A question about the Fed
whygohome
Posts: 2,305
Obviously, the large majority of Ron Paul supporters favor abolishing the Fed. This, despite the fact that a majority of the supporters likely have little knowledge about what the Fed does and its negative consequences on American monetary policy and society in general.
There are a handful of members on this board who seem to know a good deal about the fed, and how/why it is so dangerous to our economy/country.
The question I pose is this: Why is the fed "intentionally" damaging this country? Why is it intentionally participating in disastrous monetary policy? What are its goal with this disastrous monetary policy? What are its aims? Who does it serve?
(Please do not cite or plagiarize "Zeitgeist")
There are a handful of members on this board who seem to know a good deal about the fed, and how/why it is so dangerous to our economy/country.
The question I pose is this: Why is the fed "intentionally" damaging this country? Why is it intentionally participating in disastrous monetary policy? What are its goal with this disastrous monetary policy? What are its aims? Who does it serve?
(Please do not cite or plagiarize "Zeitgeist")
Post edited by Unknown User on
0
Comments
you couldn't post this in the other thread on monetary policy
Who are the banks that derive interest on the money that is lent to the USA?
And who's pockets are being lined with that money?
I think Paul's desire to audit the Fed is a good first start.
Next, what dictates policy and who regulates it when loans are given out to 'whomever' for 'what' reasons. There is no oversite and it might be legitimate, but we don't know.
Lastly, the Constitution gives the USA the right to print it's own money and earn interest off of that.
If we are going to have a Fiat type system, shouldn't the Government be the one printing money, not some shadow group who does not answer to anyone?
Without evidence, I don't know if it is bad, if there is a better system, if it is nefarious, if, if if...
But I think that is the first hurdle.
Now as to the FIAT system, is it better?
I think the bubble and bust system that is created might not be good for the long term. Without some type of concrete resource to back the money, it can be printed until the world runs out of trees.
This causes inflation, which is an unauthorized tax on every american citizen, but it hurts the poor and working classes more as a % of their income.
If the Fed can create money at will without any oversight, this tax hurts us all.
I don't think the Fed is "intentionally" damaging the country, personally. I think people who work for the Fed, for the most part, are good people. I just think they don't get it. The more they help in the short run, the more they hurt in the long run. It's a snowball effect.
From my perspective, they are attempting to control the uncontrollable. In a sense, their goal is to normalize business cycles. They try to do so with a bunch of academics who use computer models. I'm not saying these academics aren't worthy or smart. Nor am I saying there's no use for models. I'm saying their own theory teaches them that setting prices, no matter how wise the central planner or the modeling, doesn't work. It creates shortages and surpluses - or more volatile business cycles then would otherwise be the case. They would most likely respond "well, we need to do something when the economy faltering!". I say, no, you don't and "in the long run" you'll hurt more than you'll solve by setting interest rates above or below what the economy wants. They'll respond, "in the long run we're all dead" (Keynes quote). I'd respond... "this is the f'ing long run... I don't feel dead" instead, I'm seeing governments on the verge of default pretty much across the globe.
I know a lot of folks see a conspiracy theory with regards to the Fed. I am not really in that crowd. I do find it odd that the central banks around the globe control so much, and their reach seemingly continues to expand. I do find it odd that the targets of foreign policy tend to be countries without central banks in our style. But, I don't think that's the reason for our displeasure. It's an odd coincidence though. Anyway, I don't think there's a conspiracy here. It's just different versions of the world view on what the goal of a central bank is and whether it's necessary. My real underlying thought is...
...even if my viewpoint on doing away with a central bank is too far fetched, why not have checks on it? If you want to stay completely Keynesian, why not at least provide a bit of constraints to appease those who disagree? They may be right.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="
This is a good point. If, whygohome, by the fed you mean people who work for the government, they are mostly just good everyday folks. I had a friend years ago who work in a federal accounting office and he had fairly progressive views on some things but he said to me once, "I get so tired of people telling me I sold out because the government is evil. We're not evil, we're just ordinary folks going to work."
Now if you're talking about the few on top that run things, I wouldn't have a clue. I'm not sure who is in control these days.
-Eddie Vedder, "Smile"
I didn't want to take over "inlet13's" thread.
The Fed REBATES all money it makes on interest through it's transactions with the US Government Treasury. This is a common misconception among us Fed Skeptics.
If by your question, you mean BESIDES The Fed (who rebates all said interest) ... the answer is ... WHOMEVER IS HOLDING THE TREASURY BILLS.
Well ... for starters,
opening the Fed books to public scrutiny would cause market relocations based on what was discovered. In otherwords, if it is disclosed that Bank A and Bank B received X number of billions because they were failing ... Bank A and Bank B could face danger on the market at the disclosure of this information -- their stocks could plummet. Part of the resistance to opening the books is to protect those that the Fed has dealings with from this type of outcome. Largely, I think that is fair, and responsible.
Another good reason is that, if this was done, they would, essentially, be disclosing the REAL aggregate money supply ... and this would be a "the jig is up" scenario. Inflation has been thoroughly obfuscated through all kinds of complicated transactions, currency swaps, repo agreements, "sterilized" programs, etc. Disclosing the real NET result of these programs would cause an utter failure of confidence around the globe (imho). The dollar would be seen for what it is ... the ever increasingly pathetic sham of a "currency".
ADDING TO & RESPONDING TO WHAT INLET13 SAID ....
What you said was the crux of what i was going to say.
The Fed means well ... it DOES respond in the best fashion possible, within the narrow\limited scope of a current crisis. Doing NOTHING would have been instant suicide during the financial crisis of 2008. What the Fed did was *probably* the best of all possible options -- give essentially unlimited power to the Fed, protect the distressed borrowers from public scrutiny, incentivize banks (through interest) to leave excess reserves on deposit with the fed, raise FDIC limits, run stress tests, and of course ... throw heaps and gobs of cash at the problem ... etc ... that is all well and good ...
What is NOT good ... and what it is unclear whether the financial planners knew at the time or not ... is that the entire Keynesian system is BROKEN, and seems like it was woefully unfit to succeed based on initial premise.
Keynesian economics is INFLATIONARY economics.
Deflation = contraction of money supply = strangling the economy = everyone's paycheck takes a hit.
In fact, part of the reason the Bretton Woods system was devised was because the planners assumed (and still do, really) that inflation was NECESSARY. The gold standard (among other problems, like hoarding, instability of inflation\deflation related to supply, and also resolution of trade imbalances \ inequality of national gold inflows\outflows) caused serious and artificial constraints on economic growth:
The Keynesian response to this dillema is, in THEORY, constant and EVEN inflation ... about 2% a year.
The PROBLEM is that this NEVER happens. Political pressure causes it to almost always be greater than this. And as Inlet13 pointed out, the mal-investment bubble cycle is aggravated (sometimes in the extreme) by Fed policy, which then necessitates a Fed response to a Fed-aggravated problem in the form of ... you guest it ... MASSIVE INFLATION. The amount of money thrown in to the system after the 2008 crisis was long-term-suicidal (probably medium term suicide in reality, at this point).
A major problem with Keynesian economics is that it actually aggravates something known as Debt Deflation.
If a government could "live within it's means", this MIGHT not be problem. But living outside of your means seems essentially IMPLICIT in the Keynesian equation.
The end result of all this inflation-begets-malinvestment-begets-crisis-begets-massive-inflation-begets-etc.etc.etc.ad.infinitum is that the government doing the inflating ends up in OVERWHELMING AND UNMANAGEABLE DEBT ... which is where we (and just about every other modern country) are at.
This (where we currently stand) IS essentially the Debt Deflation threshold. We are on the precipe of a REAL Debt Deflation end cycle. In other words, the US National PUBLIC DEBT is now untenable, because too much money base inflation for too long has left us with too much debt. You can't just keep on issuing more and more debt. More and more debt. More and more debt. More and more debt. But we are.
Right now the ONLY thing "saving" us is SUPER LOW RATES on Treasuries, which means interest payments on Treasury sales are "barely manageable" for the US Government. A RISE in rates would be deadly at this point, and THAT IS WHERE WE STAND. Just google "Treasury Yield Rises" on Google.News ... we are entering the front of a BAD TRAP.
As (or should i say IF) the US Economy gets better, the super-low-rate Treasury Bills become less and less attactive. This will necessitate the Fed RAISING RATES to ATTRACT BUYER ... which it DESPERATELY NEEDS to maintain its MASSIVE DEFICIT SPENDING REGIME ... but the US GOVERNMENT *** CAN NOT AFFORD TO PAY MORE FOR ITS DEBT *** ... the numbers are about to stop "working" for us. They are already shakey as hell.
So we are at a trap point.
IF we get out of this dismal economy and things start "getting better",
the US Government will lose it's funding, and be FORCED to raise rates,
which will much-more-than-likely cause it to DEFAULT on its debt.
Even if it does NOT default and some how managed to Smoke-and-Mirror its way around outright default, the market will perceive that the US Government is under stress and confidence in Treasuries will fall. This will precipitate a fall in treasury purchases, which will further aggrevate the yield problem. Go read the Debt Deflation wiki link. What I am describing IS this cycle.
STUDY THIS:
ANYHOW.
INLET13 ...
I think you see the forest but miss it for the trees.
It is no coincidence that we are going after countries that
a. have oil but won't "play the game" and
b. are not on a "hooked in" Centralized Banking system.
The ONLY way our Elite Masters see out of this mess is GLOBAL COOPERATION.
The "outsider" regimes MUST fall and become united with the "rest of us".
Eventually (and SOON) the entire world will BE FORCED to move from THIS system to ANOTHER system.
It's broke and dying. The "way out" is the way off the cliff, unfortunately, and so we are going to be REQUIRED to switch to some new system. I have NO idea what they are planning, but they better finalize their plans QUICKLY, because time IS running out.
The MOMENT the economy "takes a turn" for the better,
you will see interest rates be forced up ... you will see governments around the world scrambling for cash, and either unable to pay their creditors, or unable to meet their internal obligations ... and we are going to start teetering ... like Greece ... towards Political Chaos.
If I opened it now would you not understand?
I don't have much to say... more than... I agree with most of what you said. I think you would admit, the problem with this sort of material - is it becomes a bit too complex for the casual reader if we don't use layman's terms. Personally, I see no reason to try to break it down here. So, let me try below. I'll say things in layman's terms in parenthesis.
It's funny because I typically get grouped in with Ron Paul crowd. I like Ron Paul and I'd vote for him. But, typically, Ron Paul fans think we'll have a hyper-inflationary response (huge price increase) to what the Fed's done. I don't.
Like you said, I think we're in a deflationary (recessionary/depression-ary) scenario. I know why the Keynesian Fed decided to fight that with low interest rates (this is typically the response to recessions by the Fed).That said, I still think they were wrong. One of the lone area's where I disagree with you is this - "doing what they did (in 2008) was probably the best of all options". I think if we took the punch to the face it would have been horrible, much worse than it was. In fact, I think we'd still be worse off right now. But, I think we would have had a chance to recover. In my personal opinion, kinda like you said, our chance of that now is much more limited.
Further, I want to make it clear that real economic growth (economic growth discounting inflation - or price rises) is different than nominal economic growth (economic growth with inflation - or price rises). So, like I've said in other threads... gold standard may not be the best answer, but the BS answer we have now, pretending like nominal growth is real... is BS. Prices matter. Your point there is valid. Keynesians need inflation. Inflation (price increases) fools people to think they are better off, particularly if the inflation was slow (2-5% a year). Problem is you need to have constant measures of inflation to really get at that, which we don't (for those of you who don't know, the government has decided to change how they measure inflation several times so comparisons over time are more, and more complicated).
Regardless of that small difference in our opinion, I think... otherwise, we agree. I'm not so sure that that "global cooperation" (term you used) is a horrible concept, if it's not forced. I understand why you're ever-so-slightly implying this is being forced. I'm totally not saying war with any of these countries is "just". War's wrong in my opinion, period. That said, I don't think all of the reasons are simply central-bank related. That's all. I don't think you do either.
Lastly, I do agree with you about interest rates turning up "potentially" being the turning point... (some, including yourself would argue that's a negative sign, although most would think it's positive). Reason- post 9/11-'01 recession, when Fed raised rates, a year or two past, then we had the meltdown. So, your argument makes sense... I get it. That said, I would bet another turning point. I think the EU meltdown will be the turning point. The EU is the largest economy in the world. They fold, it affects, Asia.... it affects us. Just as our meltdown caused a global recession... there's will too. I see no sign of "lasting" inflation, where the Fed decides to raise rates. I see them only raising rates if they gain some brain sense (sarcasm) to force the "necessary catharisis". My point is not that prices aren't increasing, it's that the Fed knows they can't increase rates, if they want to keep power. This gets back to your point... and why I agree with it. It's a chicken egg thing. I see the EU dying and burning before I see the Fed raising rates. But, I def. could be wrong. Either way - we're f'd. In fact, I'd argue if we stay put we're more f'd in the long run.
My prediction: This time period will be included in what history will call a depression. Our country will be involved in WWIII within 10 years. Why? Well, look at history! This has happened before. Some may argue this war actually began with 9/11 in history books. Like you said, regardless, my prediction is the world will be reconstructed afterwards. The only positive of all of this will be that.... regardless of what the outcome is.
My hope: We take the punch in the face and take the two-five horrible years, rather than allowing this to get worse globally. We're big enough to make a difference. We take the global depression now, we'll survive as is. The Fed stop trying to control rates, or raising them would slowly cause this (kinda like you said). I don't think it would be the worst thing ever if they raised rates now. We're in a depression anyway. Deal with the drug problem now, rather than wait. Who knows, maybe we'd be drug (Keynesian) free in two-five years. Regardless, I think Keynesians will be looked upon as the cause of this shit in history books.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="
I would admit that it sometimes becomes a bit to complicated, even for me.
Case in point - "sterilized bond buying" or "sterilized QE3" ... that is beyond me. Hell i think it is beyond most economists. The Fed wants to buy bonds long, and sell bonds short. But they are out of short bonds to sell back to Uncle Sam, so they want to sell Repo Agreements to the Government instead. ??? What the fuck does that even mean ??? And did i even get that right? ??? sheesh ??? Even if i did comprehend it. Who in hell can fathom what the NET Economic Result is going to be ???
I think Ron Paul is great for making people think. I worry that people will swallow him as a cult of personality and NOT think for themselves though. He does NOT have all the answers, and I think his idea about ending the Fed and going to a gold standard again is a Quaint Fair Tale Story. I'm not even sure that he in his own head really believes it can work. Certainly, I've never heard him elucidate a PLAN for actually getting to that.
I think we are GETTING to a deflationary scenario ... with relation to a Federal Debt BUBBLE. That is IF the Debt Bubble bursts, we will have unimaginable deflation. Default. Destruction. Economic and political chaos. This hinges on an economic recovery (or a "perceived" recovery), increase in velocity of money, and resultant increase in rates as inflation starts to become evident (show up in the numbers in the real economy). Right now we just have a FUCK LOAD of inflation (or "re-flation" i guess) that is masked by a slow-as-molasses economy, and the fact that there is about 1.6 trillion dollars sitting parked at the Fed overnight every night in what is known as Total Banking System Excess Reserves. THAT is a powder-keg just waiting for some form of unscrupulous lending to resume. Once it does, inflation will start. I think the problem is the markets (all of them) are trading so-ridiculously-sideways that commercial banks can't even figure out where to put the money to profit, so that 1.6 trillion is not getting lent out, even to speculation, because speculation is nearly-suicidal in this sideways semi-rigged or "managed" market.
Mmm. I agree and I disagree. We would have had a chance to recover, but not in a world that would be recognizable. Not within the current power-structure arrangement. The domino effect from failing to contain the problem within a completely entangled economy would have lead to almost every financial institution in the world toppling over and bankrupting. Everyone in the finance, financial services, mortgage, and insurance
industries would be unsure of a paycheck, and the courts would have been overwhelmed trying to sort out liability and who-owes-who. The amount of risk-exchanging ... Default Swaps, etc ... on top of all the other more normal positions large commercial institutions take both for and against OTHER large commercial institutions makes that risk so incredibly systemic that the entire Political-Economic Order of the world was at stake. Do you acknowledge that, at least?
Yea. IMHO, we are unquestionably, and categorically, FUCKED.
Agree 100%, and is an example of the reason I always laugh and shake my head when Talking Heads starting going on about the Stock Market being "up". OF FUCKING COURSE IT IS "UP" ... look how much goddamn inflation the Fed is throwing at the system. Where do you THINK that money is going to go? Stock Market, Energy Market, Metals Market, it is ALL UP ACROSS THE BOARD. Several Trillion Dollars was thrown at the system and then LEVERAGED ... how could prices on EVERYTHING ***NOT*** go up ? The only thing that baffles my mind is that the inflation is ONLY showing up in investment class assets. PPI and CPI are up, but not NEARLY like all investment classes are up. To me this just signals that ALL of the money handed out by the Fed has stayed (more or less) at the commercial banks, for use, by them, to throw around in the markets. PPI is thus driven up a bit by oil prices, thus affecting CPI ... but we are not seeing bread at $10 or soap at $5 a bar ... or anything like that. The money is not "out" yet.
Yeah, you can't substitute out ground chuck for prime rib in the CPI report and call it "apples to apples".
No. its not all central bank related. But i do think there is a "conspiracy" among participating members of an Elite Group (a group that likes Eyes and Triangles, lol) to unite the world under one system. Not one government, per se ... one SYSTEM. I think this is largely an admirable goal ... but getting there is a bitch, and "unfair" in a LOT of ways to the masses. I think also, it is a huge waste and will be a sad devestation-in-waiting for history if that system is an inflationary system.
I'm not sure the last meltdown (2008) had to do with the reason i am suggesting in this thread (Debt Deflation spiral hinged on US Treasury Bubble meltdown) but you COULD argue that the reason those "numbers" (bad subprime BS) were "forced" "to the surface" was because "the shadowy world planners" MADE it an issue in order to OBFUSCATE and DELAY an inevitable default and burst of the Treasury\US Debt bubble. In other words, Rates were moving steadily up and up after around the 2004 point (rate chart) ... we had "recovered" from 9/11 ... markets started to "heat up" again, and rates on treasuries were consequently moving up as the market demaned higher rates in a higher "inflationary" environment. This was probably killing the US Government slowly-and-then-quicker as rates rose. Maybe they "had to" crash the markets again to get an excuse to return to essentially ZERO rates?
My point about Debt Deflation is that if markets CONTINUE to "improve" over a LONG period, rates will go so high, that the US Government can not afford interest payments on treasuries ... this will be the ULTIMATE bubble burst.
Its hard to say. and you could be right. The same thing is happening their with THEIR debt, as is with our debt. The problem with betting on either\or is that as long as one is "functional" it can always send money over to the other. And it sort of helps both out. We've been doing this for a while now, actually with Currency Swaps. I KNOW the reason we are doing it is cause
a. the Eurozone needs to inflate (needs liquidity really. doesn't "need" to "inflate")
b. We need to increase global $ circulation to "feign" a velocity-of-money increase withOUT that money showing up in our national money supply. Currency Swaps are, i believe, excluded from M2 and only show up on the now defunct M3 Money Supply Report, so that is one hell of an incentive to inflate-over-seas. Lol.
It will definitely cause one hell of a punch to the face if the Fed "lets go" of rates and allows them to float up-up-and-away. I would caution you to recognize that the type of punch-to-the-face you are describing would be a catastrophic US-Debt-Default scenario followed by the global-Armageddon that would come with all of our foreign creditors becoming highly insecure, and our domestic situation going down the shithole.
I would prefer they "keep the charade alive" until this happens: Cobra Commander Announces New World Economic Order
long version
even longer (interspersed with News Clips) -- LOOK AT THE FIRST FEW SECONDS (towers) WTF ??? lol?
If I opened it now would you not understand?
Agreed.
I believe they engaged in “sterilized bond buying” in order to get around the growing scrutiny of QE. The reality is they engaged in QE to try to avoid the terms “printing money”. We live in a new age anyway where “printing money” isn’t really necessary in the real terms of physical dollars. We can now kinda get around that. The reality, of course, is all of these forms of policy involve forms of printing money (regardless of their caveats). Their goal was to drive down long-term interest rates – encourage risk taking. Their goal, from what I understand, with sterilized bond buying was to do so and constrain inflation expectations.
I agree – it’s remarkably confusing and I am an economist. No matter how wise The Fed economists are, these policies aren’t that genius if they can’t break it down in simplistic terms. In my opinion, partially the reason they’re going these routes is to purposefully confuse issues. If they really broke it down in layman’s terms, the public wouldn’t be ok with this.
I agree. But, what I think he underscores is the problems with the Fed’s policy. No one else is even discussing it in the public sphere. They all basically say in one way or another “it’s too complicated” to discuss routinely. Ha! And you’re running for fucking President? That’s why Ron Paul is a serious politician. He actually has a relatively sound understanding of this issue. Not one other guy up there does, to my knowledge.
As for his plan to get back on a Gold Standard, I think it would be a slow approach, basically reverse what Nixon did. But, I don’t want to speak for Ron Paul.
See my viewpoint is the REASON we’re in a federal debt bubble is because of Keyensian economics. Basically, we’ve been trained to think these nerds behind closed doors will constantly save the day. We live in an age of immediate gratification. And the Fed reinforces that. In fact, Keynesian economics “in the long run we’re all dead” fits in perfectly with this nonsensical thought process.
I think the reason we’re not seeing dramatic inflation or even hyper-inflation is because our “real” economy is plummeting along. This basically reiterates what you said, but in a slightly different way. Basically, I think our low interest rate environment and the FED’s actions are creating excess demand. It’s not real. It’s BS. I think the market will force government’s (the Fed’s) hand eventually. They won’t be able to continue this charade at some point. In fact, this already beginning in Europe.
I don’t necessarily agree. I mean fixing the problem would deal with the Fed backing off and us revamping over our entitlements. Would people be pissy? Yep. It would be a nightmare. But, is it possible? I do think it is/was. I just don’t think it will happen because people like to live in a fantasy world.
I also don’t completely buy the systematic risk argument for bailouts. I understand the argument. They took out CDS, ect… and therefore, they are linked risk-wise. My point of view is ok – if they are linked - They’ll fail. Suck it up. They bet on the risk via the CDS. They took a risk and lost. No bailouts for that. It's the equivalent of me betting at a roulette table and getting my money back because I'm too big to fail at gambling. That’s not governments role, particularly when they have their own problems. I acknowledge that the loss will be terrible. People will lose their jobs. Companies will go bankrupt. It will domino. We’ll have a depression. But, I don’t for one second think that’s a rationale for bailouts. I get that the pain will be bad. But, I disagree that the political-economic order of the world was at stake from bleeding out. I think that’s what they want you to believe because they are Keynesians. Pain needs to be squashed ASAP with Keynesians – even if that causes more pain in the long run. Once again, I’m not saying letting businesses (that are failing or took unnecessary risks) is fun. I’m saying it’s necessary because moral hazard is real, it’s not the role of government to involve itself and our government couldn’t afford it anyway.
One reason PPI and CPI aren’t up the way they would be is the change to the measures. Look at the base years. Why did they choose those years? What else did they change since “the 70s”? Further, keep in mind core CPI excludes both food and energy. For the most part, I understand what you’re saying, but where I think I disagree is in that I think “some” of the money is “out”… I think that that money is providing the citizenry with this notion that the economy is semi-stable. It’s a mask. What’s underneath the mask is very, very ugly.
ha ha. Agreed.
I know you do. That’s kinda where you lose me. I don’t believe in that “eyes and triangles” stuff. But, I do think I agree with your underlying message that some see a one world system as a potential positive and that getting there is a bitch. I totally 100% agree with your final sentence.
I don’t think it had to do with debt deflation either. My personal opinion is the last meltdown was caused by a number of circumstances, but the primary catalyst was the Fed. Here’s how: post 9/11/01 recession the Fed lowered interest rates. They kept them low for too long, and then raised them suddenly. This built up excess demand for a number of interest-related products. Meanwhile, in the housing market mortgage originations went from 10% ARMs to 50% ARMS in a matter of 4-5 years. So, when the Fed decided to start raising interest rates, many (particularly those who were high risk) who took out ARMs and couldn’t afford it, began to default. As that began, speculators bailed seeing a potential fall in prices. Obviously, it was a snowball effect in housing from there, which spilled into finance. We all know the story from there. My point is the increase in the use of ARMs really wouldn’t have been a problem if interest rates didn’t reset higher so quick, or were so low to begin with. Interest rates built the bubble, and they collapsed the bubble. Hence, why I said “I do agree with you about interest rates turning up potentiall being a turning point”.
Well, right, we’re both deleveraging or trying to.
I do agree with there being a lot of functionality with overseas economies. I mean this is another area where the Fed role completely loses me and why I’d like to know what “exactly” they are doing. Their role is not to involve themselves overseas. If they are, it should be as transparent as possible,… it’s not. This gets back to why… and I think we agree on the why.
Personally, I don't see how keeping rates low solves anything. It's like continually popping another pill when you know the drug's killing you. It may provide a short-term lift, but long term it's worsening the situation. I totally understand "weaning" off... but, we're NOT doing that. So, my point all along is I don't agree that taking the punch in the face would have been as bad if we took earlier. I've said it would be bad, but it will be worse and worse the longer we play this game. We need to "get clean" here. We got to wean off the drug. The earlier we face reality, the better. We're in the long run now.
What I don't understand is any perspective on this scenario being horrible in the long run, yet advocating that the Fed needs to keep the charade going in the short run. I mean the essence of Keynesianism is saying the short run is all that matters. To me, we got to get out now in short run or at least begin to wean, and that way it will be a bit worse later. Like saying, the drug addict will do a bit less damage by quitting a year or two earlier.... before they have their heart-attack.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="
IMF warns of protracted period of Eurozone Deflation
EDIT: Better Article On IMF - Deflation Comments
Btw. I don't scour for economic headlines religiously to match my opinions. What I do do however is check the spot price of gold about 5 times a day. When I see violent and obviously news driven spikes, THEN I scour for the "reason". Most ofthe time it's just spin masquerading as "news". Rarely it is actual news. This one is somewhere in the middle. Useful spin (serves central banks to have an excuse to inflate/suppress rates) but also likely to be true.
Oddly topical to our convo, though.
Also, sidenote, this is the first time in a LONG time that I've seen the gold charts trade in a normal two sided fashion on a news related move. For months metals have only traded to one side of the story, where, in my experience, markets typically bounce in both directions on news (like today).
Ps - if you don't agree that a broad market segment collapse would turn the world order it's head, do you at least acknowledge the theoretical dangers of rising interest rates bankrupting the us government as it would be unable to pay at essentially any rate higher than the zero-to-one percent range? And do you acknowledge that such a danger would fundamentally undermine the current political order? Do you see what I am getting at here? Also, to be clear, I'm not saying this is an acceptable reason to inflate, I'm just saying it is primarily WHY they ARE doing it.
If I opened it now would you not understand?
I do understand.
But, I think you're kinda putting words in my mouth. I didn't ever say a "broad market segment collapse" would not turn the world order on it's head. I think it may; but it depends... first let's answer a few things - in this scenario, what caused this "market segment collapse"? What degree effect constitutes turning the world order on its head? What exactly is any of this undefined semantics (market segment collapse, turning on head ect)?
What I think you're referring to is when I said that we could have done nothing during the financial crisis and been better off in the long term. I suppose your kinda try to connect the dots and say there would have been a broad segment market collapse in response. First, like I said, I have no idea what you mean by "broad segment market collapse "- how severe is this - what exactly is it. Regardless, I think this is simply semantics. Not sure we disagree. Second, I do think the world order would have had issues if we left things go (which I advocate). But, in my opinion, the world order would have had less issues over the long haul if we let things go and didn't tamper and try to play God. Afterall, like I've said repetitively, it's the tampering and playing God that pretty much got us here to begin with. I already spelled that out. Keynesian economics got us here, pretending like it will get us out (in my personal opinion) is not wise.
Regardless, I don't even like talking "world order" because I don't believe this is a "all seeing eye" conspiracy. To me - It's nations. It's governments. It's people.
As for your other point, of course rising interest rates will effect the US government's ability to pay (holding all else constant... back to this in a moment) - I think I've said already that things could head south with rising interest rates - I think we'd definitely have a recession (but once again - how severe would it be? how long would it last?). Further, we need to note - taking on more debt (or devaluing your currency) and waiting to pay through normal non-printing means probably doesn't make paying down debt easier (regardless of interest rates). So, the scenario laid out in the first sentence of this paragraph is fictitious (all else is NOT constant).
Also, it should be noted that it works both ways- rising interest rates effect debt and credit. So, my point on the EU causing this is the market won't wait for governments to play this game. And governments can't necessarily control other governments. Every government can't keep using credit cards to pay off debt and pretend the plus is it's keeping interest rates low.... they can't pay now with pretty much zero% rates, for their payment it doesn't really matter. They keep their focus on teh GDP side of the leverage ratio... they should be looking at the debt side of matters.
Regardless, like I said earlier, I would think a rise in interest rates certainly could be a scenario where things go south. There have been historic violations to this thought process though (Volker years), but I do think economic growth would take a hit. The severity is the question - and neither of us know that answer. But, what I'm saying is there's a lot of variables at play in deleveraging. And waiting, printing money won't solve this crisis - because the debt won't go away. It's fundamental - we got to face it.
So in conclusion, it doesn't make it any less likely that it will blow up in our face with the Fed trying to price (interest rate) control below market rates. In fact, I say it makes it much more likely. I think there's a better opportunity to save the political or world order (or in my words - governments as they are) by facing reality and letting interest rates rise to their natural levels (where the market would place them). Clearly, even if we don't know where that is, it's definitely not zero%. What they are doing now is creating new bubbles to get them out of their old bubbles bust. To paraphrase what you're saying they are 'inflating the way out'. What I'm saying is - they aren't getting "out" at all through inflating. They are getting new credit cards to pay off their old debt. It's not going to get them anywhere.
Anyway, I know exactly WHY they are doing it - they think they can force the GDP up, thereby control debt/gdp. And I know they are WRONG for doing it because their making the debt part worse in doing so... to me - it's making matters worse, much worse.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="
Pretty much agree with everything here.
Notes:
my use of "world order" was not a conspiratorial one. I was referring to the Current Economic Order. No semantics. No implicit undertones. No Eye & Triangle. I just mean if the banks surrounding the current governments collapse, in all likely hood the pressure put on those governments would be so severe that even they would collapse. By World Economic Order, all i meant was governments around the world as they WERE would have been facing riots in the street. If not factually insolvent themselves. Lets not forget that as the entire public sector would be going down the tubes, SO WOULD TAX REVENUES.
By "broad market segment collapse" i was not trying to put words in your mouth. You explicitly stated that you thought the Fed having done nothing post-2008 would have lead to it all flushing out. A lot of pain, but we would correct and eventually get better. I am saying, for better or for worse, I am forced to agree with the Elite Planners (Bernanke, et al.) that the systemic risk imposed would have been catastrophic. What EXACTLY did i mean by Broad Market Segment Collapse?
In bankruptcy:
every single large international bank
every single insurance company that had exposure
most of the investment firms & houses, retail brokers, and private equity firms
almost all large mortgage companies, and their underwriters, and their insurers
huge portions of the mutual funds, any fund, or firm holding these funds, etc.
any industry relying heavily on freely\readily available credit (auto manufacturers etc)
Trillions would be frozen and tied up pending almost impossibly complex legal proceedings in bankruptcy court.
Remember how bad the credit freeze was WITH massive bailouts?
God can you imagine it withOUT such "free money" being handed out?
I'm not sure what the disconnect is here, I'm not being snarky with you, it just seems implicit in the scenario that was going down. There were roughly $2,000,000,000,000 (2 trillion) in marked down Mortgage Backed Securites alone. I don't even want to try and dig for information on the CDOs and CDSs in question, but lets just say that the total value of products "in question" (facing either write-downs or write-offs) was around $10 trillion ... i think that is conservative ...
Look at what happend DESPITE BAILOUTS:
So. HOW HIGH did you want to see those losses go?
I know this sounds absurb, but i think the losses would have essentially been infinite ... no one can calculate or appreciate the severity of the systemic risk inherent in this scenario ... with all the Credit Default Swaps etc. having been issued. EVERYone in the financial sector was exposed, and once that toppled over ... who would be left to FUND ONGOING BUSINESS OPERATIONS FOR EVERY NORMAL BUSINESS IN THE COUNTRY ? and with WHAT MONEY? It would have all went up in smoke, or been frozen pending bankruptcy proceedings. Anyone that DID manage to survive surely would not be lending (hell the ones that did survive WERENT lending ... do you remember all the fuss about LIBOR etc immediately following the collapse?) ... not to anyone who needed the money, anyhow. If you needed the money, it surely would imply that you were exposed, and if you were exposed, you were the plague, who would lend to that? That's my point. Even WITH bailouts, and massive Government\Fed Guarantees\Backstops they STILL weren't lending.
And then you have to figure in that commercial banks figure pretty heavily in to the Treasury Buying Equation ... with them all knocked on their feet ... who would be funding the governments of the world?
I'm just saying, THAT is what i meant by "broad market segment collapse".
It wasn't just a few banks at risk. it was EVERYone. Who WASN'T playing "the game" with that stuff? Sure JP Morgan got wise and dumped a bunch leading in to 2008, but I'm sure even they would have had enough exposure to get ram-rodded.
If I opened it now would you not understand?
I think we're on the same page, but for arguments sake, I'll respond...
Simply put - the governments WILL "face riots in the streets" and WILL be factually "insolvent themselves". I don't disagree that tax revenues would have taken a huge one-time shot. But, now instead, they are taking years and years of little shots anyway. And let's be real here... the world did exist prior to CDS, MBS, ABS, CDO, etc. Not trying to downplay their importance, just trying to say it's surviveable. Sure, defaults would have been severe. I am saying, don't be naive... you even say defaults are coming. I completely disagree that the if we dealt with it from the get-go the corporate defaults would have ended the world. It wouldn't have. As if the government defaults won't be just as bad. To me the whole game is a Keynesian fear tactic. Things would have been bad. And it would have been worse (in the short run). Maybe the Dow would have plummeted to 2000. Maybe unemployment would have jumped beyond 15% or even 22%, but it would have bled out. We wouldn't be waiting for the blood in the streets. It would be cleaned up. We could potentially be recovering right now. Instead, we've prolonged the agony. We're still waiting for the axe to fall.
All well and good. I'm not going to say that it wouldn't have been a mess. No offense, but I kinda feel like you're not listening. It would have been a mess. But, it would be over quicker. You even admit we're NOT going to get out of this. No offense, for that reason, your logic is incredibly confusing. You're saying this WILL be a disaster. But, you're defending how we got here and are saying that things WOULD HAVE been disastrous if we didn't do what we did. I'm saying it will be disastrous anyway, which you agree with. And my point is we're prolonging it (making it worse) and because of that over teh long haul in total terms, this will be worse. Much, much worse. You can certainly debate the it will be worse if you'd like. But, all of this is "what would have been" arguments and it's impossible to prove counterfactuals.
I can imagine it. Yes. In my opinion, we would have survived. It would have been horrible, but it was terrible anyway. Moreover, in my opinion, we'd be better off in the long run.
I understand that there was a ton of money in MBS alone. I also know there was a ton of money in CDOs and CDSs. Regardless, I think that "nothing was saved". The debt simply switched hands. It's now on the governments. It would have been better left on the risk takers who took poor risks.
Once again, I'm losing you when you seem to act as though the problem went away and the Fed saved us from something, then say the problem that is out there now is mounting and horrible, it doesn't add up. The problem just switched from being primarily on the financial sector to the public sector.
I know for sure the losses wouldn't have been "infinite". I'm pretty sure you were just being dramatic there. Most likely, a lot of the debt wouldn't have been repaid. Most in the financial sector were exposed, but to different degrees. Acting as though all money that exists in the world was in ABS is silly - it wasn't. But, I'm not saying it wouldn't have been incredibly problematic (much more so than it was). It would have been. You're right a lot of money was involved. It would have been bad. But, the entire problem would have been dealt with. Risk takers would have been penalized, as they should have been. A huge number of big corporations that involved themselves in this would have declared bankruptcy. I think the bankruptcy process would have also been nighmareish, but it would have been over eventually.
I do think lending would have also recovered. Rates would have shot up (if markets were allowed to set them) due to the fact that risk was finally realized. But, given time, it wouldn't have been unattainable. I mean realistically - there was a credit crunch anyway... it just would have been a longer more severe one. So, sure, temporarily the credit crisis would have been even shittier than it was. But, I don't agree we wouldn't have gotten out.
Like I said before, I understand a huge portion of big business was involved in ABS, CDSs.... and they would have paid a price for the risk. But, the world did exist prior to ABS, CDSs, etc. And we could have if that system completely collapsed. Even if credit dried up temporarily, if untampered, I believe it would have leaked out eventually. I sincerely believe, we'd be in a full world recovery from a true "known" depression right now if the FED didn't involve itself. Instead, I believe we've had a shitty couple years, and are not truly recovering and our simply waiting for the axe to fall anyway. We're in a depression, it's just unknown. Right now, the only thing keeping us from knowing is inflation. When it does fall, it won't just affect business tied by risk, it will affect every single human with any form of money. And that, my friend, is why I believe The Fed made matters much, much, much worse.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="
For the sake of everyone else, i'll keep this short.
I AGREE WITH YOU.
I'm sorry to have sounded needlessly combative.
Part of it was my anger over others (on here and elsewhere) who at the time were saying, "let it crash, let it crash" or "don't bail out", and i was just shaking my head, going, "i don't think ya'll have ANY idea just HOW bad it will be".
But i take almost ALL of your points.
We have solved nothing, and i know you understand (given your constant reiteration of being confused at my "it would have been worse, but yet it is still horrible" lines) that this is the case.
I also enjoy your point that we have essentially transferred a large portion of the default-risk on to the public sector (the US government) and off of the rightful inheritors of risk.
I am in full agreement with you.
I guess i was just trying to iterate that, for the sake of the world continuing on (albeit, with it's head in the sand) ... even if just for another 5 years or so ... those bailouts\backstops were crucial.
The only thing i am not sure i agree with you on (and who can ever know) is that "things would work out in the end" or however you phrased it. I think the amount of shit, violence, catastrophe, and woe would have been unfathomably immense, and I'm doubtful if world governments could maintain order through such massive pain. My notion of how they would have "worked out" was somewhat Mad-Maxian. And I don't consider that "worked out".
On the other hand, your point is equally valid ...
we are still in store for all of this, i believe.
Its just a question of how it will all play out at this point,
since the Keynesians are back to their shell-game tactics of move-the-debt-here print-the-money-there here a swap, there a swap, everywhere a swap swap.
If I opened it now would you not understand?
I got a pretty good idea how bad it could be today. I was just talking with my wife about recent news of yet two more long-standing businesses around here going under. They're dropping like flies. No, it's not good. We are very lucky to still be in the used book business. VERY lucky! But can you stop an out of control train from wrecking or do you just try to minimize the damage? And when the boat's not safe and one captain after another is making waves, what do you do? Once again my answer- and it's admittedly it's not based on a strong economics education but more on gut instinct- live in a community that can be mostly self sufficient, learn to live with less, live more simply and be good to those around you.
-Eddie Vedder, "Smile"
No worries. I knew you and I are pretty much on the same page. We may have a caveat here or there, but they are pretty minor,... for the most part they have to deal with past stuff, which is past... so who cares ha ha.
PS - what do you do for a living? Tracking gold prices isn't typical everyday guy stuff! Do you do that for work? Investing?
PPS - I just watched Doomsday Preppers on Nat Geo... ha ha... you should check it out. It was hysterical the convo my wife and I had about our own thoughts on a doomsday scenario afterwards. If only MT could have been a fly on the wall.
Yeh, I know that's the one area we're kinda separate on. I guess we'll never know for sure. It will be interesting if there is a crash, which I hope there isn't (and I'm wrong in my own predictions), what will occur. I think it will be bad.. as we've gone over, but I think the biggest street-related problems will really stem from government programs being taken away as well as the crash. Not sure the corporations (08 crash stuff) being taken away would have created the same violence, etc. But, we'll never know for sure. So, our difference in opinion can be left at that.
I like the "here a swap, there a swap, everywhere a swap, swap"... gonna have to use that one.
<object height="81" width="100%"> <param name="movie" value="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869"></param> <param name="allowscriptaccess" value="always"></param> <embed allowscriptaccess="always" height="81" src="https://player.soundcloud.com/player.swf?url=http://api.soundcloud.com/tracks/28998869" type="application/x-shockwave-flash" width="100%"></embed> </object> <span><a href=" - In the Fire (demo)</a> by <a href="