTex wrote:
Libertarian666 wrote: The reason entrepreneurs didn't come to the rescue is that they were frightened to death of what the government would do to them if they were successful, having just seen the government wage war on entrepreneurs in the "New Deal". Once the government started spending money like a drunken sailor on military goods, it was safe to start investing in military goods production, which they could be reasonably certain that the government wouldn't punish.
But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 4:32 pm

MediumTex wrote:
Libertarian666 wrote:
MediumTex wrote: But shouldn't those entrepreneurs have seen all of that government spending as artificial government-generated demand and conclude that once the war was over the demand would promptly dry up and probably trigger a default on government debt because of the years of excessive wartime spending?  Why would a rational entrepreneur fall for such an obvious ploy to stimulate demand across the whole economy?

If entrepreneurs weren't active in the 1930s because they were scared of the government, why did they stop being scared of the government just because the government became their new largest customer?  Why did they fall for such a transparent effort to provide a government substitute for organic private sector demand?
If an entrepreneur can make a large profit in a short time, he doesn't worry about the long run. He also doesn't care about the effect on the overall economy of government actions (or anything else, really), only the effects he foresees on his own activities.

They were also subsidized in building the plants in the first place; the government was happy to take all the "risks" and leave all the profits to the entrepreneurs, so long as they got their guns and tanks ASAP.

So if the government is throwing money around left and right for armaments, there will be people willing to make big profits supplying them. Again, this is not complicated.
So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
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Re: Tapering called off

Post by MediumTex » Thu Sep 19, 2013 4:40 pm

Libertarian666 wrote:
MediumTex wrote: So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
Is that what happened in the early 1940s?

How about in the early 1980s when Regan cranked up government spending in the midst of a recession?
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Re: Tapering called off

Post by Libertarian666 » Thu Sep 19, 2013 5:26 pm

MediumTex wrote:
Libertarian666 wrote:
MediumTex wrote: So if an economy is in a recession or depression, what effect would we expect to see from a dramatic increase in government spending?
The same effect as at any other time: impoverishment of the general public and enrichment of the government's favored producers and consumers.
Is that what happened in the early 1940s?
Yes. Money incomes went way up but there was almost nothing for consumers to buy. Then when they could finally buy consumer goods after the war, prices had risen substantially due to the inflation, so their forced savings were much less valuable than when they had been saved.
MediumTex wrote:
How about in the early 1980s when Regan cranked up government spending in the midst of a recession?
Yes. All the government can do is to take purchasing power away from some people and give it to others. That impoverishes the former more than it enriches the latter due to the friction (overhead) inherent in such an operation, even if we ignore the injustice of it.

If the government inflates, people can be convinced that they are richer, in which case they spend more than they would otherwise. However, this also impoverishes them because their savings are decimated both by this overspending and by the increase in the average price level due to the inflation.
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Re: Tapering called off

Post by Gumby » Thu Sep 19, 2013 8:02 pm

Libertarian666 wrote:their forced savings were much less valuable than when they had been saved.
Libertarian666 wrote:this also impoverishes them because their savings are decimated
Umm... Are you sure we live in the same country? Not sure where you live, but here in the United States of America, we've had an extraordinary increase in standard of living since World War II — despite the fact that the US dollar has lost 95% of its value since 1913.

[align=center]Real Per Capita Wage and Salary Disbursements
(July 2013 Dollars)
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[align=center]Image[/align]

Our standard of living has virtually doubled since 1960. Americans haven't had their savings "decimated" and we certainly haven't been "impoverished".

Even Harry Browne wrote that people who left all their money in an FDIC savings account, or T-Bills, did OK over the past few decades.
Last edited by Gumby on Thu Sep 19, 2013 10:05 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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