Advice on Debt? Europe Suggests US Can Keep It - CNBC

Advice on Debt? Europe Suggests US Can Keep It - CNBC:

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What Happened to the “American System” part 2

The banking system of the United States was backed by gold for more than 200 years.  Gold has always been part of the “American System.”  It assured creditors their debts would be repaid in currency that was literally as “good as gold.”  Besides serving as a yardstick for creditors and debtors, gold reserves have also limited the amount of credit available in our economy.  Basin our money on gold limited the amount of new credit banks could create to the size of its reserves.  And this limited the amount of money that could be created inside the system, holding inflation in check.  The gold standard prevented massive credit bubbles from forming because credit creation was linked to the size of the economy vial gold reserves.  Growth in reserves could only be achieved by increases in production or though trade.

A gold backed monetary system doesn’t prevent bankers form making bad loans.  It won’t stop investors from paying too much for bad investments.  And it does not prevent bubbles when debt outside the banking are created without limit.

The ratio of debt to GDP for most of United States history has been around 1.6.  The size of gold reserves limited our debt burdens and those reserves could only grow with the overall economy.

That all changed in August of 1971.  Rather than cut the government’s spending and raise interest rates, President Nixon took us off the gold standard.  From that point on, our creditors had no legal claim to our gold reserves and the banking system had nothing but the Federal Reserve to limit the creation of additional credit and money.

http://www.thefinancialfeed.com/2011/09/what-happened-to-the-%E2%80%9Camerican-system%E2%80%9D-part-2/

A Unique Class Of Preferreds: The Perfect Income Security? - Seeking Alpha

A Unique Class Of Preferreds: The Perfect Income Security? - Seeking Alpha:

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New blog post : BMO Wants One Acquisition After Another http://bit.ly/ouhok1

What Happened to the “American System” part 1

The American Revolution gave birth to a nation, virtually free from government tyranny, with a sound currency, little debt, and a people dedicated to avoiding foreign wars. These ideals translated into financial prosperity, making the United States the wealthiest nation by approximately 1850. These principles, for the most part, were adhered to until about 80 years ago.
The “American System”, with all it’s faults, works. But does it still exist?
In 1930 the federal governments spending was less than 3% of GDP. Today, total government spending exceeds 40% of GDP. We have one of the biggest domestic government burdens compared to any other major economy, with no significant advantages in regards to size of government. And thanks to our military spending , we have a much bigger burden in total.
Our military currently stations troops permanently in more than 150 countries. Almost 400,00 of our 1.5 million active duty personnel are servicing outside the United States. Our founding of this country was strongly against a standing army. Today, we keep a standing army in harm’s way – spending as much on military as the rest of the world combined. Now, while I am not advocating a complete dismantling of our military, there’s no arguing the point that this kind of foreign policy is radically different than America’s historic position.
Finally…..the most important change to the “American System” came when Nixon took us off the gold standard in 1971. This was one of the most important decisions in modern financial, economic and monetary history and is a seminal moment in the creation of the global debt crisis confronting the U.S., Europe and the world today.
Nixon ushered in an era of floating fiat currencies not backed by gold but rather deriving value through government “fiat”.