Economic Storm Clouds Gather, but Ending the Fed Provides Hope

[Zippyjuan]

And nobody mentions the fact that, with sound money, banks and finance companies can loan money for less interest, because the money repaid will be worth about the same as the money loaned years earlier. So the argument is, those guys think wages never change but wages can change. Bank loan interest, on the other hand, never changes and can never change.

Well. This went nowhere.

Would you consider having a metal standard "sound money"? How did interest rates behave when we were on such a standard?

Were prices more stable?

 

[DamianTV]

Setting aside that you don't know me, you don't know my motivations and, well, that's a pretty crappy thing to say. What would lead you to this conclusion?

I don't have any problem with you being here.

Question for you tho. One of the ways that the US has maintained the value of our fiat currency is "to export our inflation" to other countries. Thoughts just on the quoted part there? And no, I dont necessarily agree or disagree with the morality of it either.

 

[acptulsa]

Would you consider having a metal standard "sound money"? How did interest rates behave when we were on such a standard?

Were prices more stable?

We can always count on Zippy to deflect, conflate and confuse the issue.

Dude. I was talking about the rate of interest banks and finance companies charge on loans, and you post a chart of the various rates of interest T bills have paid over time. What has that got to do with anything? Surely you're not going to tell us that the rate banks charge for interest on loans is tied by statute to the rate of interest paid to the holders of bonds.

As for the second graph, I wondered if you were going to post that old standby again. As I have mentioned, oh, about the last thousand times you posted that chart, it does a nice job of demonstrating the problem with fiat currency. Yes, the value of sound money fluctuates. But it fluctuates both directions. It goes both up and down. And in the end, it generally winds up about where it started. A person is born, and learns the value of a dollar. At the end of his life, perhaps a century later, he still knows the value of a dollar because it has evened out, and is about the same. This is demonstrated by the left hand portion of the chart, where we see both blue and green. But after the creation of the Federal Reserve in 1913, and more particularly after Nixon completely decoupled the currency from gold in 1971, where does the green go? Simple. The green evaporates, just like the value of your greenbacks evaporates. The people who print the money always print enough to ensure the value of the money goes down, because they like making money the old fashioned way--printing it--and always print as much as they can get away with printing.

So, as always, that particular chart proves my point. It isn't the fluctuations that steal all your savings and turn your middle class salary into starvation wages. All that bad stuff happens when all the fluctuations go the same way, and the dollar never, ever recovers the value it lost.

Setting aside that you don't know me, you don't know my motivations and, well, that's a pretty crappy thing to say. What would lead you to this conclusion?

We know hard-earned savings have disappeared. And we know nobody can get a raise out of his or her boss every time the value of their salary drops (a daily occurrence). We know this has turned into a type of corporate welfare disguised as citizen welfare--corporations that used to have to pay a living wage to attract labor can now get labor for less than a living wage, as their employees stand in line and jump through government hoops for SNAP benefits and Section 8.

Agreed

And how did we get here? Devaluation of the fiat currency.

Dam, we were doing so well

Going to disagree.

You didn't give me a lot to critique, So I'll respond briefly in hopes that you will expand on how you believe devaluation has lead to the situation as you understand it.

I'd say that debt fears have led to decreases in spending that disproportionately affect the middle and lower classes. Lowering demand relative to potential supply. As we see in this chart below, US capacity utilization has declined steadily:

The middle class has been disappearing, and the working poor have been working themselves into abject poverty, since 1973 or so. Have decreases in investment and spending been the rule that whole time? Hardly. The 1980s and 1990s were spending and investment sprees. So, your theory holds no water.

What has been constant in those four and a half decades is dollar devaluation. And what's more, you have admitted repeatedly that the value of the dollar has a real impact on the wealth of wage earning workers.

No of course not. However, I know that inflation is fairly steady whatever it is so I'm sure to ask for enough money to support my lifestyle. If I feel that my job isn't giving raises to keep pace with inflation, I look for another job.

As far as the money I earn, that's fairly simple. I don't save my money in dollars. Somone Mentioned Treasury Inflation Protected Securities. I split my retirement accounts between safe and highly aggressive assets. I earned 16% last year on my aggressive assets and about 3.8% on my safe investments. Whatever inflation is, I'm certain I beat it.

Bully for you. Will you admit that not everyone is? Do burger flippers have a right to expect that if they do their hot, sweaty job sixty hours a week, they should be able to put a roof over their heads and feed themselves? Well, they could forty-five years ago, and they cannot today. What has happened in the meantime? Hard to tell, with the government--and people like Zippy--cooking up meaningless numbers for us, but the minimum wage has certainly not sextupled the way the price of an entry-level new car has.

Is there no way to ensure stability in wages? Well, if an employer had to go to his employees and ask them to take a cut in pay in the event the dollar fluctuated up in value, that might help. As it is, you may have skills sufficiently in demand that you can get a raise whenever you feel the cost of living has left you behind, but that makes you a minority, not the majority.

So, what skin is it off your nose if burger flippers starve? Since you seem not to believe in taxes, you must not think Section Eight and Food Stamps come out of your paycheck, so the burger places can continue to pay the people who do the work for them less than a living wage and it does you no harm. That makes it so easy to say you shouldn't be expected to negotiate with the bank for a lower interest rate on your loans, and should have the guilty pleasure of repaying that loan with dollars which are worth less than the ones you borrowed...

Why would you want the currency to increase in value?

Let's see if I can give an intuitive example and you tell me where you think I'm wrong.

First, in this hypothetical, let's establish an average salary of $20k (40hr work week)
Let's say $20k also happens to be the average price of a new car (giving us some idea of the value of $20k).

Now let's imagine that you buy a new car and agree to pay for it over 5 years at $333 dollars per month.

Now let's imagine that the year after you buy it, the value of the dollar rises by 25% (extreme I know, but it helps make the effect easier to see).

Is that a good thing?

At first glance, it might seem that way as each dollar you earn is worth 25% more. But why should your employer pay you 25% more? If the value of the dollar were to increase, wouldn't your employer be justified in cutting your pay by the same amount? After all, you wouldn't be earning less in real terms, you'd still be able to buy the same car for the same amount of work.

Your pay is cut by 25% and you now make $15k, still enough to buy the same brand new car (as the cost of the car declined as dollars increased in value), but there's a problem. You paid $20k for the car a year earlier, but now you earn 25% less. Even though your dollars are worth more, you make fewer of them. Your loan of $20k worked out to $333 per month which was 19% of your monthly salary, but now you only make $15k but the loan amount does not adjust, so now your payment is 26% of your salary. You lose and the bank wins. Of course, if you had any idea that dollars would increase in value over the short term, you wouldn't make such a purchase as that would entail too much risk. This would result in decreased demand for items financed with debt and decreased demand results in increased unemployment.

Economics is a visceral subject around here because some of us know and care about burger flippers, and hate to see them bust their asses all day, only to go online and beg the government for enough benefits to live in the evening. There's no pride of self-sufficiency in it, though some of us are old enough to remember when a burger flipper could enjoy that luxury. And there's certainly no future in it, especially with Social Security threatening to collapse. What has McDonald's stockholders done that they deserve this kind of corporate welfare, or that they deserve to profit on the very destruction of the people who work for the money the stockholders pocket?

You say I don't know you. I say you, like millions of others, know not what you do to people. So the question then becomes, do you want your study of economics to remain a dry, amusing study of a game with anonymous winners and losers you can laugh at, or would you like to see the real results of this casino gambling that all of us are forced to play? Because people are getting screwed, and I still maintain that the Incredible Shrinking Dollar is the dildo which is screwing people.

Do you want to pave yourself a road to hell with your good intentions?

This republic does not need more people blathering about economics. This republic needs more people of conscience discussing economics in a clear-eyed, responsible, compassionate manner. You have the brains to rise to that challenge. Do you have the sense of responsibility, the compassion, and the clear eyes?

Visualizing The Collapse Of The Middle Class In 20 Major U.S. Cities
http://www.zerohedge.com/news/2017-04-22/visualizing-collapse-middle-class-20-major-us-cities

No, they didn't teach you that in college. They taught you that fiat is necessary to prevent recessions which happen anyway, or soften the effect of recessions that run deeper and last longer than they ever did during the run of the gold standard. So, how long are you going to keep believing the tripe they fed you?

Serious question, dude.

 

[DamianTV]

...

No, they didn't teach you that in college. They taught you that fiat is necessary to prevent recessions which happen anyway, or soften the effect of recessions that run deeper and last longer than they ever did during the run of the gold standard. So, how long are you going to keep believing the tripe they fed you?

Serious question, dude.

I dont blindly accept or reject any of it. Thing is, we need minds like yours to call out the inherit problems in the system that we all have the potential to miss. Its why I post, I try to defer to your better judgement to challenge such ideas. Other parts I omitted in abbreviating your quote (with the ...) do address this, such as the overall long term negative effects that it has on the burger flippers. I know enough that ANYTHING from the MSM to be utterly deceptive twaddlespeak, but, the "alt media" can have just as many things that are wrong also.

Mostly, lack of data on my part, data that I think you have, so Im honored to have the ideas I put up challenged by the data you have. Believe me, it HELPS. Not just for me, but for other people that read your posts also.

 

[Zippyjuan]

We can always count on Zippy to deflect, conflate and confuse the issue.

Dude. I was talking about the rate of interest banks and finance companies charge on loans, and you post a chart of the various rates of interest T bills have paid over time. What has that got to do with anything? Surely you're not going to tell us that the rate banks charge for interest on loans is tied by statute to the rate of interest paid to the holders of bonds.

Mortgage rates tend to closely follow ten year Treasury notes. Things like auto loans tend to follow the rates on three year Treasuries. It is a good guide to what banks were charging.

https://finance.zacks.com/treasury-yields-affect-mortgage-interest-rates-2835.html

Basics

There is a strong correlation between mortgage interest rates and Treasury yields, according to a plot of 30-year conventional mortgages and 10-year Treasury yields using Federal Reserve Economic Data. Mortgage interest rates are higher than Treasury yields because mortgages are riskier than Treasury bonds. The risk is that some homeowners get into financial difficulty and default on their mortgage obligations. The difference, or spread, between Treasury yields and mortgages interest rates is the risk premium.

More at link.

No, they didn't teach you that in college. They taught you that fiat is necessary to prevent recessions which happen anyway, or soften the effect of recessions that run deeper and last longer than they ever did during the run of the gold standard. So, how long are you going to keep believing the tripe they fed you?

Nothing can prevent recessions.

recessions that run deeper and last longer than they ever did during the run of the gold standard

Have they been deeper and longer?

 

[acptulsa]

Mortgage rates tend to closely follow ten year Treasury notes. Things like auto loans tend to follow the rates on three year Treasuries. It is a good guide to what banks were charging.

https://finance.zacks.com/treasury-yields-affect-mortgage-interest-rates-2835.html



More at link.



Nothing can prevent recessions.



Have they been deeper and longer?

One, I didn't say anything could prevent recessions. I said that was one of the several false selling points used to sell the Federal Reserve to the American public.

Two, I can not believe you had the chutzpah to stick a chart in our faces that claims that there was no recession or depression in 1934, 1935 and 1936. Or 1938 and 1939 for that matter. Not to mention 1919, most of 1958, 1975 through 1979, 1987, or any of the time TARP bailouts were being handed out. That's not merely comedic. That's insane.

Somebody's using an awfully narrow definition of "recession". Is "unless it occurred in the twentieth or twenty-first centuries" part of that definition?

 

[Zippyjuan]

One, I didn't say anything could prevent recessions. I said that was one of the several false selling points used to sell the Federal Reserve to the American public.

Two, I can not believe you had the chutzpah to stick a chart in our faces that claims that there was no recession or depression in 1934, 1935 and 1936. Or 1938 and 1939 for that matter. Not to mention 1919, most of 1958, 1975 through 1979, 1987, or any of the time TARP bailouts were being handed out. That's not merely comedic. That's insane.

Somebody's using an awfully narrow definition of "recession". Is "unless it occurred in the twentieth or twenty-first centuries" part of that definition?

TARP bailouts would be part of the 2007 recession.

What was this recession in 1987 or 1975 though 1979?

1958 recession started in 1957 (August)- that is on the list.
1938- that one started in May 1937. On the list.
1919 recession began in 1918 (also August)- listed.

List of recessions in the US: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

Source for the chart posted: http://avondaleam.com/average-duration-economic-recession/

Somebody's using an awfully narrow definition of "recession". Is "unless it occurred in the twentieth or twenty-first centuries" part of that definition?

You missed the ones also listed in the 19th Century on the chart which goes back to 1857.

 

[acptulsa]

TARP bailouts would be part of the 2007 recession.

If it only lasted 18 months, why were they still shelling out bailouts in 2012? Were we ripped off?

What was this recession in 1987...

You tell me. A stock market crash of historic proportions that happened in a vacuum, with no recession attached?

...or 1975 though 1979?

Are you trying to tell us you never heard of stagflation? Are WIN buttons something your history teacher overlooked? If so, why are you here professing to be a fount of economic information?

1938- that one started in May 1937.

So 1939 was a year of prosperity and growth? And what about the first period I asked you about--1934-1936?

1958 recession started in 1957 (August)- that is on the list.

None of the people I know who were there considered it to be over by spring.

1919 recession began in 1918 (also August)- listed.

And lasted well into 1921. It was blamed on the end of the war, but it had more to do with Wilsonian socialism, including the disastrous nationalization of the railroads. It was continuous. They have fun dividing these recessions after the creation of the Fed into two or more recessions. I don't see them doing the same for the recessions in the nineteenth century. Is that the trick? The Fed changes something they use as an "indicator" of recessions, and this allows them to divide one long recession into two or three short recessions? Cute trick.

Sounds like somebody's creating "recoveries" that aren't quite taking hold. Seems to argue my point for me--that allowing a proper, natural recovery to happen works better.

List of recessions in the US: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

Shall I change the edits you just made to that page? Or was that some other member of the Fed Propaganda Team? If I did straighten it out, how long would the Team let those improvements stand?

It's bullshit, Zippy. You're shoveling bullshit.

 

[Zippyjuan]

If it only lasted 18 months, why were they still shelling out bailouts in 2012? Were we ripped off?

What bailouts were going on in 2012? TARP ended in 2010.

Shall I change the edits you just made to that page? Or was that some other member of the Fed Propaganda Team? If I did straighten it out, how long would the Team let those improvements stand?

So now I am a Wikipedia editor. Edits to the page:
https://en.wikipedia.org/w/index.php?title=List_of_recessions_in_the_United_States&action=history

Are you trying to tell us you never heard of stagflation? Are WIN buttons something your history teacher overlooked? If so, why are you here professing to be a fount of economic information?

"Stagflation" was slow economic growth accompanied by high inflation. A recession is two consecutive quarters of declining GDP.

 

[acptulsa]

What bailouts were going on in 2012?

Back to wikipedia for you, Zippy.

And high inflation disguises recessions as economic growth, Zippy. The economy doesn't grow, but the dollar devalues, so the numbers do grow. Which sounds like the very trick the chartmaking propagandists used to divide one long recession into two or three short ones--and to make some seriously painful recessions disappear from the history books altogether.

 

[Zippyjuan]

Back to wikipedia for you, Zippy.

TARP ended in 2010. What bailouts were going on in 2012?

https://www.thebalance.com/tarp-bailout-program-3305895

Definition: The Troubled Asset Relief Program was a $700 billion bank bailout. On October 3, 2008, Congress authorized it through the Emergency Economic Stabilization Act of 2008. It allowed the U.S. Department of the Treasury to infuse cash into the nation's banks to keep them operating. Congress approved $350 billion for use in 2008. President Obama chose to not use the remaining $350 billion. TARP expired on October 3, 2010.

 

[acptulsa]

TARP ended in 2010. What bailouts were going on in 2012?

https://www.thebalance.com/tarp-bailout-program-3305895

I'm sorry, did I say 2012? Silly me. Disbursements were still going out in 2014.

https://www.cbo.gov/publication/45260

Or do you consider the Congressional Budget Office an unreliable source?

Bullshit artist.

 

[Zippyjuan]

I'm sorry, did I say 2012? Silly me. Disbursements were still going out in 2014.

https://www.cbo.gov/publication/45260

Or do you consider the Congressional Budget Office an unreliable source?

Bull$#@! artist.

According to that report (PDF: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45260-tarp.pdf )what was still going on (since ended) is some money being used for mortgage adjustments- the Home Affordable Modification Program (HAMP), which was established to provide direct payments to mortgage servicers to allow them to modify mortgages so as to help homeowners avoid foreclosure. All the bailout programs had zero dollars spend in 2014 according to that pdf.

 

[Occam's Banana]

Nothing can prevent recessions.

One, I didn't say anything could prevent recessions [...]

You didn't - but glossing over (or simply ignoring) such niceties is part of Zippy's modus operandi.

And not only can nothing prevent recessions, but their prevention shouldn't even be attempted in the first place.

Such attempts will only serve to deepen, lengthen and otherwise exacerbate them (e.g., compare 1920-21 vs. 1929-39).

Recessions are unpleasant but necessary purgatives. They flush out of the system the built-up toxins of malinvestment, which are most often (perhaps always?) the result of artificial expansions of credit. Stimulating further such expansions in response to recession is a "hair of the dog" that will only make things worse by feeding the original infection. (e.g., the transition from bad "dot com" bubble to worse "housing" bubble).

IOW: Recessions are the cure, not the disease. But this is not, in their hubris, what politicians (or wanna-be social "engineers" armed with some theory or other) wish to hear ...

 

[NorthCarolinaLiberty]

[h=1]Japan’s Prisons Are a Haven for Elderly Women[/h]

Lonely seniors are shoplifting in search of the community and stability of jail.

https://www.bloomberg.com/news/features/2018-03-16/japan-s-prisons-are-a-haven-for-elderly-women​

Them Japs always been wacky!

 

[econ4every1]

I don't have any problem with you being here.

Question for you tho. One of the ways that the US has maintained the value of our fiat currency is "to export our inflation" to other countries. Thoughts just on the quoted part there? And no, I dont necessarily agree or disagree with the morality of it either.

I've read several of your posts and while there have been ideas I disagree with, I applaud your demeanor. You seem sincere and willing to listening new ideas knowing that when you entertain an idea, even ideas that you might disagree with, this is not the same as acceptance of an idea.

Moving on.

That is an interesting and thought-provoking question.

First, let's address the issue of inflation. Austrians tend to view the currency from a fixed perspective as opposed to a floating perspective. The policy prescriptions and descriptions Austrians offer are true if a currency is fixed. Thus the discussions about inflation and the cause and effects that occur are true depending on how you view the currency.

However, the currency isn't fixed and this matters with respect to your question.

That's not to say that there is no inflation or that dollars aren't held by foreign interests devalue over time, but given the reasonably predictable nature of inflation over the last 30 years, if a foreign business agrees to take US dollars in trade, it also knows how many of those dollars it will save over a given period and can estimate losses due to inflation. Those costs are factored in and included in the final cost of products sold here in the US. That is, if a business, using their own estimates, determines that they predict a 2% loss in the value of the dollars they hold, they can add 2% back into their prices. Less value per dollar earned, but earn more of them.

At the end of the day, it really doesn't matter the arbitrary number of currency units we assign to the value of a good or service IF the currency can be created without any real cost (as is the case with a floating fiat currency). What matters is the time/ effort it takes to acquire enough units to pay for expenses and make a profit. That is to say, that the value of a transaction is measured against prices which can adjust just as easily as the number of units of currency.

In conclusion, the answer is no, I don't think the US exports inflation in order to maintain the value of the currency. However, I eagerly await your argument, as I assume that disagree.

One more unrelated thought. I want to make it clear that I'm not arguing that I believe that currencies should or should not be fixed (at least in the arguments I've had so far). That's not to say I don't have an opinion. I just think that most Austrians fail to understand the implications of a floating fiat currency vs. a fixed currency and as a result, they draw improper conclusions about floating currencies. The best example I can think of is the implication of interest rates. Most Austrians believe that the government manipulates rates downward and that this skews information and misallocates fiscal resources. This is false, the truth is exactly the opposite, in a fiat system, the "natural rate of interest" is zero and in order to get the rate above zero the government must manipulate the currency. Again, that's not to pass judgment on fixed vs. floating currencies, but just to point out that most Austrian's I've run into don't understand this and draw erroneous conclusions as a result, even IF, at the end of the day, Austrians are right and fixed systems are better than floating systems.

Respectfully,

E4E1

 

[econ4every1]

Back to wikipedia for you, Zippy.

And high inflation disguises recessions as economic growth, Zippy. The economy doesn't grow, but the dollar devalues, so the numbers do grow. Which sounds like the very trick the chartmaking propagandists used to divide one long recession into two or three short ones--and to make some seriously painful recessions disappear from the history books altogether.

You realize that Real GDP accounts for inflation?

So no, you are entirely incorrect, gains in GDP aren't simply because of increases in inflation.

 

[econ4every1]

Back to wikipedia for you, Zippy.

While I admit that Wikipedia isn't always a perfect resource, did you consult the references given for the statistics given at the bottom of the page before accusing Zippy of manipulating data on Wikipedia?

Maybe this will help?

National Bureau of Economic Research.

 

[NorthCarolinaLiberty]

I've read several of your posts and while there have been ideas I disagree with, I applaud your demeanor. You seem sincere and willing to listening new ideas knowing that when you entertain an idea, even ideas that you might disagree with, this is not the same as acceptance of an idea.

Moving on.

That is an interesting and thought-provoking question.

First, let's address the issue of inflation.

Excuse me, professor; can I use the bathroom before you start your lecture?

 

[DamianTV]

I've read several of your posts and while there have been ideas I disagree with, I applaud your demeanor. You seem sincere and willing to listening new ideas knowing that when you entertain an idea, even ideas that you might disagree with, this is not the same as acceptance of an idea.

...

Respectfully,

E4E1

I dont think it does any good to be mathematically correct about anything if I am a dick about it. It is one of the things that can make Freedom unpopular.

Your idea makes decent sense. Also, it is appreciated that you are also saying you dont have any bias for or against, its just an idea to be debated.