patrick.net

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.

NastySlapper says

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.

You obviously need to study history. Specifically tax code. How about you study the top tax rates during those periods when America thrived? Then get back to me.

Nomo is 100% correct--the middle class won't survive in a true free market and the last 20 years comprise pretty good evidence to prove this.

So you are saying that we've lived in a 'true free market' for the past 20 years? ;)

How can one defend a centrally controlled financial system and talk about our free markets in the same breath? I suppose you feel that forcing banks to make bad loans falls into the realm of free market economics, and I wouldn't dare debate that one with you. (Btw, did you notice if such bad loans played any significant role in the recent economic catastrophe?) Hey, maybe Greenspan himself has it backwards here: http://www.youtube.com/watch?v=ozD8ojH5PJU !

You are attempting to defend the indefensible. Stick to culture and humanities when defending socialism (shaky as well, but at least subjective).

Sorry, you have no idea what you're talking about.

Yeah! I might just go hit a bong a couple thousand times so I can catch up with you guys.

NastySlapper says

So you are saying that we’ve lived in a ‘true free market’ for the past 20 years?

No. I don't think we've ever had a true free market. Thank goodness.

NastySlapper says

I suppose you feel that forcing banks to make bad loans falls into the realm of free market economics, and I wouldn’t dare debate that one with you.

Oh please. Not the CRA crap again. Anyone who believes that this was a major cause of the housing bubble needs to have their head examined. It has been thoroughly debunked here in other threads. You won't debate it because you know you'll lose. The data is overwhelming.

Nomograph says

In fact, the last twenty years have had the most unfettered markets in US history. Think about the Internet, China, NAFTA, and globalism for starters.

Wow, you really stepped in the BS there nomo,

"The North American Free Trade Agreement (NAFTA) is the quintessential managed-trade vehicle sold under the rubric of free trade. The first tip-off should be its size. While we earlier saw how 54 words in the U.S. Constitution established free trade among the states of the Union, NAFTA weighs in at over 2,000 pages, 900 of which are tariff rates. (Under true free trade, there is one tariff rate—0 percent.) The agreement does have trade-liberalizing features, to be sure. Consisting of a 10 percent reduction in tariffs to be phased in over 15 years, however, they are all but buried under the profusion of controls NAFTA also establishes.

In the first place, the benefit from those tariff reductions are jeopardized by the agreement’s snap-back provisions. Those permit pre-NAFTA tariff levels to be restored against imported items which cause or threaten serious injury to domestic industry.[5] In other words, NAFTA supports free trade as long as it does not promote international competition which is too hot for favored domestic firms to handle. In addition, NAFTA’s rules of origin are designed to divert trade from the world’s most efficient suppliers to North America’s most efficient suppliers. This hobbles the international division of labor instead of expanding it, as true free trade does."

http://www.thefreemanonline.org/featured/why-managed-trade-is-not-free-trade/#

AD Ho--

So, are you arguing that NAFTA made trade less free?

Nomograph says

You’ve been reading Libertarian websites without doing any fact-checking.

How do you know what I've been reading? How do you know what facts I am aware of?

You don't.

On the contrary, I now know that you make assumptions and tout them as facts. That much has been objectively proven. (Right?) And would it not follow that someone who does such a thing is a fool?

>>Anthropomorphic arguments are always flawed because they ascribe human feelings and emotions to inanimate objects that are incapable of such characteristics. That is a flaw.

But the problem here is that the Federal Reserve is not an inanimate object. Hence the argument is not Anthropomorphic in the first place.

Big words aside, any institution (such as the Federal Reserve) consists of owners, people and assets. (etc) To think of an institution as an inanimate object that is not capable of feelings and emotions (in a *collective* sense) is naive.

For the record: I agree with NastySlapper that the Fed has its own motivations, but I disagree that a "free market" will solve the problem. What is needed is an honestly regulated market. Wait a minute, that could be a useful concept. "An honestly regulated market". Now if only we could get that.

Regulation to prevent corruption, monopoly, and collusion does not have to compromise the essence of a free market. And this kind of market, though imperfect, is far and away much more efficient and productive than any other.

You would be hard pressed to find a proponent of free market capitalism who opposes any form of regulation. For one to have to resort to assuming he/she is arguing with such a radical viewpoint simply shows how desperate their own arguments are.