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gildomar
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What do people think of the Audit the Fed bill which overwhelmingly passed in the House last week? Good idea or bad idea? Why or why not?
Please post a link to it so members don't have to search.gildomar said:What do people think of the Audit the Fed bill which overwhelmingly passed in the House last week? Good idea or bad idea? Why or why not?
Jekyll Island was the location of a meeting in November 1910 in which draft legislation was written to create the U.S. Federal Reserve. Following the Panic of 1907, banking reform became a major issue in the United States. Senator Nelson Aldrich (R-RI), chairman of the National Monetary Commission, went to Europe for almost two years to study that continent's banking systems. Upon his return, he brought together many of the country's leading financiers to Jekyll Island to discuss monetary policy and the banking system, an event which was the impetus for the creation of the Federal Reserve.
On the evening of November 22, 1910, Sen. Aldrich and A.P. Andrews (Assistant Secretary of the United States Treasury Department), Paul Warburg (a naturalized German representing Kuhn, Loeb & Co.), Frank A. Vanderlip (president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), together representing about one fourth the world's wealth at the time, left Hoboken, New Jersey on a train in complete secrecy, dropping their last names in favor of first names, or code names, so no one would discover who they all were. The excuse for such powerful representatives and wealth was to go on duck hunting trip on Jekyll Island.
Locrian said:I'm mostly with Chiro, except that I wouldn't want audits done at the congresscritters whim. Even if there is nothing to hide (no snickering, you), audits are expensive in time and money. Instead of letting Congress weild them like a club, put them on a regular rotation and have the appropriate party handle it.
binzing said:chiro says it all pretty much. I have absolutely no understanding of how something SO huge, so central could ever be allowed to go so unwatched, it's downright irresponsible IMO.
chiro said:A PhD in economics has nothing on someone who has worked within a variety of business environments who really understand markets, the flow of credit, and the issues regarding exchange and liquidity.
These people are going to understand economics a lot better than any PhD.
The idea of a central bank not having more oversight and auditing so that it doesn't 'damage' the economy is outright ludicrous.
A central bank (or any centralized system) has a much greater capacity to destroy the economy than anything or anyone else period: all centralized systems as an analog to this central bank will always have this property.
Politicians will always make things political: that's their job unfortunately to do so. The thing is that when you have such a huge dependency and case for systemic risk in relation to an entity known as a central bank, you need to be extra-anal about making sure it doesn't abuse its power and does it's job.
IMO, these central banks do nothing but trouble: any centralized system is in danger of being abused and history has a great track record of showing this. It is much better to have localized economies, diversity, and a lot of competition (and no monopolies) because this situation is more shock-proof to abuse and disasters.
You want an example of what's happening now? Look at the Euro-zone. This is a failed experiment: all the economies have different needs and produce differently and look what has happened in an attempt to expect all countries to perform not only under one economic constraint, but also a political one.
When things get centralized, things go wrong: we've had the US central bank since 1913 (almost a century) and your dollar has lost about 97% of its value since then. Retaining value of a currency is a lot easier when things are decentralized because it means that it's harder to game the system.
This whole centralization experiment is a failure and it's destroying far more than it ever has given in any form of a contribution.
CAC1001 said:Would have to completely disagree there. That's like saying an experienced race car driver understands the physics of race cars better then a physicist who studies the subject a lot. There is even a saying: "businessman make the worst economists." For example, look at Donald Trump. Smart businessman? Yes, I'd say. Knowledgable about economics? He seems like a total idiot in that subject from what I've seen.
And a politicized central bank has an even greater capacity to destroy the economy, because now the decisions regarding monetary policy are getting made based on politics as opposed to economic acumen.
They already do that. That's why it has to report to Congress regularly, issue annual reports, and be audited here and there.
The Federal Reserve is an imperfect solution to the problem of who will control monetary policy. It's the third attempt in U.S. history at getting a central bank correct. The first two were government-run operations and had to be shut down due to corruption. Of course, a purely privately-owned central bank would be a bad idea too. The Federal Reserve is not purely private, although many among the Libertarian crowd think it is (Ron Paul included). But it's actually a hybrid institution. Without a central bank, you have the following options to control the money supply:
1) Gold standard (generally regarded as a terrible idea due to its inflexibility and also the lack of supply of gold, although this is what the Libertarians want)
2) President in control of the money supply (BAD idea)
3) Congress in control of the money supply - now you have the branch of government in control of spending also in control of the money supply for the economy. And in addition, they are going to make decisions on it based on politics as opposed to acumen. So again, BAD idea.
Inflation at a healthy, low level is not a bad thing for an economy.
Would have to disagree. On the contrary, I'd say that the Federal Reserve has been extremely successful. The strength and resiliency of the U.S. economy, currency, and Treasury instruments is unparalleled in human history.
chiro said:Economists do not have working theories of economies: they get it wrong all the time, if they knew how to avert the hundred-year floods, they would but they don't.
Look at what they are trying to do now: it's insane. You can not pay off debt with debt: it just doesn't work. You don't need a PhD in economics or applied mathematics to know this: it's common sense but for a lot of these people it's not.
A businessman is able to understand their own little inner market: it doesn't mean they will understand markets in general, but they will know a lot about their own little markets that they deal with and the context of those markets.
Economists won't know this: they might have basic principles and a superficial understanding but they have no context, and people that want to manage economies need context.
Again back to common sense: in the old days you couldn't get a loan unless you had a good credit history and even then the size of your loan was limited. Nowadays the loans that have been made have had no such requirement.
Again common sense: if you don't think someone can pay back, then don't give them the loan.
Another one: leverage. Banks and financial institutions are leveraged up to ridiculous levels. What does this mean? It means if someone is leveraged up 50 to 1 and there is a movement of about 2%, it can wipe out the entire institution.
Capital requirements are there, but they are extremely low and sometimes they aren't even enforced.
You can talk about the theory of economists, but the truth is that they don't really know how markets work because if they did, and they took their job seriously to avert such catastrophes' they would have but they didn't.
People that run businesses need to know about their own markets in order to survive and Donald Trump would probably know a bit more about real estate markets than most economists, just like a mom-and-pop store would know more about their own economics of their own little market.
If you get all these people in the diversity of markets together and ask them for suggestions, they will do a hell of a lot better than a PhD crunching matrix equations on a computer because the business people have context and the economist doesn't.
Again this so called economic acumen is something I'd really like to see, because if it existed, then why all the hundred year floods (The term is from Banks and Dunn risk management book in case you are interested)?
Right now interest rates are basically zero. This hurts people that save money and want some kind of reward for doing so (i.e. interest). When this is near zero, people don't save: they borrow.
When people borrow, debt grows. When debt grows and there is no real capital problems happen: big problems.
What happens when you have more debt than you could possibly pay back? You get chaos literally: riots, breakdowns of society, and at some point, possible martial law. It's happening in Greece and it has happened in countries where they have defaulted or gone through a hyper-inflation scenario.
This is what happens when a decision like this is made and it's not good for anyone but a small select few group of people: even most business people that are rich are against this because it means that they can't sell their goods and services and grow themselves as they would in a real productive economy.
You can talk politics all you want, but the fact is that when you give one body this much power, it's only a matter of time before SHTF.
Did you see Ron Paul ask Ben Bernanke where the money went from the US FED to other central banks? He asked him if he could find out where the money in central bank swaps went and Mr Bernanke replied "Uhhh no". I can get the C-SPAN video if you want to see it.
Also there has never been a full audit: only partial audits.
The reason why Gold has still survived as a unit of value for five thousand years: it can't be counterfeited easily (but there are techniques known as salting where tungsten is put in the centre since it has the same density), it's supply is restricted, it can divided into units, and for these and other reasons, it gains trust as a unit of exchange and a store of value.
This is why gold is used. There are many ways you can use precious metals: currently one way being talked about now is the idea of a floating value standard for each piece of metal. The idea is that the value of each unit of currency is not explicit but changes based on the changing nature of the economy, and the discussion is that it can be used in parallel with a fiat currency.
But ultimately it boils down to this: fiat systems always end badly because the power of the authority who governs the management of the system is abused. The Romans tried to salt their coins to make it appear like they had more wealth than they had, and this pattern has been done to death.
Gold is a way for people to retain their wealth (inflation is a way to steal it away) and it's a way for people to establish some kind of trust in terms of the exchange of stuff.
Trust is the key word here: trust is the number 1 thing any economy and any kind of trading activity needs and right now these fiat systems are losing trust and this destroys every aspect of the economy.
Investors won't touch you because they can't trust you and when that happens what are you going to do? Well you can print more money, but then who is going to trade with you or do business with you? What are you going to do when you need oil or food that is in another continent using another currency? You're screwed is what you are going to do.
The thing about fiat currencies is that the trust element gets broken and this causes the kinds of things like panic, bank runs, dollar collapses, and so on: this always precedes these cases.
Gold for the reasons and more above, enforces trust in a way much greater than a paper note and this is why it's lasted for thousands of years.
You also might want to check how many central banks are buying gold: if it was worthless, why would they buy it?
Cmon get real. This idea that one person can make important decisions is ridiculous. The president doesn't control the money supply: people that are smart enough and with the right 'mindset' are chosen to do these jobs.
Right now we have one institution responsible for the current (but dying) world reserve currency and while it's not one man, it's not really a great deal more.
Again the point of decentralization is to get rid of a single point of failure that would ultimately lead to systemic risk: we have systemic risk right now and it has been demonstrated in so many ways. The first is the FED with it's interest rate policies and stimulus, and another one is the example recently with MF Global with its theft of customer segregated funds (some were returned but not all and they were never formally prosecuted).
We have systemic risk right now and the way to minimize this is through decentralization: centralization is what causes the potential for all the really bad systemic risk.
Yes indeed they are and Mr Bernanke did mention that to Ron Paul when he asked a question about this (again on C-SPAN).
The FED has been left alone and Ron Paul is indeed trying to do something (from getting an audit to abolishing the FED entirely depending on the question sessions and interviews that you see).
The point I am making is again that centralized things like this with a huge potential for extreme systemic risk are not good and there are so many examples in finance alone (low interest rates, LIBOR scandal, MF-Global, EURO-ZONE breakdown) that show what happens when this is the case.
It's not hard to understand from any point of view: you can take an analytic systems view or you can just take any other view, but the bottom line is that the systemic risk and potential for abuse is just too great to be given to any collection of human beings.
Inflation eventually robs people of their wealth.
This idea of creating economic activity for the sake of economic activity is also really naive. Economic activity should be based on some level of real capital in the system.
Capital is not credit: Credit is something that is made up but Capital already exists. If credit and capital are treated as one in the same, then you get problems because when there is no capital, then there is no real way to create a proper productive capacity.
Look at what is happening now: lots of credit, but where is the real capital?
Investors do not like situations of low or no capital. You need real capital to get things going not stimulus. Credit arrangements in the classical sense are based on getting back some kind of real capital for the credit being issued: in other words, you make a credit arrangement in the hope that you will get back something that is actually worth something.
Banks are not stupid: they don't want credit, they want things that have intrinsic value not related to a medium of exchange (like land and property, gold, stuff like that). They have the power to make all the credit (within limits like the ones in fractional reserve standards) they want, but ultimately they are going to be interested in getting real wealth not the stuff they can make up when they want to.
Also the other thing is that financial institutions have capital requirements (even though they are ridiculously low) so even for them, if the regulations are taken seriously, they have interest to have some kind of productive capacity with real capital in the system to keep functioning themselves.
Yeah ok.
So why now do you have downgraded credit ratings for the dollar? Why are food and gas prices so high? Why are you as a country in so much debt? Why the need to bail-out entities that would be otherwise insolvent? Why so much unemployment in a strong economy?
Why are other countries getting rid of US treasuries (like China)? Why is your own central bank buying up your own bonds? Why do you have more than 40 million US people on the electronic food card program (EBT)?
And why then do you have these other movements like the BRICS starting up if the dollar is so valuable?
These questions should really be thought about if you want to think that the US economy and it's currency are really as strong as you say they are.
chiro said:When things get centralized, things go wrong: we've had the US central bank since 1913 (almost a century) and your dollar has lost about 97% of its value since then. Retaining value of a currency is a lot easier when things are decentralized because it means that it's harder to game the system.
This whole centralization experiment is a failure and it's destroying far more than it ever has given in any form of a contribution.
CAC1001 said:That the economy is very difficult to model doesn't mean the alternative is to politicize monetary policy.
Sure, but that's like saying that a person will understand their own little individual "economy." None of that is any good for handling economic policy.
They may or may not, it depends, but these economists are seeking to manage the money supply. What businessman could replace them on that?
I agree with you wholeheartedly on the lax standards in the financial and banking industry, but that is due more to politics and greed on the part of the financial institutions then economists. Many economists have for years pointed out the flaws of such things for the reasons you cite. The economists at the Federal Reserve I think take their jobs very seriously, but they are not perfect. Markets tend to act in such a way where it only becomes obvious in hindsight why a market did what it did, whereas before the movement occurs, no one or few saw it coming.
If you are talking about suggestions for the general economy, then smart policymakers would be wise to ask both economists of different stripes and lots of business owners of all sizes to see what they have to say. However, a group of business owners is not going to know how to set monetary policy for the economy.
Like I said, the strength and resiliency of the U.S. economy and currency.
Don't confuse consumer debt with the federal debt. The national debts are why countries like Greece have rioting, because the government there is having to engage in austerity measures. And to a degree, those riots aren't because the people are really suffering, it's because they are just acting as adult children who have been coddled for many years by the government. You mention low interest rates, well what happens with high interest rates? You hamstring economic growth, you can cause unemployment to go up, more businesses to fail, and that kind of stuff can lead to real desperation and rioting on the part of people.
What you should remember is that the decisions made by the economists at the Fed involve imperfect information and also a lot of times contradictions. They are extremely complex decisions with a lot of calculated risks and no guarantees.
How is it only good for a small, select group of people? Of course most business people are against it, because higher interest rates make borrowing money more expensive. That is one of the reasons why the Fed needs to be independent of politics, because Congress always harps when the Fed raises interest rates. For example, in 1981, when the Fed hiked interest rates to kill the inflation at the time. Congress railed as the economy sank into the worst recession since the Great Depression at the time. Paul Volcker (the Fed chairman at the time) was called the worst Federal Reserve chairman in history and legislation was introduced to force the Fed by law to reduce interest rates. The only reason the Fed was able to act so brazenly was because of the support and cover given to it by the Reagan administration.
Not really. Not when it's a quasi-governmental, quasi-privatized institution that is not strictly government-run or private-sector. I'd say it is when you take such an institution as that and politicize it that the trouble will really start. The current crisis is not because of the Federal Reserve, it's because of lax financial and bank regulation. You could maybe claim that the Fed contributed to it by keeping interest rates low, which after the Dot Com bubble deflated then helped move into inflate the real-estate bubble, but aside from the lax regulation that helped cause that, do you really think that if the politicians were in charge they themselves would have raised interest rates and risked hurting the economy a lot more? Of course not. If you think the Fed should have raised interest rates, then that is all the more reason for it to be independent of politics.
Of course he wouldn't as that could politicize the operation too much.
Gold is too limited in supply for a modern economy. And a gold-backed system can be manipulated as well. Also, going onto a gold standard means subjecting the U.S. economy to the world supply of gold (which right now may well be in a bubble).
Trust is why the U.S. economy is so strong in spite of all that has occurred. Tying the U.S. money supply to the supply of gold might well erode that trust.
Much of what causes all of that has become much more understood then it was in the early days of economics, and thus only tends to happen in Third World countries.
Not saying it's worthless, but I don't place nearly as much value in it as many others. I would trust a paper note that is backed by the strength of the U.S. economy a lot more then a note backed by a piece of metal such as gold, which ultimately is pretty worthless when you get down to it. In times of economic calamity, gold has not always shown itself to be a reserve of value. High-quality jewelry has, but not gold. When the Japanese invaded China, wealthy families there traded their jewelry for things needed to survive, not gold. Gold was pretty worthless then. When Jews fled Germany, they took their jewelry with them to trade.
The Federal Reserve cannot do anything about the out-of-control spending on the part of the current Congress and President. It has warned, repeatedly, that they are taking the country over a financial cliff.
You can't decentralize the nation's monetary policy.
Some things need centralization as there's just no other choice. In terms of finance, the U.S. system is in many ways very decentralized. Decentralization can have its own problems in that it can make figuring out the source of a problem in the system very difficult. It also doesn't mean risk won't be more concentrated. The Canadian system, by contrast, is very centralized, albeit regulated to spread risk equally throughout the system. As for Ron Paul, he adheres to a very ideologically-driven set of economic beliefs and has been after the Fed for years due to his conspiratorial view of it.
Which is why the Fed is structured to be rather decentralized. Noe one aspect of it has absolute power. You give it the likes of Congress and you'll see far more abuse then could ever occur from the current Fed.
Over time, but high levels of inflation is where that's a problem.
I'm no advocate of stimulus.
1) Credit downgrade can be blamed on the Presidency and Congress, those people that folks like Ron Paul now want to have a much greater say in monetary policy it seems.
2) Food and gas prices are due to weather, turmoil in the Middle East, and other factors rather unrelated to the centrl bank.
3) Debt of the country is due to Congress, the Presidency, and politics overall.
4) Financial institutions needed to be bailed out to prevent credit from freezing up and crashing the whole economy
5) Unemployment is at what many a Third World country would consider a healthy level. Ask someone who came out of for example Ukraine right after the Soviet Union collapsed and they'd laugh at the notion of the current U.S. economy as bad. Americans consider it bad because we are so used to it having very low unemployment and higher levels of growth. The fact that the U.S.'s bonds are still so in-demand in spite of all the turmoil that is a sign of how strong the economy really is. And the economy will recover, especially if the Congress and Presidency get responsible with handling spending.
The central bank is among the largest holders of U.S. debt. That is nothing new. To the extent China is getting queasy about U.S. debt, it's again because of the fears about the excessive U.S. spending, which the Fed has no control over. 40 million people on EBT is due to the recession, itself due to the real-estate bubble and financial crises, themselves due to lackluster regulation over the financial system.
Let's see each of the BRICS go through a major economic calamity and see how they do. The U.S. economy as proven its resiliency by having survived multiple calamities. The BRICS have not.
MisterX said:Are you basing this on something? Retaining the value of the dollar was not the goal.
It is a goal of most central banks that inflation should be 2 to 6 percent annually. So the dollar should retain about 1/1.02 to 1/1.06 of its value in terms of goods each year. It's been about 99 years.
1 - (1/1.02)^99 = 0.8592
1 - (1/1.06)^99 = 0.9968
So if the inflation policy objectives were achieved, the dollar was supposed to lose between 85.9% and 99.7% of its value during that time period, and 97% percent is safely within that range. There are reasons why a positive (but not too high) rate of inflation is a policy target.
In the years since 1913 the United States has become the richest and most power nation ever in the history of the Earth. Do you really want to advocate the removal of such a central piece of its economic system, without proposing a replacement?
The Federal Reserve has repeatedly infused money into our economy since the 2008 financial collapse, and if this was not done the results might have been disastrous. By this I mean, potentially, negative inflation, declining revenues, and much higher unemployment. Federal Reserve policy has helped avert an even worse economic catastrophe like the great depression.
I don't know if I am doing this enough justice, but I maybe some people will read this and understand that there are serious issues with your opinion.
chiro said:Ok then, why don't you respond to the video I posted with the representative asking where the trillions of dollars went?
You talk about politicizing things, but this congressman is trying to do his job by finding out what the hell is going on.
Talk about politics all you want: anything can be politicized and things become 'political' at big institutions anyway in some degree whether its public or private.
This man is trying to do his job, and he can't do it because the people with the responsibility and supposed accountability for such responsibilities aren't doing what they should be doing.
How can you say that?
Decisions need context. Context does not come from nice clean models or nice equations: it comes from experience.
The flow of value and exchange is understood by looking at specific examples of this, and no-one is better able to understand a market by its actual participants: particularly non-consumers who have to deal with a whole different scenario of handling the market for business credit, of which economies are largely based on (take away a businesses credit line and they die).
How is is good for economic policy? Simple: the knowledge and the context gives policy makers a real idea of how credit situations affect businesses ability to actually do business (which is kind of important?).
More importantly, it helps the policymakers how the markets really work for specific situations and helps them understand how things will be effected when they do their thing with policy outcomes like stimulus, interest rate changes and so on.
It also means that, hopefully, these policy makers will realize what actually screws up different economies and what leads to the things that they are 'trying' to prevent like a devaluation of currency, unemployment and so on.
You should also note that a lot of the businesses out there are not conglomerates: they are small to medium sized businesses. The economic and market models for these are not the same.
A big company has a very different model to that of a small business: everything from how they get their raw inputs to how they end up contributing to the final economic result is different.
A big companies supplier is a lot different to that of a small business: a small business will most likely rely on someone that is able to cater to their needs (probably someone else that is local, but this is changing).
You can't apply the same kind of thinking to understand how big companies affect economic outcomes in comparison to small businesses, and the people that try to do this are just kidding themselves.
It's also a mistake to get someone who has come from some Fortune 500 company to think that they understand the entirety of an economy from their own experience, especially if they have not really operated in a small business for a decent amount of time: the two environments and how they affect the overall economy are entirely different.
This is how this helps policy makers make decisions that are well-informed and genuinely good for the outcomes of everyone that is participating in the economy.
A businessman that could step up is someone who has a brain cell who is in the business of managing investment capital: they deal with this environment all day, and they have a real clue of how to help set proper policies.
Plenty of professional investors like Peter Schiff make great points (he has actually given suggestions before Congress-persons) and he is someone that puts his money where his mouth is.
These people who have their own business, who put their own money on the line (and are at risk of losing it), who know the real value of money (as opposed to someone who doesn't have money at risk), and who deal with this kind of thing are going to be way more qualified than someone who doesn't have the relevant experience.
Again, you should look at the hundred year floods.
We have a lot of examples of these hundred year floods: we have LTCM when it experienced the Rouble default, we have Barings that had Nick Leeson with his "Rogue Trader" behaviours, we've had the 1987 crash, the great depression, the 2007/2008 crisis with MBS (Mortgage Backed Securities), Savings and Loans scandal, and others.
The LTCM one is particularly interesting because the guys that started and where involved in that fund where the people who came up with the mathematical methods underlying the start of Quantitative Finance (some people say the IQ density was more there than anywhere in the world).
These guys got bailed out by Wall St and interestingly enough, the issue of using these weapons of mass financial destruction have not really been brought into the fore-front especially with regards to regulation (large classes of derivatives (OTC) are not regulated).
Well the delegation of authority is going to be up to the person who decides to step up, and if business people decided to take on extra responsibilities and this was done then so be it.
This probably wouldn't happen, but the point of getting the business people there is to actually give these policy makers some real context so that they can make a decision that reflects a great variation of knowledge and not just knowledge that they get from economic textbooks or journal papers, or from advisors with a corporate background (or dare say it "agenda" (think a revolving door scenario)).
This is not post WW2: your productive capacity is being drained year after year and not only are you moving your physical production offshore, you are moving your intellectual production off shore (that's right: the intellectual capital is being moved to places like China). Remember the whole point of moving stuff offshore was to move all the "grunt-work" off shore but keep the innovation on-shore? Not happening.
One direct question for you: Do you ever think that your combined debts (US) have any chance of being paid off? If not, then how in the hell do you think your country is going to be able to trade with other nations, like is being done currently?
Of course risks are part of nature, but if they want to manage an economy they have to take all the crap that comes with it: that's what you get when you want a position of power and I feel that some of these power brokers love having the power, but don't want the responsibility when things go belly-up.
Also the idea of zero interest rates is stupid and you can't say that they don't know about this because one chairman raised rates in the past to around 17% to stop the speculator activity (and it worked), so the idea of knowing about this is not an excuse.
When things go wrong, people have every right to critique it and come up with suggestions for whether some other solution should be used.
Its good for banks.
If debt gets to a point where it can not be paid or puts the debtor into a position where they must default (and particularly when the debtor has real assets), then the bank will take the real assets.
Again banks are not stupid: they don't care about credit because they can create quite a lot (and as time has passed, the limits are increasing). The smart ones care about real assets and not fictional ones.
Real assets retain their value: a piece of paper is based on trust and trust comes and goes with every generation and revolution. It's easy to know what value is in a house, or a land-site full of minerals, or a factory, or food. A piece of paper means nothing when the trust has been eroded.
If the FED was as responsible as you allude to it wouldn't have created the credit for the government.
It's like this: the government is a drug addict and the FED is the dealer. The FED doesn't care about the addict, and will let the addict go into a comatose (although the dealer prefers they squeeze as much out of the addict as possible).
A responsible bank manager turns down a loan or a new line of credit if they know that the person will get into trouble and not pay some or all of the loan bank.
The FED has not done this.
You keep speaking of this politicizing.
Big institutions by their nature become political, but it doesn't mean you use this as an excuse that nothing can't get done.
Again, a congress-person (in the video above) tried to do their job by finding out what is going on: they couldn't get a straight simple answer from the office of the Inspector General.
This guy is a politician, who asked a simple question, was recorded, without any window dressing and still couldn't get a simple answer. Are you saying that this can never happen?
I have seen a few congress-person videos of questions and quite a few have asked really good and simple questions that are not answered. Are you saying all of these questions which are in plain view are all for a purely political agenda?
Yes gold can be manipulated, but a lot of the manipulation is the result of how the paper markets are affected. These paper markets are really screwing with price discovery, and part of a sound market is having some sense of this.
You ask about gold being in a bubble, but again I ask you this: Why are central banks becoming net buyers of gold?
Trust in what? What do you guys produce anymore?
The way your society is going at the moment, I'm not going to hold my breath.
You keep saying this that gold is worthless, but you haven't answered my question: Why are central banks buying up gold?
Also answer this: Why is gold > 1600 when it was only about 400 a decade or so ago?
In times of real crisis, I agree that things like food, medicine, water, fuel, and other stuff is a lot more valuable than gold, but gold still is a mechanism that people will flock to (or silver) when the trust of paper is gone.
Ohh cmon.
It can say no: just like a bank manager can deny a loan. Don't give me this baloney.
Why not?
chiro said:What? How is it de-centralized? Isn't the whole point that is has the power (as given by Congress)? What are you on about?
So let's see: the value of the dollar since 1913 has lost 97% of its value. The FED has had 100 years (nearly) to prove itself and this is what it has done.
How is your comment consistent in any way with the above fact?
Well the FED doesn't seem to mind.
It's always about shifting the blame isn't it.
The FED has the power not only to create forms of credit but to deny it. It's not one or the other: it's a package that includes both.
So I guess inflation has nothing to do with this right? You have got to be kidding me.
Again you are completely missing the point.
The central bank has a lot of power and with that power comes responsibility.
It is allowed to deny credit if it sees fit just like a bank manager would deny a loan to someone they thought or could see from a track record, that this would be a bad decision.
You say you need an institution like this with the power it has but then you say that there is nothing wrong with it deciding to misuse its power even when by all means it should not.
Which one is it?
No they didn't: they could have failed, things would be bad for a little while and then you start again. This is what humans are meant to do: stuff goes wrong, they get over it.
Iceland did this exact same thing and let the banks fail: they suffered for a little while and now their economy is going very well, so this example shows you a real. tangible, current situation to disprove your argument.
People can work around any situation, and the idea that they needed money is plain propaganda on their part.
So why aren't things like for example, people who have "stopped" looking for work not counted on the official stats?
The figures are fudged just like the inflation figures. For example food is not counted in the inflation calculations: how the hell are food prices not an important indicator of inflation?
Again, I've said it a million times but I'll say it again: the FED has the power to deny credit if it deems fit to but it doesn't and it has no means to because it makes interest of every credit injection it does.
That's right: every instance of credit injection comes with interest which means it will never ever mathematically ever be able to be paid off.
I am going to see.
You keep saying the same things over and over again about the US economy being strong, but all the indicators are that is not (I have mentioned many of them in this post).
Central banks have been fought for many hundreds of years by all kinds of people and the people that fought them weren't stupid or mislead, they knew what the consequences were for having such institutions (especially private ones) and they did what they could to stop them (yes even presidents themselves).
You can delude yourself about the US remaining this strong figure of the world, but when your debt catches up with you, when people stop trading with you (unless you provide real things of value), when you lose your petro-dollar (and this is happening as we speak right now with bilateral trade agreements and BRICS), and when SHTF (really hits it), you and many others will wonder how the hell your country went from the country that everyone aspired to live in (i.e. that American Dream always being talked about), to just another failed empire in the likes of say Rome.
CAC1001 said:I thought I did. They probably said no because it would politicize the issue too much.
Or, he's an ideologue trying to make a mountain out of a molehill.
They aren't doing what they should be doing? Howso? They're doing exactly what they should be doing, which is keeping the U.S. economy from tanking into a full-on depression.
Experience for running the individual business the person runs, sure. Their experience is not going to prepare them for the job of something like monetary policy. In that job, you want seasoned and very knowledgeable bankers and economists. And I doubt that the Fed uses any "nice clean models" or "nice clean equations." The old idea of the economy functioning in a mechanistic manner has long been disregarded.
Yes, and something economists study.
Yes, but again, economics involves the study of all of that.
I don't think economists do. They are well aware of the differences between the two.
A person who has operated either a small business or a large business I'd say is a bad bet to assume they understand the entirety of the economy, especially when even the economists don't understand the entirety of the economy. The Fed doesn't just go by equations or instinct though, they rely on a tremendous amount of information sources.
While I am not an expert on the Fed, I would imagine they already have such people on their staff.
He's also been wrong on various claims (such as his claim that the Federal Reserve's pouring liquidity into the economy would create Weimar Republic-style inflation).
No they aren't. Business administration is not monetary policy. How to run a business versus economics are different, separate subjects. You could be an expert at monetary policy and not be a good businessperson, and vice-versa. It's like being an expert on politics and the political system versus being a successful politician. Two different things.
Yes, they thought they had figured out a fool-proof way to make money.
I would think the Fed gets information from all the sources that it can.
No it isn't. The U.S. produces more year after year. The idea that the country doesn't manufacture anything is a myth. It manufactures about 19.4% of global manufacturing with about 11 million people (the Chinese do about 19.8% with about 100 million people). The U.S. also leads the world in science and engineering research.
The debt doesn't need to be paid off, it needs to be reduced to a manageable level.
Raising interest rates is virtually impossible for the Fed due to how politicized monetary policy already is. It can only do that with solid cover provided by the Presidency as Congress screams.
Again, the issue is not when things are good, but when things get bad: anyone can handle success, but fewer can handle when SHTF.
There is no such thing as a "real asset." They no more retain their value then a piece of paper. All of them are just based on how much humans value them. People found this out the hard way regarding their homes. A lot of gold buyers are going to find it out the hard way when the gold bubble pops.
The Fed buys a lot of the government's debt, but it doesn't control fiscal policy. If it was to say "no" to buying debt, then it would be accused of acting too independently and probably lose its independence.
You're missing the point. It's not a matter of the institution having politics so much as monetary policy itself becoming politicized. That is very bad.
I think a lot of them are. It depends on the politician.
I guess because they believe it has some value.
Industrial machinery, vehicles, engines, sophisticated componentry, machine parts, medical devices, software, hardware, electronics, computer systems, machine tools, aircraft, lots of food, furniture, etc...tons of stuff. Along with a crap ton of different services. As I said earlier, the idea that America doesn't make anything anymore is a myth.
You know, people have been talking about the "decline of America" for over fifty years now. It hasn't happened. This is just another rough patch, which the U.S. occasionally hits. You don't declare the end of a nation like the U.S. because of one big financial crisis.
Gold is worthless in that it has no intrinsic value. It is valued based on faith and trust alone, but it exists in too small a quantity to be used for any kind of industrial purposes.
If the trust in paper goes, you're going to have a lot bigger problems then worry about gold.
No it can't. Then it is doing two things it shouldn't:
1) Trying to control fiscal policy (the job of Congress)
2) Acting too independently
How would you decentralize it?
chiro said:Can you explain exactly what you mean by this?
The guy asked a question about trillions of dollars and whether loans could be repayed back to the FED.
If you are criticizing the actions of this congressman and his question could you give specifics about how you think this bad, rather than using an umbrella term like politicizing?
Injecting quantitative easing money and keeping interest rates near zero does not stimulate an economy. If people are not providing real capital from things like savings, then how is this going to make things recover?"
Quantitative easing isn't just about stimulation, it's about keeping the economy from tanking further.
The thing is that all this macro level stuff directly translates into micro level effects: they can't be separated.
When businesses lose credit when they shouldn't (because panic ensues and no-one wants to give credit injections to anyone that isn't an oil company or a Google), then you get the real economic problems like businesses shutting down, rises in unemployment, increasing numbers of people on social welfare and disability benefits, and eventually depending on how bad it gets, forms of civil disobedience in various categories.
That is one of the reasons for doing quantitative easing, so that businesses that otherwise might shut down, will not.
I agree that it takes a different skill-set apart from the sole skills that the business man has, but the point I'm making is that the skill sets required to run a sound economy between a person that focus on macro and high level banking vs someone like a business owner or even a really small bank is not mutually exclusive.
You should go and meet some of the people who have had to shut down their business not because they were in the red, but because it was hard to get credit.
As soon as businesses lose credit on a system-wide scale, you get the snowball that turns into an avalanche. I know how important credit is for a small business because my family used to own one.
And that is why the big financial institutions had to be bailed out, because credit could have frozen.
Sure they can study all the want, but the results are there both right now and in the history books.
The results are that they saved us from going into a major depression.
I just mentioned one way how one panic causes a whole avalanche of effects.
You may argue that the role of the FED was to stop this from going haywire through the actual injection of credit into the economy, but the truth is that a lot of these small businesses closed anyway because they still couldn't get the credit needed to keep their businesses going.
The people that got the real benefit were the banks and some of the big corporations (like GM, GE even got a tax-credit in effect of them paying 0 dollars of tax in one year since the collapse).
Many banks got credit from the FED including foreign banks.
So the people that needed the most who contribute a great deal to the economy (i.e. the small businesses) did not get the credit they need and subsequently many were forced to close their doors, or at the very least scale down significantly.
I think things were always going to be bad and cause numerous businesses to close no matter what as the Fed can't just circumvent the laws of economics. But I think that the actions of the Fed did help a lot of smaller businesses get credit, it's just that people don't really see the impact of this because they don't see just how bad things would really have gotten had the Fed not acted.
Well it isn't working now is it?
I don't think anyone can really judge that at the moment. As said, a recession was going to occur regardless. The Fed should be judged on how bad the economy got in comparison to how bad it could have gotten had the Fed not done its job.
The truth is that big corporations have more muscle in terms of their resources and influence than the small businesses.
As mentioned before, when the crisis hit, the people that could have used the credit didn't get it and like any business who doesn't get credit, they die.
The FED's policies on credit creation have an impact and they should adjust their policies to affect the realities of their actions and adjust them to create the standard for a functioning economy across the board: they don't.
How do you know?
I think you are under-estimating this.
A businesspersons job is to know their own local economy very intricately because if they don't, they won't survive.
They need to know about their customers and also non-consumer interests like suppliers and so on.
When times are tough, people learn. You ever have a supplier that goes belly up? Ever have a situation where you don't get what you need on time because the effect of a fire on someone three links down causes a chain reaction that reaches you (and others)?
This is the kind of context I am talking about: maybe the day to day runnings won't teach the business people that much, but it's when things go wrong that they get the understanding.
When this kind of thing happens enough, this is when people learn about how to protect themselves by their own dependencies in their own mini-economy.
Depending on the nature of the business, who it does business with (consumer and non-consumer), how big it is, and so on, the above experiences become really important for educational and policy making purposes.
This is the point of having different people representative of different situations come to give advice: the point is to give the policy makers real context.
The thing is though that the sample is not representative: the people that get the attention are the ones with the money and that leaves a lot of the small businesses and such people out of the picture.
So, even with the most well intended policy-maker, you have a highly biased sample to draw inferences from, and get a policy that favors one group over another.
A smart policymaker is going to look at all points of view, not just points of view from those that have the influence.
Well one thing that you can observe is that the dollar is losing it's value: as for the hyper-inflation scenario, we will have to wait and see.
A "weak" currency is not necessarilly a bad thing, and a "strong" currency is not necessarilly a good thing. Again it depends.
Again, see the part about when things go wrong for businesses.
Business people are active participants in an economy and I would expect them (especially when things go wrong) to gain a real understanding thereof. They need to know about these things otherwise it can bite them.
Also it's interesting that you talk about the politician: honestly why would a politician not know about politics? It's their job to know about it.
I think you are grossly over-estimating the knowledge levels of the average business owner and politician. Look at some career politicians. They are utter amateurs on the issues. All they know about is how to get elected and how to get certain policies passed into law. The average Joe who owns a local business I doubt is someone that you could go and have an active discussion about economics about. Most people are too busy to be bothered with that kind of stuff unless it really interests them, and most people would much rather discuss the football game then economics.
Yeah so did all those guys with MBS products. So why did they get money? Why is responsible that these guys get a credit injection when a responsible business doesn't?
Because if allowed to fail, the whole system could have come crashing down. The idea was after giving them the bailout, subject them to regulations that make sure such a thing can never happen again.
Your country is moving a lot of your production that did exist overseas. Thousands of factories have been shut down.
Granted you do have a good technology sector, but one thing you should realize is that people like the Chinese and the Indians are learning in your schools. The Chinese technology is growing in all respects (even their military, although the level of this is debatable).
When your best schools end up training a lot of these new scientists and leaders that go back to teach in their own native place of origin, then you will start to see things really change.
The other thing is that there are more scientists being graduated in other countries.
One thing to remember is that the US "imported" a lot of scientists from overseas for various reasons (including WW2, but that's only one), but this is an entirely new game.
You have all these emerging economies and it all takes is a bit of initiative from a nation and a bit of education to give the science pursuit a little kick.
Factories may have shut down due to creative destruction, but that's like saying America must not grow much food at all because less than 1% of Americans farm. Certain production has been moved overseas, and some of it is coming back due to the weak dollar and also because as incomes in countries like China rise, it means they no longer have the advantage of cheap labor. I agree that over time, these rising countries will start to develop Western-levels of research and development, but that doesn't mean the West is in decline, just that they are catching up to be more equal.
Define manageable and tell me why it is a bad idea to pay off a debt?
Again, the system is set-up so that the debt can never ever be paid back (and only increases with each injection of credit). How is this even remotely useful to anyone but the lender?
"Manageable" would mean the debt isn't large enough to affect the health of the economy and does not take up a large portion of the budget or of the revenues to the Treasury to service. It wouldn't make sense to pay all the debt off because investors are always clamoring to buy bonds as an investment. So the country would always maintain some level of debt.
Again you keep using this politicized argument. Skip the politics and just say specifically what is on your mind.
Isn't the whole point of the FED meant to be independent in your own argument? If it's independent, then why should it not be able to choose to raise interest rates (like it was done before which drove speculators out)?
You can't have it both ways: either the FED is independent or it isn't.
You say it's impossible: it's not and the implications on speculation are clear from what happened the last time this was done.
The Fed on paper is independent. In actual practice, it is still influenced by politics, because it answers to Congress. And yes it pretty much is impossible unless the Fed has very solid support from the Presidency, because the Congress goes into a rage because the economy begins to tank.
Well they are bad right now and thing's are going well. But this isn't the first time, so it's not like we don't let the first one "slide".
I think you quoted yourself here.
Ohh cmon.
Without any assets there would be absolutely no confidence to lend whatsoever: what are you saying is absolutely ridiculous.
Assets exist because banks that want to get something back on their loan demand it: it is insane to think that real assets don't exist.
An electricity utility is a real asset: it's value is easily discernable. A telecommunications infrastructure is an asset and again its use is discernable. Food is an asset: its use is discernable. Water is as well, as are roads, toll-booths, property in prime areas and so on.
Real assets exist and if they didn't exist, most loans wouldn't exist either.
The only reason any of those things have any value whatsoever is because people value them. That's it. There's nothing intrinsic about them that makes them valuable though. It's like a highly-paid football player. They are only valuable because a whole bunch of people value the skillset they have. That's all.
Again you can't have it both ways: a line needs to be drawn. Either the FED can do something or it can't. Please be specific.
The truth is that both are in denial: the FED has been given the authority by Congress to create credit and the government will just demand as much credit as it wants. Both have a nice cozy relationship even if it means that the recklessness of excessive borrowing causes absolute havok to people that have otherwise no control over the actions.
You are spot on about it losing its independence, but isn't the point of independence for the FED to do the right thing and to create decisions that create a good economy "even if the government doesn't like it?"
No, because the Fed is not supposed to be the parent watching Congress regarding fiscal policy. The Fed's job is monetary policy. Congress controls fiscal policy. On monetary policy, the Fed is supposed to be independent, although it is still accountable to Congress.
If you introduce exceptions, then your whole argument about independence is now moot.
Like I said, it's an imperfect system.
Again say specifically what you mean about politicized please: give specific examples and not a general umbrella term please.
Politicized means being subjected to the whims of politics. One of the things the Fed would do historically was try to raise interest rates, then the President and Congress would pressure it to reduce them so as not to tank the economy, so the Fed would reduce them. As such, monetary policy has usually always been partially politicized. It wasn't until Ronald Reagan that the Fed got a chance to act in a truly independent manner, and all hell broke loose in Congress over it.
I should have been more specific (my apologies) and said that you offshoring more stuff rather than not making anything at all. Thousands of factories (many thousands) have closed. Unfortunately it's happening to us as well (Australia), because we are being sold out much the same way you are.
The U.S. isn't being "sold out" though. Americans want cheap products. It doesn't make sense to try to manufacture everything here (and the idea that anyone nation could be completely self-sufficient and manufacture everything doesn't really hold either).
You just said that the central banks buy gold because you said they "believe it has value". Which is it? It has value (for a central bank) or it doesn't?
There is an impression that there is something magical about gold whereby it just always has value, no matter what. That's not the case. It only has value because people say it has value, just like anything else. It has some seemingly mystical properties about it, but in terms of usage for any real purposes, it is pretty worthless. Most all things valued have some type of use, whether it be entertainment (football player) to electricity which everyone needs (powerplant) and so forth. But gold? It really on has value because people say it does. One could say it is a highly-valued metal for jewelry purposes due to its limited supply, but then that's just basic supply and demand, not anything special about it.
Things need to be made specific when it comes to the delegation of authority: either someone can and has the power to do something or they don't.
Diluting or making the delegation of authority non-specific is recipe for disaster, and unfortunately, it's the excuse commonly used when "bad things happen".
Again in any loan of any sort: the transaction is (and ultimately should be remembered as) two ways.
In the days of banking sanity, people were rejected loans because the bank thought they may not get back what they issued the loan for.
There is a saying that if you owe a bank a dollar then you are at the mercy of the bank but if you owe the bank a billion dollars, the bank is at the mercy of you.
The bank can not deny its own actions: to do so, especially with a position of its kind of power is at the least utter irresponsible.
You talk about politicizing: well the way to get rid of this so called attribute is to do things that are not politically "palateable" and this is one way of doing that.
The Fed's duties are very clearly spelled out. Fiscal policy is not one of them. If the Fed starts trying to do that, then it is trying to do the reverse of what Congress already does, which is to try and influence monetary policy.
chiro said:Local economies, currencies, banks, systems of credit, and new government policies.
chiro said:These replies are getting huge so I'll make this as short as I can without losing the core of the message in the reply:
You keep saying that there is a division between monetary and fiscal policy with regards to the FED being responsible for one and Congress being responsible for the other.
You claim that the FED should be independent, but then you say that is clearly is not.
When credit is made, regardless of what kind of credit and how much it is, there is a very strong two-way dependency (as you have pointed out) and both parties are just as equally responsible as the other: you can't separate them like you are doing and say that "one person is responsible for this, the other for this". The truth is that both are responsible for the decisions and the consequences of the total action of the creation of credit.
I'd like to see you convince a bank manager or better yet, an investor that has to put up his own capital of the argument you are trying to make.
The other thing about the economy: you guys are net importers not net exporters. You are claiming that you don't have to be self-sufficient, but you are missing the point of looking at how your trade deficit is increasing. This shows you are not making up for the lost production in a decent manner.
You also talk about value and assets: well of course assets are things that people value, that's kind of obvious. If they didn't have value they would not be "valuable".
But again, some things are valuable more than others and value has different magnitudes. The argument you are making is kind of like saying "Well there is a chance that the sun won't come up tomorrow, we only believe that it will". Can you imagine if scientists or engineers have to work with such general assumptions such as that?
The thing is we do make assumptions, just like the ones that are made in science and engineering to build phones and bridges.
What you said is really a cop out: the assumptions made for things of high value to be classed as assets are made for a reason and to use your argument is absolutely ridiculous.
Also you talk about stimulus: the stimulus that was done in Keynes time is not the same as it is done now: there are trade deficits, massive debts, and the size of the stimulus is absolutely monsterous. The situations of the great depression compared to now are far different and we also have this thing called derivatives, in particular ridiculous products that have insurance on things that are not even real things.
The derivatives market is many hundreds of trillions of dollars: this is not the same as the great depression and there is absolutely no way that any amount of stimulus without turning currency into Zimbabwe notes will ever mend the problems of these toxic products if they blow up.
This is not the great depression: this is a whole other ball game that is a lot worse.
Also you keep saying that it would be bad, but I have provided a real life example of Iceland who let the bad banks fail and has recovered. This is a real life example for you to show you that it can be done, and has actually been done.
Of course there will be a painful period when these banks are forced to go insolvent: I don't deny that one single bit. But the advantage is that the system can be restructured from the core up so that this kind of environment that we have now helps encourage this situation from happening again.
Tell me something: what are you going to do if hundreds of trillions of dollars become suddenly worthless and get vaporized like the home prices you talked about before?
chiro said:Also the FED was not "created" by Congress: ratification regarded its powers where given by Congress, but the actual creation of the FED far preceded that actual ratification. You should check out what happened at Jekyl Island and what preceded those events.
Also you say gold is valued on tradition and faith (I agree), but so are those precious paper dollars. Fiat money systems have a bad rap for how long they have lasted, but gold doesn't. If history is anything to go buy, gold is in the lead.
Also its a little bit misrepresentative to say that we don't assume things in science: we do. We make assumptions all the time, and without any kind of constraint at all, science and analysis of anything would be impossible.
I've heard you comment about the nature of the Fed with relation to congress, but please answer this: Do you think, in your own opinion (i.e. not with what is currently going on now) if the FED should take some responsibility of averting irresponsible debt situations from arising if it is given the power to do so? You have established what the existing policy is and what has happened already, but I am asking you now what you think and what your own argument is on the matter.
Also you say a depression should "not happen". Why? If the system has major flaws that make this more probable then it should, then why should this not happen? Why should we try and keep a system alive that has obvious faults?
The levels of not only the debt, but the amount of money in the system are absolutely unfathomable: this idea of having a central bank that has created not billions, but trillions of dollars in the space of years is absolutely crazy. I have no idea how anybody can support this kind of credit creation policy and this is what the FED has demonstrated already.
The responsibility of managing the money supply means stopping ridiculous instances like this from occurring. Do you agree or not? This is kind of the main purpose is it not for having a central bank controlling monetary policy with regard to your comments above?
Also you do know that after the great depression, gold was confiscated and the purchasing power was immediately downgraded 40%. Can you explain why you think this was, if paper money was in any way better? Also you must realize that this confiscation wasn't voluntary: it was forced.
In 1971, experiencing accelerating depletion of its gold reserves, the United States removed its currency from the gold standard, and the Bretton Woods Agreement was no longer workable.
chiro said:Look: the idea that something like a central bank just "magically appears" is really delusional: things like this are planned well in advance. The ratification was a formality. Also I didn't discuss the specifics of how it was founded, and the nature of a conspiracy is something that is done in secret.
I didn't use the term, but don't try and taint the argument by using a word that not many people alone really understand anyway.
You keep saying about the strength and resiliency of the US economy. It is based on faith is it not? Just like the gold you so easily are able to take shots at? As you said before, everything is based on faith. The US economy (and in fact every economy) as a basis of faith. Also the economy is not completely measurable: the figures that are produced are also "taken on faith".
You keep backing up this US economy like it's something that could never possibly falter. How are you able to support this? Where is the synchronicity between your arguments of "faith for gold and 'real' assets" vs "faith for the US dollar?"
Also you keep talking about fiscal policy but you never give specifics: Give real, tangible, examples with language that is not broad and to encapsulate something that is not vague enough to be useful.
The trillions of dollars is "surprising" because of the "rate of increase of the money supply after the first trillion dollars" and because the world GDP is around 80 trillion dollars.
Having many dozens of GDP's in circulation is dangerous and utmost irresponsible. How can you possibly advocate something like this?
Again you haven't my question before: How it is in any way good "monetary policy" to keep so much money in circulation?