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Understanding Failed Central Bank Policies


By Patrick   Follow   Sun, 3 Mar 2013, 10:06am PST   301 views   6 comments
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http://www.oftwominds.com/blogmar13/wage-effect3-13.html

The wealth effect concept is simple: flooding the economy with credit and zero-interest money boosts the value of assets such as housing, stocks and bonds. Those owning the assets feel wealthier, and thus more inclined to borrow and spend more money. This new spending creates more demand which then leads employers to hire more employees.

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futuresmc   Mon, 4 Mar 2013, 1:56pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

Where this article misses the mark is in it's assumption that wages will rise with increases in production. They haven't for decades. The rewards from production increases are being siphoned off by that 10% who do own stock, and the top 10% of those do most of the damage. Until we find a means of enforcing parity of wage and production increases, there will be no wealth effect.

curious2   Mon, 4 Mar 2013, 2:04pm PST   Share   Quote   Permalink   Like (3)   Dislike     Comment 2

The article makes a common error in stating that "the central bankers got it wrong...."

When smart people continue a policy that is obviously failing to achieve its stated objective, whether the drug war or ZIRP&QE, we must consider the logical explanation: the policy is succeeding by other terms. The drug war succeeds perfectly for the patronage networks of the politicians who continue it: the prison-industrial complex, PhRMA, etc. Likewise TARP, ZIRP&QE succeed perfectly for the TBTF (and now too big even to prosecute!) bankers who control the federal government including especially the Fed. They didn't get it wrong. They got it right, as can be corroborated by their ever larger bonuses and other payouts.

taxee   Tue, 5 Mar 2013, 6:00am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 3

Good analysis. Now factor in that since 'globalization' kicked in we have been 'benefiting' from low priced manufactured goods (quality and accountability issues anyone?) Thanks goes to foreign low wage slaves who have replaced us. The finance guys need to keep up the appearance of still doing something so that they can justify taking their humongous cut. The fact that they are grabbing everything in sight while their taxes are at historic lows might be a clue to the nature of the problem. Not sure how long they can keep up the charade but they're doing a fine job.

New Renter   Tue, 5 Mar 2013, 7:21am PST   Share   Quote   Permalink   Like   Dislike     Comment 4

donjumpsuit says

I think we need a new term for "Socialism".

Something like:

The Trickle up effect.

No, that would be capitalism.

taxee   Tue, 5 Mar 2013, 8:36am PST   Share   Quote   Permalink   Like   Dislike     Comment 5

Old Russian joke: Capitalism is man against man. Socialism it's the other way around.

New Renter   Tue, 5 Mar 2013, 11:40am PST   Share   Quote   Permalink   Like   Dislike     Comment 6

taxee says

Old Russian joke: Capitalism is man against man. Socialism it's the other way around.

Was that before or after the revolution?

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