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[Jimothy]

Singapore and China have been able to take steps to deflate their housing bubbles without causing recessions. Spain and others don't do anything because their leaders and their buddies profit from the bubbles personally, it's not politics.

And what's better, a recession or 23% unemployment and a burst bubble? They don't do anything because they don't know what to do and want to make money.

It blows my mind that a country like Spain with a quarter of the people unemployed isn't in all out revolution. This shit is only going to get worse and the people are just bending over. We're so fucked.

 

[Sanky Panky]

Until you actually give a source, you're just equivocating, and this discussion isn't worth my time.

Indeed somebody probably made up the numbers. Or maybe they were too bad at keeping records in the 1800's.

The crisis in the US was precipitated due to the failure of the Jay Cooke & Company, which caused a larger banking panic.

More importantly, the cause is speculation in stocks (which indeed crashed first in Vienna), and excessive lending by state banks (which boomed during that period). Ironically, and as expected, the boom preceding the bust was caused and financed by greenbacks... or one of America's earliest attempts at a fiat currency. Funny that in trying to argue for instability under the gold standard, your best example is a crisis caused by fiat credit.

It operates on both, Sanky. Banks leverage printed money (i.e., reserves) to meet demands for money. The failure of the government to spend adequately (print money) increases the demand for private debt (bank credit). Don't you see that insufficient deficit spending empowers banks and reliance on bank money by creating an inadequate aggregate amount of fiat money?

There is a big hole in your interpretation of the private investment process in the economy, and it is due to your over-simplistic view of it. I'm starting to see a clear pattern with MMT theology. Investment money either comes from internal funds, or from borrowed funds. The market for those borrowed funds, is an interplay of projected cash flows, uncertainty about the future, lender/borrower risk aversion, interest rates, etc. The pace of investment in the private sector is what matters. This is why after 5 years and trillions of dollars printed, this non-recovery has been crap. It's because the pace of private investments is what matters. Perhaps you want to argue that the government should allocate ALL investments in an economy, but yours is an untested idea.

I'm curious what you think this means. He is talking about how the accumulation of private debt, which you are defending by maligning the spending of fiat money (even if you don't understand how you are defending it), is unstable. What you seem to be missing is that direct deficit spending is a "debt-deflation" process--Minsky is here referring to private debt deflation, not public debt deflation--because it undercuts the demand to borrow privately.

Any economy is inherently unstable, because the demand (and henceforth the supply) of money is subject to uncertainty about the future. My argument is that fiat money magnifies the speculation, and this ultimately leads to disaster. If your argument is that the government should finance 100% of the economy (therefore not needing private debt), then say it explicitly, instead of missing the point that Minsky was trying to make.

The government's spending is the non-government sector's income. This is an accounting identity.

It's only a part of the non-government sector's income. Not even half of it.

So when the government net spends more, the private sector has a higher income, meaning it has less need for inter-sector borrowing (i.e., private debt accumulation). Likewise, if the government net saves, then the non-government sector necessarily deficit spends (to the government), increasing the demand for private borrowing. Take a look at this graph:

Hehe you swear by that graph, even if it doesn't say what you think it does. The supply of money is only but one factor that influences investment in an economy, and has no real effect on output, unlike factors that determine the pace of investment. MMT takes an accounting identity of the balance of payment accounts, and comes up with a simplistic yet flawed causality between government spending, and net private savings. Keynes said, in a Treatise on Money, that at all times, quantities of output and employment are determined by real factors independent of monetary influences. This is exactly why the Fed currently printing trillions of dollars has not affected the all important pace of investment. Velocity of money has tumbled. Unless you are talking about central planning of the economy, through which the government and finances all investment, then printing more money is quite ineffective for effecting change.

I agree with you that trade deficits are the way foreigners get their money, but to your next question, NO I would not trust the government to allocate resources effectively. The market always has the last word. Always will self-regulate.

Finally, returning to a gold standard--which necessarily puts constraints on deficit spending by the government--also necessarily increases the demand for loans and private debt. What I am trying to say in all this is that you appear to want to get to the right place (less private debt), but what you propose to do it would actually accomplish the precise opposite.

Wrong. Any amount of gold or silver will suffice to convert all the fiat money in our system. There would be a crash landing for all the paper profits and over-leveraged companies, but ultimately lending and borrowing are determined in the private sector, based on real factors. The theory behind money backed by something, is that banks will maintain a proper amount of reserves, and not over-extend credit. I would even be for a Fed that recognized a credit bubble, and actively stops it. You will be able to count on long-term price stability, and higher real wage growth, as evident by all the data so far in this thread.

I'll respond to some other comments later, but accusing the video of being some sort of advertisement for gold, completely reinforces why we as a population put up with the system.

 

[Coriolanus]

accusing the video of being some sort of advertisement for gold, completely reinforces why we as a population put up with the system.

Not really, given that most of the population proves time and time again that they have no idea how a fiat system works. They do tend to think that we're in a system similar to the gold standard days, though, as is proven repeatedly every time national debt is discussed in the public sphere.

What it does, and quite well, is expose the author's hypocrisy.

 

[Sanky Panky]

Not really, given that most of the population proves time and time again that they have no idea how a fiat system works. They do tend to think that we're in a system similar to the gold standard days, though, as is proven repeatedly every time national debt is discussed in the public sphere.

What it does, and quite well, is expose the author's hypocrisy.

The funny thing is I still fail to see where in the video they push to sell gold or silver. If anything, we should all look at the "hypocrisy" of Russia, India, Turkey, and a country like China, who alone imported over 2,000 tons of gold in the last two years. In India, there are fights to strip ancient temples of their gold, in order to increase reserves. They have been vocal about how the US and UK try to suppress the paper gold market, while laugh all the way to the bank grabbing all the cheap gold they can find.

Maybe they don't understand our fiat system? (Hint: they do).

 

[Seeds]

The funny thing is I still fail to see where in the video they push to sell gold or silver. If anything, we should all look at the "hypocrisy" of Russia, India, Turkey, and a country like China, who alone imported over 2,000 tons of gold in the last two years. In India, there are fights to strip ancient temples of their gold, in order to increase reserves. They have been vocal about how the US and UK try to suppress the paper gold market, while laugh all the way to the bank grabbing all the cheap gold they can find.

Maybe they don't understand our fiat system? (Hint: they do).

They whole point of the video is to get you to buy gold and silver. I can't see how you fail to see that.

They then facilitate it by linking you to goldsilver.com, which just happens to be the guys who made the video. Can you think of another industry who does this?

 

[Sanky Panky]

They whole point of the video is to get you to buy gold and silver. I can't see how you fail to see that.

They then facilitate it by linking you to goldsilver.com, which just happens to be the guys who made the video. Can you think of another industry who does this?

The actual three action steps they list at the end have nothing to do about going to their website to buy gold, and everything to do with informing others about the current system, spreading the message, and coming up with solutions together. Along with the changed thread title, people are trying really hard to dismiss the information as some sort of plug to buy gold, to downplay the facts that it presents. Calling it a "goldbug conspiracy video" does not diminish its veracity. It just highlights the complacency of the American population.

23 international thinkers, government advisors and Wall Street guys also explain the same mechanisms in this documentary: Four Horsemen.

More conspiracy gold bugs trying to sell gold I guess.

 

[biggersmaller]

It's humorous to me the tone this video implies some sort of conspiracy that goes "all the way to the top" - don't they teach how the Federal Reserve and banks operate in schools anymore? It's well made, and if they drop this kinda Loose Change vibe could be a useful educational video.

Additionally, to think politicians and bankers are organized enough to keep "secret" a conspiracy as large as this implies for decades gives Washington and Wall Street way too much credit.

Oh' and if the two being in bed together shocks you, you're about 150 years too late. It's already out in the open if anyone in this country bothered to read anymore.

 

[Seeds]

The actual three action steps they list at the end have nothing to do about going to their website to buy gold, and everything to do with informing others about the current system, spreading the message, and coming up with solutions together. Along with the changed thread title, people are trying really hard to dismiss the information as some sort of plug to buy gold, to downplay the facts that it presents. Calling it a "goldbug conspiracy video" does not diminish its veracity. It just highlights the complacency of the American population.

23 international thinkers, government advisors and Wall Street guys also explain the same mechanisms in this documentary: Four Horsemen.

More conspiracy gold bugs trying to sell gold I guess.

The three action steps are there so people like you have something to argue about while they get rich.

You do understand that this is how the industry works, right? They sell gold, and then buy it back from those very same buyers cheaper. That is, the industry thrives on people like you, and expects you to do their ground work.

 

[Sanky Panky]

Additionally, to think politicians and bankers are organized enough to keep "secret" a conspiracy as large as this implies for decades gives Washington and Wall Street way too much credit.

The facts, the actual links, the policy actions and explicit instructions from the banking think tanks are no secret, and are all there for people to read. Even going back to the 1960's, the book Tragedy and Hope, spells out everything about this "secret" conspiracy. This is exactly why the mainstream media convinces people like you that a "conspiracy" (which just means a group working together towards an end), is to be dismissed. All you have to do is follow the money to understand that the media has been bought and paid for by the banks since the late 1800's.

Oh' and if the two being in bed together shocks you, you're about 150 years too late. It's already out in the open if anyone in this country bothered to read anymore.

This complacency is what the video is fighting against. Based on the reactions on this very thread, we could use a lot more reading of economic history.

You do understand that this is how the industry works, right? They sell gold, and then buy it back from those very same buyers cheaper. That is, the industry thrives on people like you, and expects you to do their ground work.

Haha they are not operating a pawn shop. Even then, if that was remotely their modus operandi , they would have been bankrupt ten times over since the early 2000's. No cheaper gold is being found in the actual physical market (paper gold futures market is explicitely manipulated).

 

[Seeds]

Haha they are not operating a pawn shop. Even then, if that was remotely their modus operandi , they would have been bankrupt ten times over since the early 2000's. No cheaper gold is being found in the actual physical market (paper gold futures market is explicitely manipulated).

Don't play dumb. The gold doesn't have to get cheaper for them to make money and you know this.

 

[Sanky Panky]

Don't play dumb. The gold doesn't have to get cheaper for them to make money and you know this.

And don't be disingenuous in thinking the information in the video (which has nothing to do with the product they sell) is false because they selll whatever they sell. Did the country of China also look at some random "goldbug conspiracy" video from some gold shop, and decided they wanted to be the biggest buyers of gold in the world? do they simply like shiny things? or do they also understand the untenable position of the US dollar, and how the system works?

I rather focus on the message, which no one here has been able to refute.

 

[eBay Huckster]

yeah, it's generally pretty easy to claim non-refutation of a point when you handwave away all of the actual refutations.

 

[Seeds]

And don't be disingenuous in thinking the information in the video (which has nothing to do with the product they sell) is false because they selll whatever they sell. Did the country of China also look at some random "goldbug conspiracy" video from some gold shop, and decided they wanted to be the biggest buyers of gold in the world? do they simply like shiny things? or do they also understand the untenable position of the US dollar, and how the system works?

I rather focus on the message, which no one here has been able to refute.

From what I've seen, the info in the video has been attributed to policy and lack of financial regulations throughout this thread.

But I'm sure it's just a coincidence that a site that sells gold attributes it to the fiat system.

 

[Sanky Panky]

yeah, it's generally pretty easy to claim non-refutation of a point when you handwave away all of the actual refutations.

Actual refutations have to have a basis in reality and history. Unfortunately, all the MMT points in here to support a fiat system lack both.

But I'm sure it's just a coincidence that a site that sells gold attributes it to the fiat system.

It's the policies and regulations of an underlying unstable fiat system, for the benefit of those who abuse the fiat system, that the video tries to dispell. You can't point to an issue of poor policy, without the underlying cause.

 

[eBay Huckster]

Actual refutations have to have a basis in reality and history. Unfortunately, all the MMT points in here to support a fiat system lack both.

there's been one poster in here espousing anything resembling MMT and even he's been arguing you to a stalemate.

it's like saying "the sky is fluorescent pink" and when 98% of the thread consists of people saying "no, the sky is blue" you focus on the 2% saying "well, the sky's red under certain conditions".

 

[Azih]

. You can't point to an issue of poor policy, without the underlying cause.

The underlying cause is human nature (people in power wanting to use that power to maintain and enhance that power), not the monetary system.

 

[eBay Huckster]

The underlying cause is human nature (people in power wanting to use that power to maintain and enhance that power), not the monetary system.

well you see here, bretton woods was inherently superior to the current fiat era because the human tendency toward concentrating power didn't exist until forty-five years ago

even though i disagree with him almost 90% of the time, david frum put this discussion best a couple years ago:

The modern currency float has its problems. There is no magical monetary cure; monetary policy is a policy area almost uniquely crowded with trade-offs and lesser evils.

If you want a classical gold standard, you get chronic deflation punctuated by depressions, as the U.S. did between 1873 and 1934.

If you want a regime of managed currencies tethered to gold, you get regulations and controls, as the U.S. got from 1934 through 1971.

If you let the currency float, you get chronic inflation punctuated by bubbles, the American lot since 1971.

System 1 is incompatible with democracy, because voters won’t accept the pain inherent in a gold standard.

System 2 is incompatible with the free market economics I favor.

That leaves me with System 3 as the worst option except for all the others.

 

[Hermii]

The gold standard woudnt solve a thing. There is so much secrecy with gold. We don't even know how much exists or where it is and the gold market is one of the most manipulated markets.

 

[Seeds]

It's the policies and regulations of an underlying unstable fiat system, for the benefit of those who abuse the fiat system, that the video tries to dispell. You can't point to an issue of poor policy, without the underlying cause.

And as people have also pointed out to you throughout this thread, the underlying cause isn't the fiat system.

 

[Sanky Panky]

there's been one poster in here espousing anything resembling MMT and even he's been arguing you to a stalemate.

it's like saying "the sky is fluorescent pink" and when 98% of the thread consists of people saying "no, the sky is blue" you focus on the 2% saying "well, the sky's red under certain conditions".

Your percentages are a bit off, and the point of the video is to explain how the sky is blue, in a world where the media and the institutions want you to believe it is fluorescent pink. There is no arguing about the facts (the sky is blue, inflation is a loss of purchasing power, the fiat system redistributes wealth to the rich) in this thread. There are people under pink skies mischaracterizing the economy under the gold standard (in the face of the facts that I posted comparing both periods), claiming that the video is just trying to sell gold (even though they don't push for that in the video), and people saying that no conspiracy is possible (even though there are mountains of evidence for the collusion between banks and government).

I was once a believer in the need for the Fed, I still have no respect for Ron Paul, I actually work in wholesale lending for one of the major banks, my degrees are in finance and economics, and I read about economic history for fun. My views are shapped because the more I studied the color of the sky, the bluer it became.

And as people have also pointed out to you throughout this thread, the underlying cause isn't the fiat system.

We can blame greed all we want, but as Keynes affirmed, speculation in pursuit of profits in itself is not bad. It is when paper money is used as an enterprise to make more money, the problems in the economy intensify. The 1873 panic highlighted this (from the growth infused by paper greenbacks), the 1929 crash highlighted this from the policies of the Fed to promote debt beyond adequate reserves for banks, and the post-1971 world full of bigger bubbles and bursts proves that fiat currency is the enabler for greed to go unchecked, until it crashes harder.

Edit: just off the press... the power of money printing, inflation, misguided policy by the Fed... and how real people are affected:

Existing-Home Sales Down in September but Prices Rise

Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

 

[Zaraki_Kenpachi]

LOL, the video is made by a company that sells gold and silver? Wow, I can't believe there's anyone who believes this shit. I guess Glenn Beck was just trying to free the world also when he used to hock gold on his show and got caught about the kickbacks from it. Fox news was trying to save us all.

 

[ClassyPenguin]

I bet Sanky hasn't read many of the publications and research papers available from the St Louis Fed. It wouldn't make sense from some of his assertions.

Example:
Understanding the Accumulation of Bank and Thrift Reserves
during the U.S. Financial Crisis

 

[pigeon]

Read the quotes again. It is the process of reducing purchasing power by increasing prices, that robs future generations, or as every person quoted says, it is a form of invisible tax. Only the pace of expected inflation determines how fast people want to get a hold on real assets, but the end result, no matter how slow, is the same. Ex Chairman Paul Volcker also made the case that even at 2% inflation per year, people lose 50% of their purchasing power in 25 years. I can find his quote, but the sentiment is the same expressed by anybody else that understands.

Nor is it reasonable to say that "reducing purchasing power by increasing prices" robs future generations. A single dollar reduces in purchasing power according to inflation. But people don't produce dollars, they produce streams of income. What is your justification for the claim that wages do not increase with inflation?

As Paul Volcker said, a stable 2% inflation robs people 50% of their purchasing power in 25 years. This is why people can barely afford to go to college, why you HAVE to borrow to buy a home or a car, why medical costs can bankrupt you, etc etc. Before the Fed, you had long-term stability of prices, and you had rising real wages. Since the 1970's, you have a financialization of our economy, with debt assets and stocks becoming an economy onto themselves. This is the wet dream of the international bankers that drafted the Fed (to their benefit), because not only can they suppress real wages and promote borrowing to consume, but they know that the government will be there to bail out the big players.

This is why discussing this topic with you is so frustrating, Sanky. You make a statement. I ask for your justification. Your response is to repeat the statement.

If I want to read your post again, I'll just scroll up. When you quote me, I assume you're going to read my post and respond to it by JUSTIFYING your claim while integrating and responding to my argument. If you just want to repeat yourself over and over again, why even quote people's posts? It will just give them the false impression that you are attempting to converse with them.

 

[Sanky Panky]

I bet Sanky hasn't read many of the publications and research papers available from the St Louis Fed. It wouldn't make sense from some of his assertions.

Example:
Understanding the Accumulation of Bank and Thrift Reserves
during the U.S. Financial Crisis

What does that Fed paper have to do with fiat money (excess reserves coverted into cash, used to inflate financial asset prices and home prices), creating yet another bubble? This neither conflicts with my statements that the pace of investment is the dominant factor in an economy (hence banks don't loan out those reserves, and there is no recovery), and that the fiat system is causing greater and greater instability.

This is why discussing this topic with you is so frustrating, Sanky. You make a statement. I ask for your justification. Your response is to repeat the statement.

If I want to read your post again, I'll just scroll up. When you quote me, I assume you're going to read my post and respond to it by JUSTIFYING your claim while integrating and responding to my argument. If you just want to repeat yourself over and over again, why even quote people's posts? It will just give them the false impression that you are attempting to converse with them.

I also expect you to read when I say that real wages are being suppressed, while the increase in consumption is not lead by nominal wages keeping pace, but by the system encouraging lending. I'm sorry if I thought you would make a clear connection between nominal wages not keeping pace (which is a fact for the bottom half of the US population), with increase need for borrowing. The increase need for borrowing for the things I mentioned (medical costs, tuition, housing, etc) are because prices are being inflated by the availability of money. We can talk about the misallocation of capital and speculation caused by the fiat system, but the point is that wages don't always keep up with price increases. I thought the point was obvious.

 

[Azih]

the fiat system redistributes wealth to the rich

which system doesn't?

 

[KHarvey16]

"The reason is obvious", "it's self evident" and "everyone knows" are all slightly different ways of saying I can't explain it and I'm not going to try.

 

[pigeon]

\I also expect you to read when I say that real wages are being suppressed, while the increase in consumption is not lead by nominal wages keeping pace, but by the system encouraging lending. I'm sorry if I thought you would make a clear connection between nominal wages not keeping pace (which is a fact for the bottom half of the US population), with increase need for borrowing. The increase need for borrowing for the things I mentioned (medical costs, tuition, housing, etc) are because prices are being inflated by the availability of money. We can talk about the misallocation of capital and speculation caused by the fiat system, but the point is that wages don't always keep up with price increases. I thought the point was obvious.

It's not. In fact, the preponderance of the evidence is that wages do keep up with price increases. That's literally why I posted that graph. If real wages outstripped or fell behind inflation, you'd expect to see a correlation between delta real wages and delta CPI.

Now you've made an actual claim, which is praiseworthy, which is that the problem is income inequality, such that mean real wages is not a useful statistic due to outliers. Great! In order to support this claim, you need to provide evidence as to quantized delta real wages. Can you provide such evidence, and show the correlation with delta CPI?

 

[RoninChaos]

Oh lord.

Why do people need to believe this shit? The Legion of Doom doesn't run the banking system.

 

[ridethepiggy]

Sanky Panky using 'Mainstream media' and expecting folks to take him serious.

 

[Sanky Panky]

It's not. In fact, the preponderance of the evidence is that wages do keep up with price increases.

Considering Real Wages = Nominal Wage - Inflation, where is the preponderance of evidence you claim in this graph?

It used to be that an increase in productivity, lead to an increase in nominal and real wages. When the system is flush with cash, and investment is diverted to non-investment goods, you have inflation, and stagnant real wages. The disconnect becomes wider and wider the more inflation remains, and the purchasing power for people continues to erode.

Tie it up with consumer debt, and you get a sense of the purchasing power of people's real wages:

Or would yo rather look at disposable incomes available after consumers buy inflated goods:

Take your pick, and you will see the relationship.

That's literally why I posted that graph. If real wages outstripped or fell behind inflation, you'd expect to see a correlation between delta real wages and delta CPI.

Since you are focused on rates of change (and not actual levels of the two, which determines purchasing power), here is a small graph that highlights the relationship. You can see the negative correlations in periods of high inflation (the 1970's), 1987 through 1991, and beyond 2008.

Again, the actual mathematical determination of real wages should tell you about the effects on inflation on real wages and purchasing power of the people. House prices are just the latest iteration of inflationary effects of money printing, and the NAR chief economist I just quoted in the article today, highlights the fact that home prices have outpaced growth in income, hence affordability is at a 5-year low. It really isn't a hard concept to grasp.

By the way, I'm still waiting for your opinion on what Keynes meant, when he made the argument that I am making.

 

[Azih]

Correlation isn't Causation though right?

Sanky wouldn't a system of higher taxes on wealthy individuals and corporations with that money used to fund services for the middle class and lower acheive what you want without any recourse to changing the monetary system?

 

[SteveWinwood]

ron paul thread 5.0

 

[Sanky Panky]

Correlation isn't Causation though right?

Sanky wouldn't a system of higher taxes on wealthy individuals and corporations with that money used to fund services for the middle class and lower acheive what you want without any recourse to changing the monetary system?

This would in fact jumpstart a redistribution of wealth back to the middle class, but it doesn't address the inherent problems and instability of the system. The banks are given carte blanche to print money, promoting speculative lending, and boosting demand and prices beyond what the current generation can support with real wages. Moreover, when the banks make bad bets, there is the implicit guarantee that they will be bailed out by the Fed (which they themselves created in 1913). This promites further misallocation of resources, which is what we have seen to a greater and greater degree since the fiat system was introduced in the 1970's.

This is why I think the solution is not taxation. It's dismantling the institutions that promote income inequality.

 

[ClassyPenguin]

Banks don't print money.

 

[Sanky Panky]

Banks don't print money.

Credit money, bank money, whatever you want to call it... is money.

 

[BakedSardine]

Does anyone think we will have REASONABLE savings options again? I remember about 15 years ago you could get CDs in the 3-4.5% range, Savigns accounts paid around 3.5% - not great, but you did actually get your money making some money without being in stocks. This ultra-low lending rate shit is ridiculous IMO - getting like 0.25% on my bank account - WOO!

 

[Sanky Panky]

Does anyone think we will have REASONABLE savings options again? I remember about 15 years ago you could get CDs in the 3-4.5% range, Savigns accounts paid around 3.5% - not great, but you did actually get your money making some money without being in stocks. This ultra-low lending rate shit is ridiculous IMO - getting like 0.25% on my bank account - WOO!

And inflation at even 2% means that your savings will erode by 1.75% each year. Thanks Bernanke. The savers, the pension funds that carry low-yield bonds, and anyone who wants to play it safe suffers, because apparently banks still need zero interest rate loans in order to not collapse... my mistake, in order to keep making record profits.

 

[ClassyPenguin]

QE actaully lowered inflation a bit. And we are still low on our inflation predictions.

"The Federal Reserves LSAP alone can depress inflation near the liquidity trap: Once the real interest rate off financial assets is low enough, QE induces flight to liquidity because portfolio investors opt to switch from interest-bearing assets to money. Hence, the aggregate price level must fall to accommodate the increased demand for real money balances for any given target level of long-run money growth (or anticipated inflation rate)."

http://research.stlouisfed.org/wp/2013/2013-028.pdf

 

[Sanky Panky]

QE actaully lowered inflation a bit. And we are still low on our inflation predictions.

Just to clarify, QE is not the driver for low inflation. A drop in the pace of investment in the real economy, and the deleveraging that QE has insofar attempted to stop, is what has resulted in low inflation. The velocity of money has dropped like a rock since the early 2000's, because banks have found a better business in financial assets (versus the real economy). The inflation that we would have seen in the real economy, is now happening in financial assets, creating even more fragile bubbles.

Before I scan that research paper from the Fed, the quote you cited is the intention, but not the actual effect of QE. In an environment with negative real rates for financial assets, the logical thing would be for investors to switch to cash or cash-like instruments, becuase the purchasing power of those will appreciate. HOWEVER, the banks in pursuit of profit, instead of diverting free money away from low-yielding financial assets, into higher yielding ones (like the funky Spanish and Italian bonds)... because after-all, it is free money being given to them by the Fed at a pace of $85 billion per month. This is why QE has failed to ignite the pace of investment simply by manipulating the supply of money. This has never worked, but it doesn't surprise me that they are trying to justify it in this way.

 

[1.21Gigawatts]

I remember 1 or 2 years ago when the financial crisis was full on in europe, there were many conspiracy videos who told you to invest in gold because your money won't be worth anything anymore in a few months.
Well, gold went pretty much straight downhill since then.

Also, that stuff isn't secret. They teach you those things in school.
I don't like the video. Its lurid and hyperbolic.

 

[Zaraki_Kenpachi]

Does anyone think we will have REASONABLE savings options again? I remember about 15 years ago you could get CDs in the 3-4.5% range, Savigns accounts paid around 3.5% - not great, but you did actually get your money making some money without being in stocks. This ultra-low lending rate shit is ridiculous IMO - getting like 0.25% on my bank account - WOO!

There's more investment products than stocks and CDs. There are some fixed rate things that are about 3-4% IIRC but you have to lock your money up longer. Also, just because interest rates are higher doesn't mean it's better or you're receiving more money than the alternative. It could be the case, but it in no way has to be the case.

 

[Sanky Panky]

QE actaully lowered inflation a bit. And we are still low on our inflation predictions.

http://research.stlouisfed.org/wp/2013/2013-028.pdf

A very timely article on the efficiency of QE:

Academic Studies Show QE Doesn’t Work

The Fed’s relentless buying of massive amounts of securities has produced no positive economic developments, but has had significant negative, unintended consequences.

For example, banks have a limited amount of capital with which to take risks with their portfolio. With this capital, they have two broad options: First, they can confine their portfolio to their historical lower-risk role of commercial banking operations—the making of loans and standard investments. With interest rates at extremely low levels, however, the profit potential from such endeavors is minimal.

Second, they can allocate resources to their proprietary trading desks to engage in leveraged financial or commodity market speculation. By their very nature, these activities are potentially far more profitable but also much riskier. Therefore, when money is allocated to the riskier alternative in the face of limited bank capital, less money is available for traditional lending. This deprives the economy of the funds needed for economic growth, even though the banks may be able to temporarily improve their earnings by aggressive risk taking.

Perversely, confirming the point made by Dr. Hall, a rise in stock prices generated by excess reserves may sap, rather than supply, funds needed for economic growth.

The rest of the article basically corroborates everything I have been saying, such as money printing fostering inequality between the top and the bottom.

 

[empty vessel]

Any economy is inherently unstable, because the demand (and henceforth the supply) of money is subject to uncertainty about the future. My argument is that fiat money magnifies the speculation, and this ultimately leads to disaster. If your argument is that the government should finance 100% of the economy (therefore not needing private debt), then say it explicitly, instead of missing the point that Minsky was trying to make.

You are wrong in your conclusion that fiat money magnifies speculation, and if you are attributing that to Minsky, you should not. Shadow banking is just off-the-grid borrowing, i.e., borrowing through means other than banks with accounts at the central bank. That's it. The monetary system is irrelevant to it, because it takes place wholly within the non-government sector and wholly outside of banks and as such consists entirely of horizontal transactions.

It's only a part of the non-government sector's income. Not even half of it.

You don't understand. If you slice up the entire Earth into two--a government sector and a non-government sector (everybody else)--then, as a matter of accounting, the government sector's net spending is the non-government sector's net income. We are looking at the aggregate here. When we divide up the world this way, we see that the aggregate income of the non-government sector rises and falls exactly inversely with the government sector's aggregate spending. If you look wholly within the non-government sector, then what we see is that income gets shifted around. But even within that sector, one person's gain in income is another person's expenditure. Income cannot be ex nihilo. It cannot be created from nothing (except by government spending). Even bank lending does not create income ex nihilo. Bank lending creates no new net financial assets within the non-government sector.

Hehe you swear by that graph, even if it doesn't say what you think it does. The supply of money is only but one factor that influences investment in an economy, and has no real effect on output, unlike factors that determine the pace of investment. MMT takes an accounting identity of the balance of payment accounts, and comes up with a simplistic yet flawed causality between government spending, and net private savings. Keynes said, in a Treatise on Money, that at all times, quantities of output and employment are determined by real factors independent of monetary influences. This is exactly why the Fed currently printing trillions of dollars has not affected the all important pace of investment. Velocity of money has tumbled. Unless you are talking about central planning of the economy, through which the government and finances all investment, then printing more money is quite ineffective for effecting change.

You have a misconception of what is in fact happening. QE is ineffective policy precisely because no money is being spent. I endorse fiscal deficit spending, which places money directly in people's hands rather than in banks lying in wait to make people indebted to them. My preference is not to require people to go into debt to spend (i.e., visit a bank to take out a loan). I want the money put directly in people's hands by more government spending so that they have less need to borrow. It is excessive private inter-sector borrowing that causes financial crises.

I agree with you that trade deficits are the way foreigners get their money, but to your next question, NO I would not trust the government to allocate resources effectively. The market always has the last word. Always will self-regulate.

So you favor placing allocations in the hands of banks and the shadow banking system, which you claim not to favor. Don't you see that you are endorsing actions that are in direct conflict with your professed desired goals? Returning to the gold standard does nothing--absolutely nothing--to diminish the power of allocation from banks. It only concentrates it further in their hands. And we get bank runs too!

Wrong. Any amount of gold or silver will suffice to convert all the fiat money in our system. There would be a crash landing for all the paper profits and over-leveraged companies, but ultimately lending and borrowing are determined in the private sector, based on real factors.

If you don't care about a "crash landing for all the paper profits and over-leveraged companies," then you have nothing to fear in the present system. We just saw a "crash landing" for these companies. Nothing requires their saving except politics and elite rule, which is the true source of your ire. You simply have no real beef with the monetary system.

The theory behind money backed by something, is that banks will maintain a proper amount of reserves, and not over-extend credit.

Did that stop the Great Depression? If this is your concern, what you should be advocating is: (1) greater use of fiscal policy to regulate aggregate demand; and (2) nationalization of banks. Not returning to an inferior and terribly problematic monetary system that concentrates power in the hands of the rich.

 

[Sanky Panky]

You are wrong in your conclusion that fiat money magnifies speculation, and if you are attributing that to Minsky, you should not.

This is precisely what he argued in his interpretation of Keynes' General Theory. On page 140, he says (talking about prospective yields of capital investment assets)..."are at best constrained ultimately to grow at a steady rate in real terms. The debt base, which grows at an accelerating rate during a boom, is not so constrained [by no hard ear assets or adequate reserves]... the addition of layered financial intermediation to the financing process [debt securities, CDSs, re-hypothecation in the shadow banking system] adds further speculative elements." He follows by saying that more debt creates more commitments to service that debt, which actual cash flows ultimately fail to support. We should not have to worry about this if banks have to back their loans through real assets that, or if the Fed's decree was to actually curve speculative bubbles.

Shadow banking is just off-the-grid borrowing, i.e., borrowing through means other than banks with accounts at the central bank. That's it. The monetary system is irrelevant to it, because it takes place wholly within the non-government sector and wholly outside of banks and as such consists entirely of horizontal transactions.

How do you explain to a 15-yr old learning about the world, that the 2008 crisis started in the shadow banking system, leading to a world-wide liquidity crunch, debt deflation, and QE as a policy to restore faith within the shadow banking system (more specifically plug a $4 trillion dollar hole that happened almost over-night). How do you follow that up by saying that it is irrelevant to how money works in our global economy? You always try hard to make a distinction between "credit" (aka money), and government issued money, when the world operates mostly with the former. To the millions of people unemployed because of a break in the collateral chain in the sbs, there is no difference.

You don't understand. If you slice up the entire Earth into two--a government sector and a non-government sector (everybody else)--then, as a matter of accounting, the government sector's net spending is the non-government sector's net income. We are looking at the aggregate here.

The chart you always cite is representation of the stock of funds at specific points in time (including the foreign/external sector, which MMT never includes), but it doesn't account for the flow of funds, which originate from our fractional reserve banking system. The system is there, even if it has devolved into arbitrary risk-weights for assets affecting capital requirements. Obviously the economy both functions, and doesn't even need to rely on government spending. This is part of the wishful-thinking scenario that MMT proposes could under their optimal world. As a matter of accounting, the stock of assets held in the system will indeed balance out.

When we divide up the world this way, we see that the aggregate income of the non-government sector rises and falls exactly inversely with the government sector's aggregate spending...

You have a misconception of what is in fact happening. QE is ineffective policy precisely because no money is being spent. I endorse fiscal deficit spending, which places money directly in people's hands rather than in banks lying in wait to make people indebted to them.

You know in the past I have agreed with you on the general sentiment that QE should have been to bail out the people, not the banks. You need to be more forthcomming in saying that your view advocates central planning of the economy by the government, where it allocates resources to investment capital goods, to crowd out private needs for borrowing. You need to make the distinction that this is not how the world today works, but how you would like it to work. Then we can discuss proposals on how the federal government as a political body can efficiently allocate resources, and guide spending where it is needed. I will then argue that it is not possible under our current framework.

So you favor placing allocations in the hands of banks and the shadow banking system, which you claim not to favor. Don't you see that you are endorsing actions that are in direct conflict with your professed desired goals? Returning to the gold standard does nothing--absolutely nothing--to diminish the power of allocation from banks. It only concentrates it further in their hands. And we get bank runs too!

I am in favor of letting the markets determine the allocation of funds, without trying to inefficiently stimulate the money supply to effect changes in aggregate demand. This has never worked well. I am in favor of banks serving their communities to hold deposits, make conservative loans to fund local investment, without the desire to speculate the reserves away thanks to printed money. In the end, the markets are self-sustainable because the business cycle creates investment, and then deflates those who made bad debts. A drop in prices is not the boogey-man the banks want to make us believe, but a natural part of an economy that benefits the responsible holders of liquid assets. We are definitely a long ways away from an ideal market-based system, but it is possible once we go back to the basics.

If you don't care about a "crash landing for all the paper profits and over-leveraged companies," then you have nothing to fear in the present system. We just saw a "crash landing" for these companies. Nothing requires their saving except politics and elite rule, which is the true source of your ire. You simply have no real beef with the monetary system.

The fiat system allows the gobernment to bail out their buddies that fail. They simply print more money, and have the tax payers foot the bill through direct taxation or inflation. It's a nice game for them, and yes I am against that.

 

[empty vessel]

How do you explain to a 15-yr old learning about the world, that the 2008 crisis started in the shadow banking system, leading to a world-wide liquidity crunch, debt deflation, and QE as a policy to restore faith within the shadow banking system (more specifically plug a $4 trillion dollar hole that happened almost over-night). How do you follow that up by saying that it is irrelevant to how money works in our global economy?

Because you are talking about non-bank private inter-sector borrowing and lending. I can lend you money right now. If you take that money and re-leverage it and lose, I also have lost. But the money I lent you isn't gone. It's in whoever's hands you passed it along to. And it's got nothing to do with the monetary system. Unlike traditional banking, shadow banking does not leverage public money (reserves), because they don't have direct access to them. And banks are regulated (and we can argue about what regulations--up to and including nationalization--are appropriate for them).

You seem to believe that the answer to over-leveraging is to just reduce the money available to the entire society. That's reckless. You may well prevent over-leveraging by doing so (probably not as I don't see how that operationally limits excessive leveraging in proportion to whatever money is left available), but you're also not going to have an economy that produces much real goods and services. Shadow banking can be dealt with in ways other than taking a sledgehammer to the entire economy.

You always try hard to make a distinction between "credit" (aka money), and government issued money, when the world operates mostly with the former. To the millions of people unemployed because of a break in the collateral chain in the sbs, there is no difference.

Again, none of this has anything to do with the monetary system. The reason I make a distinction between credit and base money is because there is a difference between them. Base money is injected by government spending and increases the net financial assets (in aggregate) in the non-government sector. Leveraging of base money (credit) does not increase the net financial assets in the non-government sector. All such transactions net precisely to 0. That means that such transactions can have winners and losers, but nothing ultimately gets lost or destroyed. Yes, those systems can be unstable and can detract from more productive uses of money, which is why they should be regulated. And yes, when those systems become unstable, people can lose their jobs. But that's really a political choice (1) not to regulate them in the first place; and (2) who gets bailed out after the Minsky Moment. Both of these are political problems, not problems with the monetary system.

My position is that we should depend less on credit money and get away from relying so heavily on using banks as intermediaries. That is what fiscal policy--shunned by neoliberals--accomplishes.

Also, you should read this: http://seekingalpha.com/article/1113351-no-hokum-no-stock-investments-with-excess-reserves

You know in the past I have agreed with you on the general sentiment that QE should have been to bail out the people, not the banks. You need to be more forthcomming in saying that your view advocates central planning of the economy by the government, where it allocates resources to investment capital goods, to crowd out private needs for borrowing.

The government already spends money, and necessarily allocates that spending (i.e., government spending is not random). But the government's spending does not dictate all investment, because there are no (or I should say few) legal restrictions on how money changes hands after it is spent. If I am a contractor of the government and get paid, I can use that money however I wish subject to whatever regulations the government might place on its use (e.g., financial regulations to prevent systemic instability).

 

[Sanky Panky]

Because you are talking about non-bank private inter-sector borrowing and lending. I can lend you money right now. If you take that money and re-leverage it and lose, I also have lost. But the money I lent you isn't gone. It's in whoever's hands you passed it along to. And it's got nothing to do with the monetary system. Unlike traditional banking, shadow banking does not leverage public money (reserves), because they don't have direct access to them. And banks are regulated (and we can argue about what regulations--up to and including nationalization--are appropriate for them).

The shadow banking system leverages whatever collateral is acceptable, so it can take US treasuries, Greek bonds, MBSs, etc. and re-hypothecate them as much as the market for those securities allow. The liquidity provided by this re-hypothecation is actual money being created in the system, and we see it inflating financial asset prices every day. It may have nothing to do with monetary policy, since the Fed can only react to it (as it has done since 2008), but it has absolutely everything to do with liquidity base of the system. The workings of the sbs directly affect the real economy, so it must be taken into consideration when talking about how our world of money works. This is unfortunate in my view.

You seem to believe that the answer to over-leveraging is to just reduce the money available to the entire society. That's reckless. You may well prevent over-leveraging by doing so (probably not as I don't see how that operationally limits excessive leveraging in proportion to whatever money is left available), but you're also not going to have an economy that produces much real goods and services. Shadow banking can be dealt with in ways other than taking a sledgehammer to the entire economy.

The hard landing would mean eliminating the over-consumption based on debt since the 1980's, back to a sustainable growth lead by productivity and real wage increases. It would indeed be painful, but you'll end the slavery to debt, the control of the elite of the world markets, corruption in government, and the need for endless complex regulations that don't achieve much (like Dodd-Frank). What would happen at that point is that real wages will indeed encourage and support investment in goods and services. The business cycle will indeed exist, and there will be recessions, but there will be no disruption to market forces created by misguided monetary policy. The bad over-leveraged apples will fall from the tree, and the cycle will go on.

Again, none of this has anything to do with the monetary system. The reason I make a distinction between credit and base money is because there is a difference between them. Base money is injected by government spending and increases the net financial assets (in aggregate) in the non-government sector. Leveraging of base money (credit) does not increase the net financial assets in the non-government sector. All such transactions net precisely to 0. That means that such transactions can have winners and losers, but nothing ultimately gets lost or destroyed.

Are you equating net financial assets with net wealth of households in the system? the latter is less determined by the money supply, and more determined by the investment process, existing levels of debt, and premiums attributed to liquidity by individuals and companies. A financial asset does disappear if a government bond is paid off, but that is not the only financial asset in the system, and we are subjected to the flow of external financial assets by foreigners.

Yes, those systems can be unstable and can detract from more productive uses of money, which is why they should be regulated. And yes, when those systems become unstable, people can lose their jobs. But that's really a political choice (1) not to regulate them in the first place; and (2) who gets bailed out after the Minsky Moment. Both of these are political problems, not problems with the monetary system.

Where to allocate funds, unless you are speaking about transfer payments to the population (SS funds for everyone?), is also a political problem. It is unfortunately not a problem that any government institution has known how to do.

Also, you should read this: http://seekingalpha.com/article/1113351-no-hokum-no-stock-investments-with-excess-reserves

The article ignores all the available mechanisms for banks to convert the excess reserves into financial assets. It has been the explicit policy of Bernanke to prop up financial assets, and this is why a rumor of tapering, shook the markets and almost brought a country like India down. JP Morgan released balance sheet information detailing how excess reserves are funding their trading operations (including the whale trade loss of $6 billion), but here is a simple graphic representation of how excess reserved are fueling the stock market:

Or if you want to talk about foreign laws and jurisdictions, there is also this mechanism of transmittal (aka the Fed is helping out foreign banks too):

If I am a contractor of the government and get paid, I can use that money however I wish subject to whatever regulations the government might place on its use (e.g., financial regulations to prevent systemic instability).

I am indeed curious to see your proposed mechanism for government picking up the tab for aggregate demand. Do you porpose transfer payments for all? vouchers for purchases? how do you propose the government crowd out the need for private investment seeking borrowed funds during expansions? is there a formula for how much money should be allocated?

I am willing to entertain the idea of how the system would work, but out of mere curiocity. It sounds like, just as the case with communism, it sounds only plausible in a very simplistic world.

 

[Captain Najork]

I'm sortof lttp on this, and the dude got banned? Anyway, I'm not an economist, but I found the whole premise to be pretty believable, it seems to be supporting Lenins state monopoly capitalism theory.
I'm not a fan of complicated graphs and complicated explanations, so could someone please explain why this 'scam' is just empty vapour.

 

[Zona]

I'm sortof lttp on this, and the dude got banned? Anyway, I'm not an economist, but I found the whole premise to be pretty believable, it seems to be supporting Lenins state monopoly capitalism theory.
I'm not a fan of complicated graphs and complicated explanations, so could someone please explain why this 'scam' is just empty vapour.

Read the last six pages? Empty vessel, amongst others, has provided quite good explanations along with citations and links to further resources.

 

[Captain Najork]

So the thing about the corporate government mind-merge thing isn't something we should worry about?

 

[Zona]

So the thing about the corporate government mind-merge thing isn't something we should worry about?

Corporations having too much influence is a problem, it's just not a problem that has anything to do with fiat currency.