But you miss *my* point, which is that while it is the social spending programs that are driving the majority of spending, the *reason* they drive spending is that politicians are elected to bring home the pork, and they don't get *reelected* unless they do.

This is less about socialism or capitalism than about a lack of checks and balances in the system.

The primary these of this post was "Socialism is the root cause of Greece's problems", and that's a gross oversimplification of the issue, unless you consider *all* government spending to be 'socialist'

@ largeham - It's not just Soviet Russia that I'm talking about. There have been dozens of countries that have at one point tried socialist systems. Today there are four, the rest fell. Of those, Cuba and North Korea are military dictatorships, Laos is still a heroin-run poverty-stricken country, and China runs like a rampantly corrupt capitalist country. Also, where the hell do you live? In America, where I'm from, it's still perfectly possible for dirt-poor immigrants (all of my ancestors) to work themselves up from nothing. In just three generations my dad's family went from German immigrants who didn't speak English and came to America because they lost everything at home, to a successful middle-class family on the basis of nothing but hard work. On the other point, I'm not saying that unions didn't serve a purpose at one point, but now their primary service is to impede the natural selection of capitalism.

@LJ - I disagree with your statement re: unions. While I find most unions are poorly run excuses for the controlling interests to line their own pockets instead of actually giving a rat about the people they supposedly 'represent', they serve as a useful check against dirtball companies. Most companies loathe the costs associated with unions, and hence don't screw their workers hard enough to motivate them to organize...

I think the problem is the "-ism" words. All kinds of those like socialism, capitalism, religious idealism. At the very moment you think that any schedule can solve all the worlds (or a countries) problems you just miss the fact that any plan created by human beings always was and always will be nothing more but trading some benefit vs some missfit. All systems might have some differences from each other, but none of those systems will ever work free of horrible side effects.
I know that any democracy needs the people to think that there is this one and only shiny way to paradise. People need to be betrayed, deceived, to just show up at the elections. As soon as some person acts in a manner of "this is the best way, although it is not suiting this and that" he is said to sell all ideals. To be rational is not demanded in a democratic system; neither it is in religion.

What is the problem about Greece, why do they need money? Quite simple actually: they spent more money than they possessed over a very long period of time. Anyone telling this one year before today would have been called a panic monger. Any politician asking to save some money would have lost all his votes on the next election day. The same problem all over the world; people always spent money they don't possess. And they always think there is enough money, you just need to search at the right place.

But all "of a sudden" there is no more money flowing around. The banks have trouble, every country on earth debts billions of dollars to someone else. And all the people do about this is to blame someone. Blaming someone to be responsible for “all of this”, to be the one taking all the benefit out of it. Socilists claiming that banks and managers take benefit and don't care about other people. Capitalists claiming that "social parasites" take the benefit.

Hello?!? All of us had great benefits during the last decades living in the global system of spending as much money as you can and never asking where it comes from. All of our lives would have been completely impossible without all the "never existing money" floating all around. How many people here have a mobile phone? Do they really need it? How many people here own more than 5 pairs of shoes? Do they need them? How many people here have been travelling around the globe, to foreign countries, to beaches at far off shores? Did you need this to survive? How many people here own a car just to drive some 10 or 12 miles each week although they might as well walk or share a car with others? How many people here love to eat food from far off countries, love to listen to music from all over the world, love to visit museums with arts from every corner of the globe? Do you need this all the time?

The money that is missing at the moment will never come back; doesn't matter whatever we do. New taxes for the rich, more investments etc - nothing will bring the money back. Simply because it never existed anyways.

The reason for Germany to pay for Greece is simply fear. Fear of letting someone die not knowing what comes next. It is typically German. We never let die any company, machine or person. Everything is "fixed" as long as possible. You don't buy a new car for 10,000 dollars, you fix your old one never asking how expensive it is to do so - and find yourself missing 20,00 dollars sometimes. Self-deception. "If we overcome this problem, we are safe"; "if we help him, he will pay back later"; "if I were him I'd be glad for someone to help me out"; “he would do the same for me”.
These thoughts are just as wrong as "it is not my business" or "it is all the others’ fault". Helping Greece won't fix the problem. Not helping Greece won't do neither. It simply doesn't matter what our governments do or don't do, it will be running somehow. One way has those benefits, another route will have other benefits, and a third possibility might be even completely different in result. But none of them will lead to paradise. None of those will fit all peoples’ minds and ideas – and ideals.

The true problem we have is not missing money. It is upgraded requirements. Requirements to possess things, to do things etc. that we don't need, that we cannot afford to buy.
I don't want to say that we should start living in caves using candles. I just want to say: no one needs to traffel around each year, no one needs an iPhone, no one needs a sports car, no one needs to eat caviare, no one needs stawberries on christmas eve. There are so many easy ways to save some money, you do not need to change the political system to do so, you just need the people to stop from longing for luxury. And don't ask anyone to solve our problems within one day or two. Remember that we came a long way from stone age; gaining some benefits, introducing some new problems. No sense in moving back, no sense in stopping the process. Just beware that there is a lot to be proud of in this world, a lot to enjoy. And that there’ll always be a lot to complain about, too.

It is no one’s fault alone that Greece has problems (as have millions of Americans paying their houses, as have basically all African countries, etc.), it is the comfort and the short-lived extravagance that a broad majority of people lives in all over the world, esp. in Europe and Northern America. It is what we call democracy. And it has its beneffits and missfits as every other system. Please stop complaining and thinking you would know all the reasons for all bad things and all the ways to introduce the good things. And don’t even think you know what is good and what is bad. We don’t. We are nothing but silly monkeys who forgot to enjoy playing – and call the game “way to perfection”.

"It's going to be even worse for them when you count the ripple effects, since tourism is 15% or so of their GDP, and people don't tend to visit other countries when their own economies are in the crapper." - that may be true, but usually if there is a stable government and rampant inflation then foreigners can get a really cheap holiday by buying your currency (which is now worthless outside your country)

Obviously this will not happen since greece can't just allow inflation to bring it's debt down to nothing, but is it not normally the case?

@Krelin, you may think that it doesn't matter what flag you wave, but you also seem to think unions are the epitome of socialism - so it seems to me that you don't care what policies a group has it is the act of ruining Capitalism which defines Socialism - for you at least.

Or have you had a chance to compse a reply to my point about labour monopolies?

@ LJ, I live in Australia, but was born in India, a great example of how 'free market' capitalism is destroying people. As for the other 'socialist countries', all their revolutions, insurgencies, etc, were all financed, supported and influenced by the USSR, and they all followed the totalitarian system.

@ Bonotow, in your last paragraph, it seems you aligned over spending with democracy, the latter causes the former. How so, monarchies regularly defaulted on loans, and the (relatively) democratic Athens never fell in to debt, except in times of war.
But I do partly agree with your second last paragraph, much of the crisis is fuelled by over consumption and consumerism (yes, another ism), caused by rampant demand created by corporations and supported by governments.

@ Krellin for an earlier point. Yes, governments can be capitalist, they do buy and sell stuff, and they affect the buying and selling of products by companies in their country. And IF they did neither of the above, they support a capitalist (be it state controlled such as the USSR, former China or 'free market' in the US, Europe, most of the world) system in the world.

There are many aspects of regulatory error that caused everything to be built so high and then fall like a stack of cards. Here are just a few:

Firstly, the setting of interest rates is balmy. In communist Russia, the price of bread was set by a group of men sitting around the table. They invariably got it wrong. Normally too low, resulting in shortages, but sometimes too high, causing surpluses to be made. Bread is much simpler than interest rates, so we shouldn't be surprised that they get it wrong.

In 2003 the Fed lowered interest rates to 1%, with inflation at 3 or 4%. In other words, the real interest rate is negative, you are paid to borrow money *even if you don't actually make a profit on the investments you make with it*.

This means that everyone borrows money, often buying homes. This tendency is amplified by the housing policy in the United States. Every President, Republican or Democrat, since FDR has wanted to increase home ownership. Mortgages have been subsidised; banks have been encouraged to lend money to people who clearly couldn't afford it just for political favours. Bush was successful in increasing home ownership from 65% to 70% in the US.

An ever increasing demand for homes results in an ever increasing price. It was so persistent, since through any downturn the governments and central banks pumped money into the economies, that people thought that houses were a sure fire investment. They believed that you could never make a loss on them, and therefore you could never make a loss on a mortgage.

The logic banks then made was sound- houses are guaranteed profit, so there is very little risk, so let’s leverage as much as possible to maximise gain. This would have been okay if it wasn't based on a faulty premise. Houses were only guaranteed profit for as long as the interest rate kept on dropping and staying well below inflation, and that was unsustainable because low interest rates cause inflation, which would eventually lead to disaster.
The deficit spending etc. During the dotcom recession is what sowed the seeds for the current one. This was a recession where house and car sales went up. This allowed mal-investments to carry on destroying wealth, and acted to reduce the savings ratio whilst increasing house prices. The economic mistake is to think that consumption is other than the consequence of production. This is the exact same mistake as we are making now. In truth, the Western world has very little economy left nowadays.
In addition, the Communities reinvestment Act: “The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?
According to one enforcement agency, "discrimination exists when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." Note that these "arbitrary or outdated criteria" include most of the essentials of responsible lending: income level, income verification, credit history and savings history--the very factors lenders are now being criticized for ignoring.”
I'll pause briefly in the general narrative to strengthen the point. Things weren't that simple. If the above description was the whole case, only banks lending to American home owners would be in real trouble. The difficulty is that the regulatory restrictions on leverage meant that people tied webs around themselves so that they could take more risk. The logic above, which anyone would come to unless they were avid fans of Austrian economics (and the years of uninterrupted growth made Austrian economics look at a glance to be dead wrong- this monetary policy appeared to work), meant that 'risk' didn't appear to anyone to be risky.

The addition system used to calculate how much capital the bank actually had was like this, under the recourse rule (more regulation): an AA- or AAA-rated asset-backed security had a 20% risk rate, cash had a 0% risk and a personal mortgage had a 50% risk rate.

In a free market, there isn't much reason for buying the AA or AAA mortgage backed bonds. If you are looking for safety, go for the governments' bonds etc. but if you want yield, go for the mortgages and cut out the middle man. But nobody wants to actually have mortgages, because the counting system means that you can't have as many of them. Far better to get mortgages, sell them to somebody else, and then buy different mortgages as an AA or AAA package. Then your own assets count as 20% risk, not 50%, and you can do more business.

So we see that regulation has both (a) directly encouraged reckless personal borrowing, which has (b) encouraged come-what-may investment in houses and mortgages (which are secured by the house, the price of which is rising) and (c) created a very tight web of interactions by making that the way to get maximum leverage.

Then, from about 2005 to 2006, interest rates were increased by the Fed from 1% to 5.25% in what I think is the quickest rise in interest rates in US history. Suddenly the following happens:

People who had flexible rate mortgages can't pay them.
Banks start making losses on people who have fixed rate mortgages.
People stop buying houses.

Therefore, house prices go down, meaning that banks repossessing homes from those entering bankruptcy still don't recoup their losses. Banks are now loosing money on all the mortgages that they were led to believe were safe by the way regulation was set up and the effects of the way it was set up. Many to all banks have these mortgages, but nobody knows how many or whether they come from institutions that are unsafe or not because of the web that had been created by the pass the parcel game that had resulted from the twin factors of believing you couldn't make a loss on a mortgage and the way that regulation encouraged it as a way of increasing the leverage you could have. This lack of knowledge about which banks actually had a problem meant that investors assumed that all banks had a problem and the plug was pulled, people went on the defensive as bank shares proceeded to plummet, reducing spending and loosing confidence. Banks realising how much risk they had stopped lending more money, so credit froze and so did business. Consumption had fallen, the means of production, credit, had dried up, and a recession resulted.

It is easy to blame greedy bankers, because we don't intuitively understand that the lending of money is the fuel, not the load in the motor of our economy. It is easy to point to the fact that there was a big financial industry making loads of money which collapsed, and say that it was their fault, but that doesn't answer the question: Why was things so obviously *not beneficial to anyone* as people buying houses they couldn't afford, investing in projects that were in real terms breaking even or loosing to inflation, lending money to the people who were doing these things, why was that profitable in a free market? There was no reason why they would be in a free market, it was because there was regulation, because the market was not free, that a game was made in which they were profitable.

The fact is ultimately this: regulation changes the rules of the economic game (which I must emphasise isn't zero-sum, but that's another misconception), and nobody can predict what effect that has on the game. We introduce many rule changes at once to a massive playing board, with no idea how everything will interact. It is like playing chess on a single, enormous board with nearly 7 billion players, each with several sets of chessmen , and then restricting the number of moves people can make, with the specific aim to increase the number of pawn promotions happening. The fact is, nobody can hope to predict what is going to happen, let alone control the outcome by setting the rules, so let’s go with the principle of free trade- so the vast majority of the time everyone in a trade benefits, as being the guarantor that most of the time when a house is built, or a jumper knitted or a loan lent, it is not stacking up a pile of cards that will fall down, bringing our world with them.

Let's realise the fact that most people are responsible most of the time, so will not default on payments, will not fail to deliver a product, as the basis of our economy; and let's not put our faith in groups of suit-wearing men around tables to make universal decisions as to how to improve the rules, because when they inevitably get it wrong, everyone, not just the few who are irresponsible, suffers greatly as we have seen.

great arguement, and i entirely agree that taxation actually slows down the economy (consumption tax increases prices, and production tax decreases individual earnings or increases the cost of production)

Thus any government which uses taxation as a means to raise currency for capital and current expenditure is doing some harm to their economic growth. You can instead privatise every part of a government's activities (ie governing) and expect each one to be profitable - however given the judicial system is based on the idea that every person should be treated equally before the law, this raises the question of how to remove the amount of money a person has to spend on their justice (the product the judicial system is providing to the public)

How to regulate financial services is an interesting question. Banks have always been limited to lending some multiple of the money other people have as savings - unlimited lending causes inflation and reduces the value of savings, zero lending undermines the capitalist economic system to begin with.

So your arguement is that no government can know how best to set interest rates (in the central bank which can lend money to individual banks so they in turn can lend where they will) and as i've agreed with you i only have only issue, what then? do you propose an alternative system for controlling our credit supply?

The problem is simple.

When a private central bank issues the public currency at interest, the system is a pyramid that lasts only as long as ever-larger pools of new borrowers can be found to allow the creation of new money with which to pay the interest on the old money. When new borrowers cannot be found, the pyramid collapses. When everyone in the nation (or planet) is already in debt and cannot be persuaded to borrow any more, collapse is inevitable because it is designed into the system from its inception.

@orathaic

I assume you were responding to my post. To respond to your specific points

I would suggest that the pure free market ideology is not completely optimal. In particular, some programs in education like Friedman's school voucher scheme may increase economic growth *long term*. Policing and the judiciary, plus the armed forces, should be served by the government too imho (not that private security should be illegal, indeed we already have 10 times as many private security personnel than government iirc).

These government programs are likely to be relatively small and require a relatively small amount of funding. I actually believe that it would be possible to have a culture where no taxation is necessary, just in the same way as we offer waiters tips regularly. Quote: "I went down to get my morning Starbucks, but unfortunately, it was closed recently due to Great Depression II. So I went down to another little coffee/breakfast shack to get a latte, and saw the pictured sign on the cash register–an optional 1% “town center contribution” fee “to promote and support a wide array of cultural, educational, and entertainment activities.” Imagine if all taxes were abolished, and localities had a little 1% voluntary fee to support the local [government]"

Expanding this kind of charitable program over a country is beneficial, and I think could become a norm. Particularly if you were to double people's income by ending taxation and inflationary policy. Economic growth would mean that within a short time even a paltry government spend proportionately would begin to outstrip the spends under forced systems.

As for the bank-regulation problem, I believe that the major problem is that you are forced by law to accept dollars issued by any fractional reserve bank. Why should that be so? Returning to a standard (and precious metal makes most sense) would be a good way of solving this problem.

The odd thing about fractional reserve banking is that it would be considered fraud if done by a trader in any other good. Banks should be more open, and if they had to convince people to use the money they print, they would have to be. Organisations like Which? could advise people on how to invest, and then we should allow the moral hazards that we presently have to go away by refusing to bail out banks etc.

> If Socialism Worked, Greece...
>
would ally with Egypt against Persia?

TheGhostMaker said: "Why was things so obviously *not beneficial to anyone* as people buying houses they couldn't afford, investing in projects that were in real terms breaking even or loosing to inflation, lending money to the people who were doing these things, why was that profitable in a free market? There was no reason why they would be in a free market, it was because there was regulation, because the market was not free, that a game was made in which they were profitable."

Really? What regulation are you referring to? ...and *of course* it would be profitable to swindle people (sell bad loans to get a commission, rate crap investments as if they were golden, bet against your clients [as Goldman Sachs did], etc.) in a free market - and why not? it's profitable in all economic systems... *if* you can get away with it. The problem was that what was profitable for individuals in the system (loan officers, stock brokers, CEOs, rating agency execs, real estate speculators, etc.) was not profitable for the firms that these people were associated with (at least in the long run)... nor was a good idea for the larger economy. There was (and most definitely still is) a huge disconnect between these motivations. If individuals acted in the best interest of the companies (and agencies, and societies) that they are part of, then obviously these sorts of things wouldn't happen. Your assumption that this sort of thing couldn't happen in a "free market" (that theoretical unicorn of an economic animal) ignores the fact that we can never have a system where individual motivations are always perfectly aligned with the best interests of the companies or other groups that they are a part of. I see zero evidence that this is the fault of regulation. Indeed, regulation that requires transparency, and firewalls within organizations (to keep people, say in the ratings department from being overly influenced by people, say in the marketing department), and other checks, can actually help a market - by making it harder for people to get corrupted - or to be corrupt and not get noticed (and presumably removed by their organization).

Free marketeers are more than ready to say how great and iron-clad and self-correcting and all wonderful the unregulated free market is a few months and years before a crash... and yet, on the heels of a crash, they turn around and deny that it even was a free market. The free market apparently can never fail us... we can only fail the free market. Kind of like communism and other true religions in that sense.

What regulation?

Look up further in the post for that. It's the communities reinvestment act, it's the currency laws, it's the to-big-to-fail culture, it's the errors of the Fed.

I can also tell you, plenty of free marketeers complain that it isn't capitalism in the good years as well as the bad... sight Peter Schiff. Of course, the US is closer to capitalism, but it isn't there, and in banking, healthcare, energy, drug and motor industries to name a few, they are a long, long way off.

@TheGhostMaker, the Community Reinvestment Act of 1977?? You are going to blame the 2008-present recession and associated failures on legislation that is over 30 years old? Of course I understand... and I know that you're not alone... you (and others on the right) have to go back that far if they are going to blame liberal policy... when clearly it is policies such as the repeal of Glass-Steagall and similar deregulation that set us up for this fall more than anything else (the right is itching to forget the lessons of the Great Depression)... well that, and the bust and boom cycle that is a regular part of a market economy. I have to agree with you in a sense about the too-big-to-fail culture... though our solutions are no doubt completely different. I imagine that you would favor periodic total world-wide economic meltdown to any sort of prevention (breaking up these firms - or denying mergers at some size).

...this is a partial answer... I've got to run. I'll respond more later.

@dexter

The CRA had some significant changes made in the 90s, and since then the Fed interest rates and the deficit spending plans have been used to avoid the recessions that would otherwise have happened since them, we get this massive bust now.

The reason that this economic meltdown is so big is because there should have been two other pretty large recessions shortly before it, the dotcom bubble and then again in around 03/04. Had they been allowed to happen, and house prices allowed to fall, there would not have been this kind of recession.

As it is, we built up masses of debt which meant that this recession was both inevitable and huge. So you cannot criticise me for wanting to allow massive recessions. I want to allow the market to have its own correctives on a more frequent basis. Small recessions don't hurt as much but still purge malinvestment. It is the stimulus package that enables and promotes malinvestment which destroys wealth.

As for the great depression, people always talk about "the lessons from the great depression". The real lessons where that over half a decade after the new deal people were still in a desperate state, that people in America didn't really start to recover until after WW2, that the increases in spending by BOTH Hoover and FDR didn't succeed, that personal Liberty has been eroded in America by the actions of FDR in a way that hasn't been recovered. Those are the lessons of the great depression.

Nor are this meltdowns as big as we really think. Look at a few decade long graph of GDP and you'll see that the recessions are always really just a blip. Its peculiar that many people who would accept a straight line from the 1970 GDP half the 2010 figure as good growth, but when it goes up to twice as high (but including a blip at the end) its proof that we have a terrible system and capitalism has failed.

This system is still successful, just not as successful as it could be.

Finally, I don't believe that without the bailout banks would have collapsed. The only case I am aware of of banks asking for a bailout to fund mortgages which were not going to be paid was when NZ ended farming subsidies. The banks said that the whole of the NZ banking industry would collapse, that the mortgages wouldn't be paid, and that the problem was so massive that the government had to bail it out. The government's response could be summed up as, "yeah, your right, that is a big problem. Its YOUR big problem!".

The banks allowed deferred payment and the industry was back up within a year. Although I wouldn't want to predict what would have happened without the bail-outs, I'm pretty confident that it would not have been worldwide collapse.

@ Ghostmaker - Bloody brilliant. The only problem I noticed was when you said the economy came out of the Depression. More like late 1930's rather than after the war, though that is what finally shook off the last vestiges of it.

@ largeham - How is you moving from slum to Outback an example of how free market capitalism is destroying people? Also, read a book, it would make you sound far more intelligent. China accomplished it's revolution entirely by itself, and Mao actively resisted Russian interfernece. The same goes for Josip Broz (Tito) in Yugoslvia. It was only after his death that Yugoslavia was incorporated into the Soviet Bloc. Also, the Cuban revolution was accomplished without Russian help, though they did buddy up with the Soviets after Castro gained power.

RE the depression, you do need to consider the inflationary practices after leaving the gold standard, which paints a rather bleaker picture.

@ Ghostmaker, I agree that downturns are only a blip on the radar, but they increase inequity between the rich and the poor, and while one may argue that even bourgeoisie have problems due to lower lower market activity, they usually have more savings which go up with high interest rates, and then can be used to buy wealth for lower prices as poorer people struggle for money. And booms aren't much better for poorer people, as now skills are in shortage, people who couldn't afford good education won't be wanted as much, and their purchasing power will drop due to inflation.

@ LJ, I'm not the entire country, and I didn't come from a slum, oh gosh not every Indian lives like Jamal Malik. You know my friend, if you read a book you would know that. My (extended) family are large scale traders and businessmen, and we had money. Look at the rest of the country, there are billionaires, extravagance such as the IPL, and yet there are farmers dying, massive droughts, water being used up by corporations such as Coca Cola and other local corporations. Labour rights don't exist in India (any more), and a large portion of politicians are corrupt and payed off by companies. Bribery is wide spread, and the judicial system is skewed to favour the well off. Its rivers are dumping grounds for chemicals and other pollutants. There is barely any legislation to protect the air and water. A lovely example of free market capitalism.

China did not complete its revolution by itself, as Russian forces during the Russian Civil War defeated right-wing Chinese warlords, the USSR helped Uyghurs fight the Kuomintang. China only started refusing Soviet help after approx. 1958 and the Sino-Soviet Split didn't start till the 60's. There was wide spread economic help up to the mid 50's, and Soviet and Chinese policy makers generally shared ideas, and the USSR helped form current Chinese political society. Tito was well known for refusing Soviet help, but his rule was generally seen by analysts and experts to be the unifying power in the country. While the Cuban insurgency won without Soviet help, the almost immediately turned to them for help, allowing the USSR to dictate policy and the flow of ideas, one of the main reasons Cuba became a police state from which it is slowly emerging.

Interesting note is that Tito ruled and kept Jugoslavia united (and also funded his rather large military) by taking loans, and amassing debt.

@tgm
I disagree with a lot of what you have said. The CRA has been shown to have had little impact, since it really only affects community banks, only 25% of subprime loans were under written by banks affected by the act, and they usually held them. Looking at facts around the great depression show that we were recovering before the war, though right wing statements have been trying to undo that. I find it hard to say the new deal removed freedom.

Oh, and about the banks, they were all failed. The banks have a lot of money out as loans, and to do that they have to hold 10% of that amount in reserve. The reserves were made up of CDOs. According to mark to market, the CDOs went from being worth a lot to worthless. That means they needed a lot of money to meet their reserves. Now, add that a lot of loans started failing. BOA, Citi, JP Morgan, Wachovia and wamu were all insolvent. Goldman was better off, because of the CDS deals...but, on top of that, AIG going under would have caused them to not pay out, meaning Goldman would have still taken major losses. Goldman, Lehmann and JP Morgan were all also allowed to leverage their reserves 40 to 1, but in true capitalism all the banks could leverage as much as possible, right? The government replenished their reserves then started taking bad loans off their hand, lessening the need for reserves.

CRA is a minor factor, yes. The major points are fractional reserve and Central Banks, as enabled by the current system of funds.

Banks should not be allowed to issue a currency which I then have to accept. If those laws were repealed then you couldn't run a bank on high leverage since no-one would accept your dangerous notes.

i like how it comes back to government interference - 'making you accept the bank's notes as legal currency' - yes this system occurs in many countries, and it has worked well to allow credit be extended (usually without risking too much because the banks don't want to lose their loan repayments) and safe credit allows the economy to expand.... (like the fuel of an economy, i think someone already said)

Perhaps the Gold standard is better, but it actually makes little sense to me to limit our currency to the amount of metal we can pull out of the ground; it may work to limit growth (too much credit and boom/bust economic cycles) but that doesn't mean it makes sense or is the best system.

not that i know what is the best sytem...

printing more notes just taxes the ownership of previous ones, orathaic. Its pretty high on the economic fallacies list that we can increase wealth using Zimbabwe banking.

It depends. If you can print the notes and keep it a secret (use old paper, engravings, and techniques with old dates and signatures) then you could slowly release them into the wild and never let anyone be the wiser. Over time you have notes with perceived values significantly higher than real value.

@TGM: i don't disagree with you on that fact- it is the equivalent of taxation, though it hurts all currency holders equally (and some prefer taxation to affect income and expenditure instead of those holding currency - it is a different place to tax people)

But the fact remains it is very useful to have a stable currency to use for trading, and having a central bank which issues notes can allow 'the people' trust in the value of those notes.

it is a question of trust, just as bankers trust people to pay back their loans, and the whole of society relies on trusting our neighbours (and to some extend our elected officials) how best to create that trust in currency is to my mind an open question, but fortunately i am not the one who has to make this decision...

unfortunately trust in the current system probably limits change the somethings similar to what we currently have.

hopefully that change is enough to allow a best sytem to evolve...

Thats the problem with any standard, oil or gold, as eventually they will all run out, and we then have to measure it against something which is artificial and produced. Inflation does hurt everyone, but can be profitable for those with large savings in the long run, as interest rates rise, increasing the amount of interest on the saving accounts.

Draugnar, I don't exactly see how that would work, as then you could do that with any notes.

@ Ghostmaker - Fair point, but it wasn't the America of Al Capone and Hoovervilles that mobilized for war with the first peacetime draft in 1940. I agree with you on the main point I just think the economy righted a little sooner than the war, especially as America's economy wasn't put on a full war footing until halfway through 42.

@ largeham - I realize that the cast of slumdog millionaire isn't representative of the Indian population as a whole, it's referred to as a hyperbole. I was also making a point that your family through I assume legitimate means amassed enough wealth to emmigrate to a country with a higher standard of living. While there may be many examples around the world (as a San Diegan I live 30 minutes from one) of corrupt capitalist countries that favor the poor, there are many that are not. Also, India became industrialized far later than countries like America. It took America a while to get laws right, and so it may take India a while as well. The America of the late 1800's looked much like the India of today; the rich held all the power and most of the rest lived in abject poverty. Obviously there are still poor in America but overall it is many grades better than it was back then. While I don't pretend to argue your nation's history with you, I think you might give too little credence to the possibility of Democratic and legislative progress.

Also, while there may be examples of failed Capitalism in the world, there are many examples of successful capitalism. All of the worlds first-rate nations are, or act like (I'm thinking China here) capitalists. On the other hand, there have been no successful Communist countries. You said earlier that all those examples of failed Socialist countries weren't real Socialism because the people that carried out the revolutions or government changes perverted the meaning of Socialism or Communism or what have you. This is one of the greatest problems with Socialism and the greatest strength of Capitalism. Whereas human ambition, greed and fallibility cause Communist countries ot fall, Capitalism takes advantage of the first two and can perservere throught the third. So yes, India is an example of Capitalism in a bad state. However, for every one of those, there's another success story. On the Socialist side, nothing but failures.

On your other point, the Sino-Russian rift was apparent as early as the Korean War. While Mao and Stalin did both contribute to the North Korean war effort, it was for wildly different reasons, and tension about the invasion of South Korea was in evidence before Kim Il Sung even sent his troops across the border. There was no solidarity involved. About the only thing they agreed upon was that America was the Devil. Also, while the Russians may have given token aid to the Chinese Communists at first, once it became clear that Bejing would not be taking orders from Moscow, that was quickly shut off. Mao managed to supply himself from the Americans, via the Nationalists, not from Russia. I'm not sure what your point was about Tito, it seems that you only underlined my point. On Cuba, I admitted freely that Cuba accepted Soviet aid after the revolution, the Cuban Missle Crisis was one of the defining moments of the Cold War. However, while the USSR did dictate Cuban foreign policy it made no attempt to interfere with Castro's governing of Cuba as a whole, that was all the doing of Fidel and Che.

@LJ:
So, when you talk about capitalism, are you including England, France, Germany, and Japan in there, or are those in the socialist category? The reason I ask, is because the oh-so-scary socialism that people are trying to prevent America from implementing, which will destroy the country is less than all those.

Now, here is the thing, if those are socialist countries, then we have successful socialist countries. If those are capitalist countries, then we can push the policies in the US to the left and be successful.

Now, the successful capitalist countries that are less socialist than us are not really places I would want to live. I enjoyed going to China, but not really someplace I would want to run a company or live permanently...India...same thing. Developing nations are usually fully capitalist...though, more chaotic, uncontrolled and with a government not interested in taking care of its citizens. Now, first world countries are usually interested in an organized economy that watches out for its citizens. The US less so than the other first world countries, but still....