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re: Debunking wild conspiricies
Posted on 5/22/14 at 7:19 am to foshizzle
Posted on 5/22/14 at 7:19 am to foshizzle
It's true that spending generates more and more activitity (multiplier effect).
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
Perhaps...
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
Perhaps...
This post was edited on 5/22/14 at 7:22 am
2
Posted on 5/22/14 at 7:48 am to foshizzle
My frustration came from the moral hazard of having a gov't backed currency monopoly. People don't do research on monetary policy and will have no idea that the money they are saving is being played with by people with too much power over other people's lives.
The QE policies are at the intersection of monetary and fiscal policy, and it was wrong on both counts. I haven't seen an economy centrally plan their way to long term success and yet here we are with flawed analysis powering the Fed Reserve to take ridiculous assumptions and risk societies long term success.
It is just exasperating that people can't see the need for alternative currencies when the Fed Reserve just assumes things like "optimal" inflation rate.
The QE policies are at the intersection of monetary and fiscal policy, and it was wrong on both counts. I haven't seen an economy centrally plan their way to long term success and yet here we are with flawed analysis powering the Fed Reserve to take ridiculous assumptions and risk societies long term success.
It is just exasperating that people can't see the need for alternative currencies when the Fed Reserve just assumes things like "optimal" inflation rate.
Posted on 5/22/14 at 8:20 am to MagicCityBlazer
quote:
I understand that the economy growing is helpful but they are intentionally distorting the economy without even being sure that easy money is the right policy. It is gambling with other people's livelihoods.
Do you mean distorting the markets? Or actually distorting the economy? Because distorting the economy is kind of the goal, they want stable prices, a stable financial system, low unemployment, etc..
quote:
Sometimes saving is the correct response for long term growth.
Yes but too much savings is not, similar to everything in finance (and life), there is a balance.
quote:
The idea that fed bankers are manipulating everyone makes me upset.
For one they are not manipulating everything as you say, and secondly I'd personally recommend that you don't get emotional about things like this that you can't control. But to each their own.
Posted on 5/22/14 at 8:33 am to MagicCityBlazer
quote:
My frustration came from the moral hazard of having a gov't backed currency monopoly
There is moral hazard involved with Fed policy but I wouldn't call the sheer existence of fiat one of the concerning ones. If you want to be critical of Fed policy as smoothing out the economic woes of the past 5 years, enabling politicians to not deal with some very big structural issues in this country, then that is a very legitimate concern and one I share.
quote:
People don't do research on monetary policy and will have no idea that the money they are saving is being played with by people with too much power over other people's lives.
..... It's starting to sound like you may have alternative motives for starting this thread. If you're worried about the dollar losing value I'd encourage you to do research yourself into the actual value of the dollar rather than just looking at inflation in a vacuum. DXY is your best indicator.
quote:
The QE policies are at the intersection of monetary and fiscal policy, and it was wrong on both counts.
Other than the moral hazard argument I would strongly argue against this. In fact they were on opposite ends of the spectrum, fiscally we've been cutting back a lot (Treasury issuance keeps dropping) and monetarily we've supported the markets.
quote:
I haven't seen an economy centrally plan their way to long term success
Uhh... what? Every single long standing empire and economy over the course of history had some sort of central planning? What specifically are you referring to here?
quote:
yet here we are with flawed analysis powering the Fed Reserve to take ridiculous assumptions and risk societies long term success.
There are absolutely risks to Fed policy but again what are your main concerns and why? Seems like you are just writing down that you're not happy about what's going on and stopping?
quote:
It is just exasperating that people can't see the need for alternative currencies when the Fed Reserve just assumes things like "optimal" inflation rate.
Again, I'd encourage you to research the dollar index (DXY) over time. Also I'd encourage you to do research into Fed speak. They're aiming for 2% before raising rates, and yet YoY PCE is still sitting at 1.2%. We've started seeing some inflationary pressures, specifically in services industry and food costs, however this is actually a welcome sign as we've been fairly stagnant for a while. We are a long ways away from inflation that can be considered "concerning".
Posted on 5/22/14 at 8:37 am to The Sultan of Swine
quote:
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Central banks don't determine spending levels. They can only operate in markets by buying securities. And yes, there are optimal levels of spending, saving, investing, etc.. However I think you may be overestimating how much the Fed can actually do.
quote:
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
You have these backwards, if the Fed overestimates economic activity then they will tighten monetary policy sooner than they should. If they underestimate economic activity/leverage/etc. then they will keep policy loose. Again, they don't control spending, they just operate in the markets.
Posted on 5/22/14 at 8:43 am to BennyAndTheInkJets
quote:
Because distorting the economy is kind of the goal, they want stable prices, a stable financial system, low unemployment, etc..
There is no person or group with the correct information to adequately guess the 'correct' inflation rate in the universe. No more than I could tell you what small businesses will become the next big brand names.
quote:
For one they are not manipulating everything as you say,
Ever single person who does a transaction based in USD has been affected by these easy money policies.
In any case, diversifying out of USD is increasingly a good idea as the inflation rate makes saving increasingly a silly idea. Some people just don't know how to do math or how compounding 3%+ yearly inflation will rob them blind over their lifetime.
Posted on 5/22/14 at 8:52 am to BennyAndTheInkJets
quote:
Central banks don't determine spending levels. They can only operate in markets by buying securities. And yes, there are optimal levels of spending, saving, investing, etc.. However I think you may be overestimating how much the Fed can actually do.
But Fed does affect spending levels through monetary policy. They can provide more liquidity to the banking system, and in turn, a larger supply of credit, lower interest rates, and more spending.
quote:
You have these backwards, if the Fed overestimates economic activity then they will tighten monetary policy sooner than they should. If they underestimate economic activity/leverage/etc. then they will keep policy loose. Again, they don't control spending, they just operate in the market
What I'm saying is - assume the Fed overestimates the amount of optimal spending (that is, they overestimate what the spending level *should* be. In such a case, the fed would try to maintain a spending level above what it should actually be.
I realize the way I said it may have been a little convoluted.
This post was edited on 5/22/14 at 8:53 am
Posted on 5/22/14 at 8:53 am to MagicCityBlazer
quote:
There is no person or group with the correct information to adequately guess the 'correct' inflation rate in the universe. No more than I could tell you what small businesses will become the next big brand names.
It's not a "correct" inflation rate, it's just slow, steady inflation. They aren't trying to correctly guess the perfect level, they just have a target that they operate around based on historical precedents and current economic backdrop. I'm not saying the Fed is some all knowing perfect entity, but they are better than the alternative of no central bank which historical evidence supports.
quote:
In any case, diversifying out of USD is increasingly a good idea as the inflation rate makes saving increasingly a silly idea. Some people just don't know how to do math or how compounding 3%+ yearly inflation will rob them blind over their lifetime.
You're looking at things in a vacuum. You have to look at wage growth, investment returns, not to mention every other countries' inflation rates. The analogy I always use is picking up a girl at a bar has little to do with how handsome and charming you are, it has everything to do with how handsome and charming you are compared to every other dude in that bar. That's why I encourage you to look at the DXY over time. Just compounding 3% (which we haven't touched in years) over time assumes WAY too much and simplifies WAY pasts the point of convoluting the actual outcome.
Posted on 5/22/14 at 8:59 am to BennyAndTheInkJets
quote:
I'm not saying the Fed is some all knowing perfect entity, but they are better than the alternative of no central bank which historical evidence supports.
Actually, the free banking era of the US was one of our most prosperous times in our history.
Less than 20 years after the creation of the Fed, we had the Great Depression.
I realize you're giving the standard argument in mainstream econ/finance... just playing a little devil's advocate here.
Posted on 5/22/14 at 9:01 am to BennyAndTheInkJets
quote:
I'd personally recommend that you don't get emotional about things like this that you can't control.
This is some of the best advice you've ever given, and that's saying something given your post history
What is core inflation now, like 1.something? No one should be getting in a twist over inflation right now and like you said, even if it was so terrible you can't do anything about it.
Posted on 5/22/14 at 9:14 am to ZereauxSum
quote:
What is core inflation now, like 1.something?
Core Inflation: Because who needs energy and food?
Just kidding around, but CI is a bit of a fig leaf when food and energy are two of the most important priorities for allocating dollars in human society.
Posted on 5/22/14 at 9:28 am to The Sultan of Swine
quote:
But Fed does affect spending levels through monetary policy. They can provide more liquidity to the banking system, and in turn, a larger supply of credit, lower interest rates, and more spending. What I'm saying is - assume the Fed overestimates the amount of optimal spending (that is, they overestimate what the spending level *should* be. In such a case, the fed would try to maintain a spending level above what it should actually be.
Got it and agree, which is kind of the goal of monetary policy effectiveness. If you want to argue that they have at times been too loose at times and too tight at times then that's fair and I can pick out specific instances where that was the case.
However, the point is its always a matter of alternatives. If you look over history, pre-1933 recessions happened more often and were much more severe (in terms of %GDP impact). The flip side is they corrected themselves quicker. Post 1933 we've had less recessions that were less severe, however they correct slower. My preference lies in the disdain for higher volatility with non-central bank economics. Volatility erodes confidence and development. Hell, even mathematically if you have a security that goes up 60% and down 40%, while another security goes up 6% and down 4%, the first is worth lower than your initial investment while the second is worth more. I know this isn't exactly an apples to apples comparison by any means but you can understand why volatility is detrimental to economic development. Volatility creates uncertainty, which curtails spending, which curtails investment and the cycle goes on.
Posted on 5/22/14 at 9:30 am to The Sultan of Swine
quote:
Actually, the free banking era of the US was one of our most prosperous times in our history.
Please provide statistics here.
quote:
Less than 20 years after the creation of the Fed, we had the Great Depression.
The Fed was a completely different monster in 1913 compared to 1933 (well technically 1935/1942). The FOMC didn't even exist.
Posted on 5/22/14 at 9:42 am to MagicCityBlazer
quote:
Core Inflation: Because who needs energy and food?
Just kidding around, but CI is a bit of a fig leaf when food and energy are two of the most important priorities for allocating dollars in human society.
I agree that it's a flawed metric (just like most economic metrics) but what are you going to do? You add food and energy and you end up with a nonsensical metric that is too volatile to use.
Also, despite it's flaws, you can still compare apples to apples and look at core inflation over time, and compared to historical levels it's pretty darn low.
This post was edited on 5/22/14 at 9:42 am
Posted on 5/22/14 at 9:56 am to ZereauxSum
quote:
You add food and energy and you end up with a nonsensical metric that is too volatile to use
Wouldn't the elastic demand of personal goods be far less indicative of the economy than the vital importance of food or energy?
When I see CI I just see a way for politicians to say "see, inflation isn't so bad" when it really is.
Posted on 5/22/14 at 10:10 am to MagicCityBlazer
What You Should Know About Inflation
The Mystery of Banking
An Inflation Primer
What Has Government Done to Our Money
The Fed inflates ostensibly for two primary reasons: To finance the state or to stimulate the economy.
The Mystery of Banking
An Inflation Primer
What Has Government Done to Our Money
The Fed inflates ostensibly for two primary reasons: To finance the state or to stimulate the economy.
Posted on 5/22/14 at 10:12 am to The Sultan of Swine
quote:According to Milton Friedman's Monetary Theory as I understand it, inflation just for the sake of inflation is necessary to keep the wheels of progress greased.
They wouldn't want it just for the sake of inflation, but for the freshly printed money.
Posted on 5/22/14 at 10:22 am to LSUnKaty
I didn't mean for this to be an Austrian debate against interventionist policies.
In any case.
The pretense of knowledge on the part of the Fed Reserve is shocking. Planning for inflation will have a long term negative impact as the market has been manipulated and the real economic signals on buy/sell/hold/invest get warped by the easy money and 'spend it now' policies of inflation.
In any case.
The pretense of knowledge on the part of the Fed Reserve is shocking. Planning for inflation will have a long term negative impact as the market has been manipulated and the real economic signals on buy/sell/hold/invest get warped by the easy money and 'spend it now' policies of inflation.
Posted on 5/22/14 at 10:30 am to BennyAndTheInkJets
quote:
The Fed was a completely different monster in 1913 compared to 1933 (well technically 1935/1942). The FOMC didn't even exist.
But, they did expand the money supply in the 20s (largely due to an agreement with the Bank of England)
quote:
Please provide statistics here.
I don't think it's very controversial statement, even though it's tough to get accurate GDP or other aggregate data from back then. Both sides of the argument seem to agree that economy grew fairly consistently during the period.
LINK
This paper argues that the growth was due more to charter banking than free banking. Scroll to the end for the regressions using data on manufacturing capital growth and farm capital growth. (Farm capital actually shrinks but manufacturing capital grows at a much larger rate, which most would agree was a good sign for the modernization of the economy.)
My god, how did we get this esoteric in a conspiracy theory thread?
This post was edited on 5/22/14 at 10:32 am
Posted on 5/22/14 at 10:56 am to MagicCityBlazer
quote:
Wouldn't the elastic demand of personal goods be far less indicative of the economy than the vital importance of food or energy?
You're not (or shouldn't be) trying to measure the health of the economy with an inflation metric by itself. It doesn't tell you enough.
My point is that if you want to measure price changes over time, especially a small amount of time like a year or so, doing it with food and energy included isn't going to tell you anything.
To illustrate my point, check out the graph below. If you were looking at CPI-All in 2008 you would have thought life was great when clearly it wasn't.
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