How Inflation Confiscates Wealth

[Paulie]

Here's why it's inflationary:

The monetary base never dropped when the collapse came. The same amount of lendable money was in existence. So when the Fed utilized purchase programs that were not sterilized, which started in September of 2008 when they stopped selling treasuries from their portfolio to offset the purchases of MBS, this was considered inflationary as it now increased the amount of lendable money.

This is what the Fed does...it lowers interest rates to spur borrowing and lending, and does so by increasing the amount of lendable money.

 

[TakeAStepBack]

All of those things had very little to do with the "boom". You'd have more of a case if you pointed to Glass-Steagall being revoked and Bush dropping interest rates to zero.

The business cycle has been happening predictably for the last 100 years. Regulatory measures goes right back into Bastiat's seen and unseen. There are always unseen consequences when govt.s, central banks, regulatory measures/subsidies interfere with the market. The repeal of portions of Glass-Steagull did not cause the boom, or the bust in 2008. Artifically low interest rates and govt. programs to make housing affordable to "anyone", did.

Except that's not what happened..well not completely. You are right about the interest rates. You aren't about the "government programs". Financial firms started backing loans and this led to predatory lenders which often lied about a borrowers ability to pay back those loans.

The rates were artificially low. this signaled lenders that credit was available where it was really not. The fed was backing loans as well. This created the moral hazard of lending to people who could not afford what they were signing up for shoudl the rates move, which is why many of the mortgages were variable interest rates rather than fixed. Once the big lenders saw the interest rates start shifting, it became painfully obvious the market was toxic. This led to the swaps and derivatives packaging that took place in order to hedge bets on losses. The federal reserve is the absolute foundation for the business cycle and created the bust of 2008 in real estate. With a little help from their friends (the govt.).

Some argue that the CRA of 1977 was also in the boiler room on creating the climate for such intense moral hazard and malinvewstment.

And so we’ve called upon Congress to set up what’s called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there’s a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.

Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. You may – we may have qualified home buyers, but if there’s no home to buy, this initiative isn’t going anywhere. And so one of the things that we’re going to – that I’m doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.)

G. W. Bush

 

[Paulie]

The inverse can be said for the Fed if they were to sell MBS or treasuries in the event that lending increased pace and prices climbed out of control, this would be considered deflationary, as it now decreases the amount of lendable money.

 

[eflatminor]

In a free market, low interest rates would indicate adequate savings, which would spur capital investment. However, the Fed discourages savings and the credit they create out of nothing serves as the signal for investors to spend and borrow...excessively so! IMO, this is the major driving force that leads to economic booms, creating a bubble. The inevitable recession/depression is a predictable result of excessive credit and artificially low interest rates. The Fed's meddling has, of course, occurred under Presidents and Congresses lead by both parties.

 

[TakeAStepBack]

Exactly. The pay to play corp. and govt. relationship that totally destroys competition in a given industry/sector. We see this perversion of the markets in almost every single sector of our economy. It's called corporatism, or perhaps just as accurate, fascism.

I heard someone say that "the greatest threat to capitalism are the capitalists, themselves", and I think this holds a lot of truth.

Why deal with a free market when you can pay the government to manipulate it and tip the scales in your favor?

This is one of the reasons why I think we don’t really have a “small government” party, or why the small gov’t party really doesn’t do anything to shrink the size and power of government when they are in office (take Bush W., for example, and his 8 years of government expansion).

As long as we have this system where candidates have to raise millions each election cycle, and the corporations and powerful business interests are the ones providing a bulk of the dough, we’ll never see a reduction in the regulatory power of government.

NEVER.

I hope most people who vote Republican wishing for small government realize this.

The businesses that truly want and will benefit from less regulation are the small and the medium sized business, but unfortunately they have a very tiny say in the matter.

Public campaign finance is not going to stop legislators from being paid to legislate in favor of the interest seeking such, whether subsidies or regulations. This will simply occur in other ways. The only true way to stop it is to remove govt. from business and keep them checked in their rightful role of upholding the constitutional laws, and better definign them as technology advances.

 

[Truthmatters]

incouraging savings discourages spending.


Your corporate masters dont want you to save because it harms their bottom line

 

[TakeAStepBack]

In a free market, low interest rates would indicate adequate savings, which would spur capital investment. However, the Fed discourages savings and the credit they create out of nothing serves as the signal for investors to spend and borrow...excessively so! IMO, this is the major driving force that leads to economic booms, creating a bubble. The inevitable recession/depression is a predictable result of excessive credit and artificially low interest rates. The Fed's meddling has, of course, occurred under Presidents and Congresses lead by both parties.

And until people realize that this is the absolute root of the business cycle, which brings so many of the unsavory effects, like malinvestment (among many others, like trillions in debt), we will continue this race to the bottom. The question isn't whether we will hit the bottom, the question is WHEN.

 

[Paulie]

In a free market, low interest rates would indicate adequate savings, which would spur capital investment. However, the Fed discourages savings and the credit they create out of nothing serves as the signal for investors to spend and borrow...excessively so! IMO, this is the major driving force that leads to economic booms, creating a bubble. The inevitable recession/depression is a predictable result of excessive credit and artificially low interest rates. The Fed's meddling has, of course, occurred under Presidents and Congresses lead by both parties.

This would all be well and good if the Fed was capable and competent in exiting from their inflationary programs in a timely and efficient enough manner that too much money didn't start chasing assets.

But they don't. They never do. And when we look at how much money in assets they're currently sitting on and have to exit from (2 trillion or so), is it any wonder that inflation hawks are worried?

This is an unprecedented situation the Fed is faced with, and we've got mainstream economists trying to tell us there's nothing to worry about.

The fact is no one really has a clue, because no one's ever seen anything of this magnitude before.

 

[Paulie]

At least the Austrians are treading cautiously in both their public analyses, and I'm sure their private investments.

But I'd bet you dollars to donuts guys like Krugman, Bernanke, Greenspan...they're all sitting on PLENTY of gold in some foreign account not traced to them directly.

 

[konradv]

Adam Smith's invisible hand will reach out and touch...well, everyone.

You'd think so, but as long as corporate interests can effect legislation with campaign contributions, that's a pipe dream. The hand may still be unseen, but it's hardly unbiased.

Hold on a minute, is this a liberal suggesting that regulation may actually be BENEFITING corporations???

Are you suggesting that corporations aren't getting what they pay for? I'm not really sure where you're going with this. I was talking about people buying votes with campaign contributions. It works both ways and isn't a liberal/conservative thing. As a matter of fact, it's what keeps many good liberal and conservative ideas from being discussed.

 

[konradv]

The Federal Reserve, Freddie, Fannie, the CRA...the ideas that cause boom and bust cycles...these are all solely attributable the Republican party? I did not know that.

All of those things had very little to do with the "boom". You'd have more of a case if you pointed to Glass-Steagall being revoked and Bush dropping interest rates to zero.

The business cycle has been happening predictably for the last 100 years. Regulatory measures goes right back into Bastiat's seen and unseen. There are always unseen consequences when govt.s, central banks, regulatory measures/subsidies interfere with the market. The repeal of portions of Glass-Steagull did not cause the boom, or the bust in 2008. Artifically low interest rates and govt. programs to make housing affordable to "anyone", did.

Root cause?

 

[Soggy in NOLA]

There is no inflation... you just think energy prices have doubled and your grocery bill is 15% higher.

 

[Paulie]

You'd think so, but as long as corporate interests can effect legislation with campaign contributions, that's a pipe dream. The hand may still be unseen, but it's hardly unbiased.

Hold on a minute, is this a liberal suggesting that regulation may actually be BENEFITING corporations???

Are you suggesting that corporations aren't getting what they pay for? I'm not really sure where you're going with this. I was talking about people buying votes with campaign contributions. It works both ways and isn't a liberal/conservative thing. As a matter of fact, it's what keeps many good liberal and conservative ideas from being discussed.

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

 

[konradv]

Hold on a minute, is this a liberal suggesting that regulation may actually be BENEFITING corporations???

Are you suggesting that corporations aren't getting what they pay for? I'm not really sure where you're going with this. I was talking about people buying votes with campaign contributions. It works both ways and isn't a liberal/conservative thing. As a matter of fact, it's what keeps many good liberal and conservative ideas from being discussed.

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

Root cause? Why are they able to influence the government? As to other areas where they and other big contributors might want influence: subsidies, trade & tariffs, taxes, labor law..., probably others.

 

[konradv]

There is no inflation... you just think energy prices have doubled and your grocery bill is 15% higher.

You think?

 

[Paulie]

Are you suggesting that corporations aren't getting what they pay for? I'm not really sure where you're going with this. I was talking about people buying votes with campaign contributions. It works both ways and isn't a liberal/conservative thing. As a matter of fact, it's what keeps many good liberal and conservative ideas from being discussed.

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

Root cause? Why are they able to influence the government? As to other areas where they and other big contributors might want influence: subsidies, trade & tariffs, taxes, labor law..., probably others.

I don't believe the root cause is corporate money in elections. I see that as the voters responsibility to kick the bastards out of office who are taking the bribes and being career politicians. Changing the way the money influences politics only encourages the bad guys to come up with different ways to get what they want.

The root cause is the bad politicians, because at the end of the day they are the ones who can either give the corps what they want, or NOT. So we as voters need to keep a close eye on our reps and kick them to the curb the moment we see them selling us out.

As far as those other areas you mention, those are small potatoes to big business as long as they can maintain their pseudo-monopolies in the marketplace, which at the end of the day exist BECAUSE of the stifling regulatory environment.

 

[TakeAStepBack]

All of those things had very little to do with the "boom". You'd have more of a case if you pointed to Glass-Steagall being revoked and Bush dropping interest rates to zero.

The business cycle has been happening predictably for the last 100 years. Regulatory measures goes right back into Bastiat's seen and unseen. There are always unseen consequences when govt.s, central banks, regulatory measures/subsidies interfere with the market. The repeal of portions of Glass-Steagull did not cause the boom, or the bust in 2008. Artifically low interest rates and govt. programs to make housing affordable to "anyone", did.

Root cause?

Propaganda by both govt. and bankers seeking control to the effect of central planning. Creating disasters adn then capitalizing on them, telling the public they will save the day if we do X, Y and Z. Which is where some of us have been screaming on deaf ears for years and years for people to get in the know.

in short complete ignorance of economics. Trading freedoms for perceived safety by the public and believing govt. can solve the problems they largely created in the first place.

 

[Paulie]

Are you suggesting that corporations aren't getting what they pay for? I'm not really sure where you're going with this. I was talking about people buying votes with campaign contributions. It works both ways and isn't a liberal/conservative thing. As a matter of fact, it's what keeps many good liberal and conservative ideas from being discussed.

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

Root cause? Why are they able to influence the government? As to other areas where they and other big contributors might want influence: subsidies, trade & tariffs, taxes, labor law..., probably others.

Just take Ron Paul for example in this case. Big business doesn't even approach him anymore because he's near the very bottom of the list in corporate lobbying cash received. I think in 2010 he received a total of less than $400. To put it into perspective, in 2006 Santorum was at the TOP of the list.

Yet Paul constantly pushes for LESS regulation. So obviously big business doesn't see much benefit in less regulation, and that's why he and them have no political relationship.

 

[konradv]

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

Root cause? Why are they able to influence the government? As to other areas where they and other big contributors might want influence: subsidies, trade & tariffs, taxes, labor law..., probably others.

I don't believe the root cause is corporate money in elections. I see that as the voters responsibility to kick the bastards out of office who are taking the bribes and being career politicians. Changing the way the money influences politics only encourages the bad guys to come up with different ways to get what they want.

The root cause is the bad politicians, because at the end of the day they are the ones who can either give the corps what they want, or NOT. So we as voters need to keep a close eye on our reps and kick them to the curb the moment we see them selling us out.

As far as those other areas you mention, those are small potatoes to big business as long as they can maintain their pseudo-monopolies in the marketplace, which at the end of the day exist BECAUSE of the stifling regulatory environment.

The root cause of bad politicians is money. Destroy one aspect of that and things have to improve. Just saying we have to elect better people ignores the fact that corruption is built into the system, regardless of who you vote for.

 

[konradv]

Well what other legislation would corporations really be wanting to influence with money other than regulatory legislation that can be written to price smaller competition out of the marketplace via expensive compliance?

Well that, and any "mandates" like mandating health coverage. Who do you think benefits the most from Obamacare? Probably not the big insurance companies who stand to make billions off new revenue that may not have been realized otherwise, right?

Root cause? Why are they able to influence the government? As to other areas where they and other big contributors might want influence: subsidies, trade & tariffs, taxes, labor law..., probably others.

Just take Ron Paul for example in this case. Big business doesn't even approach him anymore because he's near the very bottom of the list in corporate lobbying cash received. I think in 2010 he received a total of less than $400. To put it into perspective, in 2006 Santorum was at the TOP of the list.

Yet Paul constantly pushes for LESS regulation. So obviously big business doesn't see much benefit in less regulation, and that's why he and them have no political relationship...

... and why he's doing so well in the primaries.