patrick.net

We need a Central Banker to ensure counterparty risk to the payment system. This system works very well in developed economies. For examples of what happens in its absence see assorted 3rd world nations devastated by IMF policy in which foreign debt obligations have broken their central banks.

More basically, no fiat system can exist without a Central Bank. This not only includes the floating exchange fiat we have now, but also commodity backed fiat systems (yes, the gold standard is still a fiat currency, despite the goldbugs' claims to the contrary). Without a CB, you end up with a complex, inefficient intrinsic-value based currency -- barter or proxy barter. That evolves very quickly into "IOUs" or contracts for future performance (derivatives say you?).

You'll end up right back where we started.

Read "Player Piano" by Vonnegut if you don't like macroecon theory. It yields the same conclusion.

The Fed has some notoriously bad moments. 30s, 70s, maybe even Greenspan's recent reign (we'll see). I think Bernanke has to look at the example of my favorite Fed chairman, Mr. Volcker, who actually had guts and held the line.

Mr. Bernanke, you need to raise, nice and steady three more times, or make 50 basis points and pause. You can't give up now. Inflation is job 1. Show a spine or you'll never get another chance.

We'll see the better part of 6%. This week's FT shows a bias leaning towards 6.

More basically, no fiat system can exist without a Central Bank. This not only includes the floating exchange fiat we have now, but also commodity backed fiat systems

But Randy, I'm not suggesting that we abandon the USD in favor of a hodgepodge of decentralized private currencies, or return to bartering. This isn't even the Fed's job anyway --the Treasury Dept. issues our currency and protects it (tracking down & prosecuting counterfeiters).

Again, what good does the Fed do for ordinary Americans? Rich powerful bankers, I can see --but regular Joes?

The only alternative to a central bank seems to be a money system based on a standard (like gold) where the paper money in circulation corresponds exactly to the amount of the standard in the vaults of the paper money issuer. (Paper money printing and bank regulation would still be needed, but could be performed by the Treasury.) Such a system could lead to problems especially in deflationary times when too many debtors have difficulties to pay back loans while the prices of their products fall. Also a deposit insurance seems more difficult in this system, but without this insurance we can have bank panics again.

HARM,

Wiki is great, but it does quite a superficial treatment of the Fed. Probably because of the "controversy". Look at "goldbugs" and "gold as an investment" to see the weaknesses of Wiki.

If you want to know what the Fed really does read some macroecon texts. I recommend Mankiw.

(Paper money printing and bank regulation would still be needed, but could be performed by the Treasury.)

Exactly. The Treasury Dept. is all the "Central Bank" most of us really need. The market can set the "fair price" of capital (interest rates), and since the Fed has long ago relinquished any regulatory oversight role in "policing" banks & lenders (by climbing into bed with them), what good is it?

If you want to know what the Fed really does read some macroecon texts. I recommend Mankiw.

Thanks for the recommendation. Allow me to make a recommendation of my own:
The Creature from Jekyll Island : A Second Look at the Federal Reserve

Thanks HARM

A bit conspiratorial for my tastes. The Fed is not some evil Masonic plot in my reality. Of course, I could be a dupe. I admit as much.

The fact is that the US is a large-open economy with nominal interest rate power aside from real interest rates as determined by the "market". This requires an active manager. Fine. Make it someone other than the "Fed". It's still the same function. I rather fancy having it outside the direct control of reactionary politicians.

There's another big problem. This natural ""market fair price" you refer to will be set by other countries who do have Central Banks. Or do you think that somehow you'll get EVERYONE to agree to abolish their CBs at the same time and not cheat? While we're at it, we might as well unilaterally disarm all our nukes.

The fact is that the US is a large-open economy with nominal interest rate power aside from real interest rates as determined by the “market”. This requires an active manager. Fine. Make it someone other than the “Fed”.

How about the "invisible hand"? Just a thought...

This natural “market fair price” you refer to will be set by other countries who do have Central Banks. Or do you think that somehow you’ll get EVERYONE to agree to abolish their CBs at the same time and not cheat? While we’re at it, we might as well unilaterally disarm all our nukes.

I consider the nuclear disarmament remark to be a straw-man argument, but to answer your preceding point: obviously the U.S. cannot dictate fiscal policy for other nations, nor should it. Would rates set by FCBs influence the U.S. markets? Sure --they already do. I'm not looking for a "perfect" rate-setting mechanism --just one less IMperfect than what we have now. Which pretty much boils down to a government-sanctioned private banking cartel that operates in secret for the purpose of enriching member banks and bankers (and the whims of incumbent politicians) at the expense of... everyone else.

HARM,

It's just not practical. Eliminating the US Central Bank would not do anything other than allow foreign Central Banks to set your rate for you.

The ECB sets rates according to a transparent inflation target. They still conduct their activities in secret, even though their charter is transparent. Why? So that Hedge Funds can't so easily arbitrage them. It's pretty much that simple. The likes of BGI make billions by taking the opposite side of Central Banks' positions when they can determine what those positions are. That's really the only reason for secrecy. It seems to me that your persecution should be aimed at Hedge Funds instead of Central Banks. If not for HFs, the CBs could conduct all their business in public.

For the record, I am pro hedge-fund. I'm just "solidifying the straw man".

Just to reiterate. Eliminate Central Banks if you truly want to allow oligarchs to set rates and control wealth without recourse.

Randy,

I am no expert in Hedge Funds or international interest rate arbitrage --not even close-- so, I'll let "my man" Bill Fleckenstein explain why they have become such a convenient scapegoat for the Fed's own reckless irresponsible policies:

It's not the hedge funds, it's the Fed

(disclaimer on Fleckenstein: He manages a hedge fund. And still wears a mullet. Despite this, he has an incredibly sharp, incisive way of distilling complex subjects down to their essentials, and conveying them in non-technical plain English.)

Global macro Hedge Funds would not exist if there were no Central Banks. Actually, a lot wouldn't exist if there weren't Central Banks. But there are Central Banks, and wishing won't make them go away. I'm about practical solutions, not (dare I say Boomereqsue) grand idealistic visions of how it could be, if only.

Imagining there is no war doesn't solve the problem that some people will kill you for their beliefs. Imagining that there are no central banks doesn't solve the problem that some countries will endeavor to control their own interest rates and currencies, even at the cost of other countries. It's just warfare of an economic nature.

Great debate though! I always love the late night interchange out here.

A good start?:

I’m about practical solutions, not (dare I say Boomereqsue) grand idealistic visions of how it could be, if only.

I wouldn't call abolishing the Federal Reserve "impractical" by a long shot. And I am in good company on this issue.

Great picture. One question though, why do you have Greenspan instead of Bernake?

Saddam = shorthand for evil political Cult of Personality

Greenspan = shorthand for evil economic Cult of Personality

BB has simply been in office too short a time to have the immediate recognition and popular cachet of Greedspan's 19-year reign of error.

A bit conspiratorial for my tastes. The Fed is not some evil Masonic plot in my reality. Of course, I could be a dupe. I admit as much.

As Ziggy Marley once sang, "The all seeing eye on a dollar bill..."

Holy crap, at the bottom of the page I see "Liquid Trust" for sale in a banner ad.

Is that apropos of the commodification of p-net, or what?

"Scientists have found the chemical equivalent of the perfect sales pitch: a hormone that makes us more trusting than we normally are." - WASHINGTON POST June 2, 2005

Get Liquid Trust Today!

As Ziggy Marley once sang, “The all seeing eye on a dollar bill…”

what's with that eye on the pyramid... wikipedia says it's something to do with solidity and vigilance...

Randy H. off topic question but would appreciate your input.

Do you think it's worth it to me to get a Masters in International Management from Thunderbird international business school?

It's very expensive but I might be able to get some of the tuition waved with some grants.

Pros/Cons? Just a general thought or two would be appreciated.

Thanks man.

FRIFY,

You bring up an interesting wrinkle here.

"it's that he went too low too fast"

One could argue that "too low for too long" would in the end provide the same result but I think there's a distinction that merits further investigation. The sense of urgency to lower certainly was alarming and perhaps created a sense that things "really were THAT bad" in the stock market so rather than breath life back into the equity markets we got a housing bubble instead? Oh well, any port in a storm!

My objections to the FED have been primarily to the politicizing of the "office" itself. The reason so many of us fondly recall Volker is b/c he was infinitely more insulated from the political process. It would be hard to deny that the FED's actions/inactions are clearly driven by what would be good for the current administration. Well what's good for the admin. approval ratings has little or nothing to do with what's good for our (and global) economies LONG TERM! I'm more in the camp that would advocate not so much "abolishing the FED" but rather returning it to it's former self where they make a genuine attempt to do right by the economy and let politicians deal with the fallout.

I think the Masons are (broadly) alright... just a bunch of blokes who worked stone... you know what guys are like when they get together... i think stonemasonry was more of a career option for a hella lotta guys back then...

What about those liberty dollars as an alternative fiat currency tho?

You know those spam e-mails that encourage you to buy a particular stock that's about to skyrocket -- what's that about? Are they all 'pump'n'dump' stocks being manipulated by boiler rooms? Or should I buy all the recommendations and watch my wealth soar?

HARM,

True, Bill Fleckenstein does seem a little obsessed with his "Huey Lewis" look but WTH if I HAD hair I'd be sportin' it too! I'm stuck with the "Drew Carey" look so more power to him. I usually appreciate the genuine nature of his comments and he's not in the least bit afraid to have a different opinion or to be wrong from time to time. Bill has been shouting "housing bubble" at least as long as I have if not longer and the fact that he was "wrong" for THREE years didn't in any way diminish his resolve! Bill's a good guy (yes mullet and all)!

Yes, we are seriously looking into putting together a "vulture fund" to exploit FBs. Current economic conditions simply mandate it. Oh, when I say FBs think more commercial/developer type FBs. I don't want to look back (after having invested considerable research) and have to admit that I didn't have the courage to act on my convictions. Somebody's gotta do it?

Michael Holiday,

I realize that you asked Randy H and not me but I do feel compelled to share my "considered" experience? Let me know if I'm out of line.

By the time a guy (or gal) has reached their mid-thirties or so and has not been invited into the "inner circle" for example, branch manager, regional sales manager, national sales manager, my guess is that it isn't going to happen. I recall your saying you were even considering law enforcement? That's fine and so is the pursuit of another degree however; it may be to your benefit to consider "other alternatives". I've been were you're at, believe me. Making the choice to start your own business or practice isn't one to be taken lightly but my guess is that as hard as you tried at your last interview it really would be an interim step for you right? All I'm saying is at least look into taking the plunge! Most everyone here is a CBA (Certified Bubble Analyst) so why not look into handling "loan workouts" or loss mitigation? Good Lord, there is going to be a TON of money made there over the next oh gee I dunno....... DECADE!

Just my two cents.

DS,

Your first guess is usually your best guess!

Yes they are pump n' dump thinly traded issues that are ripe for manipulation. It's still fun though to put them in your "watch list" and see them "soar" for about 20 minutes. (Most of these trade on the "pink sheets" BUT with this totally new proprietary technology (about to get FDA approval/gov't contract/buy out/major financing) is poised for real appreciation Mr. Investor! Then they draw a parallel to something in "the real world" and attempt to lean on someone else's credibility like Ford, GM or GE or whatever.

I imagine that this entire argument was brought up over the fed's choice to lower intrest rates. I am a firm believer that the Fed knew perfectly well what it was doing. They realized that in a few short years, boomers would be retiring, taking social security checks, leaving the workforce, cashing out all the stocks they had accumulated, and basically creating an enormous impact on the system. Add the fact that most boomers do not have enough savings to survive off of( a mere 40k) on average, then they correctly foresaw a pending economic disaster.
So here came the cuts- cleverly shrouded as a method to jump-start the economy via investments in housing in which boomers and the elderly were in good condition to partake in since most of them already owned their properties. This of course made people feel that they were very rich. It pumped a lot of money into the system. The economy showed a resilience never before seen after a major meltdown.
Where the Fed messed up was not turning off the tap sooner than later. Many people as we all know went way too far off the deep end and invested EVERYTHING they owned into speculation. Many boomers counted these investments as retirement. If it backfires, then the fix that the fed thought it was initiating will create an economic disaster greater than if they had simply left things alone.
One last consideration is that the fed might be very aware of the big picture and perhaps realizes that since many boomers bought other homes as retirement investments, then they will be extremely reluctant to reduce the prices. This in turn could cause the industry-coveted "soft landing" that folks at the NAR love to spout at every single report and function. A soft landing of course would ease the transition into a recession rather than dump the country into one over night. So I'm on the fence with this one. Either way, I think we are in some future economic trouble. How quickly we'll be there is what we're trying to figure out.

Dinor,
you touched on something that I think will be the next bubble: Retirement plan bubbles. Has anyone noticed that there has been a HUGE increase in the number of commercials for retirement plans and investment planning? They are all painfully targeted to boomers. One had this guy walking through the woods with his kids. He has an inner thought: "Soon the kids will be gone and will I have enough to retire?" These commercials are strange to me. Most people I know who retired in my family simply viewed retirement as... retirement, yet many of these commercials are all about entitlement and how cool you are. One even has a narrator saying something like: " this generation deserves... blah blah blah..." along with videos of 50-somethings surfing to a overly 60's sound track.
There are trillions of dollars getting ready to change hands. Boomer parents are going to die. Somewhere in that transaction, the banks and investment industries are going to want a piece of that action. So here we go again with a fresh commercialization of fear: " Are you about to retire? well- you'd better have enough.. or else! Invest with..."
I can see it now. They fucked up housing, so what else can they sink their money grubbing hands into? Once again, the banks and financial institutions are going to make a killing. I just hope that this time around the other generations don't get screwed in the process.

SHTF,

Wow! I hardly know where to start. You're right, absolutely right on virtually all accounts. By trade I watch Bloomberg all day everyday and the sheer amount of "financial services" advertising going on is staggering! We've all seen the repulsive Amerprise "Boomer's Rule" commercial and you'd think I would have developed something of an immunity to it by now but it never fails to sicken me.

My big question (and I have to be careful here b/c I work in the industry) is who the hell would want these losers as clients? They've already spent their WWll parents inheritance in advance and my guess is that these accounts are what's known in the business as "bleeders". Meaning they are in a constant state of being DEPLETED! I can't speak for others but I'm kind of partial to accounts that GROW! Call me crazy.

Then there's the blame game. While we're not pulling any punches here boomers aren't short on blame. If said acct. does not perform and generate liquidity faster than they can spend it look out! I smell litigation in the making. Is there ever enough? Even if you bring these people stellar returns rather than leave "something" for their kids they will almost immediately "grow into" their new found wealth!

This is why firms like Ameriprise aren't taking any chances. True, they have to go after the boomer dollar but they're not complete idiots. They're aware of boomers need for blame so they are almost without exception putting these people either into annuities or some kind of managed account where returns will be meager as will the liklihood of lawsuits. When I worked for a bank I managed for whoever was assigned to me. Now as an independent I work with the people I like and believe me I'm not actively seeking boomer's business. Sorry.

>>Boomer parents are going to die.

Yeah, but that's going to be a long smear of an evnt. Boomers have been dying for a long time. They'll be dying for the next 50 years. Sure, it'll be a bell curve with a peak somewhere in maybe 20 years, but dying isn't a mania that they'll all jump into like hula hoops, Frisbees, Pet Rocks, candle-making, bell bottoms, and real estate.

I think the next bubble will be something that can attract all the Boomers at the same time. The boomers are too diverse in age to all worry about retirement planning at the same time.

I used to think that commodities would be the boom that follows real estate, but I don't think that any more. I think the bubble has too be something that starts up after the RE boom is over. No idea what the next bubble will be, but there will be one somewhere.

Michael Anderson,

I definitely understood where you were coming from the other day when you said as a "tweener" that we didn't LEAD anything! You know that is soooo true. Boomers told us what we should think (even while they told their parents they wanted to think for themselves)! I was watching a special the other day on IFC about "The Drug Years" which documented from "Refer Madness" to today and they interviewed all the usual suspects, Ray Manzarek (of the Doors) file footage of Ken Kesey, Timothy Leary etc. and NOT ONE took ANY accountability for our current state of affairs! NOT ONE! They expounded on the "enlightment" and even lamented a few O.D's but don't look for any accountablility (it ain't there).

End Boomer Rant:

Conor,

"independent watchdog to political lapdog"

Can it be said any better than that?

2) FDR — exacerbated the Great Depression, put into place a variety of social programs (notably Social Security) which bog down the US to this day

right. except US social security is generally more regressive and less generous than comparable affluent economies in europe and the british commonwealth on most measures. taxonomies of welfare states in the affluent OECD always put the US system at the bottom. and you think it should be worse? if you're bogged down, everyone else like you is therefore bogged down even more. maybe it was just a decent, humanistic thing to do to instate social security, in order to recognise the rights of citizens to a dignified life, no matter how begrudgingly, rather than being a hairy-chested individualist rolling with the punches...

i don't think anyone really know what exacerbated the great depression in the great capitalist cycle of 'who gives a f@ck what happens' - only that it took a war to create the illusion of full employment...

>>I was watching a special the other day on IFC about “The Drug Years” which documented from “Refer Madness” to today and they interviewed all the usual suspects, Ray Manzarek (of the Doors) file footage of Ken Kesey, Timothy Leary etc. and NOT ONE took ANY accountability for our current state of affairs!

Were Leary and Kesey even boomers? I thought Leary, at least, was born too early. No matter--he was a guru to the boomers.

Of course they didn't take any responsibility. The last time I saw Ken Kesey in person, he was giddily projecting psychedelic images onto a wall at a hotel New Years' Eve party. I don't know if he was high on anything, but he was awfully cheerful and goofy and likable that night. I admit it was kind of fun to talk with him, but he seemed distressingly child-like to me. Someone who got old without growing up.

Leary didn't seem like that; he seemed like a strange, abstract thinker (I don't think I ever spoke with him in person, maybe a "hello," but I did see him speak in person).

Despite superficial similarities, all these people were individuals. But what they had in common was their shared experience and their influence on each other. The rebellion in them discouraged any kind of thinking that they associated with their parents.

Wherever these guys were coming from, they seemed to either be incapable of seeing how their actions affected others, or maybe deliberately didn't want to think about it, or maybe figured that everyone was out for themselves. Responsibility or accountability would impede what was most important to them.

>>1) Woodrow Wilson — started the income tax, sitting president during the inception of the Fed, dragged us into WW1 — essentially pushed the first domino to turn America into the Global Empire it is today

If you feeel you want to dislike him more, read "The Great Influenza."

Has anyone noticed that there has been a HUGE increase in the number of commercials for retirement plans and investment planning? They are all painfully targeted to boomers. One had this guy walking through the woods with his kids. He has an inner thought: “Soon the kids will be gone and will I have enough to retire?”

SHTF,

Could you have been referring to this perhaps? When I first saw this ad, I threw up a little in my mouth (and nearly put my foot through the TV).

Conor,
I don't think FDR should be on the list because many of the programs he started at the time were greatly helpful to the country, particularly parts of the country that suffered the most during the depression.
My grandfather was part of TVA, a government program started by FDR that essentially brought the south into a modern era with cheap hydroelectric power, jobs to men that would've probably starved to death, and education to farmers to get more production from their land so they could survive with more crops from less land.
I agree that many of these programs are very outdated, but they were at the time of their inception revlolutionary and most responsible for pulling the US together when it could've gotten very, very ugly. A dead man can't be responsible for the actions of today.

Thanks for the input DinOr:

Are you saying start your own business? I'm not really sure what sort of business you were getting at.

My friend Chris, MBA Columbia, chucked the corporate sh-t and started his own business. It's been a tough a-- go of it but he's squeeking by.

HARM-

I just threw up in my mouth a little when I clicked your link. [[shudder]]

>>A dead man can’t be responsible for the actions of today.

Well, why not?

Every time you start a government program, you're creating a beast for the future. Institutions don't want to shut down when their task is done. Indeed, they don't even want their task to be done--they have a vested interest against a degree of success that would put them out of business.

They twist like snakes and will go for any niche they can to stay alive.

Look at how little of our budget is discretionary now. It's almost impossible for current politicians to do anything substantial because the dead presidents still rule the budget.