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Started By
Message
re: Will Trump Try to end the Federal Reserve?
Posted on 4/29/17 at 2:21 pm to Bass Tiger
Posted on 4/29/17 at 2:21 pm to Bass Tiger
What do you do for a livelihood Professional?
1
Posted on 4/29/17 at 3:16 pm to Bass Tiger
quote:
What do you do for a livelihood Professional?
quote:
Teach me, I'm a quick study
not interested in tutoring, sorry. if you proudly fail to understand why "ZIRP" was the appropriate policy at the time and think rates self-evidently should have been materially higher, you can go on wearing that dunce cap.
but maybe you can teach me something, like what i've been asking you about. specifically, how the fed either isn't acting in accordance with its mandate (also known as its job), or how the mandate itself is bad or suboptimal.
sorry, but vague claims about "circle jerks" or being "complicit" or "the best interest of those institutions" or "another scam" are woefully insufficient. say exactly what you mean!
Posted on 4/29/17 at 5:02 pm to Peazey
You bring up a great point, but that graph doesn't do justice to the economic dislocations caused by the panics of 1784, 1792, 1819, 1837, 1857, 1873, 1884, 1893, & 1907. If you look at a chart of real GDP growth and unemployment, you'll see bigger swings pre-FOMC than post-FOMC.
That, in turn, brings up another point--there are a lot of different varieties of central banking, and people tend to lump a bunch of different qualities together in an all-or-nothing fashion when discussing the Federal Reserve. Just taking U.S. central banking, there was the 1st BUS, the 2nd BUS, the Federal Reserve under the gold standard from 1913 to 1933, and the Federal Reserve after the creation of the FOMC in 1935.
The Great Depression is still the focal point of all discussions about the need for monetary stability from the government, and rightly so considering the unparalleled economic calamity that occurred from October 1929 to April 1933. The Federal Reserve was already in place as a LOLR, and didn't step up to stop it, but other stabilizers were created: (1) the devaluation of the dollar (going off the gold standard) in April 1933; (2) the FDIC in June 1933; (3) the creation of the FOMC in 1935.
I'm with Milton Friedman is believing that the ideal monetary system has gradual consumer price deflation without a central bank. I think the Federal Reserve system contributed to the global phenomenon of inflation in the 1970s (with the unraveling of the goofy quasi-convertibility system of a gold-backed dollar under Bretton Woods), and has a tendency to hold rates too low for too long in the run-ups to huge overvaluations in asset markets.
I would want to keep FDIC, and perhaps even make it much larger than it is, to perform emergency actions on investment banks like Lehman during a financial crisis, in conjunction with a new specialized chapter of the U.S. bankruptcy code that allowed for immediate wipeouts of equity holders and quick conversion of ownership to convertible debt holders. That's to support the classical rule of dealing with a banking panic: be decisive in quickly drawing a line in the sand to save what should be saved, and to let perish what should perish.
The remnant of the Fed could still do emergency lending to banks, but I would do away with the FOMC and its huge purchases of U.S. bonds. Sell all those bonds on the open market and let interest rates rise to more natural levels.
As for the consumer price stability thing, I think it's way overrated in terms of ordinary monetary policy. It's of course VERY important in the midst of a financial panic, but that's more a matter of asset price stability in my opinion, which could be handled by an enlarged FDIC-type entity. Congress should reclaim its authority over the money supply, and regulate its gradual increase through the U.S. Treasury as needed. Artificially low interest rates distort investment decisions in the U.S., and tend to produce huge misallocations in asset markets that keep the assets of the rich protected, while unintentionally reducing capital investment for business projects that produce actual economic growth.
That, in turn, brings up another point--there are a lot of different varieties of central banking, and people tend to lump a bunch of different qualities together in an all-or-nothing fashion when discussing the Federal Reserve. Just taking U.S. central banking, there was the 1st BUS, the 2nd BUS, the Federal Reserve under the gold standard from 1913 to 1933, and the Federal Reserve after the creation of the FOMC in 1935.
The Great Depression is still the focal point of all discussions about the need for monetary stability from the government, and rightly so considering the unparalleled economic calamity that occurred from October 1929 to April 1933. The Federal Reserve was already in place as a LOLR, and didn't step up to stop it, but other stabilizers were created: (1) the devaluation of the dollar (going off the gold standard) in April 1933; (2) the FDIC in June 1933; (3) the creation of the FOMC in 1935.
I'm with Milton Friedman is believing that the ideal monetary system has gradual consumer price deflation without a central bank. I think the Federal Reserve system contributed to the global phenomenon of inflation in the 1970s (with the unraveling of the goofy quasi-convertibility system of a gold-backed dollar under Bretton Woods), and has a tendency to hold rates too low for too long in the run-ups to huge overvaluations in asset markets.
I would want to keep FDIC, and perhaps even make it much larger than it is, to perform emergency actions on investment banks like Lehman during a financial crisis, in conjunction with a new specialized chapter of the U.S. bankruptcy code that allowed for immediate wipeouts of equity holders and quick conversion of ownership to convertible debt holders. That's to support the classical rule of dealing with a banking panic: be decisive in quickly drawing a line in the sand to save what should be saved, and to let perish what should perish.
The remnant of the Fed could still do emergency lending to banks, but I would do away with the FOMC and its huge purchases of U.S. bonds. Sell all those bonds on the open market and let interest rates rise to more natural levels.
As for the consumer price stability thing, I think it's way overrated in terms of ordinary monetary policy. It's of course VERY important in the midst of a financial panic, but that's more a matter of asset price stability in my opinion, which could be handled by an enlarged FDIC-type entity. Congress should reclaim its authority over the money supply, and regulate its gradual increase through the U.S. Treasury as needed. Artificially low interest rates distort investment decisions in the U.S., and tend to produce huge misallocations in asset markets that keep the assets of the rich protected, while unintentionally reducing capital investment for business projects that produce actual economic growth.
Posted on 4/29/17 at 5:33 pm to Doc Fenton
quote:
I'm with Milton Friedman is believing that the ideal monetary system has gradual consumer price deflation without a central bank.
Interesting, unless I'm understanding you. Are you saying you believe that is optimal? If so, do you have an empirical or methodological basis for that, or an intuitive one? (Or is it a "just because" preference?)
Posted on 4/29/17 at 5:42 pm to Haughton99
quote:
Serious question. Do you know what the Federal Reserve does?
Raises hand.
All they do is change interest rates..........?
Posted on 4/29/17 at 5:47 pm to 90proofprofessional
I think it's more of a comparison of historical eras, and preferring the Victorian period of sound money, and the economic growth of the U.S. in the period from the Coinage Act of 1873 until the creation of the Fed in 1913.
But yeah, I think it's optimal. A few years back I would told you that I preferred moderately low inflation, but in recent years I've come to believe that moderate consumer price deflation is not as bad as we're led to believe it is. I don't think there would be much cash hoarding in a modern society, and if there were less short-term commercial paper market activity, that might just be a good thing.
Aside from historical preference, it just seems like it would lead to more natural interest rates. How much you should increase the money supply without a central bank is an open issue, but it's the type of thing you don't want to fool around with too much--thus, the preference to mostly just let it sit and let price deflation occur naturally... which it should in a normal economy with ongoing technological advancement.
But yeah, I think it's optimal. A few years back I would told you that I preferred moderately low inflation, but in recent years I've come to believe that moderate consumer price deflation is not as bad as we're led to believe it is. I don't think there would be much cash hoarding in a modern society, and if there were less short-term commercial paper market activity, that might just be a good thing.
Aside from historical preference, it just seems like it would lead to more natural interest rates. How much you should increase the money supply without a central bank is an open issue, but it's the type of thing you don't want to fool around with too much--thus, the preference to mostly just let it sit and let price deflation occur naturally... which it should in a normal economy with ongoing technological advancement.
Posted on 4/29/17 at 5:58 pm to Doc Fenton
I see. I thought you were about to level the standard critique of RBC/New Keynesian Macro, which is of course valid, in rejecting that low-positive inflation result as optimal. But if that's what you were doing it'd be weird that you'd prefer Friedman's result, which would be subject to the same critique and a few additional ones. So I guess it sounds like you're going with his result but for reasons I would call more intuitive.
Because of how "electronic" money has become? An interesting point, although I think we might be some years away from that point of "freedom" from cash, again unless I'm misunderstanding your point.
IIRC, what you say about cash hoarding strikes me as possibly contradicting parts of Friedman's framework for some reason having to do with his neutrality of money, but that's really just an off-the-cuff reaction I haven't thought through. It's been a while since I thought about this stuff at the modeling level, and I'm not a macro or monetary guy anyway
quote:
I don't think there would be much cash hoarding in a modern society
Because of how "electronic" money has become? An interesting point, although I think we might be some years away from that point of "freedom" from cash, again unless I'm misunderstanding your point.
IIRC, what you say about cash hoarding strikes me as possibly contradicting parts of Friedman's framework for some reason having to do with his neutrality of money, but that's really just an off-the-cuff reaction I haven't thought through. It's been a while since I thought about this stuff at the modeling level, and I'm not a macro or monetary guy anyway
Posted on 4/29/17 at 6:05 pm to 90proofprofessional
quote:
So I guess it sounds like you're going with his result but for reasons I would call more intuitive.
Yes. It's intuition backed by past historical tradition.
quote:
Because of how "electronic" money has become?
That's part of it, I suppose, but it has more to do with greater trust in deposit accounts via the FDIC, and more mainstream financial savvy about investing savings rather than holding wealth in cash.
Posted on 4/29/17 at 6:11 pm to Doc Fenton
quote:
it has more to do with greater trust in deposit accounts via the FDIC
ok
quote:
and more mainstream financial savvy about investing savings rather than holding wealth in cash
many would say that low-positive inflation is one of the things pushing the mainstream toward this state. i see the appeal of that system (always have), but am far from convinced it would be better growth-wise or stability-wise. plus it would involve a shake-up that would be costly to say the least to get there
Posted on 4/29/17 at 6:18 pm to 90proofprofessional
I don't think the shake-up would be that costly, to be honest. It strikes me as something that could be implemented more gradually, and with less economic disruption, than Volcker's interest rate hikes in the early 1980s.
Now as for the government's ability to finance public debt, and its likely propensity to increase taxes in order to maintain public spending levels... that could cause some problems. Then again, that's the biggest part of the beast that I'm trying to slay.
Now as for the government's ability to finance public debt, and its likely propensity to increase taxes in order to maintain public spending levels... that could cause some problems. Then again, that's the biggest part of the beast that I'm trying to slay.
Posted on 4/29/17 at 6:21 pm to Doc Fenton
Why don't they report revenues from their gold leasing to their auditors?
Posted on 4/29/17 at 6:26 pm to Iowa Golfer
I haven't studied the audits in detail. What's your take?
Posted on 4/29/17 at 6:29 pm to Doc Fenton
For a guy who understands the mechanics of these things, I must say your position is quite a radical one. Like some kind of Austrian RBC revolutionary thing
I do also see the appeal (based on raw ideological preferences alone) of cockblocking "the beast" in the way you describe, but I absolutely think the adjustment would be costly (even with impact of government spending put aside). And wouldn't you be worried about liquidity if FDIC was all that was there? Maybe I've misunderstood you here though too
I do agree that volcker's moves give us an idea, possibly, of the magnitude of the effects of such a move. It is still possible that going from positive to negative, assuming that's what results, could be different in ways we can't really expect, like a bigger impact despite a smaller swing in the inflation rate
I do also see the appeal (based on raw ideological preferences alone) of cockblocking "the beast" in the way you describe, but I absolutely think the adjustment would be costly (even with impact of government spending put aside). And wouldn't you be worried about liquidity if FDIC was all that was there? Maybe I've misunderstood you here though too
I do agree that volcker's moves give us an idea, possibly, of the magnitude of the effects of such a move. It is still possible that going from positive to negative, assuming that's what results, could be different in ways we can't really expect, like a bigger impact despite a smaller swing in the inflation rate
Posted on 4/29/17 at 6:30 pm to Iowa Golfer
quote:
Why don't they report revenues from their gold leasing to their auditors?
Probably because included in those numbers are the details of their secret plot to rule the world and implement marxism
Just a guess
Posted on 4/29/17 at 6:43 pm to 90proofprofessional
quote:
I do also see the appeal (based on raw ideological preferences alone) of cockblocking "the beast" in the way you describe, but I absolutely think the adjustment would be costly (even with impact of government spending put aside).
Yeah, and I freely admit that it's not politically realistic until some future shock occurs that pushes the political system to drastic action. I'm just spitting out ideas about optimal systems here.
Plus, I would add that there would be no particular urgency toward achieving deflation. That would be more of a predicted natural side-effect of my optimal system rather than its chief feature. In terms of selling off all the Fed's purchased bonds, that could occur over a gradual period of 20 years for all I care.
quote:
And wouldn't you be worried about liquidity if FDIC was all that was there? Maybe I've misunderstood you here though too
I put something in my earlier post how I would want a remnant of the Fed to retain that emergency lending feature for liquidity purposes. I just don't want the large purchases of U.S. bonds.
quote:
It is still possible that going from positive to negative, assuming that's what results, could be different in ways we can't really expect, like a bigger impact despite a smaller swing in the inflation rate
Maybe, but I'm not really sure what you're getting at here. Of course I would set a hard floor at the rate of consumer price deflation (anything below -2% should probably trigger some currency devaluation measures), but looking at the recent past, I don't think there's anything magic about the zero barrier. The CPI in Nov-2010 was lower than the CPI in Jun-2008 (17 months prior), and business mostly went on as usual in 2009 and 2010 after the March 2009 stabilization of banks.
Posted on 4/29/17 at 6:50 pm to Doc Fenton
quote:
Of course I would set a hard floor at the rate of consumer price deflation (anything below -2% should probably trigger some currency devaluation measures)
cool, agree that'd be a wise inclusion
quote:
but looking at the recent past, I don't think there's anything magic about the zero barrier. The CPI in Nov-2010 was lower than the CPI in Jun-2008 (17 months prior), and business mostly went on as usual in 2009 and 2010 after the March 2009 stabilization of banks.
but the entire market knew the fed would exhaust its resources trying to avoid any deep or sustained deflation, and would very likely would be successful
really, all i was getting at was that the size of the adjustment (in terms of that recession volcker's move caused) might be bigger or worse in ways we can't predict, even though the change in inflation in percentage points would be smaller. IOW, we shouldn't be too sanguine about assuming the costs the the overall economy would be similar. for all we know they could be far more persistent, since a new monetary "policy" paradigm would be trying to find its footing in the midst of a likely-painful recession
This post was edited on 4/29/17 at 6:51 pm
Posted on 4/29/17 at 7:04 pm to 90proofprofessional
I see your point on the unpredictability of the fallout from interest rate hikes, but common sense tells me the scale of change is so far off that it's just not that big of a concern. Remember just how extreme those Volcker movements were ( LINK): "US inflation, which peaked at 14.8 percent in March 1980, fell below 3 percent by 1983.[14][15] The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980-1982 recession,[16] in which the national unemployment rate rose to over 10%."
Going from a 11.2% rate in 1979 to 20% by mid-1981 is pretty extreme. Going from 13.58% inflation in 1980 to 3.22% in 1983 ( LINK) is also pretty extreme.
I'm just talking about going from a fed funds rate of about 1.0% to something gradually higher 20 years later (while going from 2.4% CPI inflation to something hopefully around -1.0%), which shouldn't give anyone the same level of fright as Volcker did.
If things did get too painful in a particular year during the 20-year phase-in, then the currency could be devalued through a mechanism provided by Congress, just as I suggested for a case of CPI deflation that reaches a hard floor of -2%.
Going from a 11.2% rate in 1979 to 20% by mid-1981 is pretty extreme. Going from 13.58% inflation in 1980 to 3.22% in 1983 ( LINK) is also pretty extreme.
I'm just talking about going from a fed funds rate of about 1.0% to something gradually higher 20 years later (while going from 2.4% CPI inflation to something hopefully around -1.0%), which shouldn't give anyone the same level of fright as Volcker did.
If things did get too painful in a particular year during the 20-year phase-in, then the currency could be devalued through a mechanism provided by Congress, just as I suggested for a case of CPI deflation that reaches a hard floor of -2%.
quote:
Congress should reclaim its authority over the money supply, and regulate its gradual increase through the U.S. Treasury as needed.
This post was edited on 4/29/17 at 7:06 pm
Posted on 4/29/17 at 7:43 pm to Doc Fenton
I'm not sure. Maybe the revenues goes to Treasury or someplace else. Maybe the Fed Chair that made that comment never started leasing gold. Although there seems to be physical evidence this isn't the case.
I'm interested in a NeoCon's take on this. I have no interest in 90 Proofs opinion. I doubt most serious people are.
I'm interested in a NeoCon's take on this. I have no interest in 90 Proofs opinion. I doubt most serious people are.
Posted on 4/29/17 at 8:04 pm to Iowa Golfer
I have interest in 90proof's opinions. He seems like a pretty good poster to me.
I imagine so. Lately the Fed has been making about $100 billion in profits per year from its investments, which go straight to the U.S. Treasury Department. The Treasury saves even more money than that from the low interest rates. So both of those things can be considered forms of implicit taxation on the public.
As to the leasing of gold, I haven't followed any stories about that.
I'm not really a gold standard fan, but I'm not totally against it either. One of the benefits of a monetary system with built in CPI deflation is that it would make it much easier to return to a dollar partially backed by gold--e.g., the U.S. government could promise a redemption rate of 0.0004 ounces (= 1/2500 ounces) of gold for each dollar.
quote:
Maybe the revenues goes to Treasury or someplace else.
I imagine so. Lately the Fed has been making about $100 billion in profits per year from its investments, which go straight to the U.S. Treasury Department. The Treasury saves even more money than that from the low interest rates. So both of those things can be considered forms of implicit taxation on the public.
As to the leasing of gold, I haven't followed any stories about that.
I'm not really a gold standard fan, but I'm not totally against it either. One of the benefits of a monetary system with built in CPI deflation is that it would make it much easier to return to a dollar partially backed by gold--e.g., the U.S. government could promise a redemption rate of 0.0004 ounces (= 1/2500 ounces) of gold for each dollar.
Posted on 4/29/17 at 8:26 pm to Doc Fenton
I'm not a gold bug. And he's argumentative. I bet his boss loves him. Me? I don't need some 20 something graduate of the LSU College of Banking arguing for the sake of argument. I'd rather play golf every afternoon. The free market has a natural filtering process where things reach their level of equilibrium. I think he's reached his. .
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