patrick.net

(1) Prevent or delay liquidation. Lend money to shaky
businesses, call on banks to lend further, etc.

(2) Inflate further. Further inflation blocks the necessary fall
in prices, thus delaying adjustment and prolonging
depression. Further credit expansion creates more
malinvestments, which, in their turn, will have
money to be liquidated in some later depression. A
government “easy money” policy prevents the
market’s return to the necessary higher interest
rates.

(3) Keep wage rates up. Artificial maintenance of wage rates
in a depression insures permanent mass
unemployment. Furthermore, in a deflation, when
prices are falling, keeping the same rate of money wages means that real wage rates have been
pushed higher. In the face of falling business
demand, this greatly aggravates the unemployment
problem.

(4) Keep prices up. Keeping prices above their free-market
levels will create unsalable surpluses, and prevent
a return to prosperity.

(5) Stimulate consumption and discourage saving. We have
seen that more saving and less consumption would
speed recovery; more consumption and less saving
aggravate the shortage of saved-capital even
further. Government can encourage consumption
by “food stamp plans” and relief payments. It can
discourage savings and investments by higher
taxes, particularly on the wealthy and on
corporations and estates. As a matter of fact, any
increase of taxes-and-government spending will
discourage saving and investment and stimulate
consumption, since government spending is all
consumption. Some of the private funds would
have been saved and invested; all of the
government funds are consumed. Any increase in
the relative size of government in the economy,
therefore, shifts the societal
consumption/investment ration in favor of
consumption, and prolongs the depression.

(6) Subsidize unemployment. Any subsidization of
unemployment (via unemployment “insurance,”
relief, etc.) will prolong unemployment
indefinitely, and delay the shift of workers to the
fields where jobs are available.

from:

http://mises.org/daily/3907

\

First you feign interest and then feign the Socratic method and finally ignore the realities that I indicate.

control point says

S&P 500 up 230% since January 20, 2009.

Thanks, Obama!

Or, if you Austrians prefer: S&P/Gold

.94 to 1.40, a 49% increase.

rofl. Yeah, meanwhile, all 401k managers piled their customers into bonds earning 2% this entire time. All those profits went straight into wall st. pockets.

indigenous says

First you feign interest and then feign the Socratic method and finally ignore the realities that I indicate.

No, on the contrary. I was hoping for a bit more specifics. Most of that is Austrian BS and the usual revisionist history.

I think this is my favorite:

indigenous says

We have

seen that more saving and less consumption would

speed recovery;

We have??? Who's "we"? And when have "we" EVER seen that?

But the majority of the other points are just as incorrect, if not quite as humorous.

theoakman says

rofl. Yeah, meanwhile, all 401k managers piled their customers into bonds earning 2% this entire time. All those profits went straight into wall st. pockets.

Huh? I've never worked at a company that didn't allow the employees to choose their investments of their own money. Even the match would be in the employees' hands unless it was in company stock.

Where does a 401K manager dictate that your money must go into bonds???

tatupu70 says

We have??? Who's "we"?

Not you

tatupu70 says

And when have "we" EVER seen that?

It pertains to people who can observe, which is not you.

Your MO is quite predictable and stupid

indigenous says

It pertains to people who can observe, which is not you.

Your MO is quite predictable and stupid

OK--please enlighten me. When have YOU ever seen that? I'm assuming you are including yourself in those people that can observe...

tatupu70 says

OK--please enlighten me.

The funny thing about education it is generally agreed that the teacher is responsible for teaching when in fact it is the opposite.

The reality is that ignorance is a self created sequestration created by an unwillingness to LOOK.

Enlighten yourself or don't...

indigenous says

Enlighten yourself or don't...

OK--I have enlightened myself. I would encourage you to do the same.

(And fyi--enlightenment is not found at Mises.org)

tatupu70 says

OK--I have enlightened myself.

Yes, the continuing delusion and sequestration.

tatupu70 says

(And fyi--enlightenment is not found at Mises.org)

How would you know?

tatupu70 says

Like you I don't understand how you fail to acknowledge the true reasons.

So what are the true reasons why things have gotten worst? Let's hear you explanation.

spydah_hh says

So what are the true reasons why things have gotten worst? Let's hear you explanation.

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

rising income inequality, we have a parasite class now attached to the paycheck economy

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

corporations taking more out of paycheck economy.

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

trade deficit pulling hundreds of billions out of the paycheck economy

so since the mid-1990s we've had to borrow money to maintain our standard of living:

http://research.stlouisfed.org/fred2/graph/?g=sDG

annual consumer borrowing / wages

but when that blew up in 2007-2008 we switched to Japan-style ZIRP and QE, just like they did after they blew up their domestic economy in a colossal stock and bad-debt bubble, the original "Bubble Economy".

The main friction I see is simply rising housing prices. This is the two-income trap that got rolling in the 1970s, when the nation's new two-income boomer households started bidding up the cost of housing.

(Gov't required banks to start considering the woman's income in 1974's http://en.wikipedia.org/wiki/Equal_Credit_Opportunity_Act)

but rents have risen just as much as housing so it's not gummint per se that's the problem.

The main problem is simply all the money bleeding out of the paycheck economy, to Exxon, Dubai, China, landlords, Wall Street, Comcast, Walmart, Apple, etc etc.

This is an asymmetric flow, that the System replaces first with consumer debt and now gov't borrowing and Fed printing.

http://research.stlouisfed.org/fred2/graph/?g=sDa

blue is wages
red is consumer debt
green is federal debt

If we stopped the borrowing we'd have to stop the gov't spending (massive crash) or raise taxes (instant prolonged recession if tax incidence fell on the lower 90%) and the rich of this country have constructed sufficient institutional defenses as "job creators" to prevent any more taxes hitting them for the foreseeable future.

So this is why we're fucked.

Bellingham Bill says

rising income inequality, we have a parasite class now attached to the paycheck economy

Generalization... How about you give me the reason for the rising income inequality.

Bellingham Bill says

corporations taking more out of paycheck economy.

And how are they doing this?

Bellingham Bill says

trade deficit pulling hundreds of billions out of the paycheck economy

so since the mid-1990s we've had to borrow money to maintain our standard of living:

Now why do we have to borrow? I know why, do you? Give me your explanation please.

Bellingham Bill says

The main friction I see is simply rising housing prices. This is the two-income trap that got rolling in the 1970s, when the nation's new two-income boomer households started bidding up the cost of housing.

You give a explanation but it's incorrect. Housing prices are increasing due to the increasing money supply going into the housing and even the stock market and who is responsible for the increase of the money supply? The government.

Bellingham Bill says

If we stopped the borrowing we'd have to stop the gov't spending (massive crash) or raise taxes (instant prolonged recession if tax incidence fell on the lower 90%) and the rich of this country have constructed sufficient institutional defenses as "job creators" to prevent any more taxes hitting them for the foreseeable future.

Funny you can see that we have a problem with government spending and borrow but yet you support it and then blame the problem on the rich. The rich don't create jobs, it's the demand in the market. I'll agree that most of the rich is getting richer due to our monetary policies of the ever increasing no ending of the money supply. But hey all that money has to go some where and historically and even lately it's been going go into stocks and/or housing. But once again all those problems stem from the government because the rich certainly don't have access to increase the money supply now do they?

spydah_hh says

I'll agree that most of the rich is getting richer due to our monetary policies of increasing money supply and having that money go into stocks and housing or just assets that the avg. person is incapable of purchasing. But once again all those problems stem from the government because the rich certainly don't have access to the money supply now do they?

Bill will answer your questions better than I most likely, but I do want to address this paragraph. I see this a lot from the Austrian crowd. You guys seem to think that when money supply is increased, the government just hands out dollars to the "cronies" or the rich folks. Could you explain to me what you believe that mechanism is and how it works exactly?

The rich get richer because our current system rewards capital much more than labor. Increasing or decreasing money supply is really not important until you fix that issue.

tatupu70 says

Bill will answer your questions better than I most likely, but I do want to address this paragraph. I see this a lot from the Austrian crowd. You guys seem to think that when money supply is increased, the government just hands out dollars to the "cronies" or the rich folks. Could you explain to me what you believe that mechanism is and how it works exactly?

I'll answer your questions in two seperate posts.

The money is printed by the FED or at least they buy assets from the Banks or other private institutions (Hedge Funds and other funds), this is what they call QE. That money is now in the banks or privatize institutions hands. The Banks keep some of it in reserves but then they still lend most of it out or they use it to make purchases, like stock purchases (TBTF comes into play here).

If you notice the stock market a lot of companies are worth billions not by their performance but because of their stock valuation. Take a look at Twitter it's worth about $30 billion but it has never made $1 in profits it even has negative P/E. But hey Wall Street (Banks, Hedge Funds and etc) believe that Twitter will one day make money, so why not buy some stock? They have extra money to spend anyway thanks to QE. Thanks, to QE the stock market is simply overvalued. I think last month BofA beat expectations of their earning but only because they cooked the books and used the money that they had sitting in reserves (once again thanks to QE) and named them as revenues, so in reality they actually had a net lost.

So really most of these companies are (rich) because of QE, not because they're performing so well, because the truth is they're not. Many are just sitting on cash reserves and accounting them as revenue when they perform below expectations. But many like Tesla, Twitter, or even Amazon, don't even make profits or if they do it's because of a government subsidy that allows them to make money outside of their business model. However, the case with Amazon is, its making money from it's business model but their P/E Ratio doesn't match with the earnings they make.

tatupu70 says

he rich get richer because our current system rewards capital much more than labor. Increasing or decreasing money supply is really not important until you fix that issue.

The rich are getting richer because of QE as I stated in the above post. The truth is labor is rewarded, the problem with labor is that its expensive for the business and for the workers.

Workers are paid fairly well but the problem is 1/2 of our income when you account for taxes, both income tax, labor tax, social security tax, sales taxes and even other hidden taxes, we pay about 1/2 of our income to government. So we feel broke. Add QE into the mix we are also battling inflation. Inflation isn't an obvious issue because increased productivity can hide true inflation.

Labor is expensive for businesses for many of the same reasons, taxes, but also minimum wage. Many businesses tend to outsource labor costs or automate it or just eliminate it altogether.

Labor is most expensive (besides taxes) by minimum wage, because minimum wage drives out unskilled workers out of the market (normally young people). Why would a company hire an unskilled worker when he's forced to pay them the same price as a skilled worker? The company would just hire the skill worker instead.

But this creates a new problem. The younger generation are unable to find work for a decent pay. Many are going through college and coming out worst than before because of their debt and they're still considered unskilled because they have no experience.

You think Labor is not rewarded. The truth is it is rewarded, but the government just makes it too damn expensive to hire more labor and for the laborer to benefit and enjoy from their labor.

spydah_hh says

The money is printed by the FED or at least they buy assets from the Banks or other private institutions (Hedge Funds and other funds), this is what they call QE

That is mostly correct--they are typically buying government bonds.

spydah_hh says

If you notice the stock market a lot of companies are worth billions not by their performance but because of their stock valuation

No, it's mostly because corporate profits are at record levels. Valuation is slightly high (S&P 500 P/E is 19.65), but nothing outrageous. Like Bill said, corporations are taking a lot of money...

spydah_hh says

So really most of these companies are (rich) because of QE, not because they're performing so well, because the truth is they're not.

Again--that's just wrong. Using Twitter as an example of corporate America is misleading at best, and disingenuous at worst.

spydah_hh says

Many are just sitting on cash reserves and accounting them as revenue when they perform below expectations

No, they're not. That is not allowed.

So, you never really answered my question. How do "cronies" or rich folks get money first because of QE? The Federal Reserve buying a bond doesn't give any new money. Anyone could sell their bonds. All it's done is change an investment from bond to cash.

tatupu70 says

No, they're not. That is not allowed.

Right.. and what Bernie Madoff did wasn't allowed either but SEC certainly allowed it now did they?

spydah_hh says

you fix that issue.

The rich are getting richer because of QE as I stated in the above post.

You explained nothing. You stated something but gave no explanation.

spydah_hh says

Workers are paid fairly well but the problem is 1/2 of our income when you account for taxes, both income tax, labor tax, social security tax, sales taxes and even other hidden taxes, we pay about 1/2 of our income to government. So we feel broke. Add QE into the mix we are also battling inflation. Inflation isn't an obvious issue because increased productivity can hide true inflation.

spydah_hh says

Workers are paid fairly well but the problem is 1/2 of our income when you account for taxes, both income tax, labor tax, social security tax, sales taxes and even other hidden taxes, we pay about 1/2 of our income to government. So we feel broke. Add QE into the mix we are also battling inflation. Inflation isn't an obvious issue because increased productivity can hide true inflation.

OK--I have to disagree strongly with that one.

spydah_hh says

You think Labor is not rewarded. The truth is, it is rewarded, but the government just makes it too damn expensive to hire more labor and for the laborer to benefit and enjoy from their labor.

Yes, I think labor is not rewarded when compared to capital. Taxes are not high historically. Look at company profits. That should tell you everything you need to know.

spydah_hh says

Right.. and what Bernie Madoff did wasn't allowed either but SEC certainly allowed it now did they?

So, you're comparing corporate America to Bernie Madoff?

And are you implying that the SEC knew what Madoff was doing?

spydah_hh says

How about you give me the reason for the rising income inequality.

I did later below:

The main problem is simply all the money bleeding out of the paycheck economy, to Exxon, Dubai, China, landlords, Wall Street, Comcast, Walmart, Apple, etc etc.

This is an asymmetric flow, that the System replaces first with consumer debt and now gov't borrowing and Fed printing.

The core issue is simply:

INTEREST NEVER SLEEPS

Wage earners have lost all leverage once the unions were busted and China & India -- plus a dozen other low standard of living economies like Mexico, Philippines, Vietnam, Bangladesh -- became accessible to capitalist enterprise.

And how are [corporations] doing this?

paying less and less in wages of the value of what their employees are producing, obviously.

Now why do we have to borrow? I know why, do you? Give me your explanation please.

Consumers borrow because most people are grasshoppers not ants. If you wave $10,000 in front of them at 18% pa or $100,000 at 8%, they will take it.

http://research.stlouisfed.org/fred2/graph/?g=sDZ

real (2009 dollars) per-capita consumer credit expansion

as more money collects at the top, it looks for yields, and consumer credit is an excellent avenue for yields.

during the height of the late bubble Wall Street couldn't make enough CDOs to meet the demand for them. That's how villages in Norway lost millions of dollars in the US housing market, the rise of Big Finance, which only started rolling in the 1980s.

When I started college in the mid-80s, credit cards were scarce. 10 years later, common.

Consumer borrow for housing because historically, paying the bank a fixed (and declining interest payment each month) has beat having to pay the landlord an ever-rising rent payment.

Consumers borrow for cars since paying the finance co $50 or $100 mo in interest beats taking the bus or walking to work.

Housing prices are increasing due to the increasing money supply going into the housing

Government was NOT responsible for the late housing bubble. That was mostly private money, since the GSEs were actually in limbo and restricted from growing their portfolios as prices rose.

The home price rise of 2002-2006 was ENTIRELY engineered by the BUSH TAX CUTS, and dramatic rise of suicide lending -- qualifying borrowers on the introductory teaser rate, allowing borrowers to outright lie on their loan applications, allowing widespread appraiser fraud and broker fraud, and allowing the ratings agencies to rate total shit B-piece tranches AAA investments.

GSEs were complicit in some of this, but fractional reserve lending is orthogonal to government funding and loan guarantees. This is why the 19th century was full of credit panics even though we didn't have a central bank.

But once again all those problems stem from the government because the rich certainly don't have access to increase the money supply now do they?

The boost in the money supply since 2008 has been an attempt to stabilize an over-extended system, once that got seriously out of balance 1995-2005.

I suspect the boost in money supply 1995-2000 was engineered to ease China and its colossal productivity into the dollar bloc. The world needed more dollars in the 1990s, and the Greenspan Fed supplied them.

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

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

tatupu70 says

Look at company profits. That should tell you everything you need to know.

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

The beauty of government spending is that it is mostly (theoretically) returned to the paycheck economy as wages.

I'd like a proper formal study of this. Obviously billions disappear into corporate bottom lines and not wages, but in theory government is either paying people or contractors, and that's money that is at least directed back into the general direction of the domestic paycheck economy.

Cut the DOD back to 2000 spending levels and half the country would become dystopias right out of Mad Max.

http://research.stlouisfed.org/fred2/series/W068RCQ027SBEA

$6T. That's a lot of feed for the trough.

spydah_hh says

Funny you can see that we have a problem with government spending and borrow but yet you support it and then blame the problem on the rich

This is why I'm a left libertarian.

Our system is so fucked almost nobody understands what's wrong any more.

I was at the DMV last week and somebody was talking about the rise of the minimum wage, and what she said was we don't need a higher minimum wage, we need a lower cost of living.

I kinda chuckled -- finally, somebody is getting it.

Government intervention is largely intervention to patch a broken system.

The system is broken via the immense rent taps that exist on the paycheck economy -- in finance, health care, energy and other natural resources, and of course housing.

We're talking tens of thousands of rents being extracted from each household.

Then on top of that we have our immense trade deficit, pulling another $4000/yr per household out of the economy.

Without attacking these economic rents, we will not fix anything. But powerful people have paid a lot of money to construct ideological and organization defenses of these rents. Misean bullshit ('the rich are your friends!') is part of this defense structure of course.

Bellingham Bill says

Government intervention is largely intervention to patch a broken system

Government intervention has broke the system.

The Fed Caused Disaster
By Richard J. Maybury

Reprint from the January 2010 EWR

In the September 1992 EWR, and again in the 2004 revision of my little Uncle Eric book The Money Mystery, I proposed that the conventional view of the Federal Reserve’s monetary policy might be wrong. I suggested what I believe is a more realistic — and chilling — view.
Those projections appear to be coming true now, so it is time for a comprehensive review of what’s happening to us. Keeping this article as scientific as possible, we will begin with…
...two clearly observable facts
The first is that the Federal Reserve creates dollars and injects them into the economy. This is no secret. In Washington, inflating the money supply is considered a good thing; the Fed does it openly and proudly. Google “Federal Reserve money supply data,” and you will find plenty of evidence on the Fed’s own web sites.
figureA
The second fact is that, when Fed officials inflate, the new dollars do not descend on the country in a uniform blanket.
For instance, in 2009, when the U S population was 308 million, and the Fed injected an estimated $200 billion into the economy.1 Did someone from the Fed show up at your front door to give each member of your household their shares, $649.34 per person? No? Okay then, we know the money was distributed unevenly. Other people received your shares.
The federal government and mainstream press ignore the implications of this.
Most newly created dollars are injected through the banking system, and no one knows where they end up. All we can say for sure is that you and I do not receive our shares, so our dollars must go somewhere else.
Also, I think it is safe to assume the recipients of the dollars spend them. One transaction after another, the new dollars spread outward from the initial entry points, until they are widely dispersed. (Figure A)
figureB
This entry point, or cone of money, is a hot spot. People in the hot spot go on a spending spree.
Businesses see the hot spot and move into it to tap into the increased flow of greenbacks. (Figure B) They acquire new plants, equipment and workers. The tech industries in the 1990s, and real estate until 2008, are examples.
A key point (I’ll italicize key points): the formation of new businesses in the hot spots is not investment, it is malinvestment. It is mistakes made by managers and investors who have been misled by the flow of newly created dollars. These people have been lured into financingenterprises that are in the wrong places doing the wrong things.
Another key point: each injection of new money causes more malinvestment, and this malinvestment needs continued new pourings to keep it alive.
It’s happening everywhere
I am writing here about the US Federal Reserve, but this explanation applies to the behavior of all governments around the world. As of the 1970s, all have issued fiat currencies that can be created without limit.
The money goes somewhere, and wherever it goes, malinvestment accumulates.
Another way to understand this is to ask, why is counterfeiting illegal? After all, what could be more helpful than creating and distributing money?
Supply of dollars up, value of dollar down
Money responds to the law of supply and demand just as everything else does. As the quantity of dollars goes up, the value of each individual dollar goes down, and prices rise to compensate.
figureC
That’s inflation. Inflation is not rising prices, it is an increase in the amount of money that causes rising prices.
The government eventually becomes concerned about the fall in the value of the dollar, and tightens the money supply.
The flow of money to the hot spots slows, and the shakeout of the malinvestment begins.
Businesses go broke and workers lose their jobs. (Figure C)
That’s a depression. A depression is the correction period following an inflation. It lasts until the assets of the businesses are sold off and the workers find new jobs.
Usually, when a depression begins, officials panic, and re-inflate. This stops the correction.
That’s a recession. A recession is a depression that has been cut short, by resumption of the inflation.
Summarizing what we’ve covered so far…
…when officials inject money into the economy, this distorts prices and causes business managers and investors, who use prices as guides for decision making, to make mistakes.
Firms are created and expanded, and employees are hired, in areas where they otherwise would not be — meaning in the areas to which the new money is flowing. These mistakes are malinvestment.
The firms and employees in these artificially created hot spots are then dependent on continued injections of money.
This disorganization of firms and employees, caused by the injections, can be called the “injection effect.”
Figure D
Cones
Since 1914, the Federal Reserve has increased the money supply from $11.6 billion to $1,695.9 billion. This money went somewhere, and it was not distributed uniformly. It's been creating cones of malinvestment all over the country. America is surely a forest of cones, and all this malinvestment must eventually be shaken out.
To stop the recession, the government resumes its injections. But — another key point — it has little control over where the money goes after the initial pour. Each person’s spending decisions change daily. So —another key — when injections resume, many of the dollars go to new places, creating fresh pockets of malinvestment.
Further, the pockets of malinvestment are not identifiable until the Fed’s counterfeiting stops and the bankruptcies begin. (But it’s not counterfeiting, it’s “monetary policy,” just as the Korean War wasn’t a war, it was a “police action,” and Social Security isn’t a Ponzi scheme, it’s “insurance.”)
Ever-larger additional injections are needed to prop up the malinvestment and prevent depression. The amounts of newly created money, and malinvestment, spiral upward.
Let me emphasize, in 2009, no one from the Fed gave you your $649.34, so you know for a fact that the newly injected money is distributed unequally, and therefore has uneven effects.
It creates cones. (Figure D.)
The conventional view…
… of the government’s monetary policy is that officials try to inflate the money supply at a rate that will keep us in a safe zone between inflationary boom and deflationary bust. (Figure E.)
If they print less money — meaning if they “tighten,” as in 2004 to 2007, — we get a recession. If they print more, as in 2001 to 2004, — meaning if they “loosen” — we get a double-digit inflation, meaning prices rising at more than 10% per year. (The prices do not need to be those of consumer goods, they can be of stocks, real estate, raw materials, or anything else, depending on where the money flows to. Usually it flows into whatever firms and investments are fashionable.)

I believe the assumption that the lines between boom and bust are parallel is based on an unwillingness to face the fact of malinvestment.
I am now 99% sure that in 1992, I was right. The sides of the monetary policy channel are not parallel, they converge. (Figure F.) As the malinvestment grows, so does the amount of money needed to prop it up. The Fed’s maneuvering room eventually disappears. Any injection big enough to avert a depression will lead to runaway inflation.
Please read that last sentence again. I think it describes where America is now, and it is the main point of this issue of EWR.
When I last wrote about this in September 2008, I suspected that the disaster I had been writing about since 1992 had finally arrived. Now I think that suspicion was right. The Fed has run out of maneuvering room. Its 96 years of creating money out of thin air — which means 96 years of creating malinvestment — have finally put us in a situation where the choice is no longer between double-digit inflation and recession, it’s between triple-digit inflation and depression.
Monetary Base of the U.S. Dollar
Source: Federal Reserve Bank of St. Louis

As you can see from the Monetary Base chart, when the recession arrived in Dec '07, the US Federal Reserve under Ben Bernanke went stark raving mad printing dollars.
So, we're not in Kansas anymore. No informed person trusts the US dollar, and the fiat currency system is dying, as the gold standard died in the 1930s, and Bretton Woods in the 1970s.
When a government demolishes its monetary system, the result is never tranquil, and the US government is now in the process of demolishing the monetary system of the entire world. What will happen, no one knows.
I suggest you keep your powder dry, and if you don't own some gold or silver coins, you should.
In short, I think the odds are very high that if they print enough money to keep the depression from happening, they will send the dollar into a hyperinflation like the one in 1779, when George Washington wrote, “a wagon load of money will scarcely purchase a wagon load of provisions.”2
The main sticking point…
…is that no one knows where all the money goes, so the malinvestment is not identifiable until the counterfeiting stops and the wave of bankruptcies begins. We cannot foresee which businesses will go under or who will lose their jobs, so the political pressure from all quarters to continue counterfeiting dollars is overwhelming.
There is no easy way out of this mess — no way to make a fresh start — without a colossal shakeout of the existing malinvestment.
Very likely, after 96 years of Fed counterfeiting, there are whole cities in the wrong locations.
It takes a lot of newly created dollars to keep this malinvestment alive. The money supply when the Fed began operations in 1914 was $11.6 billion. Today it is $1,695.9 billion 3 —a 145-fold increase.
figureF
When the Fed’s counterfeiting stops, the flow of new dollars to these assets will, too. The cones will dry up, and prices of the assets in the cones will plunge to their real values. The only way to delay this disaster is to continue the counterfeiting, which is what the Fed is doing.
In other words, the Fed is the Hurricane Katrina of the economy. These arrogant, socialist Fed power junkies have locked us into a runaway inflation. In the past 18 months alone, they’ve increased the money supply 24%. And, the Monetary Base, which is the raw material from which the money supply is made, has been increased 129%. Much of the Base is still in the banking system.
For investors, buying non-dollar assets is paramount. (See the 10/09 EWR.) However…
…stay cautious
In 1979, Fed chief Paul Volcker took office as the dollar was headed down the tubes. Volcker decided to save the greenback by tightening monetary policy severely. This drove interest rates beyond 15%. Non-dollar assets crashed, and most were moribund for two decades.
I think there is a 30% chance of the Volcker episode being repeated, so don’t bet the farm on non-dollar assets. The strategy that makes the most sense to me is the Permanent Portfolio and Variable Portfolio plan explained in Harry Browne’s Fail Safe Investing. The little book only takes about 45 minutes to read.
Harry’s main point is the same as mine — diversify, diversify, diversify — and he shows you the investment mix that is as close to bulletproof as anything I’ve ever seen, while allowing room for speculation in nondollar assets if you so desire.
Note this: when Volcker began tightening to save the dollar in 1979, the unemploymentrate was 6.0%, and it topped out at 10.8%. If Fed officials tighten now to save the dollar, they’ll be starting with joblessness at 10.0%. This means, in my opinion, if they tighten they will be flirting with massive social upheaval, and they know it, so they are sacrificing the dollar to buy as much time as they can, hoping they will be out of office before the catastrophe arrives.
In short, over the past 96 years, Fed officials have created so much malinvestment that their only choice now is between big riots today and even bigger ones tomorrow. The fact that they are continuing their loose dollar policy to keep the malinvestment alive as long as possible means they have chosen the bigger riots tomorrow. My guess is, somewhere between six months and three years.
Summary
If you did not receive your share of the Fed’s freshly created dollars last year, then that’s your proof the Fed’s newly minted greenbacks are not distributed uniformly. Some parts of the economy receive more than others, and these areas become hot spots, or cones.
My main point about all this is that the government and mainstream press do not want to acknowledge that inflating the money supply causes malinvestment. That’s the key to understanding the whole mess, malinvestment — the cones. In its 96 years of behaving like a counterfeiter, the Federal Reserve has undoubtedly misled tens of thousands of businesses, large and small, into locating in the wrong places, doing the wrong things, at the wrong prices. This malinvestment must be shaken out before we can make a fresh, non-inflationary start.
Keeping it all alive requires mountainous injections of newly created money, which is nearly certain to destroy the value of the dollar.
I think much of the rest of the world has figured this out, which is why they have been scolding US officials, and openly searching for ways to escape from the dollar, including buying non-dollar assets such as gold, silver, platinum, oil, and other tangible investments. (See my video “How to buy precious metals” on our YouTube.com channel.)
This is why I have recently raised my estimate of the global velocity of the dollar. Many foreigners are clearly trading away their dollars as quickly as they can. But, as usual, Americans remain oblivious. Most Americans graduate from high school or college knowing nothing about currencies.
Again, if no one from the Fed handed you your share of the fresh greenbacks last year, then you know the newly created dollars are not distributed uniformly. And, knowing this, you can reason out the implications, which are profound. They are why, for us ordinary mortals who don’t work for the Federal Reserve, counterfeiting is illegal.
I hope you own a lot of non-dollar assets.

http://richardmaybury.com/feddisaster.html

tatupu70 says

And are you implying that the SEC knew what Madoff was doing?

LOL. Yes. The best case you can make when looking into the RenTec investigation of 2004 is grossest negligence, but not only is this extremely hard to believe, there is also a close to insignificant difference between that amount of negligence and purposeful inaction.

jazz music says

No, privatisation has broke the system along with unfunded tax reductions for rich, business subsidies for the biggest businesses and foreign soil wars again to benefit businesses.

Privatization did not break the system. Privatization does not have access to print money. Cutting taxes on the rich did not break the system, the ever increase in the money supply did. Hell back when there were no income taxes the U.S. standard of living was good for Americans, taxes actually make it worst.

jazz music says

Then what are the "job creators" waiting for? Another tax break??? No. They are withholding jobs to undermine the POTUS in preparation for an election cycle and to maximize profits at people's expense.

Haven't you been keeping up with the economic news? They're worst then ever before. Also don't confuse the rich with job creators. Being rich doesn't mean you've created a job or are a job creator. The job creators employed anyone because demand has fallen. Demand has fallen for a multitude of reasons, high cost of prices and living, debt, inflation, you can go on. Not to mention the cost of labor is high.

jazz music says

Business owns state government now with right wing think tanks like ALEC, literally writing the laws, voting on them behind closed doors with business representatives only, and then handing proposed laws over to representatives to rubber stamp so they get to appear like they actually did some work for their ridiculously low pay

Perhaps some BIG businesses may own state government. But most of that is the governments fault by selling themselves out to big businesses in the first price. Want to topple big business? Simple, open up the market and allow new businesses compete with big businesses and you'll see a shift in business/industry leaders. But until government removes the barriers to entry those at the top will remain at the top even though their business practices are shaky.

jazz music says

Well-publicized data shows immediately after unfunded tax reduction for rich the national debt rose like never before. Both Reagan and Bush presided over unprecedented increase in national debt while flying the false flag of conservatism.

No, the nation debt rose because of the social programs and even the spending on war. Why do you think Nixon had to remove the dollar from the gold standard in the first place? It was because government couldn't reign in their spending habits (which include social programs and war funding).

jazz music says

Can't anybody fly their true colors anymore? Why does the law that removes all our privacy have to be called a "Patriot Act." Why do these lies stand up at all?

I am not disagreeing with you here, but once again who enforces the laws? The government. Don't just blame this on one party either because if I remember correctly both political parties voted for the Patriot Act.

jazz music says

How do you explain the concave up in debt during republican "conservative" administrations in the graph below as opposed to the concave down during "tax and spend" democrat administrations. Those are memes and they are flat out lies from Republicans who count lies as their best friends.

Are you kidding? The debt spending is ever increasing rapidly and will continue to do so from here on. It doesn't matter who wins the next election after Obama, the next president will spend like hell just like the previous presidents. The country has dug themselves into a hole that the only way to stave off a system collapse is to dig deeper. Well there are other ways to fix the problem but from a politicians stand point of view the only thing they can do is dig deeper into debt and hope SHTF on someone else's term.

spydah_hh says

Demand has fallen for a multitude of reasons, high cost of prices and living,
debt, inflation, you can go on. Not to mention the cost of labor is high.

You do realize this makes absolutely zero sense, right? If the cost of labor and inflation) is high, this increases demand.

control point says

You do realize this makes absolutely zero sense, right? If the cost of labor and inflation) is high, this increases demand.

Actually this doesn't make any sense. How can inflation increase demand? I mean listen to yourself, if the cost of labor and inflation is high how DOES THIS INCREASE DEMAND?

HOW DOES HIGH COST INCREASE DEMAND? If the cost of everything is going up you mean to tell me you're going to spend more money? Hell no. SUpply and demand, the higher the price the less demand for it, basic economy 101. When cell phones cost $4,000 was there demand in the middle class? Hell no, there wasn't demand until the price dropped down to $50-$500.

Think about it this way--the cost of labor is also the income of your customers.

tatupu70 says

Think about it this way--the cost of labor is also the income of your customers.

No it's not. The income of your workers WHO CAN BE YOUR CUSTOMERS OR NOT. Has to do with production. Lets go back to the cell phone example. When cell phones first came out they cost about if I remember $8000 then they dropped down to $4000 to eventually what they are now, around $50-500 or so depending on what you get. The price is only reduced because production increased.

If a worker can increase their production of a good then the supply of it goes up and the price of it goes down, with fallen prices increases the demand for the product. If a worker can increase his production from 50 cellphones a day to 100 cell phones a day then he's increased his production by 50%. Which means to a business owner he is worth 50% more than he currently makes. In other words he'll get a raise.

Inflation does not account for a raise increase because the costs has not gone down. The business man has to account for the inflation so the price goes up, however the cost goes up too so everything is the same, just at a higher equilibrium (however, demand will most likely fall). If a inflation increased by 10% then the price and cost of the cell phone goes up 10%, which means you're back at square one. However; the workers wages does not increase because he did not DECREASE COSTS.

Another example think about athletes. The better performing Athletes are paid very well. Some positions on avg. are paid more than others like the quarterback. However, those who don't perform are eventually cut and replaced by someone who performs better. Inflation has nothing to do with an athletes pay, none so than his performance which are tied to wins and more merchandise purchases.

spydah_hh says

The price is only reduced because production increased.

And none of that cost reduction was because the cost of labor was reduced.

spydah_hh says

Which means to a business owner he is worth 50% more than he currently makes. In
other words he'll get a raise.

lol--you don't actually believe that do you??? What it means is the owner gets to pocket more profits.

spydah_hh says

Inflation does not account for a raise increase because the costs has not
gone down. The business man has to account for the inflation so the price goes
up, however the cost goes up too so everything is the same, just at a higher
equilibrium (however, demand will most likely fall). If a inflation increased by
10% then the price and cost of the cell phone goes up 10%, which means you're
back at square one. However; the workers wages does not increase because he did
not DECREASE COSTS.

This is gibberish.

spydah_hh says

Actually this doesn't make any sense. How can inflation increase demand? I mean
listen to yourself, if the cost of labor and inflation is high how DOES THIS
INCREASE DEMAND?

Because market participants have more money to spend.

ECON 101, supply and demand, is all fine and dandy but in ECON 102 you will learn about macroeconomic behaviors. If wages increase, demand increases. When demand increases, prices increase. One leads to the next, which leads to the next.

spydah_hh says

In other words he'll get a raise.

Except when he doesn't get a raise, a la since 1975.

spydah_hh says

Another example think about athletes. The better performing Athletes are paid
very well. Some positions on avg. are paid more than others like the
quarterback. However, those who don't perform are eventually cut and replaced by
someone who performs better. Inflation has nothing to do with an athletes pay,
none so than his performance which are tied to wins and more merchandise
purchases.

Again--wtf are you talking about? Inflation does correlate with wages, but that's not what we're discussing.

control point says

Because market participants have more money to spend.

How can they have more to spend if their wages does not increase? We hear time and time again wages have fallen behind against inflation for the past 30-40 years. That's because inflation does not increase wages, production does.

spydah_hh says

We hear time and time again wages have fallen behind against inflation for the
past 30-40 years. That's because inflation does not increase wages, production

No--that's because wages aren't determined by productivity like you believe. They are determined by leverage.

And with increased automation as well as manufacturing going overseas, there is an oversupply of labor. So owners are taking more and workers less. Leading to the wealth disparity that we see today.

spydah_hh says

How can they have more to spend if their wages does not increase?

Also be careful understanding the difference between real wages and wages. Nominal wages have most definitely increased.

tatupu70 says

No--that's because wages aren't determined by productivity like you believe. They are determined by leverage.

And with increased automation as well as manufacturing going overseas, there is an oversupply of labor. So owners are taking more and workers less. Leading to the wealth disparity that we see today.

tatupu70 says

Also be careful understanding the difference between real wages and wages. Nominal wages have most definitely increased.

tatupu70 says

It depends on what you mean by wages. Median? Total income? In any event--who is arguing that point?

Don't be fooled into thinking that becuase I disagree with you that I can't think for myself.

Lol, okay dude. If you say so. We'll just have to agree to disagree.

spydah_hh says

Lol, okay dude. If you say so. We'll just have to agree to disagree.

We can disagree about causes, but you can't disagree that nominal wages have grown. That's a fact.