patrick.net

It depends on your definition of broke.

theoakman says

It depends on your definition of broke.

If the Fed is the banks' bank (as in - a consortium of private banks), then shouldn't it be allowed to go broke when it is incompetent? It is scary that such monstrous institutions are in place. They are there to ensure our protection, whereas now they have to ensure their own.

austrian_man, you're retarded posts are giving a bad rep to Misean thought.

Unless you're just Austrian like the ex-governator, then apologies since your stupidity can probably be cured.

The Fed was created early in the previous century to provide monetary backing to the financial sector, so Wall Street wouldn't be dependent on itself should it fuck itself up, like it did in 1819, 1837, 1857, 1873, 1884, 1893, 1901, 1907, and 1910.

I'm not particularly happy with what the Fed has done 2008-2010, but the real mistakes were made in the 1998-2006 timeframe:

http://research.stlouisfed.org/fred2/series/CMDEBT

Eyeballing that graph, a sustainable situation would have total household debt at at most $9T today, not well over $13T.

The two choices here are 1) monetizing the trillions of bad debt or 2) cross-default collapse.

There is no third choice. The Fed is not a business and its "balance sheet" is irrelevant to its existence.

This is not to say that its actions now are harmless, or the wisest course of action.

"I don't have any solution, but I certainly admire the problem"

Troy says

austrian_man, you’re retarded posts are giving a bad rep to Misean thought.
Unless you’re just Austrian like the ex-governator, then apologies since your stupidity can probable be cured.
The Fed was created early in the previous century to provide monetary backing to the financial sector, so Wall Street wouldn’t be dependent on itself should it fuck itself up, like it did in 1819, 1837, 1857, 1873, 1884, 1893, 1901, 1907, and 1910.
I’m not particularly happy with what the Fed has done 2008-2010, but the real mistakes were made in the 1998-2006 timeframe:
http://research.stlouisfed.org/fred2/series/CMDEBT
Eyeballing that graph, a sustainable situation would have total household debt at at most $9T today, not well over $13T.
The two choices here are 1) monetizing the debt and 2) a cross-default collapse.
There is no third choice. The Fed is not a business and its “balance sheet” is irrelevant to its existence.
This is not to say that its actions now are harmless, or the wisest course of action.
“I don’t have any solution, but I certainly admire the problem”

Is Wall Street = Main Street?

Does Wall Street buy me food, energy, basic necessities?

If I did poor investing, I should get punished - not bailed out.

Ridiculing doesn't help if you can't explain things properly.

Ever since the Fed was created, the dollar value that you have in your pocket has been continuously eroded. The 1$ in 1913 is just worth 0.02 cents today. Excellent work by the Fed.

The only way this kind of systemic erosion of people's wealth can be avoided, is to have the medium of exchange in control of the people.

austrian_man says

Ever since the Fed was created, the dollar value that you have in your pocket has been continuously eroded. The 1$ in 1913 is just worth 0.02 cents today. Excellent work by the Fed.

Yes, but you now have 500 of them instead of 1. You cannot deny that we are infinitely more well off today than we were in 1913.

tatupu70 says

austrian_man says

Ever since the Fed was created, the dollar value that you have in your pocket has been continuously eroded. The 1$ in 1913 is just worth 0.02 cents today. Excellent work by the Fed.

Yes, but you now have 500 of them instead of 1. You cannot deny that we are infinitely more well off today than we were in 1913.

Go tell that to more than 16% of the population, who do not have a job. Seriously - you don't believe the statistical BS by the BLS right? Dropping discouraged people out of the labor force when calculating the unemployment rate - Very strong recovery indeed.

http://www.mybudget360.com/economic-chicanery-social-security-financial-headwinds-retirement-trust-fund-food-assistance-employment/

austrian_man says

tatupu70 says

austrian_man says

Ever since the Fed was created, the dollar value that you have in your pocket has been continuously eroded. The 1$ in 1913 is just worth 0.02 cents today. Excellent work by the Fed.

Yes, but you now have 500 of them instead of 1. You cannot deny that we are infinitely more well off today than we were in 1913.

Go tell that to more than 16% of the population, who do not have a job. Seriously - you don’t believe the statistical BS by the BLS right? Dropping discouraged people out of the labor force when calculating the unemployment rate - Very strong recovery indeed.
http://www.mybudget360.com/economic-chicanery-social-security-financial-headwinds-retirement-trust-fund-food-assistance-employment/

Oh, I see. Because we never had recessions before 1913, right? Or unemployment....

austrian_man says

The only way this kind of systemic erosion of people’s wealth can be avoided, is to have the medium of exchange in control of the people.

No, "the people" would choose to inflate worse than the Fed.

That's what this chart is telling you, fool:

http://research.stlouisfed.org/fred2/series/CMDEBT

Inflation actually helps debtors, and the bottom 80% of this country have a hell of a lot more debt than assets.

Not that I think inflation is a good idea at all, but I also don't expect we're going to get any more inflation for the foreseeable future.

We'll got inflation in some sectors, and deflation in others, since wages sure as hell aren't going anywhere.

The powers-that-be decided to do some very stupid things 1998-2006. I won't go into all of them here but if we don't start backing out these mistakes soon we'll probably never recover a viable economy.

Taxes need to be basically doubled from here. If we fail to do this then we'll be making the same mistakes Japan has made. I don't know if we'll follow their same trajectory, but so far I don't see why not.

Also, money isn't wealth, it's just a claim on wealth. Put your money to work if you want to have it retain its buying power. That's why there's been ~3% inflation since 1910.

If we could tax real estate returns (ie rents) more we'd really plug the biggest hole in the economy. But nobody can apparently see this sucking chest wound on the economy

tatupu70 says

austrian_man says

tatupu70 says

austrian_man says

Ever since the Fed was created, the dollar value that you have in your pocket has been continuously eroded. The 1$ in 1913 is just worth 0.02 cents today. Excellent work by the Fed.

Yes, but you now have 500 of them instead of 1. You cannot deny that we are infinitely more well off today than we were in 1913.

Go tell that to more than 16% of the population, who do not have a job. Seriously - you don’t believe the statistical BS by the BLS right? Dropping discouraged people out of the labor force when calculating the unemployment rate - Very strong recovery indeed.

http://www.mybudget360.com/economic-chicanery-social-security-financial-headwinds-retirement-trust-fund-food-assistance-employment/

Oh, I see. Because we never had recessions before 1913, right? Or unemployment….

We'll have all the malaises in the economy when the Government decides to spend beyond its means.. This includes war, unsustainable benefits etc.

Troy says

austrian_man says

The only way this kind of systemic erosion of people’s wealth can be avoided, is to have the medium of exchange in control of the people.

No, “the people” would choose to inflate worse than the Fed.
That’s what this chart is telling you, fool:
http://research.stlouisfed.org/fred2/series/CMDEBT
Inflation actually helps debtors, and the bottom 80% of this country have a hell of a lot more debt than assets.
Not that I think inflation is a good idea at all, but I also don’t expect we’re going to get any more inflation for the foreseeable future.
We’ll got inflation in some sectors, and deflation in others, since wages sure as hell aren’t going anywhere.
The powers-that-be decided to do some very stupid things 1998-2006. I won’t go into all of them here but if we don’t start backing out these mistakes soon we’ll probably never recover a viable economy.
Taxes need to be basically doubled from here. If we fail to do this then we’ll be making the same mistakes Japan has made. I don’t know if we’ll follow their same trajectory, but so far I don’t see why not.

Troy,

Why did households choose to take so much debt? The point is - the system is encouraging you to take more debt, regardless of whether you can pay it off or not. That itself is a corrupt and an inefficient system, because debt = future claim on human labor. why would anyone take on this future claim on their labor that they cannot sustain?

ZIRP, artificial supression of interest rates (all done by the Fed) leads people to think they can afford something they cannot and it creates a vicious cycle of unscrupulous lending and spending, eventually causing the busts.

My point is that the boom and bust cycles are there today because of the Fed. When we're trying to address a problem, we should always get to the root-cause and not blame the symptoms.

Your graph is the symptom, the most clear of all - that depicts the root-cause.

Troy says

Also, money isn’t wealth, it’s just a claim on wealth. Put your money to work if you want to have it retain its buying power. That’s why there’s been ~3% inflation since 1910.
If we could tax real estate returns (ie rents) more we’d really plug the biggest hole in the economy. But nobody can apparently see this sucking chest wound on the economy

One should also be able to save his wealth, which he obtains through productive efforts - if he chooses to do so. In that sense, money is simply a medium of exchange that can retain its buying power. When this buying power is eroded by whatever means, that means there's something fundamentally wrong with the system.

austrian_man says

why would anyone take on this future claim on their labor that they cannot sustain?

it's human nature. Borrowing works great until it doesn't. The 1970s and 80s were one great orgy of borrowing too, but that was probably supportable because the front wave of the baby boom generation was aged 20-28 in 1975 and 30-38 in 1985, ie just entering their prime productive years (and the latter half of the 20th century saw immense productivity gains in every area of the economy).

My point is that the boom and bust cycles are there today because of the Fed.

And you're utterly wrong about that. The credit cycle with its booms and busts existed in the 19th century too.

You can't have saving without borrowing, and as long as there are productive opportunities going untapped, wise use of credit will increase productivity and the debt will be repaid.

The problem now is that we went off the rails in 1998-2006, thinking buying and fixing up houses was a viable wealth-creation endeavor, and forgetting that a large part of the housing good is sheer consumption -- luxury -- and not actual economic wealth creation.

Plus of course land values are always volatile if not ephemeral and chasing them will utterly destroy every speculator eventually.

Economists are saying now that the economy has recovered in real terms since the recession, ie we're producing more now than in 2007:

http://www.csmonitor.com/Business/Paper-Economy/2011/0225/Estimate-of-Q4-2010-shows-slow-GDP-expansion

That is probably so but it just means we have too many -- tens of million -- superfluous people in this economy without viable opportunities of wealth-creation.

Plus of course all this "recovery" has come via THREE POINT THREE TRILLION in added treasury debt since 4Q07 and another trillion in the Fed monetizing debt.

We invested six trillion in Beanie Babies in the last decade. This economy is screwed still.

austrian_man says

when the Government decides to spend beyond its means.. This includes war, unsustainable benefits etc.

The government can never spend beyond its means, thanks to the 16th Amendment. Every dollar it spends can be taxed right back and spent again.

Now, whether it has the political capability to close this gap remains to be seen.

Much of the fiscal problem we face today could be solved by raising taxation gradually but relentlessly over the next 20 years, up to say a 45% top marginal rate. That would fix the "war" and some of the "unsustainable benefits" problem.

What remains after that is the trillions in unfunded Medicare spending promises. These need to be solved by some mix of higher health insurance contributions and profit controls.

austrian_man says

When this buying power is eroded by whatever means, that means there’s something fundamentally wrong with the system.

Sheer dogmatic foo-fah. Mild inflation may in fact be superior to static monetarism in creating greater economic growth and opportunity for more people.

The economy is not some museum piece. It is a massive and complex entity quite possibly beyond any one single person's capability of understanding.

$1 when I was born has been inflated down to 15c today. We as a nation are immensely richer and more productive now than then. The core problem is one of wealth distribution, not production.

We've allowed the profiteers of inflation -- a major avenue of rent-seeking -- to keep nearly all of their ill-gotten gains. Fix this problem and you'll fix a lot with what's wrong with the present system.

Troy says

And you’re utterly wrong about that. The credit cycle with its booms and busts existed in the 19th century too.
You can’t have saving without borrowing, and as long as there are productive opportunities going untapped, wise use of credit will increase productivity and the debt will be repaid.

I have to disagree on these statements. Credit cycles that are unsustainable causes booms/busts. Credit cycles inherently do not have a problem. And credit cycles should be in control of the free market. Credit would then be automatically extended to the resources that would yield the most productive gains. Abuse of credit has been encouraged by the Fed and that's why we've had the housing bubble. Please give a cogent argument to deny this.

And, why can't I save without borrowing? If it were a truly free market, then people would be encouraged to save and discouraged to malinvest. You'll invest wisely and as a result you'll get good gains. It's only when illusions of wealth get created, that's when people's heads get messed up.

Troy says

The government can never spend beyond its means, thanks to the 16th Amendment. Every dollar it spends can be taxed right back and spent again.

That statement itself is enough proof that Government can spend beyond its means and then taxes its people. So if the Government makes a poor decision, that does not benefit the people - then we're screwed. we have to cough it up. If this is not Statist, then I don't know what is.

Troy says

austrian_man says

When this buying power is eroded by whatever means, that means there’s something fundamentally wrong with the system.

Sheer dogmatic foo-fah. Mild inflation may in fact be superior to static monetarism in creating greater economic growth and opportunity for more people.
The economy is not some museum piece. It is a massive and complex entity quite possibly beyond any one single person’s capability of understanding.
$1 when I was born has been inflated down to 15c today. We as a nation are immensely richer and more productive now than then. The core problem is one of wealth distribution, not production.
We’ve allowed the profiteers of inflation — a major avenue of rent-seeking — to keep nearly all of their ill-gotten gains. Fix this problem and you’ll fix a lot with what’s wrong with the present system.

Instead of statist monetarism, what we now have is crony capitalism, where the biggest players (too big to fail banks, investment banks) make the calls and the politicians neither have the will power nor consider the best interests of the people to do the right thing.

How do you propose to go about fixing that? A Government is supposed to be dependent on the people, not its funders.

Intentional Inflation (which you'll see don't worry - CPI of food/energy is exploding and soon will hit the US market) is always necessarily a parasitic form of taxation on the people, that will always go unnoticed.

austrian_man says

If this is not Statist, then I don’t know what is.

of course it's "statist", Alexander Hamilton won the earlier debate about that, and the anarcho-libertarian pipe dream only exists in the minds of internet libertarians and gold bugs at the moment.

neither have the will power nor consider the best interests of the people to do the right thing. How do you propose to go about fixing that?

This is a democracy, theoretically the people will put better politicians into power to fix things.

Theoretically. I'm quite doubtful that this is going to happen now. California is a good test of this later this year and Brown will probably fail.

"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities." -- Churchill

is always necessarily a parasitic form of taxation on the people, that will always go unnoticed.

I think mild inflation combined with a tax on rent-seeking is superior to eg. the deflation we saw in the late 19th century. I believe this is the Friedman argument. But I am willing to concede an environment with no inflation and no deflation is not necessarily a bad thing.

The key thing here is credit availability to new enterprise that provides productive employment. I think 50-100 years ago we had tons of business opportunities waiting to be exploited, and thus easy credit and its associated inflation was generally not fatal (though the 1930s crash showed how dangerous easy credit really was).

Maybe now we're in a tapped-out economy, with too many people and not enough business opportunities (in the wealth-creating sense).

Troy says

of course it’s “statist”, Alexander Hamilton won the earlier debate about that, and the anarcho-libertarian pipe dream only exists in the minds of internet libertarians and gold bugs at the moment.

This is a democracy, theoretically the people will put better politicians into power to fix things.
Theoretically. I’m quite doubtful that this is going to happen now. California is a good test of this later this year and Brown will probably fail.

“Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” — Churchill

I think mild inflation combined with a tax on rent-seeking is superior to eg. the deflation we saw in the late 19th century. I believe this is the Friedman argument. But I am willing to concede an environment with no inflation and no deflation is not necessarily a bad thing.

The key thing here is credit availability to new enterprise that provides productive employment. I think 50-100 years ago we had tons of business opportunities waiting to be exploited, and thus easy credit and its associated inflation was generally not fatal (though the 1930s crash showed how dangerous easy credit really was).
Maybe now we’re in a tapped-out economy, with too many people and not enough business opportunities (in the wealth-creating sense).

I'm not advocating anarchy, although I do stand up for individual liberty. If the government or a private institution stands in the way of individual liberty by abusing the monetary system, then I'm against it.

Theoretically. That is precisely the problem. Democracy is supposed to be a "representative" democracy, where the government represents the best interests of the people. Here we have a private institution, granted all the authority to blow bubbles and watch them bust - and the Government stands and watches this institution bailing out failed private institutions at the expense of the tax payers. Which side is the Government really on?

It shouldn't be too late, before Americans decide to do the right thing. That's the point. Going around in circles trying to figure out the right thing is foolishness.

Friedman's real argument is elastic money supply in combination with the complete deregulation of the private players. Completely deregulated private institutions then go on and control the government itself. Read 'Confessions of an Economic Hitman' by John Perkins for more detailed study.

When the credit towards consumption is maxed out, there is no credit left for productive enterprise. This should come as no surprise, because there were decades of credit consumption binge with no productive output. Clearly something has to give.

Perpetual growth is not necessarily a good thing. There are limits to growth.
"The greatest shortcoming of the human race is our inability to understand the exponential function" - Dr. Albert Bartlett.

austrian_man says

and the Government stands and watches this institution bailing out failed private institutions at the expense of the tax payers. Which side is the Government really on?

The situation is not so simple as you think it is.

The "failure" here extends across the actions of tens of millions of Americans who borrowed this money, 2000-2007.

The reason the banks are insolvent is that the money they lent to PEOPLE isn't getting paid back, and the property values used to secure these loans were ephemerally based on fraud and bubble-chasing.

It shouldn’t be too late, before Americans decide to do the right thing. That’s the point. Going around in circles trying to figure out the right thing is foolishness.

"Doing the right thing" according to you would involve a four trillion dollar collapse of the current system. The collateral damage from this would be incalculable. There would probably be dozens of Los Angeles 1992-style riots as the status quo of bullshit intervention goes away, leaving the bare realities that the top 10% owns 90% of the productive assets of this country.

We were doing mostly OK 1995-2000 as our economy evolved away from manufacturing and toward information, but that was kinda unsustainable (as we found out during the dotcom crash) and we substituted the housing bubble machine as the wealth distributor.

That was even more unsustainable, but damn if I know what we can do to replace it.

Perpetual growth is not necessarily a good thing. There are limits to growth.

Growth as simply productivity increase is in fact generally a good thing.

Anarcho-libertarianism isn't going to solve the fundamental wealth-divide in this country. Make it worse more like.

There's no such thing as static monetarism. The Gold standard always resulted in about 2% inflation per annum due to an increase in the supply of gold. And if you think we were doing ok in 1995, you are off base. The trade deficit was out of control and we began dismantling our entire manufacturing base.

theoakman says

And if you think we were doing ok in 1995, you are off base

We were doing OK in 1995.

Being the reserve currency means we actually have to run a trade deficit to give other countries the currency they need to dick around with.

http://en.wikipedia.org/wiki/Triffin_dilemma

As for mfg, it actually went up:

http://research.stlouisfed.org/fred2/series/MANEMP

but I don't have any problem sending jobs offshore to cheap-labor countries.

I do have a problem with the capture of these savings such that the capitalist and the consumer benefit greatly but the former laborer is SOL. We need a lot more wealth redistribution -- to give everyone a basic package of support to enable them to become and remain productive members of society.