patrick.net

jljoshlee - your statements, though well intentioned, are exactly the kind of ingrained sentiments my original post tries to challenge. Of course these ideals sound only sensible, but I argue two things:

a) central banks use these arguments to convince us that they are looking out for us, and to justify the ridiculous amount of power they hold over us with the exclusive right to arbitrarily re-value our assets.

b) the principles and objectives you pronounce will occur quite naturally, more efficiently, less erratically, and - most importantly - more fairly, via a simple free market apparatus.

We can have all of these things without paying a middle man. "Central banking" is a worldwide cabal; the biggest and most important confidence job in the history of humanity.

NastySlapper says

a) central banks use these arguments to convince us that they are looking out for us, and to justify the ridiculous amount of power they hold over us with the exclusive right to arbitrarily re-value our assets.

How does the Fed revalue our assets? In real terms?

NastySlapper says

b) the principles and objectives you pronounce will occur quite naturally, more efficiently, less erratically, and - most importantly - more fairly, via a simple free market apparatus.

I would strongly argue the opposite. The free market does not act less erratically, more fairly, and it's very unclear if it acts more efficiently. It will find a local minimum, but I don't think it finds the absolute minimum. And it's fairer only if you like to have all wealth concentrated to a very small percentage of the population.

Your assets are re-valued in terms of money; not real terms. Your debt is re-valued in real terms. The two may be related depending on your situation. I worded it this way on purpose.

Your suggestions about the inefficiency of free market capitalism is an opinion, and one that you would be forced to defend with aged arguments, most of which are flimsy. But I will not embark on that right here.

NastySlapper says

Your suggestions about the inefficiency of free market capitalism is an opinion,

Of course. As are your assertions from the post I referenced. But I'm not sure how you can comment on my arguments before I have even made them... Seems like you may have a closed mind.

NastySlapper says

Your suggestions about the inefficiency of free market capitalism is an opinion,

Of course. As are your assertions from the post I referenced. But I'm not sure how you can comment on my arguments before I have even made them... Seems like you may have a closed mind.

tatupu70 says

But I’m not sure how you can comment on my arguments before I have even made them… Seems like you may have a closed mind.

I referred to "your suggestions", which by definition means that I do not KNOW what you will argue, correct? But I have significant confidence that I could guess very accurately what arguments you would use to attack free markets, as I've been down that road countless times, and countless times have heard the same arguments. You may be different. I hope so.

Similarly, I have relative confidence that you are "left of center". Ironically, this is due to a degree of close-mindedness of your own. Here is why:

1) You used this term without any real basis, mostly for emotional reasons (I simply claimed that your suggestions were much-disputed opinions, which they were, and the defense of them is flimsy, which it is). The general conservative nature of my statements is uncomfortable to you.

2) My original post may not suit your taste, but it is scarcely "opinion". In fact, the brunt of it simply offered perspective for consideration. It didn't deliver opinions, and the few assertions projected were undeniable (do you wish to argue that the fantastic devaluation of our currency since 1913 is fantasy, or that inflation/deflation do not manipulate the wealth of citizens, or that these acts have benefited the average citizen relative to the banks as a whole?).

3) No one right-of-center would "strongly argue" against the essential merits of a free market. (At least I have yet to encounter this.) Even the left generally defend free markets, albeit usually it is by pretending that our current markets ARE "free" when they are far from it (for an example of this, reference Nomo's comment "that’s the reality of free markets") - they appreciate the concept of freedom more than its application.

Add these things together, and it is almost certain where you stand politically. But you are right - I am presuming. I would be happy to be wrong. :)

NastySlapper says

You used this term without any real basis, mostly for emotional reasons (I simply claimed that your suggestions were much-disputed opinions, which they were, and the defense of them is flimsy, which it is).

Again--you say that my defense of my opinion is flimsy when I haven't even presented it. You must really be gifted. How about you tell me who will win the 5th at Pimlico tomorrow?

NastySlapper says

You used this term without any real basis, mostly for emotional reasons

Which term?NastySlapper says

No one right-of-center would “strongly argue” against the essential merits of a free market. (At least I have yet to encounter this.) Even the left generally defend free markets, albeit usually it is by pretending that our current markets ARE “free” when they are far from it (for an example of this, reference Nomo’s comment “that’s the reality of free markets”) - they appreciate the concept of freedom more than its application.

Not sure where my political affiliation came into play. Do you automatically discount arguments made by someone "left of center" in your opinion? Regardless of their merit? Another sign of closed-mindedness. Personally, I find that I am conservative in some areas and liberal in others. I think both sides of the aisles have some good ideas and some bad ideas...

What I wrote and what you read are two completely different things.

I find that the anti-fed view is not conservative per se, although I have uniformly observed that it is made by people who are likely to buy in to conspiracy theories. And by people that refuse to take the time to understand the Fed. I guess if you think that the typical tea party member is what you call conservative, then maybe it is a conservative point of view.

I wonder what George Will or David Brooks, two right of center columnists that I respect think of the fed.

NastySlapper says

do you wish to argue that the fantastic devaluation of our currency since 1913 is fantasy

No, but I wish to argue that it is irrelevant. More relevant would be comparing the average adult income, or the average household income in a real way, say by defining a basket of goods, and then determining how many of those baskets of goods they could buy then versus now. Obviously the average person is FAR better off now, but I would not be simple minded enough to therefore declare causality. "We are better off now, than in 1913, therefore the fed is good." I would not make such an absurd argument.

mfs.admin says

So in short, what you need to do is ponder on the idea that if central banks were such a positive thing, why were our forefathers trying to escape it’s grip on their wallets

The world was a very different place then. We are a very different country with all kinds of international interdependence. Back then, we wanted to be left alone to grow ( not that we weren't going to do international trade at all ). I don't really see that escaping England's central bank in the 18th century provides any insight into what our own 20th century central bank does or does not do for us.

NastySlapper: Long ago, I traded derivatives (exchange traded regulated ones) on US Treasury Bonds. And so it behooved me to try as best as I could to understand the Fed. At the time Marcia Stigum's books were sort of the bible. I gained a partial understanding. I think more than yours, because I did not start with the writings of conspiracy theorists. But still, my understanding is limited.

Here is my request to you. My guess is that you probably don't have much respect for university professors, but could you please find a half way main stream respected economist or economics professor that holds your view of the Fed ? I don't mean someone who is calling for more transparency or other changes, but someone who hold a similar view as to it being as you said, "a cabal," or "a confidence job," or explaining more clearly for me exactly how it is that they are stealing from us ?

I want to know, who are the people who not only have a deep understanding of the federal reserve, but who also have serious intellectual credibility out there who see it the way you do ? There must be one or two.

NastySlapper says

What I wrote and what you read are two completely different things.

OK--by all means, please help me out. What did I misunderstand?

NastySlapper: If your research into the Fed, started with Von Mises, or someone with a similar thesis, then please realize, that would be like using Honest Abe ( yes our very own ) as a starting point for learning about the our Republican and Democratic parties.

Do you understand ?

Nice post Nastyslapper, keep up the good work. I'd like to point out electronics, probably the best if not only example of the REAL free market today. If we (as humans, not as a nation) weren't becoming more efficient (good deflation) at producing electronics could you imagine what these little wonders would cost us? Remember when Plasma TVs first came out? Everyone seems to accept "good" deflation when it comes to electronics. Yet they will argue that deflation is bad, that people would stop buying things (waiting for cheaper prices) when it comes to everything else which would of course spiral into a depression, yadda yadda yadda.

tatupu70 says

I would strongly argue the opposite. The free market does not act less erratically, more fairly, and it’s very unclear if it acts more efficiently. It will find a local minimum, but I don’t think it finds the absolute minimum. And it’s fairer only if you like to have all wealth concentrated to a very small percentage of the population.

I'd like to see the argument.

marcus -

Your assessment of me is wildly inaccurate.

Most of my exposure to "conspiracists" consists of explaining to them how they are delusional.

I am sure I am far better read than you have guessed. It is rather insulting to put in the time, money, and discipline to absorb that much literature and then be told that I haven't. You have also insulted yourself by asserting that I started out learning economics from conspiracy theorists without any basis for such a claim whatsoever.

Why do you suggest that I don't respect university professors? I would have quit college at some point if that were so.

Several years ago, I vehemently tried to tell people what was about to happen to this country and to the real estate market in particular. Over the course of a few years, I met about six people who didn't think I was completely wrong (the owner of this site being one of them). Many grew angry that I would suggest they might be mal-invested. As events unfolded it became clear that I was, in fact, completely correct. So, after investing considerable time, effort and resources into learning these things and repeatedly being shown correct, I have a hard time abandoning what I've learned simply because someone feels that it is "his turn" to be right.

About your request: you should first realize that nearly all mainstream economists have been horribly wrong in assessing or predicting nearly every major economic event. You might think that sounds like an over-generalization, but it isn't too hard to see if you look for it. I would advise paying special attention to those who foresaw these things correctly than the mere artists who've written about them in hindsight.

But here is a direct answer (not all of the following people share the singular view on the Fed presented here, but all have garnered my respect for their objectivity): you can try reading Friedman, Murray Rothbard, Mises, Gary North, and even Adam Smith or Ayn Rand for a glimpse at sound and honest economics. And yes, I've done my time with men like Keynes, Marx and even with works such as Bernanke's embarrassing book on the Depression. Have you?

I was asking for current well respected economists that share your view. Not your own personal economics training that qualifies you. I think you can find one or two, but not many. By the way, this issue definitely has no one party bias. People are usually a little extreme right or left if they want the fed abolished.

As for: NastySlapper says

Several years ago, I vehemently tried to tell people what was about to happen to this country and to the real estate market in particular

I felt the same way as did many people, especially people in the super bubble markets and people who read this and countless other sites like it (not as good as Patrick's). Although I have yet to pat myself on the back for it. It was a no brainier, except for the question of exactly when and how it would collapse.

You mentioned Marx. Check this out, an interesting and fun anti-capitalism video. He too would be against the fed, but also more broadly against capitalism in general.
http://www.whyweworry.com/2010/07/05/capital-contradictions/

North is current, and the best.

Is that this guy ? http://www.sullivan-county.com/nf0/fundienazis/gary_north.htm

note: that's circa 1999

Yes. I told my friend that you would probably send such a reply. Just a FYI.

You probably already knew that I was going to post this link, but I couldn't resist...

http://people.smu.edu/acambre/garynorth/

NastySlapper says

You have also insulted yourself by asserting that I started out learning economics from conspiracy theorists without any basis for such a claim whatsoever.

It would seem I wasn't so far off.

I'm faced with an interesting dilemma that is somewhat funny. It is this: I know that I can ask you a question right now, and you will avoid answering it. And once you do so and I tell you that I knew that you would avoid it, you will choose to think I am delusional, and attempt to rally others to support you (since feeling accepted is more important than the truth). However, if I tell you beforehand that you will avoid the question, you will attempt to answer it in spite. (E.g., if I had told you ahead of time that you would quickly post such a response about North, you wouldn't have done it. Get it?) Oh, well, here it is anyway...

-------
I am aware of such things. Yet I've labeled North as the best economist around right now.

Your point is that I am supposed to feel bad about my ability to see through the forest, while you take pride in prejudice and ignorance. (Is it opinion or fact that you are ignorant of North's economics?)

I can only show you the truth; I can't make you drink it.

"There is no subtler or surer means of overturning the existing basis of society than to debase the currency". Is our government lying to us or just withholding the truth, because our own government is debasing our currency. Isn't our government supposed to protect our rights???

And this classic statement from Richard Doughty "I would burn the Federal Reserve to the ground, letting the burned out ashes remain there forever as a fabulous yet graphic reminder to future Americans as to what the hell will happen when you ignore your own Constitutional requirements that money be backed by gold, and then compound the laughable folly by letting an evil institution like the Federal Reserve create too much money and credit out of a fiat currency, which causes inflation in prices, and especially for the horrifying process of allowing the Federal Government to constantly deficit spend and grow, which causes flammable distortions in the economy."

End the Fed !

Abe--

Remind me again where it says in the Constitution that money must be backed by gold?

NastySlapper says

while you take pride in prejudice and ignorance

I told you already my "bible" years ago on this was Marcia Stigum. The whole point of my question to you was, please help me bridge the gap, by referring me to well respected economists who hold your view. Obviously hundreds of economics PHDs work for the fed, so it can be argued that they overly influence the economics profession. But still, I just wanted to hear an argument that reflected less ignorance of what the fed does, or even how inflation works.

I was looking for someone with undisputed intellect, understanding of the fed, and objectivity who has your opinion, because I am honestly interested in hearing a better explanation than the one from Mises or various conspiracy websites or yours that just make totally unbacked statements, sort of like Abe, as if that were enough.

You're correct, I did not look in to North's economics. When I heard what he did about the Y2k issue, and that he wants to execute gay men, I figured I knew enough.

Yes, I prejudged his expertise in economics. But that's fair, I asked you to give me someone with intellectual credibility.

Tapout - there is no subtler or surer way to overturn a society than to debase its currency. Counterfeiting is illegal for a reason. Here is a very simple question for you before I answer your question: Do you know why counterfeiting is illegal?

Article 1, Section 10.

Honest Abe says

Do you know why counterfeiting is illegal?

Because there is a law against it

And article 1 section 10 does not say anything about money being backed by gold. It speaks to the powers of states....

OK, I'll play along with that childish answer. WHY is there a law against it?

Apparently, North learned about the Austrian School while an undergrad, and later got a phd in History. It isn't clear from my minimal research that he ever took even one basic undergrad macro-economics course. That doesn't mean he didn't. And hey like I said, you may not have any respect for the state of the academic art of economics.

And yes, of course you are correct, economists aren't all that good at predicting economic events. But then logically, how could they be ? If they were, everyone would know that, and they would change the economic reality by actions resulting from people changing their plans based on the economists excellent predictions. This would have to occur until the predictions were no longer reliable.

It's sort of like the Heisenberg uncertainty principal.

NastySlapper, here's a question I've been pondering for a while now. Based on the various statistics, housing is set to drop in the next few years as a result of high unemployment, tighter lending standards, ARM resets coming up, etc.

However, since the gov't is printing money thus increasing the money supply leading to inflation, wouldn't that equalize the drop in housing that is happening? Or is the inflation happening at a level that isn't strong enough to overpower the drop in housing?

What are your thoughts on this?

I wonder a lot about exactly that. The Fed could try helicopter drops of money to increase the price of everything else relative to housing, but that would cause some new problems, like:

1. a surge in interest rates as boldholders freak out, pushing many more homedebtors over the edge into default
2. riots as the unemployed realize they not only lack a job and benefits, they now also cannot afford food

For the first one, the Fed could perhaps keep interest rates down by buying every bond on earth itself with newly printed money.

For the second, I don't see any solution. So I think the Fed is not about to do anything too dramatic as long as unemployment remains high.

I have a question... When is the next "home buyer tax credit" going to be introduced? Seems like the last one put a speed bump in the decline. Who thinks this will happen again, and again, an again?

There is a paradox there. When deflationary pressures are high, and the fed "prints money" (simultaneously increasing the govt debt - that is, it isn't really printed out of thin air), it isn't clear to me that it causes prices to go up unless additional money is actually put in to circulation. That is, the amount of lending going on and the so called velocity of money are factors in a addition to the money supply increase.

Put differently, if there was demand for credit now., and if banks and bond markets ( corporates and mortgages and so on) were lending huge amounts at these low interest rates, and if there was NOT basically over capacity in the economy already ( supply a little to great for demand ), then it could cause inflation. This is why some argue that we should have had more stimulus. Because even though the deficit goes up by the amount of money that is "printed," the money can be invested and put to use without causing inflation. That is, according to them, this is when we should run deficits, but we then absolutely must be deficit hawks in boom times (that doesn't seem possible - at least for politicians).

The fed has done some extreme things this time. Taking over some bad debt, participating is the mortgage backed securities markets and so on. And yet here we are still.

I think what you might be thinking of Patrick is some sort of "devaluation" I can't imagine our country doing that, but the thought has occurred to me, when thinking of reasons that maybe I should buy a home sooner rather than later.

I believe the fed used this printed (or electronic) money to buy toxic assets, swaps, etc and to take risky and or non performing loans off the banks books with the intention of returning them to some state of health and get them lending to consumers again. So, this didn't really go into the general economy to cause inflation, its all parked on the feds ballance sheet or being held as reserves at the banks. This is the least distorting form of QE they could devise. In my opinion, they see the housing situation and understand it, but they would never use terms to stop anyone from buying a home, they are in a sense keeping the truth from the people, which is bad. But panic would also be bad.

beauxee says

NastySlapper, here’s a question I’ve been pondering for a while now. Based on the various statistics, housing is set to drop in the next few years as a result of high unemployment, tighter lending standards, ARM resets coming up, etc.

However, since the gov’t is printing money thus increasing the money supply leading to inflation, wouldn’t that equalize the drop in housing that is happening? Or is the inflation happening at a level that isn’t strong enough to overpower the drop in housing?

What are your thoughts on this?

marcus's answer to this is basically correct. In short: inflation is a monetary phenomenon directly related to the amount of money in circulation. However, this is often misinterpreted as the sheer number of bills (or, to be more precise, "credits") in existence. The amount of pretend money sitting as reserves in banks will not, in itself, cause inflation. In order for inflation to occur, that money must be lent out and enter circulation.

It is theoretically possible to suffer a mass deflation in the midst of the greatest Keynesian stimulus assault in history. I would go a step further and state that it is, in fact, inevitable at some point - in the same way that (beware: anthropomorphosis) a single debtor who continues to leverage up, rather than address the core of his debt issue, is destined for ruin.

marcus says

Where exactly did the skimmed profits go ? Was it to the salaries of bank ceos ? Was it to the Hedge fund managers ? Maybe it was to the profits of insiders who knew what monetary policy would be before it happened. Help me out here, give me some specific examples from start to finish.

It sounds like you'd like to audit the Fed.

In my view (What do I know?) and I suspect that this view is shared by the Fed, is that the Fed has policy to fix most of the financial crises that could arise. Since finance has "stabilized" the Fed has done about as much as it will until instability reappears.

Under conditions of slack demand, the Fed is POWERLESS to do any more to reduce unemployment. For that, a COMPLEMENTARY FISCAL POLICY is needed. However, our fiscal policy is currently working at odds with monetary policy by cutting back on state spending and decreasing demand. What makes me more certain that there is no Monetary Fairy (What do I know?) is that NO ONE can produce a model of how monetary policy can increase demand in our current conditions. NO ONE can demonstrate a transmission mechanism whereby monetary policy can restore credit to the lower rungs of our economy and demand for goods and services when they are blocked by balance sheet problems. The monetary arguments are in Underpants Gnome territory. Show me the transmission mechanism. In contrast, the ability of fiscal policy to stimulate demand is clear.

While unemployment is bad for BigF, it is not creating a "financial crisis". I suspect that people who are talking about the need to reduce unemployment and Ben talking about possible Fed action are talking past each other. Yes, the Fed has options to fix a financial crisis and keep the BigF afloat, but no, monetary policy can do little in the face of a fiscal policy that allows demand to further erode by reduction of state spending, suspension of UI and failure to move needed projects forward.

Expectations of the Fed and the power of the Monetary Fairy are misplaced. Fed policy is most useful to address the BigF. Fiscal policy is needed to address the JOBS

@NastySlapper
You make a point that becoming a slave for 30 years is slavery.

Elsewhere in the world it simply wasn't possible to buy land at any price. Many people around the world own nothing, only a few people own the land in these 3rd world countries, especially in cities and other areas.

Don't even think for a second that people in other places have it easier, or people in other times could purchase valuable land. People could plunk down a few bucks and buy undesirable land in ohio, or other places, where farming could make that land useful to them. Buying land in a city or populated area has always been expensive, up to the point that most land in europe is still owned by only a few people. The rest rent.

If you want to avoid the 30 year mortgages, go buy up land in some far far away corner of the US. You could probably pick up 1 acre for a few thousand dollars. You'll be hundreds of miles from anyone, with no roads or any services but no 30year mortgage.

If you want something desirable like water front property, guess what! So does everyone else, hence "desirable", hence longer term loans. Can't afford that water front property? How about something further back, well now you're competing with everyone else who couldn't afford water front yet still wants that land.

This isn't about anyone putting people into slavery, it's what people have deemed acceptable terms to buy a house. People who wanted to upgrade, decided to pay longer and more of their income to housing.

In most countries buying land still isn't feasible, especially in any large cities. At least here we have some kind of option and ability to do it! And a method for passing down that wealth from generation to generation.

There are lots of places where it is harder to buy land than here. Also lots where it is easier. But that isn't really the point, now, is it? And how is it not crooked to steal less than someone else is stealing?

You try to make points about "desirable" property costing more. That is great! You almost sound like you're advocating free markets! The only problem is that there *IS NO FREE MARKET*. If there truly were one, a middle class wage earner would be able to own a decent home in 15 years or less.

It is a fact that we have endured a massive housing bubble. It is a fact that we have had massive inflation for 100 years. Most important of all, it is a fact that the natural market desperately wants to contract the money supply. It wants to make real estate cheaper, and it wants to make the dollar more valuable. What this means - directly - is that it WANTS to make housing MUCH cheaper. If you cannot see this, or you deny this, then there isn't much more you have to offer to a sensible discussion.

Make no mistake, the banks hook you for as long as they can and for as much as they can. This, too, would be fair enough *IN A FREE MARKET*. So:

Let's get those banks to operate in a free market! Let's remove their "special privileges" and set up a system where they cannot print money and where they do not have the power to arbitrarily and artificially adjust interest rates (both enforceable via taxes on citizens), where they cannot manipulate stock markets, and where they do not thoroughly control the government. (Does this all sound familiar, btw?) Let's let them play by the same rules as everyone else, and then let's see how you feel about your 30 year debt.

NastySlapper says

The only problem is that there *IS NO FREE MARKET*. If there truly were one, a middle class wage earner would be able to own a decent home in 15 years or less.

What fairy tale world do you live in? Does it rain gumdrops in this "free market" as well?

NastySlapper says

It is a fact that we have endured a massive housing bubble. It is a fact that we have had massive inflation for 100 years. Most important of all, it is a fact that the natural market desperately wants to contract the money supply. It wants to make real estate cheaper, and it wants to make the dollar more valuable. What this means - directly - is that it WANTS to make housing MUCH cheaper. If you cannot see this, or you deny this, then there isn’t much more you have to offer to a sensible discussion.

And what is the "natural market"?

Absolute freedom would legalize murder. It would be anarchy. But now you are being silly, aren't you? It is a waste of everyone's time for you guys to talk about absolutes and spew cliches from high school texts. It is also a cheap tactic to attempt to make it look like someone else represents such an extreme view based upon whatever you can find to run with.

This nation currently has nothing close to a productive & practical free market. It did for a long time, and that is exactly why we thrived as we did. If you believe that capitalism is the root of the current economic malaise, you haven't paid attention for the past 20 years.

Your need to defend your socialist ideals at any cost impedes your ability to learn.