that old Arab saying:

My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will fly a jet, but his son will ride a yankee (and own half of America).

by Rashid bin Saeed Al Maktoum

Amended last line slightly.

Extended out to Nov 5th 2008? By any chance:-).

Marco.

River

Ya I saw that story yesterday and posted it on the Stoneleigh's Finance post. This kind of thing is frickin scary and will most likely hit other States in the near future. I think California is already wrestling with a similar type issue. I fear it will lead to higher local taxes all around. I know my property taxes have gone up a bit again this year even though house values are dropping. Time to get a re-evaluation on my house I guess.

Hi Don, do you know anything about "The President's Working Group on Financial Markets"? I'd like to know more about them and what they really do.

'Böhm-Bawerk's greatest student was Ludwig von Mises, whose first major project was the development of a new theory of money. The Theory of Money and Credit, published in 1912, elaborated on Menger, showing not only that money had its origin in the market, but that there was no other way it could have come about. Mises also argued that money and banking ought to be left to the market, and that government intervention can only cause harm.

In that book, which remains a standard work today, Mises also sowed the seeds of his business-cycle theory. He argued that when the central bank artificially lowers interest rates, it causes distortions in the capital-goods sector of the structure of production. When malinvestments occur, an economic downturn is necessary to wash out bad investments.

Along with his student F. A. Hayek, Mises established the Austrian Institute for Business Cycle Research in Vienna, and he and Hayek showed that the central bank is the source of the business cycle. Their work eventually proved to be most effective in combating Keynesian experiments in fine-tuning the economy through fiscal policies and the central bank.

The Mises-Hayek theory was dominant in Europe until Keynes won the day by arguing that the market itself is responsible for the business cycle. It didn't hurt that Keynes's theory advocating more spending, inflation, and deficits was already being practiced by governments around the world.'

http://www.mises.org/about/3224

How much inflation is there left to wring out? Using the Fed’s own inflation calculator a U.S. dollar is now worth around 4 or 5 cents since the Fed’s inception in 1913; just how much inflation is left? A tenth of a cent? A one hundredth of a cent?

Aren’t we in a liquidity trap now? Wasn’t that what August was all about? When banks won’t lend to other banks, why would they lend to anyone else? Is this just a “temporary” liquidity issue? What happens when all those off balance sheet “assets” come back onto balance sheets, as they must come next year. Unless another deferment demand is successful? What lenders will be lending to shore up capital requirements as these assets are marked to market? Will this be the great U.S. fire sale? Is the next great funding hope the Middle East oil sheikdoms?

As for monetization of deficits, hasn’t that been going on for decades? Isn’t that at least a part of the problem in the first place? Will doing more of the same actually improve the situation?

Is there no point at which the dollar will become so debased it becomes worthless? Or will it always be worth a dollar, even if that’s only 4 cents? Will the dollar always be the reserve currency the world, valued above all others?

The basic problem peak oil presents to our fractional-reserve fiat monetary system is that if the money supply ever stops growing, the whole system will collapse. The reason for this is that virtually all money is debt that must be paid back with interest. This means there is never enough money in circulation to pay back all the outstanding debt.

New money must continually be created so people can get the money to pay back the interest on the loans. If that money is not forthcoming, then people will start defaulting on loans (since there isn't enough money in existence to pay the interest). Defaulting destroys money, thus causing more people to be unable to pay back their loans, and so on.

The reason peak oil (really, peak everything) is a problem is that we have reached the limits of sustainability on the earth. Peak production means the economy cannot grow to keep up with the necessary growth in money supply. An expanding money supply without expanding the underlying goods & services is the definition of inflation.

So, our two options (assuming we stick with a fractional-reserve fiat monetary system) is a deflationary downward spiral or a hyper-inflationary downward spiral (probably turning into a deflationary one once people realize there is no substance behind the money).

Just as we have entered the peak plateau for oil, I think we've also entered the "end days" of our monetary system. It might take a couple decades for it to come completely apart, but periods of inflation punctuated by liquidity crises ending in a greater depression and monetary collapse is what we have in store for us.

It's nice to hear Don's sage like voice again, even though I'm not convinced by his partial analysis of the current turmoil in the financial system. I believe there are signs that it's much, much, worse than it appears to be. We are, at present, just looking at the tip of the dirty iceberg.
Sub Prime is only the beginning. The effects are spreading throughout the system seemingly inexorably.

I've heard an interesting phrase "The Greater Depression" to describe what we may/possibly be heading for. Let's hope we don't even go half-way down that road!

It's also a saying in working-horse circles. You can't push the horse with the lines...

But you can push string, only a very little a short way though. Threading a needle. Wax the string and push it furtherer. I do get the reasoning behind the saying though, I am just being facetious.

Even after threading the needle you are pushing the needle not the thread and pulling the thread.

I'd have been the one student to remind him of the threading of a needle everytime he used the saying. Maybe that is why some teachers did not like me much.

Charles.