Can someone prove why the Fed is bad?

[jonahtrainer]

Actually, not to nitpick, but money is technically ANYTHING that is used as 1) a medium of exchange, 2) a store of value and 3)a unit of account. Currency is the physical papers and coins. Money is what constitutes M1 and M2, which is a LOT more than just physical currency. Money musn't necessarily have "intrinsic" value (since the only intrinsic value gold has is its uses in technology and medicine ... otherwise who cares if it has "historical" value -its value is subjective and determined by the marketplace), it simply needs to facilitate the three above criteria. But i don't necessarily disagree with your point about risk.

You may want to get more precise in your definitions of money, money substitutes and currency.

You disagree with one of the elements of money; intrinsic value.

Perhaps you have not studied enough of your history. The reason for Art 1 Sec 10 Clause 1 in fashioning the restraints on Legal Tender Remedies (these are two important Legal Terms) in both courts of Equity and Law was to prevent the ability to Impair the Obligations of Contracts (another important legal term). Thus the intrinsic value element for money as distinguishing it from a money substitute as a Remedy. You may want to read about 'What is a Dollar? (By Dr. Vieira who holds 4 degrees from Harvard including a JD and has authored Pieces of Eight which I recommend reading as I learned a lot from it in graduate school and he is the foremost expert on American monetary jurisprudence. A couple months ago I had lunch with him and I can assure you he is just as smart in person as he is in his writings )' Just because we calls things dollars that are not dollars does not make them dollars. Our monetary language is extremely inconsistent.

 

[lucius]

Seems the 'Genie is out of the bottle' concerning the Fed--just took 95 years.

 

[Conza88]

Ferrous Cranus

Ferrous Cranus is utterly impervious to reason, persuasion and new ideas, and when engaged in battle he will not yield an inch in his position regardless of its hopelessness. Though his thrusts are decisively repulsed, his arguments crushed in every detail and his defenses demolished beyond repair he will remount the same attack again and again with only the slightest variation in tactics. Sometimes out of pure frustration Philosopher will try to explain to him the failed logistics of his situation, or Therapist will attempt to penetrate the psychological origins of his obduracy, but, ever unfathomable, Ferrous Cranus cannot be moved.

+

Enfant Provocateur

Enfant Provocateur likes to stir up trouble because...because, well...just because. This species of Flame Warrior is almost always young and male - it could be just a hormone thing.

 

[Paulitician]

He said he's taken graduate economics but it seems he doesn't even understand monetary theory and the effects of inflation on wages.

But anyway, I was recently thinking about the graphic Zippyjuan posted, and it got me thinking, would it not make sense that inflation rates have been much higher in the past than in the present? Because, if we compare the economy of today with the economy of yester-centuries ago, the current economy is much bigger in size/scope. Both our economic and financial base are huge, and so, it requires much more money in order to have inflation, whereas, with smaller economies it wouldn't require as much. This could probably be thought of and expressed logarithmically. Has this been brought up? Would I be totally wrong in my thinking?

 

[Truth Warrior]

He said he's taken graduate economics but it seems he doesn't even understand monetary theory and the effects of inflation on wages.

But anyway, I was recently thinking about the graphic Zippyjuan posted, and it got me thinking, would it not make sense that inflation rates have been much higher in the past than in the present? Because, if we compare the economy of today with the economy of yester-centuries ago, the current economy is much bigger in size/scope. Both our economic and financial base are huge, and so, it requires much more money in order to have inflation, whereas, with smaller economies it wouldn't require as much. This could probably be thought of and expressed logarithmically. Has this been brought up? Would I be totally wrong in my thinking?

Germany in the 20's.
Zimbabwe TODAY. There are MANY other examples.

"Those that do not learn from history are condemned to repeat it."

Ad nauseum et infinitum.

 

[freelance]

TThis is what I learned in b-school.

Proof, apriori.

 

[theoakman]

Wow. Stability from the Fed? What next? Exxon promotes free enterprise??

"Competition is a sin." J. D. Rockefeller

Just look to the 1970s...please.

Vietnam. Oil up 2,800%. Gold up 1,800%. Gas up 380% (when it was available). Food up 20%/year, etc., etc.

There have been many papers, articles, books and theories about the inflation of the 1970s, but none of them even mention the largest piece of the puzzle: The removal of USD from the Bretton/Woods gold standard.

This is an excellent examination:

https://nber15.nber.org/c/2008/giw08/bordo.pdf





Once removed from the B/W standard, the Fed was free to inflate. Knowing that the lack of a standard for their fiat currency would be disastrous in the long term, the central bank schemed, nearly completely successfully, to tie USD to a much more plentiful commodity, oil.

Removal from B/W also allowed other countries to inflate, as well:



We all know what happened soon thereafter.

So, with the entire world signed on to the 'all worldwide oil sales to be USD denominated' scheme, the bankers could move forward. But, the entire world wasn't signed on. Iraq refused to sign on. With the Shah deposed, Iran was no longer under control. At the time, Iran was the 2nd largest oil exporter, and therefore could not be left to cause any wrinkles in the plan.

Enter Saddam, in 1979. With full backing from the bankers (and many of today's neocons, like Rumsfeld), Iraq was pitted against Iran throughout the 80s, while the US froze billions in Iranian assets and imposed sanctions.

Pappy Bush set Saddam up when it was determined that he was no longer of use and the neocons decided that outright invasion and occupation was easier than installing and propping up a dictator.

Kuwait began angle drilling across its border into Iraqi oil, a clearly illegal move. Bush Sr. sent a special envoy to Saddam assuring him that the US would remain hands off if he decided to invade Kuwait to stop the illegal drilling.

Ever wonder why the USAF was able to destroy the entire Iraqi military capability before the Marines could even get there? The Iraqi military was neatly bunched up on a perfectly straight road in the middle of the desert because they feared no reprisal for the invasion.

With Iraq defenseless, Sr. backed off, imposed sanctions, essentially halted Iraq's oil production and began bombing them, all of which lasted throughout the Clinton years.

Jr was able to invade and occupy Iraq with virtually no resistance, knowing full well that there was no military capability at all, let alone WMD. The terrorist/insurgence BS was just to allow an indefinite occupation of one of the 2 wild cards to the plan.

That leaves Iran, which is now accepting other currencies for its oil.

The peak price of oil, reached in 1979 of $40/bbl was not eclipsed until March of 2008, in adjusted dollars. We're in an endless war that's about to be expanded. Real inflation is equal to the 1970s.

The Fed allowed for the biggest military build up in the history of the planet. The debt ceiling has just been raised by $800,000,000,000.00. I wonder where the bulk of that money will go.

In the 1970s, the American taxpayer bore the debt. Today, for the first time ever, foreign central banks hold 52% of the US debt. In fact, last week foreign CBs made the largest ever recorded purchase of US debt. This is how they managed to momentarily prop up the dollar without the Fed having to raise interest rates.

Stability? You've gotta be jokin'.

Bosso

The fed was inflating the entire time during the Bretton Woods system. The US government was faced with an ultimatum. They could let foreign countries take all their gold by exchanging dollars for it or they could just not let them have any gold. If the US were disciplined, they would have not inflated in the first place. All they did was cause a run on the US banking system. I do agree though, since the end of the Bretton Woods system, the gloves have been off. But Bretton Woods didn't stop them from inflating. They were doing it even before Nixon. Nixon just made it worse. He could have readjusted the exchange rate for gold. Unfortunately, people don't fall for the same trick twice. They pulled that trick in 1933 moving it from $20 to $35.

 

[jonahtrainer]

He said he's taken graduate economics but it seems he doesn't even understand monetary theory and the effects of inflation on wages.

But anyway, I was recently thinking about the graphic Zippyjuan posted, and it got me thinking, would it not make sense that inflation rates have been much higher in the past than in the present? Because, if we compare the economy of today with the economy of yester-centuries ago, the current economy is much bigger in size/scope. Both our economic and financial base are huge, and so, it requires much more money in order to have inflation, whereas, with smaller economies it wouldn't require as much. This could probably be thought of and expressed logarithmically. Has this been brought up? Would I be totally wrong in my thinking?

Very important topics. Most posts I have read by Zippyjuan have been pretty good quality.

It is impossible to determine interest or inflation rates without choosing a 'risk-free' allocation of capital and its 'store of capital expense' or 'interest rate'. Some unit of account must be chosen.

In traditional business and finance classes the 'risk-free rate' chosen is usually a T-Bill. However, this is incorrect because T-Bills are subject to both payment and exchange rate risk and 'cash' held at banks is subject to counter-party risk.

Commodities are produced because they add value to society. Oil for fuel, wheat for food, but why is gold produced? The value gold adds to society is in performing mental calculations of value; gold's value is as the 'risk-free' allocation of capital. Gold is the only useful monetary commodity and the best choice for determining a 'risk-free rate' because of the large above-ground stockpiles. Gold is produced to be hoarded; to act as cash. Thus, gold is cash and everything else are portfolio assets. The greater velocity national currencies have because of legal tender laws does not reduce their risk profile. Here is an example of using gold in its intended role.

Just because most money managers use T-Bills as the 'risk-free' rate does not make them the risk-free rate. There is a sucker born every second. In the financial universe, either the sun (gold) revolves around the earth (US$) or the earth revolves around the sun. There can be no compromise; there can be only one 'risk-free' allocation of capital.

Thus the need for central banks to intervene in the gold markets to suppress its price. But why would a cartel who owns a lot of something work to suppress its price? That is very odd market behavior. Why? Because gold poses a mortal threat to their fiat franchises. Their power to create what we use as currency is infinitely more valuable than the price of a portfolio asset. That is why central banks work as a cartel to suppress, not support, the price of gold.

This central bank suppression of the gold price through the dishoarding, leases and derivatives has had the effect of keeping interest rates artificially low. For example, the interest rate on the US$ should be around 40% right now; not 2%.