Economic Update: Bartering Is Cool, George Soros Speaks and G20 Leans on Global Currency
The Great Depression brought various methods to the fold in order to keep some type of currency flowing and people consuming. In many ways this is being called the “Great Recession,” and there still is that feeling in the air that a Great Depression may again be heading our way. However, some of these old systems such as the barter system or local currencies are being used again.
The barter system became popular in recent years and has become more modernized for today’s society. Craigslist became incredibly popular when it first began but during these pressing times, Ebay and Craigslist have seen more traffic than usual and one statistic earlier this month had the traffic for Craigslist up by 100%. New barter sites are popping up during this downturn such as www.tradeaway.comwhere you can sell and buy real estate, boats, cars, land, etc. Even Match.com’s traffic has soared, because young people who may or may not be let go first if a company needs to downsize (due to less tenure on the job) say that dating sites are cheaper than going out to bars to meet people.
I find it incredibly intriguing that local communities have begun using a method from the Great Depression in which they issue and name their own “currency.”
The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.
Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.
This type of currency encourages consumers to buy and it also encourages consumption at a local level to support local businesses that are also cash-strapped.
This could be a good thing for people to see value in limited government. Local and state government, or Federalism, is truly the more appropriate form of government rather than a larger centralized organization.
However, you still have to pay your taxes on it…
By law, local money may not resemble federal bills or be promoted as legal tender of the United States, says Claudia Dickens of the Bureau of Engraving and Printing.
“We print the real thing,” she says.
The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. “It’s not a way to avoid income taxes, or we’d all be paying in Detroit dollars,” he says.
Many still feel that bad times are ahead for the United States, our economy and the dollar.
George Soros is echoing what many conservatives and libertarians have been saying the past few months with the incessant government spending and bailouts. He foresees the U.S. becoming much like Japan in the 90′s, where they continued to spend in order to try and dig themselves out of a collapse, and their interventionist policies actually made things worse. Soros said that he believes the United States will go throw a period of relatively low growth coupled with high inflation…DUH!
Thank you Captain Obvious!
The recovery will look like “an inverted square root sign,” Soros said. “You hit bottom and you automatically rebound some, but then you don’t come out of it in a V-shape recovery or anything like that. You settle down—step down.”
“I don’t expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown,” Soros said, adding that in 2010 there might be “something” in terms of U.S. growth.
The healing of the banking system and housing markets is crucial to recovery. “The banking system, as a whole, is basically insolvent,” Soros said.
“What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy,” he said. “Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive. This is the zombie bank situation.”
