What is the Job of the Fed Res

I'm in pretty close agreement.

 

Their standard of living is decreasing over time.

This is extremely vague.

Both of our hypotheses cannot be subjected to scientific experimentation, so your "test", whatever it is, is not science.

Neither of the opinions we're espousing is a "theory". A "theory" is an explanation of observations that has withstood rigorous and repeated experimentation, and your opinion does not rise to this standard. Evolution is a theory; general relativity is a theory; your economic ideology is a conglomeration of complimentary opinions.

We also experienced historically high savings rates during the recovery, a variable you ignore when it suites you.

You see, in order to arrive at a valid conclusion, you must account for all the significant variables. You can't ignore savings rates because it suites you personally.

Sure, you're well off, so are my dad and my uncle. I'll be well off soon enough. But that's nothing compared to the amount of money the bankers and speculators have. They would kill themselves if they made as much money as you. To them, you're a broke-ass loser.

 

But it was increasing over time between 1945-1980. So what changed after 1980?

Sure it can. My experimentation is America. You are sounding more and more like an Austrian.

It has, there has never been a point of sustained deflation that has ever lead to sustained economic growth. Basically what you are saying is there is no reason for economic theory and whatever we try or do does not matter because things will happen the way they happen regardless.

Along with historically high Govt spending to compensate the savings. A variable you ignore when it suites you.

What are you saying about the savings rate? Are you honestly saying people not spending money lead to the economic recovery? Do you really want to say that?

That's fine. I don't care about $100 million golden parachutes. I care about my family, friends, and girlfriend. As long as I have enough for food on the plate, a nice home, a car or two, and a nice savings, I'm fine. I honestly do not need banker or speculator money. Which is why America is so great!!

 

Unless you want to foreclose on the country, the economy needs more cash. How else are we going to pay down that $13,000,000,000,000 mortgage? Car washes?

 

The dollar has 2% of its purchasing power left from when the FED took over in 1913. Keeping the dollar stable? If that was their intent I say they failed miserably. But let's not kid ourselves, we all know it had nothing to do with that.

 

It is stable because since 1980 the Fed has managed the money supply within a point or two of the target 2-3% inflation rate, avoiding large fluctuations between inflation and deflation that were characteristic of the gold standard.

 

The 100 years of the Fed has been the "American Century" where the US has grown economically to become the economic power house of the world with a standard of living few other countries can even dream about, and those that come close do so with a monetary system that copies are own.

This is what you are holding up as evidence of the "damage" of the Fed?

Lowering estate taxes, and having a special low 15% investment tax, less than half the rate on income that is earned, along with numerous tax loopholes paid for by running up trillions of debt and theft of the SS taxes the working people pay, certainly hasn't hurt.

A small amount of inflation does encourage INVESTING which is economically beneficial over HOARDING which is not. When people HOARD (holding cash in a vault) the money is not available for use in the economy. When people INVEST, the money is available for loans and business expansion.

The former is not beneficial; the latter is.

Depends on how much risk you take. There are certainly very low risk investments (eg Govt guaranteed CDs and bonds) that provide returns that generally hedge against inflation with very little risk.

Longer term investment provide superior returns exceeding inflation but are subject to periods of loss.

Yet it is far more productive for the economy to have people INVEST instead of HOARD.

If people hold of spending in recessions, how does that not make a recession even worse?

I agree saving is beneficial. The issue is whether it is beneficial that the savings is INVESTED or HOARDED.


It can easily be argued that "maximum productivity" that is created artificially has negative repercussions - not the least of which is huge debt that requires higher taxes in order to pay interest.

Everyman has little to invest. But safe inflation hedges are available to everyman. See above.

That doesn't follow at all. If what you said was true, we'd have seen the greatest income inequality in the 1970s.

We had higher inflation in the 1960s and 1970s with less income equality, and low inflation in the 1990s and 2000s, with far greater income inequality.

Income inequality is a function of many factors, but inflation doesn't seem to be a significant factor.

You've been mislead by anti-Fed propaganda. The Fed is a non-profit organization that earns nothing and pays its income to the US Treasury.

The member banks that are required by law to pay in a percentage of their capital to the Fed receive a 6% return on their required contribution, which for a business investment, isn't that great of a return.

 

I think most people in the RE business understood. But hey, we were making money so why beef?

 

I have seen zero evidence that deregulation contributed to the crisis.

Sure it does. The moral hazard was larger than ever because of all of the regulations in place insulating some banks from failure. True deregulation would have meant the banks would have failed. The prospect of failure eliminates the moral hazard.

We have discussed this in depth in the Creation of the Fed thread. Eventually you resorted to repetetively saying, "I disagree with your opinions for reasons stated" and then you ran away and hid.

 

I think you certainly have a point that the culture of business that focuses on short term profit (and bonuses) over long term performance and safety is a big factor on why these kind of markets go to such excess without adequate regulation. There are lots of people that made killings on bonuses and fees.

But I think that the big investors probably thought that their risk was diversified and insured through credit default swaps that didn't foresee the risk that these unregulated markets actually posed.

 

Are you seriously going to argue that periods of deflation to counter the inflation is worse then a steady guaranteed inflation? I don't care if they hit the mark of a constant 1%. That still adds up to our dollar one day being worthless, along with our property and labor.

 

It's right in front of your face and you have acknowledged it in the past. The no money down, no income verification teaser rate loans that got people into mortgages they couldn't afford, the credit default swaps from triple AAA rated companies that turned out to be worthless are a couple prime examples.

True deregulation would have meant the banks failed and the economy would have gone into another great depression.

No thanks!

No, I state the reasons I disagreed with your fanciful claims, and wrote that when you repeated the same baseless arguments over and over.

But that is what I thought. So I will repeat my assertion that Free banking whatever that means would not be no solution to economic exposure to shoddy lending practices. In fact, it would lead to far greater opportunities for abuse, which even you agreed would require many more layers of regulation to avoid.

We have discussed this in depth in the prior thread and I refer you to that.

 

See post #107. A low level of inflation makes money a means of exchange but not a viable long term investment. Thus people are encouraged to invest, which is beneficial for the economy, as opposed to hoard, which is not. Furthermore, it means generally that credit is available at a reasonable cost, encouraging business expansion and productivity. Finally, it makes the value of fixed obligations (eg mortgage payments) relatively less expensive over time, while the value of the property securing the loans (homes) relatively more valuable.

Deflation can wreak havoc. Look at the disaster falling house prices have caused.

 

You have presented a logical fallacy. You're assuming that these banks would have maneuvered into their insolvent positions in the first place given a deregulated free banking system. The absence of the moral hazard would greatly limit that.

Also, the housing market has been in a depression for 3.5 years and unemployment is still at 10%. Economic suffering is still very evident. Bailing out banks just creates the moral hazard that caused the problems in the first place, and passes their losses onto taxpayers. I disagree that the situations which created the problem in the first place make for sustainable solutions.

You simply resorted to saying that you disagreed with points that were not opinions. They were facts that you failed to disprove.

http://lmgtfy.com/?q=free+banking

First link that comes up is a wikipedia page that I've already provided you with several times that explains in great detail "whatever that means".

This is a baseless claim. Your own sources have admitted that the moral hazard was a large part of what contributed to the crisis. The moral hazard is absent in a free banking system becuase there are no prospects of insulation from failure and bailouts.

Depends on what kind of regulations you are talking about. I agreed that regulations such as heavy auditing to ensure that fraudulent practices weren't taking place should occur. I never agreed that "many more layers" of regulation would be necessary to avoid shoddy lending practices. Remember, you're talking about shoddy lending practices that occured in a heavily regulated central banking system, not a free market banking system.

 

I'm not sure how all of these things work, but I do know that we went through a spate of home builders trying to re-cast their loans in 2004 and 2005 because they had big inventories of see-through homes in their subdivisions - and people were still opening up new subdivisions with new cash. That should have been a big enough hint for the lenders back east to put on the brakes but, hey, they were making money, too. I think the tendancy is for people to think they will be someplace else in a year and they can wash their hands of the bad decisions they made today.

 

Lenders were making huge fees bundling up these mortgages (securitizations) and selling them to investors, who were happy to get the higher interst payment and thought their risk was minimized through diversification and the unregulated derivitive insurance (credit default swaps).

They were making bucket loads of money, which history teaches, tends to make some blind to the actual risk.

 

You have presented a logical fallacy that banks in a deregulated market don't engage, knowingly or unkowingly, in risky ventures in pursuit of higher profits (and bonuses).

History proves that fallacy.

I agree that the housing market is still depressed and unemployment is too high. But in all likelihood, it would have been a lot worse. Unemployment is now falling, by whatever measure you want to use.

False. The record speaks for itself.

I'll refer to the prior thread.

First that is fanciful, second they would have the same hazards from risk that banks have no and your point in no way rebuts mine.

 

If you don't think this was caused by an unregulated disaster of the banking system and Wall Street than read the book The End of Wall Street.

All politics aside, Wall Street effed up. They leveraged themselves and played a game of chicken and lost.

There was even one quote in the book from a CEO of Lehman or one of the big ones that said he didn't even know what was going on in the subprime securities market at his own company because it was such a small piece of their portfolio.

Now, if something as small as subprime securities can bring the system to their knees, than you have a regulatory problem. There is nothing the Fed can do about this.

 

This doesn't answer my opening claim, which is that intentionally inflationary monetary policy automatically creates an exaggeratedly widened chasm between rich and poor.

Your response also does not demonstrate how the US would not have grown to become the economic powerhouse that it is without FED involvement, particularly since our economic growth was meteoric prior to the institution of the FED.

.

Non-sequitur. All you interject here is a way to take back money that the rich earned through their actions. It doesn't address the core flaw in the system whatsoever. By taking back excess money from hyper-inflated earnings, all you're guaranteeing is the automatic growth of Government.

Which, IMO, is the entire point of this system. This system is about control, and your response doesn't eliminate control, it enhances it.

You simply reiterated the claim. My claim is that an economy is far more healthy when its participants have savings, instead of constantly having to play Russian Roulette with being forced to keep their assets at risk.

Everyone at risk due to an inflationary system means that the system is artificially creating winners and losers.

Additionally, my claim is that savings reduces the volatility of up and down economic swings, by providing a critical psychological and financial buffer for those participating in the markets, resulting in less stressful buying decisions.

You'd think that someone - like you - who thinks that this economy starts and stops with the spending habits of the lower classes would AGREE with this position, and WANT a system which promotes savings.

It is also my assertion that people who feel like they have secured their financial future through adequate savings also invest subsequently in higher risk ventures, which accomplish what it is you claim to want: investment.

But at least they're able to do it through having secured their financial condition first. High risk should be something that takes place after low risk has succeeded - not before.

Not sufficient. We all know that neither CDs or bonds have proved to be anywhere near sufficient to keep up with real inflation. Trying to claim otherwise simply reveals that the objector isn't interested in the truth.

Which is what I've said. Have you considered that the system may be intended to create these outcomes, as shaking an apple tree dislodges apples?

This system games people for their hard-earned wealth.

I object to your wording. Saving is not hoarding. We've removed the ability and incentive for most people to save appreciably, which has HURT our economy.

That's going to be very hard to disagree with credibly. It is causing the have-nots to continue to have-not, while accelerating the acquisition of the haves - just as I said.

It has not been established that the economy operates better without a basis of saved wealth for the population. The goal of any system should be for its individual participants to gain without unequal advantage for those at the top.

You are intentionally missing the point? People who have savings spend more during a recession. That's the point of having savings.

You've spent your entire response so far trying to claim the opposite. It is pointless for you to agree that savings is beneficial, and then defend the system which penalizes saving.

This hoarding thing you keep capitalizing wasn't an issue when our economy explosively grew in the latter 1800's...so why are you worrying about it now?

This is my own quote.

Try to make the case that CDs and Bonds have been keeping up with inflation. I wish to be amused.

In addition, you forget that "everyman" is having his personal value in terms of wage compensation diminished through such a system. Wages not keeping up with inflation is a consequence of an inflationary system.

Of course it follows: money injected into the system is naturally going to gravitate to those best connected to receive it, and those most able to collect it.

And no one has said that other factors in the economy cannot influence these things - but connecting the dots to the core dysfunction of the system isn't difficult. As for other factors in the 60s and 70s, outsourcing, less cronyist influence over our Government than the present, and the contemporary opportunities provided by the tech and housing booms where those who already had money from the 60s and 70s to invest in these booms played a role.

In short: the money was already playing on the table. Inflation, at that point, only has long-term influences. Short-term influences create the magnification of the long-term imbalance.

I just explained how it is.

This article explains all you need to know about it.

Um...

How many investments on this Earth are available that guarantee a 6% return on massive capital investment?

Regardless: this isn't the core of my complaint. The core is the damage that this form of monetary theory does to our society.

 

1.Australia. In the late 19th century, banking in Australia was subject to little regulation. There were four large banks with over 100 branches each, that together had about half of the banking business, and branch banking and deposit banking were much more advanced than other more regulated countries such as the UK and USA. Banks accepted each other's notes at par. Interest margins were about 4% p.a. In the 1890s a land price crash caused the failure of many smaller banks and building societies. Bankruptcy legislation put in place at the time gave bank debtors generous terms they could restructure under, and most of the banks used this as a means to restructure their debts in their favor, even though they didn't really need to.
From your link. Gov't stepped in and gave the banks favorable legislation. Not really free now is it.

 

Are you trying to counter Righteous' claims here, or assist?

Your point further demonstrates that Government interference is harmful.

 

I addressed it later in my post.

I didn't say it would not have. But it did with the Fed.

It is not a non-sequitur, but a valid explanation as to why income inequality has grown more at periods when inflation was lower.

What hyper inflation?

The Fed system does not guarantee growth of government, proved during the Clinton administration, when Govt shrank.

You've simply reiterated your claim. What is the proof of your claims?

Everyone is not at risk. I agree it helps those with fixed obligations and hurts those with fixed income. But benefits the economy as a whole by making saving INVESTMENTS and not HOARDING cash.

What is the proof of your claim?

I want a system that promotes investment savings, not hoarding savings.

That is exactly what we want. That doesn't happen if they hoard, which they will be more prone to do if cash has an independent investment value.

Everyone has their own risk tolerance.

I don't think that is accurate. How do we know that "neither CDs or bonds have proved to be anywhere near sufficient to keep up with real inflation"?

Sure. It encourages people to invest their money in ways that will help the economy instead of hoarding cash.

Object away. Hoarding is holding cash, as opposed to investing, which is puting your money in a bank, bond or stock that provides an economic benefit.

Hoarding cash doesn't benefit anyone.

So far all you've offered is an unsupported assertion. I disagree with your premise.

I certainly agree an economy needs a degree of savings.

I did miss your point. What is the basis for your contention that people with savings spend more during a recession? The opposite happens. People are insecure about their incomes and spend less, and hoard more.

Are you intentionally missing the point? Where did I ever claim saving is not beneficial?

Saving is beneficial. But primarily if the saving results in capital that can be used to for the economy. Saving is not very beneficial when it amounts to holding a hoard of cash in a vault.

Where they hoarding in the 1800s? You'll have to refer me to the data.

But the 1800s were certainly categorized by major economic boom and bust swings.

You're the one who claimed "We all know that neither CDs or bonds have proved to be anywhere near sufficient to keep up with real inflation."

Can't back it up?

http://www.jumbocdinvestments.com/w...investments.2011/historical-rates/graph1y.php
http://www.jumbocdinvestments.com/historicalcdrates.htm

While the CD rates are not higher than inflation every single year, on average they are significantly higher than inflation and provide a safe hedge against inflation for folks that dont' want their savings at risk.

Nonsense. Incomes change relative to prices based upon the demand for labor and productivity.

Until the last decade, incomes have generally grown signficantly relative to inflation.

That doesn't follow at all, and is simply a baseless, unsupported assertion which as I've proved is contradicted by the historical evidence.

Obviously those "other factors" play a much more significant role than inflation. Or we would have had far greater income inequality in the 1970s if your baseless, unsupport assertion were correct.

So your argument is that in the late 1960s and early 1970s when we had high inflation and low income inequality proves that inflation is why we had high income inequality in the 1990s and 2000s when we had the lowest inflation.

Maybe others are impressed by your argument.

What article?

I appreciate you have a complaint. What I haven't seen is substantiation.

 

Every single business in a free market engages, knowingly or unknowingly, in risky ventures in pursuit of higher profits and bonuses. Your point is moot.

I agree that it probably would have been worse and that unemployment is falling. But the suffering would have also likely been alot quicker and the market would have corrected itself more quickly than under this system where the bad debt was not allowed to liquidate and failed businesses were propped up at the expense of taxpayers. Government spending to improve consumption/GDP had to allocate the resources to spend the money from somewhere, and it came from the private sector. But that means that the private sector was forced to spend money now that it would have otherwise spent later. We are in the process of creating another economic bubble because of that.

We can let the others read the thread and decide for themselves who presented the stronger argument.

It is not fanciful at all.
Please explain how a moral hazard exists in the absence of the prospect of being insulated from failure.

Please explain how a free banking system would "lead to far greater opportunities for abuse".

 

No, it's not. There is no source cited for any of the claims in that paragraph either.

 

It's not moot at all. Unregulated credit market result in bubbles for that exact reason.

It's possible. It is also possible that a greatly bigger chuck of the economy would have been unnecessarily destroyed and the hole would have been far deeper.

I'm perfectly happy we did not test that theory out.

Misperception of the risk of failure.

I'll refer to the previous thread rather than regurgitate it yet another time here.