You said "with no regulations imposed on the system by the government"... I'd respond - what exactly are the regulations (or better put the checks and balances or constraints) to limit "the Fed's" power? Are there any whatsoever?
I think most who are for the removal of the Fed want to return to a Gold Standard. This provides a check in the form of the gold's value. I see a lot of positives with this.
For me, personally, I do think Free Banking is another possibility. I understand why this would concern someone though, but I think one can make a real argument that the market is more of a constraint then the current constraints against the Fed.
At the end of the day, however, I think most people really want the Fed if it exists to have "regulations" or "checks and balances" regarding what it does. All other aspects of our government does. That seems to be a reasonable compromise. In my opinion, this problem isn't as simple as free-market vs. government. The Fed is a psuedo-government organization with very limited checks against it. Anyone arguing that the Fed provides regulatory safety should ask themselves... who oversees the Fed?
I agree with you that there is no check on the Fed and there should be. Actually, most govt. agencies seem to be able to run as they see fit with no oversight at all which I think is a huge problem but I digress and I've already hijacked your thread. So to address your original question....I don't care about monetary policy becuase it is too complicated. I have a pretty strong understanding of economics and monetary policy and the scope often exceeds my grasp so at the end of the day it takes alot of my brain power to wrap my head around what should be ideas that we can all easily understand. Going back to a gold standard would be my first choice as I think it would simplify matters...to an extent.
You hit on some good points all over this post.
I would chime in on the following points:
1. Gold Standard
IMHO, this is untenable in a modern economy.
Gold is cumbersome. Period.
If, recognizing that, you resort to gold certificates (ie. gold backed paper currency) you are already dangerously close to being right back at square one. The original gold warehousing agents practically invented fractional-reserve lending, and practiced it with deceitful intent. There is no reason to assume that the government would not do so from the beginning (as i'm sure they probably did, if not to some limited extent). Using physical gold would be essentially impossible in a modern computerized economy. Inter-bank clearing alone would become so costly it would be prohibitive. You are also right back to one of the original problems with the gold standard, which was that of in-flows and out-flows of bullion from national economies being highly restrictive. The point of going off the gold standard was to remove (what was perceived as, and probably are best thought of as) artificial constraints to the economy. The absolute danger of going off the gold standard, ironically, was the removal of any and all constraints on the growth of the Money Base.
2. Free Banking
I believe, as you say, provides no assurance to savers of the safety of their funds. You can argue that this is okay, and would force better self regulation, say, in the form of the ratings institutions, but we know from recent history that ratings institutions (which in this scenario would be KEY for the average person to assess which institutions, and which scripts, were the most sound) are horribly susceptible to all sorts of pressures and are pretty much worthless, particularly in times of stress\distress.
I think Milton Friedman probably came up with the best "ultimate" solution in the form of his combined or two-level currency economy, although, since it has never been practiced, it is hard to say what the ultimate ramifications would be for the top-level (read: national) currency. It is also hard to formulate a "way out" of the current ABHORENTMESS
Essentially Friedman's favorite solution was, CAP "HIGH-POWERED" MONEY ... in other words, kill the fed. Remove ALL human intervention from the inflation of the national money supply. This would provide a stable base for savers and the general public. Allow "Free Banking" as well, so that competing currencies could float in the market and compete for users.
This necessitates two things that unfortunately will probably never happen ... only one of which Friedman even bothered to mention ...
a. (mentioned) a period of adjustment and acute pain for the markets, wherein they resolve to the notion of a stagnant high-powered which implied DEFLATIONARY economics and a necessary restructuring of ALL investment classes & markets to the notion that prices will go DOWN and not UP (as denominated in High Powered money).
b. There are HUGE political reasons why I think it would never happen. Namely that inflation is THE name of the game for our\most governments. The Money Masters would (imho) NEVER give up this game. EVER.
The only other solution (although Friedman offered a couple of lesser solutions in the paper i'm referencing, which i will try to dig up and post a copy of when i get a few more minutes) is The New World Order ... a cashless society ... and a cooperative world structure that relies on need based resource distribution and the restructuring of "work" to non-competitive ends only. People CHOOSE how they want to contribute, and everyone cooperates. Good luck on that one guys. I know they are perpetually trying for it, though.
PS - i believe that Friedman paper is "The Case for Overhauling the Federal Reserve" (Challenge Magazine), though I can't seem to find a free copy to read \ verify online.
If I was to smile and I held out my hand
If I opened it now would you not understand?
I just read all three pages of this thread and blacked out.
One guy was talking about taxes, one guy about beer, and the other about Alexander Hamilton. That's about all I got out of this.
It's not really that complicated. But, I get it... when people start talking about the history, eyes certainly glaze over. To be honest, I don't see why the history even matters to form an opinion on the subject. But, anyways, sometimes threads here start one way and go in another direction.
Anyway, the point here is - monetary policy affects prices. Hence, your beer, your wine, your milk, your house, your stocks... even the price received when you save or price paid when you obtain a loan. Prices affect everything. This is pretty much why it matters in a nutshell.
An aside - I would love to hear Mr. Vedder's thoughts on Monetary Policy and the Fed. I mean this guy is pretty engaged in politics, right? So, let's hear his thoughts on Bernanke.
You said "with no regulations imposed on the system by the government"... I'd respond - what exactly are the regulations (or better put the checks and balances or constraints) to limit "the Fed's" power? Are there any whatsoever?
I think most who are for the removal of the Fed want to return to a Gold Standard. This provides a check in the form of the gold's value. I see a lot of positives with this.
For me, personally, I do think Free Banking is another possibility. I understand why this would concern someone though, but I think one can make a real argument that the market is more of a constraint then the current constraints against the Fed.
At the end of the day, however, I think most people really want the Fed if it exists to have "regulations" or "checks and balances" regarding what it does. All other aspects of our government does. That seems to be a reasonable compromise. In my opinion, this problem isn't as simple as free-market vs. government. The Fed is a psuedo-government organization with very limited checks against it. Anyone arguing that the Fed provides regulatory safety should ask themselves... who oversees the Fed?
I agree with you that there is no check on the Fed and there should be. Actually, most govt. agencies seem to be able to run as they see fit with no oversight at all which I think is a huge problem but I digress and I've already hijacked your thread. So to address your original question....I don't care about monetary policy becuase it is too complicated. I have a pretty strong understanding of economics and monetary policy and the scope often exceeds my grasp so at the end of the day it takes alot of my brain power to wrap my head around what should be ideas that we can all easily understand. Going back to a gold standard would be my first choice as I think it would simplify matters...to an extent.
You hit on some good points all over this post.
I would chime in on the following points:
1. Gold Standard
IMHO, this is untenable in a modern economy.
Gold is cumbersome. Period.
If, recognizing that, you resort to gold certificates (ie. gold backed paper currency) you are already dangerously close to being right back at square one. The original gold warehousing agents practically invented fractional-reserve lending, and practiced it with deceitful intent. There is no reason to assume that the government would not do so from the beginning (as i'm sure they probably did, if not to some limited extent). Using physical gold would be essentially impossible in a modern computerized economy. Inter-bank clearing alone would become so costly it would be prohibitive. You are also right back to one of the original problems with the gold standard, which was that of in-flows and out-flows of bullion from national economies being highly restrictive. The point of going off the gold standard was to remove (what was perceived as, and probably are best thought of as) artificial constraints to the economy. The absolute danger of going off the gold standard, ironically, was the removal of any and all constraints on the growth of the Money Base.
2. Free Banking
I believe, as you say, provides no assurance to savers of the safety of their funds. You can argue that this is okay, and would force better self regulation, say, in the form of the ratings institutions, but we know from recent history that ratings institutions (which in this scenario would be KEY for the average person to assess which institutions, and which scripts, were the most sound) are horribly susceptible to all sorts of pressures and are pretty much worthless, particularly in times of stress\distress.
I think Milton Friedman probably came up with the best "ultimate" solution in the form of his combined or two-level currency economy, although, since it has never been practiced, it is hard to say what the ultimate ramifications would be for the top-level (read: national) currency. It is also hard to formulate a "way out" of the current ABHORENTMESS
Essentially Friedman's favorite solution was, CAP "HIGH-POWERED" MONEY ... in other words, kill the fed. Remove ALL human intervention from the inflation of the national money supply. This would provide a stable base for savers and the general public. Allow "Free Banking" as well, so that competing currencies could float in the market and compete for users.
This necessitates two things that unfortunately will probably never happen ... only one of which Friedman even bothered to mention ...
a. (mentioned) a period of adjustment and acute pain for the markets, wherein they resolve to the notion of a stagnant high-powered which implied DEFLATIONARY economics and a necessary restructuring of ALL investment classes & markets to the notion that prices will go DOWN and not UP (as denominated in High Powered money).
b. There are HUGE political reasons why I think it would never happen. Namely that inflation is THE name of the game for our\most governments. The Money Masters would (imho) NEVER give up this game. EVER.
The only other solution (although Friedman offered a couple of lesser solutions in the paper i'm referencing, which i will try to dig up and post a copy of when i get a few more minutes) is The New World Order ... a cashless society ... and a cooperative world structure that relies on need based resource distribution and the restructuring of "work" to non-competitive ends only. People CHOOSE how they want to contribute, and everyone cooperates. Good luck on that one guys. I know they are perpetually trying for it, though.
PS - i believe that Friedman paper is "The Case for Overhauling the Federal Reserve" (Challenge Magazine), though I can't seem to find a free copy to read \ verify online.
Just to point something out real quick - riotgrl accidentally quoted things wrong and the first part of her quote is actually my quote.
I just read all three pages of this thread and blacked out.
One guy was talking about taxes, one guy about beer, and the other about Alexander Hamilton. That's about all I got out of this.
It's not really that complicated. But, I get it... when people start talking about the history, eyes certainly glaze over. To be honest, I don't see why the history even matters to form an opinion on the subject. But, anyways, sometimes threads here start one way and go in another direction.
Anyway, the point here is - monetary policy affects prices. Hence, your beer, your wine, your milk, your house, your stocks... even the price received when you save or price paid when you obtain a loan. Prices affect everything. This is pretty much why it matters in a nutshell.
An aside - I would love to hear Mr. Vedder's thoughts on Monetary Policy and the Fed. I mean this guy is pretty engaged in politics, right? So, let's hear his thoughts on Bernanke.
that is a great point. I do a fair amount of it myself for some reason...i try to be as pragmatic as possible, but it is almost impossible to have a discussion on a topic without the history being brought up.
In government there seem to be two constants, ideas and what ifs. The what ifs always seem to win out over the ideas and gov't doesn't do a lot of things based on the fear of the what ifs...I think governance over the Fed falls prey to this line of thinking... worries about the what ifs of politicizing the monetary policy, that political influence and even lobbyist influence could effect how the government would watch the Fed.
Until economics becomes a core program in high school or even younger, it will continue to be a mystery to most...and mysteries are confusing to people. They would rather focus on something they perceive as black and white... It is startling when you look at the amount of federally elected leaders that make very important decisions on this topic and others that have no formally degrees or anything other than a cursory knowledge of how economies work...
A bright spot for me is that Dr. Paul has many 18, 19 year old students chanting end the fed...hopefully that translates into learning about why the fed should end and what reasonable alternatives would be to our current policies.
I am honestly worried about the inflation that arises from record low interest rates for a very long extended period and QEs...I wish I understood the measure more, but it seems that not having food and energy in the equation seems crazy to me...
that’s right! Can’t we all just get together and focus on our real enemies: monogamous gays and stem cells… - Ned Flanders
It is terrifying when you are too stupid to know who is dumb
- Joe Rogan
0
brianlux
Moving through All Kinds of Terrain. Posts: 42,428
Question for inlet and other versed in economics: I've had various bank accounts with interest since I got my first check book about forty years ago and in all that time I've never seen interest on checking, saving, and certificate of deposits so low for such a long time. How does this fit into our current economic status and what do you see as the long term effect?
"Pretty cookies, heart squares all around, yeah!" -Eddie Vedder, "Smile"
Definition of 'Monetary Policy'
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).
I'd particularly like to hear from those who rarely discuss the subject. Please answer why you don't care. I'm curious. Thanks!
not that I don't care, sorry to say I don't understand how it works.
Question for inlet and other versed in economics: I've had various bank accounts with interest since I got my first check book about forty years ago and in all that time I've never seen interest on checking, saving, and certificate of deposits so low for such a long time. How does this fit into our current economic status and what do you see as the long term effect?
I was just reading about this fairly in depth over the past couple days, what with all this bull shit about "sterilized QE" being considered. It's just beyond the pale ridiculous. Its a farce. Its a farce of a farce. Its a longer term farce loan in exchange for a short term farce note.
The long and short of it is the Fed CAN NOT allow interest rates to rise ... now or ever, probably.
We're approaching end-game type scenarios here, with the volume of debt owed by the Federal government being so ridiculously high that it
a. can't pay it off
b. can hardly (really not) manage the INTEREST payments
To even feign managing the cost of interest payments it MUST keep rates LOW LOW LOW.
Unfortunately, becuase the US credit rating (real or perceived, it doesn't matter, the street knows the truth) is slipping badly, it (the US Treasury's Public Debt Department) is having a VERY HARD TIME SELLING TREASURIES.
It's "answer" to this quandry is simple.
SELL THEM TO YOURSELF ... vis-a-vis the Federal Reserve, which is technically "NOT" the government, and therefore can buy the Government's debt. It does this, of course, in exchange for cash which it (the Fed) PRINTS OUT OF THIN AIR.
This game is beyond dangerous. it is DEADLY as hell.
It (the money masters of our system) also by the way is having ALL its banks BUY TREASURIES BY THE HEEBS AND GOBS with the money it (the Fed) is giving to them for essentially FREE (or REAL negative rates) ...
US Banking System total treasury purchases for JANUARY AND FEBRUARY 2012 *ALONE* was something like 74 Billion Dollars. US Banking System Total Treasury Purchases FOR ALL OF 2011 was something like 68 Billion Dollars.
You tell me whats going on here.
:roll: :shock: :?
For the sake of clarity, I'm going to rely again upon my old friend, Mr. Black Dot Chronology:
*All of this...all of the QE, all of the ZIRP, all of the LTRO...it's all about funding government debt.
*The only way The Great Ponzi can now be maintained is through low interest rates. Simple economic growth cannot and will not produce the tax revenue necessary to "grow our way out of it".
*If rates move higher, the economy will slow even further, exacerbating this problem.
*More importantly, if rates move higher, the interest on the accumulated debt will take up an accelerating portion of the U.S. federal budget.
*QE1 and QE2 was the method through which The Fed purchased U.S. bonds outright, thereby creating an artificial demand for U.S. government paper and keeping rates low.
*ZIRP and Operation Twist is the method through which the Fed continues to suppress long-term rates. It's been estimated that the Fed is currently soaking up as much as 90% of the 10-30 year auctions.
*ZIRP and Operation Twist require regular, "traditional" demand for short-term U.S. debt. This demand is managed through the creation of uncertainty regarding Europe, Iran, etc.
So, now, here we sit. Three years of this centrally-planned fiasco and The Fed is pressed back against the wall again. Their Primary Dealers have balance sheets that are completely chock-full of treasuries and a PD cannot raise funds to continue buying even more without a) selling some of their current holdings, OR, b) getting some fresh, new cash from The Fed to use. Option "A" is off the table because selling holdings will push down price and, as you know, lower prices means higher rates and, as you know, higher rates cannot be allowed. But Option "B" doesn't look too good, either. Calling something overt Quantitative Easing isn't going to fly in an election year and, additionally, much time and energy has been spent convincing The Sheep that the U.S. banks are completely healthy and recovered. Giving them billions of dollars to spend on treasuries might dispel that myth.
If I was to smile and I held out my hand
If I opened it now would you not understand?
0
brianlux
Moving through All Kinds of Terrain. Posts: 42,428
Thanks, Drifting. I'm not sure I understand all of that but the general sense I get is- dare I use the term?- clusterfuck.
"Pretty cookies, heart squares all around, yeah!" -Eddie Vedder, "Smile"
Thanks, Drifting. I'm not sure I understand all of that but the general sense I get is- dare I use the term?- clusterfuck.
TOTAL cluster fuck.
It's not that hard to understand, really.
The US Government operates on a massive continual deficit, and also must perpetually fund its existing debt (ie. it must pay back expiring Treasury notes, and also make semi-annual interest payments on existing unexpired notes).
To finance this ongoing regime of deficit spending and existing massive debt, the Government must, of course, ISSUE NEW DEBT ... in the form of Treasury Bills.
With such a LARGE debt burden at this time, any rise in interest rates (paid on those bills) would be CRIPPLING.
To keep rates "artificially" (i don't even know why i quotation-ed that, they do out right artificially suppress prices with their "open market" operations) low the Fed does several things.
But, as I said, the long and short of it is that, because of the massive debt, the Fed is in an all-out-war with interest rates, doing a great many things ... some so convoluted (like this "sterilized QE" they are proposing) that i doubt even their best minds can wrap their heads around the domino like consequences of their actions.
If you want to understand in detail how the Fed affects rates:
in brief, from the Fed itself
once you start to wrap your head around the rules underlying the silly little game that is being played right now ... you can start to actually follow current Fed policy ... and once you start doing that ... it gets pretty alarming pretty quick.
Read some of that stuff, then come back to The Interest Rate Trap article, and start shaking your head.
You start to see why all the policies being enacted are designed only to inflate (both because this influx of new money helps get banks the cash they need to keep their rates low, and because currently the Fed itself is using gobs of its newly created cash to purchase Treasuries directly from the Government -- since REAL demand for them is more or less on a downward trajectory) ... and yet conversely, the programs being designed to inflate are fabricated in such a convoluted fashion so as to be hopefully too "confusing" for the market to get the appropriate inflationary signals ... because if the market got accurate inflationary feedback, it would just go ahead and raise rates itself (because if your money is losing value at X% a year, you will not accept a (X-1)% [or worse] APR on an investment\treasury, right? and then the government would be forced to raise rates) ...
Also, sadly, it means the government\Fed is forced to NOT PARTICIPATE IN HELPING ANY SORT OF **REAL** ECONOMIC GROWTH in the economy, because if the government\fed DID actively participate in helping to improve the real economy it would be SHOOTING THEMSELVES IN THE FACE ... because as the velocity of money in the economy increases (increased velocity of money is implicit with a growing economy -- the better the economy, the faster\more people spend) so does the vector of inflation grow ... this is traditional Price Inflation ... compounded by fractional reserve lending ... lending which always picks up steadily in a growing economy ...
thus, if the government helps improve the economy, it effectively causes inflation to rear it's ugly head ... then putting pressure on interest rates to increase (remember, you can't accept X-1%) ... THEN FUCKING THE GOVERNMENT (with it's massive debt, which it is paying interest on) IN THE FACE.
no es bueno,
si?
no?
:(
If I was to smile and I held out my hand
If I opened it now would you not understand?
0
brianlux
Moving through All Kinds of Terrain. Posts: 42,428
Si, no es bueno. Muy mal!
"Pretty cookies, heart squares all around, yeah!" -Eddie Vedder, "Smile"
You said "with no regulations imposed on the system by the government"... I'd respond - what exactly are the regulations (or better put the checks and balances or constraints) to limit "the Fed's" power? Are there any whatsoever?
I think most who are for the removal of the Fed want to return to a Gold Standard. This provides a check in the form of the gold's value. I see a lot of positives with this.
For me, personally, I do think Free Banking is another possibility. I understand why this would concern someone though, but I think one can make a real argument that the market is more of a constraint then the current constraints against the Fed.
At the end of the day, however, I think most people really want the Fed if it exists to have "regulations" or "checks and balances" regarding what it does. All other aspects of our government does. That seems to be a reasonable compromise. In my opinion, this problem isn't as simple as free-market vs. government. The Fed is a psuedo-government organization with very limited checks against it. Anyone arguing that the Fed provides regulatory safety should ask themselves... who oversees the Fed?
I agree with you that there is no check on the Fed and there should be. Actually, most govt. agencies seem to be able to run as they see fit with no oversight at all which I think is a huge problem but I digress and I've already hijacked your thread. So to address your original question....I don't care about monetary policy becuase it is too complicated. I have a pretty strong understanding of economics and monetary policy and the scope often exceeds my grasp so at the end of the day it takes alot of my brain power to wrap my head around what should be ideas that we can all easily understand. Going back to a gold standard would be my first choice as I think it would simplify matters...to an extent.
You hit on some good points all over this post.
I would chime in on the following points:
1. Gold Standard
IMHO, this is untenable in a modern economy.
Gold is cumbersome. Period.
If, recognizing that, you resort to gold certificates (ie. gold backed paper currency) you are already dangerously close to being right back at square one. The original gold warehousing agents practically invented fractional-reserve lending, and practiced it with deceitful intent. There is no reason to assume that the government would not do so from the beginning (as i'm sure they probably did, if not to some limited extent). Using physical gold would be essentially impossible in a modern computerized economy. Inter-bank clearing alone would become so costly it would be prohibitive. You are also right back to one of the original problems with the gold standard, which was that of in-flows and out-flows of bullion from national economies being highly restrictive. The point of going off the gold standard was to remove (what was perceived as, and probably are best thought of as) artificial constraints to the economy. The absolute danger of going off the gold standard, ironically, was the removal of any and all constraints on the growth of the Money Base.
2. Free Banking
I believe, as you say, provides no assurance to savers of the safety of their funds. You can argue that this is okay, and would force better self regulation, say, in the form of the ratings institutions, but we know from recent history that ratings institutions (which in this scenario would be KEY for the average person to assess which institutions, and which scripts, were the most sound) are horribly susceptible to all sorts of pressures and are pretty much worthless, particularly in times of stress\distress.
I think Milton Friedman probably came up with the best "ultimate" solution in the form of his combined or two-level currency economy, although, since it has never been practiced, it is hard to say what the ultimate ramifications would be for the top-level (read: national) currency. It is also hard to formulate a "way out" of the current ABHORENTMESS
Essentially Friedman's favorite solution was, CAP "HIGH-POWERED" MONEY ... in other words, kill the fed. Remove ALL human intervention from the inflation of the national money supply. This would provide a stable base for savers and the general public. Allow "Free Banking" as well, so that competing currencies could float in the market and compete for users.
This necessitates two things that unfortunately will probably never happen ... only one of which Friedman even bothered to mention ...
a. (mentioned) a period of adjustment and acute pain for the markets, wherein they resolve to the notion of a stagnant high-powered which implied DEFLATIONARY economics and a necessary restructuring of ALL investment classes & markets to the notion that prices will go DOWN and not UP (as denominated in High Powered money).
b. There are HUGE political reasons why I think it would never happen. Namely that inflation is THE name of the game for our\most governments. The Money Masters would (imho) NEVER give up this game. EVER.
The only other solution (although Friedman offered a couple of lesser solutions in the paper i'm referencing, which i will try to dig up and post a copy of when i get a few more minutes) is The New World Order ... a cashless society ... and a cooperative world structure that relies on need based resource distribution and the restructuring of "work" to non-competitive ends only. People CHOOSE how they want to contribute, and everyone cooperates. Good luck on that one guys. I know they are perpetually trying for it, though.
PS - i believe that Friedman paper is "The Case for Overhauling the Federal Reserve" (Challenge Magazine), though I can't seem to find a free copy to read \ verify online.
Just to point something out real quick - riotgrl accidentally quoted things wrong and the first part of her quote is actually my quote.
But, regardless, this is interesting stuff.
inlet13 I just listened to your demo....freakin awesome bro I'll be listening to more of your stuff as you post it. sorry for the derail on this thread.
Question for inlet and other versed in economics: I've had various bank accounts with interest since I got my first check book about forty years ago and in all that time I've never seen interest on checking, saving, and certificate of deposits so low for such a long time. How does this fit into our current economic status and what do you see as the long term effect?
Good question. My thoughts are:
The interest rate you see on your checking, savings, and even CDs are basically a function of the Fed Funds rate. That's the rate the Fed sets. They adjust the money supply to set that rate. So, right now, the Fed funds rate is basically zero. Hence, why you're seeing such crap rates.
My concern is that I personally believe low interest rates can fuel bubbles. Here's what I mean... I'll use another example at first...
Let's say you like beer (I'm drinking one, so that's my example). So, pretend there's only one type of beer. And let's say that the price of beer is roughly $20 a case based on what people want and the cost to sell it. But, what would happen if all beer stores were forced to lower the price to $10 a case? I'm sure you're thinking, people would probably want a bit more beer. Quantity sold would increase. Obviously, on the store's side of things it would be problematic because of shortages and perhaps they may even be losing money or close to it. Anyway, let's say that forced price increases to $15, the consumer will probably pull back a bit, but still demand will be high. Now let's say the price is forced to rise to $25 a case, consumers may have stockpiled at this point and decide that this price rise isn't quite worth it. Maybe now, they'll go for wine.
What's the point of this?
Well, maybe it's not the best example. But, let's switch beer for "money". So, the Fed controls the "price" of money in a sense or atleast the price at which you receive for saving and the price paid for lending. So, when the Fed forces the price (the interest rate) lower, just like with our beer example, demand increases. In this case, demand is the demand for credit. So, now people won't save more, they'll spend more. Credit card rates/mortgage rates/loans in general are cheaper now, so spending increases. Moreover, interest rates made with CDs, savings rates are so low it's pointless to plant your money. This is exactly like the beer example. In this case, however, there really is a force dictating the price outside the market - The Fed. That's not the case with beer price being forced in one direction or another - which was a fictitious example. So, here, demand is outpacing supply of money... a bubble is building.
Now, let's say the Fed decides to raise rates. In our previous beer example, it would eventually cause consumer
s to stop spending once the price surpassed the market price. Now, with the Fed, same deal. Saving would become more desirable. Why? Well, a number of reasons. First, credit cards/mortgage rates/ loans in general are now more expensive because interest rates are higher. Second, saving is now more desirable because interest rates on savings accounts, checking accounts, CDs and the like rise. For what's been built up above .... now a bubble is bursting.
Obviously, there's complexities with this way beyond what I've mentioned. But, interest rates affect our decisions. I'm sure you don't check your credit card rate every time you use it. I'm not saying that. I'm sure you don't check savings interest rates every time you put a buck in. But, maybe one or two people do, soon they tell their friends.... word gets round. This happens faster than people realize. People follow other people and do so in mass. Soon, they may be saving or spending more. Interest rates rising or falling caused this. The problem is the market didn't force the rise or fall...
... The Fed did above or below what the market deems as correct. That's the bad thing. They'd have to be real genius to never be off for too long. In other words, they'd have to be genius to never have bubbles and busts.
We just saw one... housing... bubble (look at prices from 02-06)... and bust (look at prices collapse after).
*Greenspan was the genius who thought rates needed to be kept low to spur spending post 9/11-01recession. That's, in my opinion, the cause of the huge bubble that burst. And look at all the magic since. My question is...
What do you think the low(ER)(EST EVER) interest rates we have now will do?
Just to point something out real quick - riotgrl accidentally quoted things wrong and the first part of her quote is actually my quote.
But, regardless, this is interesting stuff.
inlet13 I just listened to your demo....freakin awesome bro I'll be listening to more of your stuff as you post it. sorry for the derail on this thread.
Question for inlet and other versed in economics: I've had various bank accounts with interest since I got my first check book about forty years ago and in all that time I've never seen interest on checking, saving, and certificate of deposits so low for such a long time. How does this fit into our current economic status and what do you see as the long term effect?
Good question. My thoughts are:
The interest rate you see on your checking, savings, and even CDs are basically a function of the Fed Funds rate. That's the rate the Fed sets. They adjust the money supply to set that rate. So, right now, the Fed funds rate is basically zero. Hence, why you're seeing such crap rates.
My concern is that I personally believe low interest rates can fuel bubbles. Here's what I mean... I'll use another example at first...
Let's say you like beer (I'm drinking one, so that's my example). So, pretend there's only one type of beer. And let's say that the price of beer is roughly $20 a case based on what people want and the cost to sell it. But, what would happen if all beer stores were forced to lower the price to $10 a case? I'm sure you're thinking, people would probably want a bit more beer. Quantity sold would increase. Obviously, on the store's side of things it would be problematic because of shortages and perhaps they may even be losing money or close to it. Anyway, let's say that forced price increases to $15, the consumer will probably pull back a bit, but still demand will be high. Now let's say the price is forced to rise to $25 a case, consumers may have stockpiled at this point and decide that this price rise isn't quite worth it. Maybe now, they'll go for wine.
What's the point of this?
Well, maybe it's not the best example. But, let's switch beer for "money". So, the Fed controls the "price" of money in a sense or atleast the price at which you receive for saving and the price paid for lending. So, when the Fed forces the price (the interest rate) lower, just like with our beer example, demand increases. In this case, demand is the demand for credit. So, now people won't save more, they'll spend more. Credit card rates/mortgage rates/loans in general are cheaper now, so spending increases. Moreover, interest rates made with CDs, savings rates are so low it's pointless to plant your money. This is exactly like the beer example. In this case, however, there really is a force dictating the price outside the market - The Fed. That's not the case with beer price being forced in one direction or another - which was a fictitious example. So, here, demand is outpacing supply of money... a bubble is building.
Now, let's say the Fed decides to raise rates. In our previous beer example, it would eventually cause consumer
s to stop spending once the price surpassed the market price. Now, with the Fed, same deal. Saving would become more desirable. Why? Well, a number of reasons. First, credit cards/mortgage rates/ loans in general are now more expensive because interest rates are higher. Second, saving is now more desirable because interest rates on savings accounts, checking accounts, CDs and the like rise. For what's been built up above .... now a bubble is bursting.
Obviously, there's complexities with this way beyond what I've mentioned. But, interest rates affect our decisions. I'm sure you don't check your credit card rate every time you use it. I'm not saying that. I'm sure you don't check savings interest rates every time you put a buck in. But, maybe one or two people do, soon they tell their friends.... word gets round. This happens faster than people realize. People follow other people and do so in mass. Soon, they may be saving or spending more. Interest rates rising or falling caused this. The problem is the market didn't force the rise or fall...
... The Fed did above or below what the market deems as correct. That's the bad thing. They'd have to be real genius to never be off for too long. In other words, they'd have to be genius to never have bubbles and busts.
We just saw one... housing... bubble (look at prices from 02-06)... and bust (look at prices collapse after).
*Greenspan was the genius who thought rates needed to be kept low to spur spending post 9/11-01recession. That's, in my opinion, the cause of the huge bubble that burst. And look at all the magic since. My question is...
What do you think the low(ER)(EST EVER) interest rates we have now will do?
Well said, inlet, and thank you. I think I now understand my frustration with the current economy- in part because it all seems to be manipulated by powers beyond which most of us have much influence. But beyond that, I'm more of a saver than a consumer and I see few rewards if any for saving . I never look at the interest rates on my credit cards because I literally always pay my credit card balances in full each month. I do check the interest on my savings, checking and the few CD's I have every month and groan as I watch them shrink further and further below the rate of inflation. I may as well stuff a mattress with cash. It seems that it doesn't pay to save but I grew up with the notion that saving is wise.
As far as what interest rates will do, I honestly don't know. I kid my wife by saying that sooner or later I'll have to pay the banks to hold my money. When that happens, I'll be looking for a mattress with a locking zipper!
"Pretty cookies, heart squares all around, yeah!" -Eddie Vedder, "Smile"
i have only started going through these and i have exams coming up so im not sure if il get a chance to post my thoughts but whether you agree or not with them or not they are a good start on getting to know what the fed does
If you want to get a handle on what "REAL" inflation is
Note that though you can not see it on the chart, that flat line around the ZERO area runs ALL THE WAY BACK THROUGH HISTORY.
The spike up to ONE POINT SIX TRILLION DOLLARS is money THROWN AT THE SYSTEM IN HEAPS AND GOBS by Uncle Fed.
That money is sitting ... oh, WHERE, you ask?
Why ... BACK AT THE FEDERAL RESERVE.
[sidenote: i suspect that this is used as the "ULTIMATE slush fund" to manipulate the FUCK out of markets]
Why?
Because the Fed, after the "financial crisis" STARTED PAYING INTEREST ON FUNDS LEFT ON DEPOSIT OVER NIGHT AT THE FED.
This gave Banks the option of leaving Excess Reserves (money held on hand over and above their requirement to maintain reserve funds at the required reserve rate to back lending) in their own "vaults" overnight ... or LENDING IT OVERNIGHT RIGHT BACK TO THE FED AT FOR A BIT OF INTEREST.
You can see the NY Fed's explanation for this "side effect of Fed Reserve Policy" following the financial crisis, and how they say it shows their policy is, in fact, "working" ... Why Are Banks Holding So Many Excess Reserves?
but let me tell you ...
WHEN THAT MONEY STARTS GETTING LENT OUT ...
go ahead and bend your ass over, and take your pants off for Mr. Inflation Raper Man.
They won't want you to focus on this. But i PROMISE you, this is one of your best indicators of REAL inflation. It's just not "hit" the "economy" yet. Because it is not being used for lending yet. But it IS there. And it is NOT going away.
In fact, the one thing that your masters view as WORSE than inflation, is DEflation ... and they VERY RARELY retract the money supply.
If I was to smile and I held out my hand
If I opened it now would you not understand?
Well, I care, so I will answer despite your request for answers from those who don't care or who don't discuss the subject.
1. It may have a lot to do with the fact that people don't have the knowledge necessary to care or to form an opinion.
2. People are too distracted: TV, sports, self-interest, the mall, celebrity worship, etc.
3. People are programmed to "care" more about other things that the mainstream media tells them to care about: socialism, the evil marxist in the White House (despite the fact that 99% of those who use this word have no clue who Marx is), Wall St is our friend, the insurance companies are our friends.
4. People are poor. Monetary policy of the central bank is the least of their concerns. Working a second job and putting food on the table is more of a priority.
5. People are lazy---35% obesity rate and climbing.....
Just a few quick points to answer your question. We are falling behind in every aspect of education--20th place or worse in the major subjects, I believe. Quite pathetic for the "greatest country on the planet," the richest country on the planet, and the most advanced country on the planet. That serious lag in education extends far beyond the classroom, and is not relegated to students only. The public at large is uneducated and un/misinformed.
It's quite sad that we all bicker about politicians, when the reality is The Fed arguably does more to control the economy than both political parties combined.
The fed is the problem. They won't open the books and show us where our money is going. How fucking ridiculous.
So, I decided to do research to try to further my understanding of monetary policy because I didn't completely understand everything that was being discussed and I have a couple of questions. First, my understanding of current monetary policy is that the goal of the Fed is to keep inflation low (keep the price of my beer low), keep interest rates at a moderate level which will keep unemployment low which will give us high economic growth. If inflation occurs, then the Fed takes action to try to stabilize high prices. so my question is, if we move to the gold standard or free banking can we control inflation? Do we NEED to control inflation? If we don't control inflation then does this hurt our ability to spend (I mean we are a consumer based economy for the most part, right?). If we can't spend then doesn't that hurt business? If business is slow doesn't that mean fewer jobs? That's the part I can't wrap my brain around is the inflation aspect of the abolish the fed idea.
Are we getting something out of this all-encompassing trip?
Seems my preconceptions are what should have been burned...
So, I decided to do research to try to further my understanding of monetary policy because I didn't completely understand everything that was being discussed and I have a couple of questions. First, my understanding of current monetary policy is that the goal of the Fed is to keep inflation low (keep the price of my beer low), keep interest rates at a moderate level which will keep unemployment low which will give us high economic growth. If inflation occurs, then the Fed takes action to try to stabilize high prices. so my question is, if we move to the gold standard or free banking can we control inflation? Do we NEED to control inflation? If we don't control inflation then does this hurt our ability to spend (I mean we are a consumer based economy for the most part, right?). If we can't spend then doesn't that hurt business? If business is slow doesn't that mean fewer jobs? That's the part I can't wrap my brain around is the inflation aspect of the abolish the fed idea.
Well inflation was never the problem under a gold standard to begin with.
The problems were more related to deflation or just stagnant money base in a growing economy causing a choking of the economy, along with other problems like it being hard for countries on the gold standard that had trade deficits to resolve those deficits without ending up having to sell all their gold (which was the money base and required in the internal economy) and then not being able to recover that money base, and also manipulation of the gold market and\or hoarding of gold. What if someone made a run on gold and bought it all up? What if someone then dumped it all back on the market? This would cause the "price of money" to fluctuate.
To answer your second question is almost to ask the impossible.
Nobody (i don't think) really knows what it would take to get back to the gold standard, because I don't think anyone (in high places) considers that a serious option.
Gold is cumbersome, can not be transfered electronically, would probably be irreconcilable (from an accounting standpoint) in any feasible sense in a modern electronic economy, and in any event would necessitate some sort (or sorts) of massive alterations \ readjustments \ restructuring of the current political order.
The current arrangement of the US Monetary System can not just be neatly "overlaid" on top of a gold standard ... we are NOT ON a gold standard ... we have run SO FAR in the opposite direction that either the price of gold (and of everything, i assume) would have to be drastically altered ...
I mean like ... we would just go to bed one night, and suddenly wake up and gold would be at $10,000oz to reflect the proper value of the total known gold supply in relation to the total known US Money Supply (which to reveal, in and of itself, would necessitate some serious "restructuring" of the current economic-political order).
All that aside,
its hard to really tell what you are implicitly getting at with your question, "would going to a gold standard cause inflation". A gold standard doesn't necessarily cause either deflation OR inflation ... it is subject to the whim of the globe's ability to find more gold. If global economic output exceeds the pace of new gold mining, we would have "deflation", if we suddenly found a shit ton of new gold ("money" in a gold standard world) we would have an acute period of "inflation".
Going back TO a gold standard is something that our current political situation is simply and realistically incompatible with. We currently borrow WAY ABOVE our means ... a gold standard would not allow this. How would we reconcile that? Shut down half the government? Questions like this, i believe, are above the heads of even the most respected economists. I think most of them just assume "you can't go back". Or rather, "you can't go back with out literally wrecking the current political order and starting anew."
Do you want a period of anarchy where you hope and pray that the US Military remains faithful to some sort of pre-existing establishment order, despite the inability of that order to pay salaries or function properly? One where the entire global market place gets thrown on its head and has to scramble for sense in a nonsensical world for a potentially protracted period of time? I dunno. Sounds like chaos to me.
If I was to smile and I held out my hand
If I opened it now would you not understand?
You'll need to give me time to read it myself, as I just found it, and have no idea how the proposals they review intend to avoid financial apocalypse.
If I was to smile and I held out my hand
If I opened it now would you not understand?
You'll need to give me time to read it myself, as I just found it, and have no idea how the proposals they review intend to avoid financial apocalypse.
Thanks I will give it a go!
Are we getting something out of this all-encompassing trip?
Seems my preconceptions are what should have been burned...
So, I decided to do research to try to further my understanding of monetary policy because I didn't completely understand everything that was being discussed and I have a couple of questions. First, my understanding of current monetary policy is that the goal of the Fed is to keep inflation low (keep the price of my beer low), keep interest rates at a moderate level which will keep unemployment low which will give us high economic growth. If inflation occurs, then the Fed takes action to try to stabilize high prices. so my question is, if we move to the gold standard or free banking can we control inflation? Do we NEED to control inflation? If we don't control inflation then does this hurt our ability to spend (I mean we are a consumer based economy for the most part, right?). If we can't spend then doesn't that hurt business? If business is slow doesn't that mean fewer jobs? That's the part I can't wrap my brain around is the inflation aspect of the abolish the fed idea.
Well inflation was never the problem under a gold standard to begin with.
The problems were more related to deflation or just stagnant money base in a growing economy causing a choking of the economy, along with other problems like it being hard for countries on the gold standard that had trade deficits to resolve those deficits without ending up having to sell all their gold (which was the money base and required in the internal economy) and then not being able to recover that money base, and also manipulation of the gold market and\or hoarding of gold. What if someone made a run on gold and bought it all up? What if someone then dumped it all back on the market? This would cause the "price of money" to fluctuate.
To answer your second question is almost to ask the impossible.
Nobody (i don't think) really knows what it would take to get back to the gold standard, because I don't think anyone (in high places) considers that a serious option.
Gold is cumbersome, can not be transfered electronically, would probably be irreconcilable (from an accounting standpoint) in any feasible sense in a modern electronic economy, and in any event would necessitate some sort (or sorts) of massive alterations \ readjustments \ restructuring of the current political order.
The current arrangement of the US Monetary System can not just be neatly "overlaid" on top of a gold standard ... we are NOT ON a gold standard ... we have run SO FAR in the opposite direction that either the price of gold (and of everything, i assume) would have to be drastically altered ...
I mean like ... we would just go to bed one night, and suddenly wake up and gold would be at $10,000oz to reflect the proper value of the total known gold supply in relation to the total known US Money Supply (which to reveal, in and of itself, would necessitate some serious "restructuring" of the current economic-political order).
All that aside,
its hard to really tell what you are implicitly getting at with your question, "would going to a gold standard cause inflation". A gold standard doesn't necessarily cause either deflation OR inflation ... it is subject to the whim of the globe's ability to find more gold. If global economic output exceeds the pace of new gold mining, we would have "deflation", if we suddenly found a shit ton of new gold ("money" in a gold standard world) we would have an acute period of "inflation".
I see what you're saying. I suppose that I'm really comparing apples to oranges then. If the Fed controls economic downturns by trying to control inflation then I suppose I was looking for the ability to counter inflation with gold but from your explanation it sounds like it would be an unnecessary step - so I used an incorrect analogy.
Going back TO a gold standard is something that our current political situation is simply and realistically incompatible with. We currently borrow WAY ABOVE our means ... a gold standard would not allow this. How would we reconcile that? Shut down half the government? Questions like this, i believe, are above the heads of even the most respected economists. I think most of them just assume "you can't go back". Or rather, "you can't go back with out literally wrecking the current political order and starting anew."
Do you want a period of anarchy where you hope and pray that the US Military remains faithful to some sort of pre-existing establishment order, despite the inability of that order to pay salaries or function properly? One where the entire global market place gets thrown on its head and has to scramble for sense in a nonsensical world for a potentially protracted period of time? I dunno. Sounds like chaos to me.
Are we getting something out of this all-encompassing trip?
Seems my preconceptions are what should have been burned...
I see what you're saying. I suppose that I'm really comparing apples to oranges then. If the Fed controls economic downturns by trying to control inflation then I suppose I was looking for the ability to counter inflation with gold but from your explanation it sounds like it would be an unnecessary step - so I used an incorrect analogy.
Well a gold standard IS a counter to inflation,
which is why countries would use it in the first place.
Its just that (to my knowledge) no country in history has ever gone off of it, then gone back on it, without causing some sort of havoc. (anyone?) By "gone off it" I mean that our current economic situation COMPLETELY EXCLUDES metal currency from the market. This is partly because the US Government will not even accept gold coinage as payment ... and partly because of Gresham's Law.
Before the Revolutionary War, the Colonies were using
a. paper script ("bills of credit"), not backed by gold, but guaranteed by their respective Colonial governments
b. things like beaver skins,
and ... what was used primarily as the measure against all others,
c. the Spanish 8Reale or Spanish Dollar.
These last were so widely used, that is actually how we came to have an American "dollar".
When the War For Independence broke out, we started issuing Continental Currency.
This was non-backed script.
Have you ever heard the phrase, "Not worth a continental" ?
Yeah. That's how well that went.
This "money" was issued in an environment VERY familiar with metal currency, and actually they were DENOMINATED IN "dollars" ... no ... not US Dollars ... there was no "US Dollar" ... they were valued on their face against a Spanish 8Reale Coin ... 26.8 grams of .90% Silver (if my research is correct) (current melt value, around $25USD, per 4.16.2012 USD Value, lol)
But because there was a relevant precious metal coin in circulation to keep peoples minds aware of what REAL value was ... and because the Continental Congress kept PRINTING THE FUCK out of the Continentals (and actually, the British Government was actively involved in counterfeiting them in a good bit of economic warfare against us) this money within THREE years lost nearly 85% of their value. In the end you could trade them in for 1% of their Face Value and get a US Treasury Bond. lol. whoopie!
We tried this again under Lincoln's command during the Civil War using unbacked currency again ... called "Greenbacks" ... this time we had actual American gold and silver denominated currency that it ran in competition against ... and essentially the same thing happened ... although slightly more sound management of the money supply meant that this time around these unbacked dollars only lost 50% of their value by wars end.
The point of this is to illustrate to you that it is very hard for inflationary paper script to co-exist next to specie or gold backed money. As the paper currency gets inflated (printed and printed and printed), because there is a stable currency trading along side of it, it ends in the inflattionary currency getting devalued against the stable gold\silver coin of its time.
I did make a cursory read of that CATO article and non of those proposals seemed to hold up (even under the scrutiny of CATOs own reviewers) ... the last one essentially called for some sort of free market competing metal currency ... but i just gave you two great examples of how "well" that went over last time we tried it.
:(
If I was to smile and I held out my hand
If I opened it now would you not understand?
The Fed is a government within a government run by an imbecile who continues to print money and devalue the currency. Not to mention all of the money that goes off to foreign countries for who knows what. We can't continue to borrow our way out of situations to solve our problems... Especially when what it comes down to is a piece of cotton threads woven together.
Yes, I care... But economics isn't something I understand very well so I turn to others like Inlet to give me the scoop.
The Fed is a government within a government run by an imbecile who continues to print money and devalue the currency. Not to mention all of the money that goes off to foreign countries for who knows what. We can't continue to borrow our way out of situations to solve our problems... Especially when what it comes down to is a piece of cotton threads woven together.
Yes, I care... But economics isn't something I understand very well so I turn to others like Inlet to give me the scoop.
Paul - thank you for contributing to the thread and for your kind words. I agree with your thoughts.
But, I ask you... please don't turn to me on this issue. I consider you to be a smart dude, and I do respect your opinion. I'll offer my own opinion, but I really encourage you to form your own on this issue. I totally understand it will take a bit of time, it will. Like any new subject we got to familiarize ourselves. But, it's worth it. I sincerely think, we may come to the same conclusion. But, even if we don't, that's ok too. I just would love a bunch of people here to really look into this issue. I think everyone here cares a lot about government and it's influence on us. To me - this issue is more important than arguing about Obama vs. Romney. To me - that's a lost cause either way - for all of us because they both will do the same thing (in slightly different ways anyways). This is one area WE can influence. To me - this area matters more to our economy than Romney vs. Obama. This is a long run area that matters. This won't change overnight, and that's ok.
I'm very happy such smart people here contributed to this thread. I think it's a great sign about our future.
Comments
You hit on some good points all over this post.
I would chime in on the following points:
1. Gold Standard
IMHO, this is untenable in a modern economy.
Gold is cumbersome. Period.
If, recognizing that, you resort to gold certificates (ie. gold backed paper currency) you are already dangerously close to being right back at square one. The original gold warehousing agents practically invented fractional-reserve lending, and practiced it with deceitful intent. There is no reason to assume that the government would not do so from the beginning (as i'm sure they probably did, if not to some limited extent). Using physical gold would be essentially impossible in a modern computerized economy. Inter-bank clearing alone would become so costly it would be prohibitive. You are also right back to one of the original problems with the gold standard, which was that of in-flows and out-flows of bullion from national economies being highly restrictive. The point of going off the gold standard was to remove (what was perceived as, and probably are best thought of as) artificial constraints to the economy. The absolute danger of going off the gold standard, ironically, was the removal of any and all constraints on the growth of the Money Base.
2. Free Banking
I believe, as you say, provides no assurance to savers of the safety of their funds. You can argue that this is okay, and would force better self regulation, say, in the form of the ratings institutions, but we know from recent history that ratings institutions (which in this scenario would be KEY for the average person to assess which institutions, and which scripts, were the most sound) are horribly susceptible to all sorts of pressures and are pretty much worthless, particularly in times of stress\distress.
I think Milton Friedman probably came up with the best "ultimate" solution in the form of his combined or two-level currency economy, although, since it has never been practiced, it is hard to say what the ultimate ramifications would be for the top-level (read: national) currency. It is also hard to formulate a "way out" of the current ABHORENT MESS
Essentially Friedman's favorite solution was, CAP "HIGH-POWERED" MONEY ... in other words, kill the fed. Remove ALL human intervention from the inflation of the national money supply. This would provide a stable base for savers and the general public. Allow "Free Banking" as well, so that competing currencies could float in the market and compete for users.
This necessitates two things that unfortunately will probably never happen ... only one of which Friedman even bothered to mention ...
a. (mentioned) a period of adjustment and acute pain for the markets, wherein they resolve to the notion of a stagnant high-powered which implied DEFLATIONARY economics and a necessary restructuring of ALL investment classes & markets to the notion that prices will go DOWN and not UP (as denominated in High Powered money).
b. There are HUGE political reasons why I think it would never happen. Namely that inflation is THE name of the game for our\most governments. The Money Masters would (imho) NEVER give up this game. EVER.
The only other solution (although Friedman offered a couple of lesser solutions in the paper i'm referencing, which i will try to dig up and post a copy of when i get a few more minutes) is The New World Order ... a cashless society ... and a cooperative world structure that relies on need based resource distribution and the restructuring of "work" to non-competitive ends only. People CHOOSE how they want to contribute, and everyone cooperates. Good luck on that one guys. I know they are perpetually trying for it, though.
PS - i believe that Friedman paper is "The Case for Overhauling the Federal Reserve" (Challenge Magazine), though I can't seem to find a free copy to read \ verify online.
If I opened it now would you not understand?
I just read all three pages of this thread and blacked out.
One guy was talking about taxes, one guy about beer, and the other about Alexander Hamilton. That's about all I got out of this.
It's not really that complicated. But, I get it... when people start talking about the history, eyes certainly glaze over. To be honest, I don't see why the history even matters to form an opinion on the subject. But, anyways, sometimes threads here start one way and go in another direction.
Anyway, the point here is - monetary policy affects prices. Hence, your beer, your wine, your milk, your house, your stocks... even the price received when you save or price paid when you obtain a loan. Prices affect everything. This is pretty much why it matters in a nutshell.
An aside - I would love to hear Mr. Vedder's thoughts on Monetary Policy and the Fed. I mean this guy is pretty engaged in politics, right? So, let's hear his thoughts on Bernanke.
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Just to point something out real quick - riotgrl accidentally quoted things wrong and the first part of her quote is actually my quote.
But, regardless, this is interesting stuff.
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that is a great point. I do a fair amount of it myself for some reason...i try to be as pragmatic as possible, but it is almost impossible to have a discussion on a topic without the history being brought up.
In government there seem to be two constants, ideas and what ifs. The what ifs always seem to win out over the ideas and gov't doesn't do a lot of things based on the fear of the what ifs...I think governance over the Fed falls prey to this line of thinking... worries about the what ifs of politicizing the monetary policy, that political influence and even lobbyist influence could effect how the government would watch the Fed.
Until economics becomes a core program in high school or even younger, it will continue to be a mystery to most...and mysteries are confusing to people. They would rather focus on something they perceive as black and white... It is startling when you look at the amount of federally elected leaders that make very important decisions on this topic and others that have no formally degrees or anything other than a cursory knowledge of how economies work...
A bright spot for me is that Dr. Paul has many 18, 19 year old students chanting end the fed...hopefully that translates into learning about why the fed should end and what reasonable alternatives would be to our current policies.
I am honestly worried about the inflation that arises from record low interest rates for a very long extended period and QEs...I wish I understood the measure more, but it seems that not having food and energy in the equation seems crazy to me...
It is terrifying when you are too stupid to know who is dumb
- Joe Rogan
-Eddie Vedder, "Smile"
not that I don't care, sorry to say I don't understand how it works.
Godfather.
Fed's Interest Rate Trap Demonstrates The Danger of Its Policy
I was just reading about this fairly in depth over the past couple days, what with all this bull shit about "sterilized QE" being considered. It's just beyond the pale ridiculous. Its a farce. Its a farce of a farce. Its a longer term farce loan in exchange for a short term farce note.
The long and short of it is the Fed CAN NOT allow interest rates to rise ... now or ever, probably.
We're approaching end-game type scenarios here, with the volume of debt owed by the Federal government being so ridiculously high that it
a. can't pay it off
b. can hardly (really not) manage the INTEREST payments
To even feign managing the cost of interest payments it MUST keep rates LOW LOW LOW.
Unfortunately, becuase the US credit rating (real or perceived, it doesn't matter, the street knows the truth) is slipping badly, it (the US Treasury's Public Debt Department) is having a VERY HARD TIME SELLING TREASURIES.
It's "answer" to this quandry is simple.
SELL THEM TO YOURSELF ... vis-a-vis the Federal Reserve, which is technically "NOT" the government, and therefore can buy the Government's debt. It does this, of course, in exchange for cash which it (the Fed) PRINTS OUT OF THIN AIR.
This game is beyond dangerous. it is DEADLY as hell.
It (the money masters of our system) also by the way is having ALL its banks BUY TREASURIES BY THE HEEBS AND GOBS with the money it (the Fed) is giving to them for essentially FREE (or REAL negative rates) ...
US Banking System total treasury purchases for JANUARY AND FEBRUARY 2012 *ALONE* was something like 74 Billion Dollars. US Banking System Total Treasury Purchases FOR ALL OF 2011 was something like 68 Billion Dollars.
You tell me whats going on here.
:roll:
More food for thought:
Sack of Nonsense - Redux
If I opened it now would you not understand?
-Eddie Vedder, "Smile"
TOTAL cluster fuck.
It's not that hard to understand, really.
The US Government operates on a massive continual deficit, and also must perpetually fund its existing debt (ie. it must pay back expiring Treasury notes, and also make semi-annual interest payments on existing unexpired notes).
To finance this ongoing regime of deficit spending and existing massive debt, the Government must, of course, ISSUE NEW DEBT ... in the form of Treasury Bills.
With such a LARGE debt burden at this time, any rise in interest rates (paid on those bills) would be CRIPPLING.
To keep rates "artificially" (i don't even know why i quotation-ed that, they do out right artificially suppress prices with their "open market" operations) low the Fed does several things.
But, as I said, the long and short of it is that, because of the massive debt, the Fed is in an all-out-war with interest rates, doing a great many things ... some so convoluted (like this "sterilized QE" they are proposing) that i doubt even their best minds can wrap their heads around the domino like consequences of their actions.
If you want to understand in detail how the Fed affects rates:
in brief, from the Fed itself
from another guy who seems to get it pretty well
from a pretty big skeptic of current Fed policy ...
once you start to wrap your head around the rules underlying the silly little game that is being played right now ... you can start to actually follow current Fed policy ... and once you start doing that ... it gets pretty alarming pretty quick.
Read some of that stuff, then come back to The Interest Rate Trap article, and start shaking your head.
You start to see why all the policies being enacted are designed only to inflate (both because this influx of new money helps get banks the cash they need to keep their rates low, and because currently the Fed itself is using gobs of its newly created cash to purchase Treasuries directly from the Government -- since REAL demand for them is more or less on a downward trajectory) ... and yet conversely, the programs being designed to inflate are fabricated in such a convoluted fashion so as to be hopefully too "confusing" for the market to get the appropriate inflationary signals ... because if the market got accurate inflationary feedback, it would just go ahead and raise rates itself (because if your money is losing value at X% a year, you will not accept a (X-1)% [or worse] APR on an investment\treasury, right? and then the government would be forced to raise rates) ...
Also, sadly, it means the government\Fed is forced to NOT PARTICIPATE IN HELPING ANY SORT OF **REAL** ECONOMIC GROWTH in the economy, because if the government\fed DID actively participate in helping to improve the real economy it would be SHOOTING THEMSELVES IN THE FACE ... because as the velocity of money in the economy increases (increased velocity of money is implicit with a growing economy -- the better the economy, the faster\more people spend) so does the vector of inflation grow ... this is traditional Price Inflation ... compounded by fractional reserve lending ... lending which always picks up steadily in a growing economy ...
thus, if the government helps improve the economy, it effectively causes inflation to rear it's ugly head ... then putting pressure on interest rates to increase (remember, you can't accept X-1%) ... THEN FUCKING THE GOVERNMENT (with it's massive debt, which it is paying interest on) IN THE FACE.
no es bueno,
si?
no?
:(
If I opened it now would you not understand?
-Eddie Vedder, "Smile"
Godfather.
Good question. My thoughts are:
The interest rate you see on your checking, savings, and even CDs are basically a function of the Fed Funds rate. That's the rate the Fed sets. They adjust the money supply to set that rate. So, right now, the Fed funds rate is basically zero. Hence, why you're seeing such crap rates.
My concern is that I personally believe low interest rates can fuel bubbles. Here's what I mean... I'll use another example at first...
Let's say you like beer (I'm drinking one, so that's my example). So, pretend there's only one type of beer. And let's say that the price of beer is roughly $20 a case based on what people want and the cost to sell it. But, what would happen if all beer stores were forced to lower the price to $10 a case? I'm sure you're thinking, people would probably want a bit more beer. Quantity sold would increase. Obviously, on the store's side of things it would be problematic because of shortages and perhaps they may even be losing money or close to it. Anyway, let's say that forced price increases to $15, the consumer will probably pull back a bit, but still demand will be high. Now let's say the price is forced to rise to $25 a case, consumers may have stockpiled at this point and decide that this price rise isn't quite worth it. Maybe now, they'll go for wine.
What's the point of this?
Well, maybe it's not the best example. But, let's switch beer for "money". So, the Fed controls the "price" of money in a sense or atleast the price at which you receive for saving and the price paid for lending. So, when the Fed forces the price (the interest rate) lower, just like with our beer example, demand increases. In this case, demand is the demand for credit. So, now people won't save more, they'll spend more. Credit card rates/mortgage rates/loans in general are cheaper now, so spending increases. Moreover, interest rates made with CDs, savings rates are so low it's pointless to plant your money. This is exactly like the beer example. In this case, however, there really is a force dictating the price outside the market - The Fed. That's not the case with beer price being forced in one direction or another - which was a fictitious example. So, here, demand is outpacing supply of money... a bubble is building.
Now, let's say the Fed decides to raise rates. In our previous beer example, it would eventually cause consumer
s to stop spending once the price surpassed the market price. Now, with the Fed, same deal. Saving would become more desirable. Why? Well, a number of reasons. First, credit cards/mortgage rates/ loans in general are now more expensive because interest rates are higher. Second, saving is now more desirable because interest rates on savings accounts, checking accounts, CDs and the like rise. For what's been built up above .... now a bubble is bursting.
Obviously, there's complexities with this way beyond what I've mentioned. But, interest rates affect our decisions. I'm sure you don't check your credit card rate every time you use it. I'm not saying that. I'm sure you don't check savings interest rates every time you put a buck in. But, maybe one or two people do, soon they tell their friends.... word gets round. This happens faster than people realize. People follow other people and do so in mass. Soon, they may be saving or spending more. Interest rates rising or falling caused this. The problem is the market didn't force the rise or fall...
... The Fed did above or below what the market deems as correct. That's the bad thing. They'd have to be real genius to never be off for too long. In other words, they'd have to be genius to never have bubbles and busts.
We just saw one... housing... bubble (look at prices from 02-06)... and bust (look at prices collapse after).
*Greenspan was the genius who thought rates needed to be kept low to spur spending post 9/11-01recession. That's, in my opinion, the cause of the huge bubble that burst. And look at all the magic since. My question is...
What do you think the low(ER)(EST EVER) interest rates we have now will do?
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Thanks, bro.
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Well said, inlet, and thank you. I think I now understand my frustration with the current economy- in part because it all seems to be manipulated by powers beyond which most of us have much influence. But beyond that, I'm more of a saver than a consumer and I see few rewards if any for saving . I never look at the interest rates on my credit cards because I literally always pay my credit card balances in full each month. I do check the interest on my savings, checking and the few CD's I have every month and groan as I watch them shrink further and further below the rate of inflation. I may as well stuff a mattress with cash. It seems that it doesn't pay to save but I grew up with the notion that saving is wise.
As far as what interest rates will do, I honestly don't know. I kid my wife by saying that sooner or later I'll have to pay the banks to hold my money. When that happens, I'll be looking for a mattress with a locking zipper!
-Eddie Vedder, "Smile"
the origins and mission of the central bank
http://www.federalreserve.gov/newsevent ... 120320.pdf
The fed after world war 2
http://www.federalreserve.gov/newsevent ... 120322.pdf
the response to the financial crises
http://www.federalreserve.gov/newsevent ... 120327.pdf
and the aftermath of the crises,
http://www.federalreserve.gov/newsevent ... 120329.pdf
i have only started going through these and i have exams coming up so im not sure if il get a chance to post my thoughts but whether you agree or not with them or not they are a good start on getting to know what the fed does
Note that though you can not see it on the chart, that flat line around the ZERO area runs ALL THE WAY BACK THROUGH HISTORY.
The spike up to ONE POINT SIX TRILLION DOLLARS is money THROWN AT THE SYSTEM IN HEAPS AND GOBS by Uncle Fed.
That money is sitting ... oh, WHERE, you ask?
Why ... BACK AT THE FEDERAL RESERVE.
[sidenote: i suspect that this is used as the "ULTIMATE slush fund" to manipulate the FUCK out of markets]
Why?
Because the Fed, after the "financial crisis" STARTED PAYING INTEREST ON FUNDS LEFT ON DEPOSIT OVER NIGHT AT THE FED.
This gave Banks the option of leaving Excess Reserves (money held on hand over and above their requirement to maintain reserve funds at the required reserve rate to back lending) in their own "vaults" overnight ... or LENDING IT OVERNIGHT RIGHT BACK TO THE FED AT FOR A BIT OF INTEREST.
You can see the NY Fed's explanation for this "side effect of Fed Reserve Policy" following the financial crisis, and how they say it shows their policy is, in fact, "working" ... Why Are Banks Holding So Many Excess Reserves?
but let me tell you ...
WHEN THAT MONEY STARTS GETTING LENT OUT ...
go ahead and bend your ass over, and take your pants off for Mr. Inflation Raper Man.
They won't want you to focus on this. But i PROMISE you, this is one of your best indicators of REAL inflation. It's just not "hit" the "economy" yet. Because it is not being used for lending yet. But it IS there. And it is NOT going away.
In fact, the one thing that your masters view as WORSE than inflation, is DEflation ... and they VERY RARELY retract the money supply.
If I opened it now would you not understand?
The fed is the problem. They won't open the books and show us where our money is going. How fucking ridiculous.
Seems my preconceptions are what should have been burned...
I AM MINE
Well inflation was never the problem under a gold standard to begin with.
The problems were more related to deflation or just stagnant money base in a growing economy causing a choking of the economy, along with other problems like it being hard for countries on the gold standard that had trade deficits to resolve those deficits without ending up having to sell all their gold (which was the money base and required in the internal economy) and then not being able to recover that money base, and also manipulation of the gold market and\or hoarding of gold. What if someone made a run on gold and bought it all up? What if someone then dumped it all back on the market? This would cause the "price of money" to fluctuate.
http://en.wikipedia.org/wiki/Gold_stand ... advantages
To answer your second question is almost to ask the impossible.
Nobody (i don't think) really knows what it would take to get back to the gold standard, because I don't think anyone (in high places) considers that a serious option.
Gold is cumbersome, can not be transfered electronically, would probably be irreconcilable (from an accounting standpoint) in any feasible sense in a modern electronic economy, and in any event would necessitate some sort (or sorts) of massive alterations \ readjustments \ restructuring of the current political order.
The current arrangement of the US Monetary System can not just be neatly "overlaid" on top of a gold standard ... we are NOT ON a gold standard ... we have run SO FAR in the opposite direction that either the price of gold (and of everything, i assume) would have to be drastically altered ...
I mean like ... we would just go to bed one night, and suddenly wake up and gold would be at $10,000oz to reflect the proper value of the total known gold supply in relation to the total known US Money Supply (which to reveal, in and of itself, would necessitate some serious "restructuring" of the current economic-political order).
All that aside,
its hard to really tell what you are implicitly getting at with your question, "would going to a gold standard cause inflation". A gold standard doesn't necessarily cause either deflation OR inflation ... it is subject to the whim of the globe's ability to find more gold. If global economic output exceeds the pace of new gold mining, we would have "deflation", if we suddenly found a shit ton of new gold ("money" in a gold standard world) we would have an acute period of "inflation".
Going back TO a gold standard is something that our current political situation is simply and realistically incompatible with. We currently borrow WAY ABOVE our means ... a gold standard would not allow this. How would we reconcile that? Shut down half the government? Questions like this, i believe, are above the heads of even the most respected economists. I think most of them just assume "you can't go back". Or rather, "you can't go back with out literally wrecking the current political order and starting anew."
Do you want a period of anarchy where you hope and pray that the US Military remains faithful to some sort of pre-existing establishment order, despite the inability of that order to pay salaries or function properly? One where the entire global market place gets thrown on its head and has to scramble for sense in a nonsensical world for a potentially protracted period of time? I dunno. Sounds like chaos to me.
If I opened it now would you not understand?
If you want a serious study of a modern proposal to return to the gold standard:
The Cato Institute:The Gold Standard:An Analysis of Some Recent Proposals
You'll need to give me time to read it myself, as I just found it, and have no idea how the proposals they review intend to avoid financial apocalypse.
If I opened it now would you not understand?
Thanks I will give it a go!
Seems my preconceptions are what should have been burned...
I AM MINE
Seems my preconceptions are what should have been burned...
I AM MINE
Well a gold standard IS a counter to inflation,
which is why countries would use it in the first place.
Its just that (to my knowledge) no country in history has ever gone off of it, then gone back on it, without causing some sort of havoc. (anyone?) By "gone off it" I mean that our current economic situation COMPLETELY EXCLUDES metal currency from the market. This is partly because the US Government will not even accept gold coinage as payment ... and partly because of Gresham's Law.
Before the Revolutionary War, the Colonies were using
a. paper script ("bills of credit"), not backed by gold, but guaranteed by their respective Colonial governments
b. things like beaver skins,
and ... what was used primarily as the measure against all others,
c. the Spanish 8Reale or Spanish Dollar.
These last were so widely used, that is actually how we came to have an American "dollar".
When the War For Independence broke out, we started issuing Continental Currency.
This was non-backed script.
Have you ever heard the phrase, "Not worth a continental" ?
Yeah. That's how well that went.
This "money" was issued in an environment VERY familiar with metal currency, and actually they were DENOMINATED IN "dollars" ... no ... not US Dollars ... there was no "US Dollar" ... they were valued on their face against a Spanish 8Reale Coin ... 26.8 grams of .90% Silver (if my research is correct) (current melt value, around $25USD, per 4.16.2012 USD Value, lol)
But because there was a relevant precious metal coin in circulation to keep peoples minds aware of what REAL value was ... and because the Continental Congress kept PRINTING THE FUCK out of the Continentals (and actually, the British Government was actively involved in counterfeiting them in a good bit of economic warfare against us) this money within THREE years lost nearly 85% of their value. In the end you could trade them in for 1% of their Face Value and get a US Treasury Bond. lol. whoopie!
We tried this again under Lincoln's command during the Civil War using unbacked currency again ... called "Greenbacks" ... this time we had actual American gold and silver denominated currency that it ran in competition against ... and essentially the same thing happened ... although slightly more sound management of the money supply meant that this time around these unbacked dollars only lost 50% of their value by wars end.
The point of this is to illustrate to you that it is very hard for inflationary paper script to co-exist next to specie or gold backed money. As the paper currency gets inflated (printed and printed and printed), because there is a stable currency trading along side of it, it ends in the inflattionary currency getting devalued against the stable gold\silver coin of its time.
I did make a cursory read of that CATO article and non of those proposals seemed to hold up (even under the scrutiny of CATOs own reviewers) ... the last one essentially called for some sort of free market competing metal currency ... but i just gave you two great examples of how "well" that went over last time we tried it.
:(
If I opened it now would you not understand?
Yes, I care... But economics isn't something I understand very well so I turn to others like Inlet to give me the scoop.
Paul - thank you for contributing to the thread and for your kind words. I agree with your thoughts.
But, I ask you... please don't turn to me on this issue. I consider you to be a smart dude, and I do respect your opinion. I'll offer my own opinion, but I really encourage you to form your own on this issue. I totally understand it will take a bit of time, it will. Like any new subject we got to familiarize ourselves. But, it's worth it. I sincerely think, we may come to the same conclusion. But, even if we don't, that's ok too. I just would love a bunch of people here to really look into this issue. I think everyone here cares a lot about government and it's influence on us. To me - this issue is more important than arguing about Obama vs. Romney. To me - that's a lost cause either way - for all of us because they both will do the same thing (in slightly different ways anyways). This is one area WE can influence. To me - this area matters more to our economy than Romney vs. Obama. This is a long run area that matters. This won't change overnight, and that's ok.
I'm very happy such smart people here contributed to this thread. I think it's a great sign about our future.
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