patrick.net

AdHominem says

It has a track record of devaluing the dollar 96% in less than 100 years.

Why to you keep throwing that meaningless crap statistic out? The only value of any currency is purchasing power per unit of work. The average person 100 years ago worked very hard 10 to 12 hours a day 6 days a week (as did all the children over the age of about 7) to live in a 300-500 sq ft tenement or dirt floor farmhouse with lots of other people crammed in lacking electricity or running water. I think you could safely say that the average standard of living in America has gotten better no matter what the dollar is worth. Please feel free to go back to the good old days if you so desire.

marcus says

Funny, I thought that in modern times debt was good.

Nope. But thanks for the straw man.

marcus says

Are you going to tell me that the only way I can start a business that will require 2 million dollars worth of assets is to raise 2 million dollars ?

Nope. Debt is one way, recruiting investors is another.

marcus says

Regarding devaluation of the currency. I’m not at all convinced that the Fed is singlehandedly responsible for this

It isn't really entirely responsible. Fractional reserve banking, deficit spending (by congress and state and local governments), and the fiat nature of the dollar all play a role in the devaluation of the dollar. Ultimately congress and the people who support congress are responsible for the devaluation because congress authorized the creation of the FED and the people have accepted it and the consequences of deficit spending.... so far.

marcus says

Who does inflation benefit more ?

The people who have FIRST or earliest access to the newly created supply of money before it has a chance to trickle down and cause an increase in prices (typically the elites by nature of their position, power and influence have first or earliest access to any new money that is created).

marcus says

as to the claim that the concentration of wealth at the top is the feds fault.

You misconstrue and present another straw man. It is not the FEDS fault it is congress and the people's fault for allowing them to use the Fed for their own protection. The whole idea of too big to fail and justifying government intervention in markets enables the elites to privatize profits while socializing losses.

For clarification, I don't deny that the fed is ultimately good for corporations, and often for the economy in general, it's specifically this part that I want to understand.

AdHominem says

at the expense of the majority of working people

AdHominem says

marcus says

Funny, I thought that in modern times debt was good.

Nope. But thanks for the straw man.

It's not a straw man, I mean that I (not you) see debt as a good thing.

AdHominem says

It is not the FEDS fault it is congress and the people’s fault for allowing them to use the Fed for their own protection. The whole idea of too big to fail and justifying government intervention in markets enables the elites to privatize profits while socializing losses.

But this was a "black swan" event, and there is new legislation which at least attempts to decrease the chance of too big to fail in the future.

Besides if you wanted to argue for new anti-trust laws, breaking up too big to fail institutions, I would be all for it. That has nothing to do with the Fed. The feds intervention was trying to prevent the ultimate too big failure.

bob2356 says

The only value of any currency is purchasing power per unit of work.

Lets assume this premise. How much work does JP Morgan have to do to rake in interest on deposits he does not even have (they have already been loaned out and "redeposited" to the point where there is at best one dollar in possession for every 10 dollars on "deposit")? Seeing as how JP Morgan does little or no work, and rather is a parasite on the productivity of the working class, why should he and others like him receive bailouts/have a lender of last resort when they overextend themselves?

Advancements in technology that have raised American standard of living aside: What is the likelyhood of a new immigrant or high school graduate with no capital of saving enough money to buy a house, start a business and provide for his family without going into years and years of debt servitude? Can we blame the FED for this reality? Not entirely, but their policy of serving as lender of last resort creates a moral hazard and leads to increased malinvestment. It also results in socialization of losses while allowing private corporations to reap most of the profits. Ultimately the worker pays higher prices for goods and receives lower wages for services because we must first pay the banker and subsidize the losses of the "too big to fail." We must also subsidize deficit spending on foreign wars in the name of National Security and "Making the world safe for Democracy" which are really just about Big Business. The Fed (which is approved by congress and accepted by the people.... for now) makes all this deficit spending and socializing of losses possible.

Debt is a wonderful thing that allows our economy to function. It is only when debt is too high relative to asset values and relative to cash flow that we have a problem. And I am not going to repeat observations made in the past about specific series of events, including the pre-millennial irrational exuberance, or the many financial mistakes made since.

But I have basic problems with the assertion that getting rid of the fed would help prevent bubbles or panics, or (not addressed) that it will help us to function better in an extremely complex international economic environment.

The one thing that you said that I agree with very much, is that it is too easy to make sweeping generalizations, or even simple statements that have no sound justification. Since ending the fed would be a enormous challenge, with countless unforeseen effects, it would seem to me that the burden of proof is on you to explain more clearly what the key problem with it is, and also what you would replace it with.

As for deficit spending on wars, which may really be more about supporting the military industrial complex, I agree. But here is where you are wrong. You think the fed enables that. I would argue that China and other purchasers of US Treasury securitities are the real ones who ultimately determine interest rates.

Interest rates are determined in markets. The fed is involved, but please do some homework before trying to assert that any long term rates are determined by the fed.

marcus says

But this was a “black swan” event

WHAT was a black swan event?

marcus says

there is new legislation which at least attempts to decrease the chance of too big to fail in the future

The Fed was CREATED to serve as lender of last resort for the too big to fail. That is the origin of the FED.

Since 2008 there are even less banks, and the surviving banks have become even bigger and more powerful, as has the FED.

So much for reducing too big to fail.

marcus says

The feds intervention was trying to prevent the ultimate too big failure.

Exactly, that is my point. The "too big to fail" (who are really just private corporations that knowingly overextended themselves) create fear that if they collapse they will take us all with them. It is circular reasoning and an endless cycle of fear that keeps us in debt and under control of the FED/Bankers/Corporations.

marcus says

I would argue that China and other purchasers of US Treasury securitities are the real ones who ultimately determine interest rates.

Do you even know who most of the debt is owed to?

AdHominem says

It is circular reasoning and an endless cycle of fear that keeps us in debt and under control of the FED/Bankers/Corporations.

Sounds like a conspiracy theory. What I meant by black swan event, is the crash of 2008 that led to all the bailout. I think it's better to try to continue understanding the credit bubble mentality of the last 30 years, that may have replaced a more vibrant productive economy, before doing anthing as drastic as ending the Federal Reserve.

But this was a once in a hundred years kind of event, that is going to take a long time to come out of. Let's take our time and understand it well.

Think about this. Do you trust our current government to come up with something (to replace the fed) that is less skewed toward the benefit of the rich and of corporations ?

Really ?

AdHominem says

marcus says

I would argue that China and other purchasers of US Treasury securitities are the real ones who ultimately determine interest rates.

Do you even know who most of the debt is owed to?

Yes, and it's not what Al Gore meant when he suggested a "lock box."

marcus says

What I meant by black swan event, is the crash of 2008 that led to all the bailout.

The FED has been bailing out "too big to fails" since 1913. That is the primary purpose that JP Morgan and other big business tycoons lobbied for its creation. Politicians like it because these tycoons help get them elected, and the FED enables deficit spending (it is even a buyer of last resort for US treasuries!) which also helps politicians buy votes. The whole system is an ingenious way of giving the appearance of democratic government while the economy is completely controlled by the elites for the elites.

marcus says

Do you trust our current government to come up with something (to replace the fed) that is less skewed toward toward the benefit of the rich and of corporations ?

Of course not, but I do trust them and the ptb/media to continue to find new and creative ways of making us fear "too big to fail", terrorism, Iran, global warming etc... and to stir up endless meaningless battles between left and right, conservative and liberal, religious vs. athiest, rich vs. poor, minorities vs. Caucasian, tea party vs Obamabots: so that we don't wake up and elect leaders who actaully WILL change our government to one less skewed toward the benefit of the elites.

marcus says

AdHominem says

marcus says
I would argue that China and other purchasers of US Treasury securitities are the real ones who ultimately determine interest rates.
Do you even know who most of the debt is owed to?

Yes, and it’s not what Al Gore meant when he suggested a “lock box.”

Then why do you even bring up the Chinese? The majority of it is owed to the FED and Americans (in the form of pension plans etc...) And with the Fed serving as buyer of last resort on Treasuries that trend is only going to continue. America is more screwed than anyone else when we devalue our own currency. Eventually the world will abandon the dollar as reserve currency and we will know the true consequences of our deficit spending.

AdHominem says

marcus says

Who does inflation benefit more ?

The people who have FIRST or earliest access to the newly created supply of money before it has a chance to trickle down and cause an increase in prices (typically the elites by nature of their position, power and influence have first or earliest access to any new money that is created).

This looks familiar (austrian school).

Banks work with a fairly small spread. Ultimately, when the lend money at 3%, Maybe they borrowed it at 2.7% (including effects of leverage). That is their profit right there, period. But someone probably other than the bank is willing to get a 2.7% return on their money.

Are you certain that the low interest rates now are going to cause inflation ? What's to stop ordinary credit worthy people from benefiting ?

AdHominem says

Then why do you even bring up the Chinese?

Because on any given auction of treasury securities, they may be bidding for much more than their and other foriegn investors percentage holdings. They are a huge factor in the pricing of treasuries, as are all the other investors who happily accept low interest rates. They don't have to. They can go to other countries, or municipalities, or corporations (bonds), etc,....

I brought it up because you implied that the fed facilitated debt that goes toward wars and ultimately corporations. I assumed you meant by its influence on the availability of borrowed money to the government. To me it felt like you then tried to change the subject.

marcus says

Banks work with a fairly small spread

So do insurance companies and casinos. But the longer you play (on average) the more you lose. So the point I am making is lets not play the game anymore. Lets not let the banks and corporations continue to socialize losses while privatizing gains. Lets not allow the FED to enable any more deficit spending.

AdHominem says

we will know the true consequences of our deficit spending.

I agree about the problem of excessive deficit spending. And maybe in a small way the Federal reserve is complicit, but primarily by not stopping it (more than by supporting it). It is almost as if using mirrors and slight of hand, we avoided recessionary pain that might have been beneficial. That is, the austrian school point of view isn't without some small degree of merit.

In simplistic terms, living beyond our means can't be good. But I believe that ultimately incremental increases in taxes, especially at the high end is how you bring about fiscal restraint. Ultimately corporations and the rich have a lot of influence on congress. If you effectively made higher taxes to the rich, an immediate consequence of fiscal irresponsibility, what do you think congress would do ? Which would they chose ? Fiscal responsibility ? or higher taxes ?

It has to become an either or proposition, and then I would have hope.

AdHominem says

Lets not allow the FED to enable any more deficit spending

Okay, I give up.

marcus says

To me it felt like you then tried to change the subject.

I felt the same way about your apparent straw man....

Now, where do the Chinese (or American pension plans for that matter) get the dollars to buy treasuries in the first place?

Our agreement is on the evil of deficit spending. Although I am probably far more sympathetic to some of the sorts of "emergency" spending that may continue to be necessary in coming months or years.

We differ on the solution. Mine is way simpler. Basically an aggressive "pay go" with teeth, backed with very progressive taxation until we fix things.

marcus says

Our agreement is on the evil of deficit spending. Although I am probably far more sympathetic to some of the sorts of “emergency” spending that may continue to be necessary in coming months or years.
We differ on the solution. Mine is way simpler. Basically an aggressive “pay go” with teeth, backed with very progressive taxation until we fix things.

My solution is even simpler. Take our lumps, let the overextended fail and the prudent will rebuild using the stagnant capital goods. There will be no need to increase taxes, if we allow the imprudent to bear the expense of their own mistakes. Yes, whole neighborhoods may fail, yes there will be bankruptcies yes it will be painful, but when you have to swallow a frog, do it quickly.

thunderlips11 says

Would also like to see unearned income taxed higher or at least the same as earned income

I'm not so sure about that. You can raise corporate taxes, or capital gains, but to do both would be bad for investment, and maybe unfair (double taxation).

marcus says

My solution is even simpler. Take our lumps, let the overextended fail and the prudent will rebuild using the stagnant capital goods. There will be no need to increase taxes, if we allow the imprudent to bear the expense of their own mistakes. Yes, whole neighborhoods may fail, yes there will be bankruptcies yes it will be painful, but when you have to swallow a frog, do it quickly.

I've been mostly talking about government deficit spending. I don't see how this prevents congress from wastefully supporting it's benefactors in the future with deficit spending.

marcus says

AdHominem says

Lets not allow the FED to enable any more deficit spending

I hope that you will at least explore the differences between what the credit markets do, and what the Federal Reserve does. After that, we should maybe continue that part of the conversation.

Nomo, you are talking BullFrogs, AdHo is talking little tree frogs. If I have to swallow a frog it will be thinly sliced, breaded and deep fried .. served warm and with some horseraddish to dip in.

If I have to swallow poison, it will be labled "Wild Turkey".