Fed says U.S. economy strong enough to handle rate hike

[helmuth_hubener]

This is simply false.

Thank you for giving me the opportunity to clear this up, John. No, it really, really isn't. Read the methodological papers. Read the foundational texts of Austrian economics. The Austrian methodological view is a fundamental -- one could say the fundamental -- difference between the Austrian school and the Chicago School, and to a greater or lesser extent all the other schools of economics. The Austrian School holds that due to the nature of human action, the empirical testing and induction model which has been so wildly successful in physics and chemistry is absolutely not appropriate for the study of economics. Austrian economics treats economics as a discipline more akin to mathematics. You cannot disprove Austrian economics via statistical, historical, nor any other empirical method, just as you cannot disprove the Pythagorean Theorem by carefully measuring hundreds of triangles. You just cannot. It's not addressable in that way. It is a science of deduction and logic, not controlled experimentation.

The predictions and bets that Bob Murphy has made are apart from and outside of his academic work. Nothing in the school of economics he is a part of would justify a belief that we should think his predictions are any more likely to come true than anyone else's, nor that he should be more likely to win bets than to lose them.

Now, let me give you my own original thoughts which may or may not accord with mainline, pure Austrianism. Real-life empirical events that seem to contradict deductively-derived tenets may bring to one's attention the possibility that one's logic may have been flawed somewhere. If you have deduced through seemingly-airtight reasoning that men have more teeth than women, but an examination of hundreds of actual autopsies seems to show that actually the sexes have the same number, that is an alert, a red flag, showing further examination is needed. Your logic may have skipped a step. You need to check your deductions, check each step of your proof. And of course, don't forget to "check your premises" as well! Alternatively, it is possible that the disproving evidence is not actually disproving the tenet. Perhaps the data is bad, or perhaps it has been interpreted incorrectly, or perhaps there are other factors not being taken into account (an especially big risk in economic matters, where a true control is not possible, true reproducibility is not possible, and where the phenomenon being examined is astoundingly complex). And so you need to also carefully check and examine the empirical observations seeming to disprove the economic tenet.

This all is to say that empirical observation can be extremely valuable in correcting otherwise difficult-to-see errors in one's logic. So, it is useful to keep in touch with reality and practical outcomes in addition to our logical reasoning. Logic is logic, no one can deny the value of carefully-done logical work. But I believe that it should be coupled with practical attempts to implement in real life those theories that logic creates. That is, I believe we should work like Archimedes and not like Aristotle.

I agree that Austrian Economics is largely useless in telling you anything about the real world.....but I imagine actual austrians will disagree.

Yes, Austrians would disagree. Austrianism, like mathematics, can shed a wealth of light upon the world. But, it cannot tell you whether the Dow will go up or down next year, just as mathematics cannot tell you the angles of a random arbitrary triangle you come across in your travels. For that, you need a protractor.

 

[timosman]

Fed should be truly innovative, push the boundaries of how low interest rates can go.

-10% perhaps? It would be great for the economy.

Yeah, crank up the treadmill for the slaves even more. Let's see how many can keep up.

 

[Bossobass]

It doesn't matter what the Fed funds rate is when the need for venture capital outstrips supply by a wide margin. Large banks are the typical source and they have withheld those funds since the crash. Same story with mortgages and consumer credit.

The economy hasn't boomed because the government is vacuuming trillions and banks simply are not lending otherwise.

To put it another way, would you lend money fixed for the next 30 years at a rate of less than 5%? Mortgage rates might still be well above the rates on mortgage bonds, but on an absolute basis, they’re still incredibly low. If you hold the loan to maturity, you’re never going to make very much money, and if you mark it to market, you run the risk of substantial losses if interest rates move back up to more historically-normal levels.

On top of that, the mortgage business is consolidating even more than the banking business more generally, with Wells Fargo being the big whale. It has the scale and the financial technology to manage all the risks and the regulations, as well as a big enough balance sheet that it can easily cope with being forced to repurchase loans it is currently selling. Most smaller banks have essentially zero competitive advantage over Wells, and it can make a lot of sense for them to get out of the game entirely...

It truly astounds me that if the Fed announces the end of QE guys like Zippy parrot it as though anything those criminals say is true.

The back door QE continues apace. The corporate stock repurchase scam continues. The stupid-low rates benefit CB buddies and owners. The economic numbers continue to be jerked off while the average entrepreneur is told to use his CC at 15% to satisfy his capital needs.

The numbers never lie. The Fed only ever lies.

 

[John X]

The predictions and bets that Bob Murphy has made are apart from and outside of his academic work. Nothing in the school of economics he is a part of would justify a belief that we should think his predictions are any more likely to come true than anyone else's, nor that he should be more likely to win bets than to lose them.

That's not relevant to my claim. I was saying austrians make all sorts of wrong predictions. You are free to think they were being bad austrians by making them in the first place, but that doesn't make my claim false.

Yes, Austrians would disagree. Austrianism, like mathematics, can shed a wealth of light upon the world. But, it cannot tell you whether the Dow will go up or down next year, just as mathematics cannot tell you the angles of a random arbitrary triangle you come across in your travels. For that, you need a protractor.

I think intelligent design is a far better comparison than math.

 

[John X]

The back door QE continues apace.

What is back door QE?

 

[helmuth_hubener]

That's not relevant to my claim.

Your claim, to be clear, was that my earlier claim was false. Let's review:

This is simply false.

That was the claim to which I was responding. See my last post. The original claim that you think, and presumably still think, is false, is this:

"Austrian Economics is not a predictive empirical science."

But actually, that statement is true. Again, please read the literature. Please gain at least a cursory understanding of what Austrian Economics is. There is absolutely no question in the minds of anyone who knows anything about the topic that the above bolded statement is true. Once you know anything about the topic, you too will have no question in your mind that it is true.

Austrian economists definitely have made predictions. If I had said they hadn't, that would be false. They do. Just as we all do. They do this in their roles as entreprenuers, heads of households, speculators, playful bet-makers, perhaps some even have side-jobs as carnival fortunetellers. Even as authors, they must predict what topic people will buy a book on, or what journal article people will read, should they write it. But, as economists qua economists, they do not. That is, acting as economists, with that hat on, they do not. The Austrian methodology and philosophy precludes that.

I think you just misunderstood me and thought I had said they don't make predictions at all. No worries, a simple misunderstanding.

 

[Bossobass]

What is back door QE?

Currency swaps (Central Bank Liquidity Swap Lines) with other nations gives them the dollars needed to purchase US Treasuries = QE infinity.

Russia, China and OPEC, despite record dollar trade surpluses, have become net sellers of UST. Conversely, the nations open to FED liquidity swap lines, who respectively have little or no dollar trade surpluses, have purchased unprecedented billions in UST.

Have dollars been loaned to these countries for other purposes? Guess we'll never know, unless Zippy can tell us.

 

[Zippyjuan]

When was the last currency swap? (it was in 2011). What do currency swaps do? http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm

Russia, China and OPEC, despite record dollar trade surpluses, have become net sellers of UST. Conversely, the nations open to FED liquidity swap lines, who respectively have little or no dollar trade surpluses, have purchased unprecedented billions in UST.

China has exactly the same number of US Treasuries they had a year ago. True Russia has been selling some of theirs- they are trying to keep up the value of the ruble after sanctions were imposed on them. Oil exporting countries have $40 billion MORE than a year ago. Russia only has about $66 billion in Treasuries. http://www.treasury.gov/ticdata/Publish/mfh.txt

 

[John X]

I think you just misunderstood me and thought I had said they don't make predictions at all. No worries, a simple misunderstanding.

You said " So while the Austrian economists as economists were not making that particular prediction in 2008, neither were they making any other." That is what I am claiming is simply false.

 

[helmuth_hubener]

You said " So while the Austrian economists as economists were not making that particular prediction in 2008, neither were they making any other." That is what I am claiming is simply false.

"as economists"

Austrian economists as economists. Get it? I do understand that what I meant by this phrase might not be perfectly clear, and so I further elaborated and explained:

"The predictions and bets [really just one bet] that Bob Murphy has made are apart from and outside of his academic work. Nothing in the school of economics he is a part of would justify a belief that we should think his predictions are any more likely to come true than anyone else's, nor that he should be more likely to win bets than to lose them."

To my clarification you replied:

"That's not relevant".

But it is relevant! It is very, very relevant! It is the difference between my statement being true and being false!

I then further clarified:

"Austrian economists definitely have made predictions. If I had said they hadn't, that would be false."

But, you see, that's not what I said and not what I think. They have made predictions. They just didn't make them as economists. They didn't say "based on the Austrian understanding of economics, here is what must happen next year, as logically derived from the Action Axiom." What they did was make predictions that were not fundamentally rooted in their school of economics, predictions that cannot actually be backed up by Austrian economics. The fact that such predictions failed thus does not disprove, nor touch in any way, the school of thought called Austrian economics.

We all make predictions about the future. But, as economists qua economists, they do not. That is, acting as economists, with that hat on, they do not. The Austrian methodology and philosophy precludes that.

On Bob Murphy in particular, I will just leave you with Occam Banana's words:

As far as I know, the only particular "prediction" Bob Murphy made with respect to inflation and QE was the bet he made with another economist about what the official CPI number would be at a particular date. His prediction was wrong - and he owned it so and ponied up on his bet. Your claims to the contrary notwithstanding, Bob Murphy does NOT run around predicting "hyperinflation year after year." (I cannot speak regarding Schiff one way or the other, as I do not follow him - but Schiff is not an Austrian economist so much as he is a "fellow traveler." Assigning criticism to Austrian economic theory on the basis of whatever predictions Schiff or other "Austrian-style" or "gold bug" businessmen, investment advisors and "market watchers" happen to make is inapt and misguided.)

Furthermore, Murphy's specific prediction in that one particular case was NOT based on Austrian economics per se. Murphy did not ever say that "Austrian economic theory tells us that inflation will be this or that particular value at this or that particular point in time." (In fact, Austrian economists explicitly reject the idea that that sort of "prediction" is even possible to begin with.) Murphy's prediction was informed by Austrian economics, but it was not derived from Austrian economics. It was derived from psychology (in the light of Austrian economics). That is, it was based on Murphy's personal expectations about how investors and others would react to QE - but he failed to anticpate that banks would hold on to as much QE-created reserves as they did. And that is exactly the sort of thing that makes consistent and reliable economic predictions of that sort and specificity so impossibly fraught to begin with. (Being familiar with Murphy's work and style, I very seriously doubt that it's a mistake he'll ever make again.)

I hope that clears this up and we can leave combat mode now. Because what I think you really are saying is something like this:

Austrian economics doesn't seem to be very useful in real life. It doesn't seem to tell us anything practical about reality, because I look at the "Austrian" investment advisors with all their vaunted Austrian wisdom and you know what I see? I see them either losing their clients money or not making them as much money as other advisors. So what good is it?

Is that about it? That's where your "intelligent design" comment, for example, comes in. Saying "God created the world" isn't probably going to help the paleontologist know where to productively dig.

And I can see your point. I definitely, definitely do. If you had followed Peter Schiff's advice in 2008 -- his moment of shining glory, supposedly -- you probably would have lost money, and a lot of it. If you had invested according to Doug Casey's Crisis Investing: Opportunities and Profits in the Coming Great Depression, you probably would have lost money, and a lot of it. I think that we should learn something from the failures of these gurus. But I do not, myself, think that the lesson is necessarily to reject the economic ideas that they loosely base their fortune-telling on. Those ideas may actually be sound and the gurus have just failed to completely or correctly understand and apply them. And that is, indeed, exactly what I think has happened here.

The one Austrian-influenced investment advisor under which you would have made money, and a lot of it, was Harry Browne. And the lesson that Harry took from Austrianism, the great insight he thought it provided, was that: "ya just don't know". You just don't the future. Human action is unpredictable. And so in investing, you should take an extremely humble stance, the stance that you do not know what the future holds. And so you diversify, to be ready for whatever stage the economy may go into.

Bottom line: Austrian economics can tell us a lot about the real world. Austrian-influenced investing (or in other words, simply "correct economics"-influenced investing) can be highly successful in the real world. But, just as any other science, it must be applied correctly to have the desired effects. Empirical experimental inductive biology has been around for centuries, in a big way since at least the 1600s, and yet, that doesn't mean that all doctors during that time period (up to the present) were (and are) employing techniques that actually benefited their patients. That doesn't discredit biology.

It just means you need a smarter doctor.

 

[Bossobass]

When was the last currency swap? (it was in 2011). What do currency swaps do? http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm



China has exactly the same number of US Treasuries they had a year ago. True Russia has been selling some of theirs- they are trying to keep up the value of the ruble after sanctions were imposed on them. Oil exporting countries have $40 billion MORE than a year ago. Russia only has about $66 billion in Treasuries. http://www.treasury.gov/ticdata/Publish/mfh.txt

Get with the 21st century, Zip.

In October 2013, the Federal Reserve and the partner central banks announced that their existing "temporary" liquidity swap arrangements--including the dollar liquidity swap lines--would be converted to standing arrangements that will remain in place until further notice. Interesting that something not in use would be converted to permanent status?!?

 

[John X]

They have made predictions. They just didn't make them as economists.

I disagree that he didn't make the predictions as an economist. You yourself said that Hayek and Mises predicted that "eventually, there would be inevitable repercussions"....I guess you'll again say that they weren't making that prediction as economists whatever that means.

 

[Zippyjuan]

Get with the 21st century, Zip.

No link but what you quoted says that the arrangements between countries they have swapped with in the past were changed- it does not say that any swaps were performed in 2013.

Seems to be from this blog http://econimica.blogspot.com/2015/05/the-feds-backdoor-qe-central-bank.html which is speculating on what he thinks is happening. Even his headline is followed by a question mark meaning he does not know.

The author notes in the "Comments" section that:

Obviously, the Fed states the swaps aren't being utilized.... .but how the dollars in such large quantities are ending up in these select financial capitals and being used for Treasury purchases is truly a "mystery". Whether slight of hand accounting or like schemes with these nations, I don't know. But buying by these select foreigners in locations with no dollar sources for the purchases continues (and these dollar amounts are so large that they are not Russian oligarchs or the like).

 

[Bossobass]

No link but what you quoted says that the arrangements between countries they have swapped with in the past were changed- it does not say that any swaps were performed in 2013.

Seems to be from this blog http://econimica.blogspot.com/2015/05/the-feds-backdoor-qe-central-bank.html which is speculating on what he thinks is happening. Even his headline is followed by a question mark meaning he does not know.

The author notes in the "Comments" section that:

Honestly Zip, what the fuck do you know about the arrangements the FED is engaged in, or was engaged in or will be engaged in? If you prefer to wait for the crumbs of bullshit that fall off the FED's table, years after the fact, we're all happy for you, but to expect us to get in that line behind you, despite the overwhelming evidence accumulated over a century, is a bit too much. Are you serially dense or what? Easy to see why you're continually accused of being a FED paid forum troll, no?

 

[helmuth_hubener]

I disagree that he didn't make the predictions as an economist. You yourself said that Hayek and Mises predicted that "eventually, there would be inevitable repercussions"....I guess you'll again say that they weren't making that prediction as economists whatever that means.

Nah, those predictions they made as economists, and guess what: they were right! Great Depression shows right up, sure enough.

Thing is, they would have been right anyway, because
a) "eventually" is a long time, and
b) one repercussion can be mitigated or even cancelled out by other factors, such that even though it happened you don't necessarily see it clearly.

In economics, there's always 28,000 things going on at once. It's a complex world.

 

[PRB]

When was the last time the Fed was right about anything? #checkmate

 

[John X]

Nah, those predictions they made as economists, and guess what: they were right! Great Depression shows right up, sure enough.

Ok....so now you are saying austrians can make predictions as economists. I agree.

Thing is, they would have been right anyway, because
a) "eventually" is a long time, and
b) one repercussion can be mitigated or even cancelled out by other factors, such that even though it happened you don't necessarily see it clearly.

Right....when austrians make a prediction it might happen or it might not and you have to wait forever for them to admit they were wrong.

 

[helmuth_hubener]

Ok....so now you are saying austrians can make predictions as economists. I agree.

Certain types, yep. Certain types that are highly vague and thus not as useful nor as actionable as you'd hope for a prediction to be, as an investor.

Right....when austrians make a prediction it might happen or it might not and you have to wait forever for them to admit they were wrong.

Pretty much! Just like everybody else! Rothbard's Law, you know. Nobody ever admits he was wrong. Certainly no economists do, and even fewer investment gurus. The sooner you realize that, the safer your money will be, in my opinion. Just expand your skepticism of the usefulness of Austrian economics as a basis for your investment decisions to all other schools of economics as well. Believe me, they're wrong just as often as the Austrians.

 

[LibForestPaul]

it was causing higher inflation than otherwise -- a lack of price deflation in this case

Fed, preventing price deflation at your peril. thx Fed.

 

[Ronin Truth]

What % is strong enough? What % is not? "Who cares about the ones that are not?", says the Fed.


Dear Fed,

DROP DEAD!!!


"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton