Economics

[Kimura]

The Federal Reserve is just one explain I've already given. It's enacted in response to market crisis and recessions, but in essence when given an active role in the market place, it can make inherent problems bigger. There is really no reason why the American economy shouldn't be able to operate without the Federal Reserve.

I understand that people in the securities and financial sector don't like institutions like the Fed until it's time for those institutes to save the entire financial sector from self-inflicted total bankruptcy with a few trillion dollars. But does the industry need regulation? Of course not. This is the definition of cupidity. But then again you said you had no problem with monopoly power.

In a robust free market system all of the major financial institutions would have failed in 2008--9. In retrospect that would have been a better outcome for America. And I suppose you would be working in another industry.

We need a central bank, that's for sure. Free banking was a colossal and massive failure.

 

[oldfart]

There's no such thing as a free market.

dear, you're a perfect idiot liberal incapable of learning. In econ 101, class one, day one we learn that all economies are mixed between the free market and socialism. The USA has been among the most free market while the USSR and Red China are among the most socialist. They are/were all mixed with elements of free markets and socialism. Its hard to imagine how that can be over a person's IQ, but then again most humans worshipped the sun for a centuries.

Ed, I've been trying to place you. Admit it; you're the redheaded kid with the cowlick in the third row of Art Benevie's Econ 101 class fall of 69, aren't you?

 

[Kimura]

By the way, for all the gold bugs on here, I'd like a moment to point out that governments can't viably stimulate the economy during recessions or depressions on a gold standard. It also tended to favor surplus counties for the most part.

Historically, the Federal Reserve agreed to control the price of gold by purchasing and selling it rectify any supply or demand imbalances. The point of the exercise was that there wouldn't be any massive gold discoveries, so gold was controlled through demand or a fixed supply so to speak. It become a nightmare. If the country had any type of trade imbalances, such as import/export problems, the result was that gold needed to be physically shipped between countries to fund these imbalances. This whole thing was absurd in retrospect.

We'd have situations where the government couldn't increase the base supply of currency if the economy was running a trade deficit. The whole idea was that the gold standard served to control the money supply and prices levels in other countries in tandem with their trade balances. It was like monetary policy and productions levels were directly controlled by a barbaric relic.

The Great Depression was a direct result of being on a gold standard.

 

[AmazonTania]

The Federal Reserve is just one explain I've already given. It's enacted in response to market crisis and recessions, but in essence when given an active role in the market place, it can make inherent problems bigger. There is really no reason why the American economy shouldn't be able to operate without the Federal Reserve.

I understand that people in the securities and financial sector don't like institutions like the Fed until it's time for those institutes to save the entire financial sector from self-inflicted total bankruptcy with a few trillion dollars.

Yeah. What's wrong with that? In principle, I am against bailouts and subsidies; however, if you provide me with either of these I will take it. After all, if I don't take it, the government will just give it to another person. And why not kill two birds with one stone, by teaching the Government a lesson about feeding into moral hazards and going on a shopping spree?

But does the industry need regulation? Of course not. This is the definition of cupidity. But then again you said you had no problem with monopoly power.

I have said that I do not have a problem with monopoly power, so long as I can get the best possible deal at the best possible price. I do not really see how I benefit from the Federal Reserve's monopoly power, especially when it decides to artificially lower rates. It rewards borrowers, spenders and speculators at the expense of savers, lenders and investors.

In a robust free market system all of the major financial institutions would have failed in 2008--9. In retrospect that would have been a better outcome for America. And I suppose you would be working in another industry.

Many more would have lost their jobs if the Government had not intervened, but they all would have found new jobs. How long would have taken? Who knows? Could have taken as long as is taking most people now, but that is the economy's way of telling industries that people are employed in jobs they shouldn't be in.

Bailouts didn't keep me from losing my job in 2008 -2009. But I found another about a year or so later. Others had the luxury of keeping their jobs, but many of these jobs will have to be destroyed in order allocate this labour in efficient and meaningful sectors of the economy. But this isn't going to happen as long as we are going by the playbook of prolonging pain most Keynesian have adopted.

 

[AmazonTania]

By the way, for all the gold bugs on here, I'd like a moment to point out that governments can't viably stimulate the economy during recessions or depressions on a gold standard. It also tended to favor surplus counties for the most part.

So?

Historically, the Federal Reserve agreed to control the price of gold by purchasing and selling it rectify any supply or demand imbalances. The point of the exercise was that there wouldn't be any massive gold discoveries, so was controlled through demand or fix supply so to speak. It become a nightmare. If the country had any type of trade imbalances, such as import/export problems, the result was that gold needed to be physically shipped between countries to fund these imbalances. This whole thing was absurd in retrospect.

Absurd trade imbalances, at least for the United States, didn't start occurring until shortly after the abandonment of the Gold Standard during the 1970's. Then inflation during this time period caused gold to skyrocket.

Other than that, most countries do not have the same exporting/importing issues the United States has. The only way the United States gets away with having a large trade imbalance is because it currency holds the reserve currency and it's largest trade partner is willing to take your worthless paper in exchange for their goods and services.

We'd have situations where the government couldn't increase the base supply of currency of the economy was running a trade deficit. The whole idea was that the gold standard served to control the money supply and prices levels in other countries in tandem with their trade balances. It was like monetary policy and productions levels were directly controlled by a barbaric relic.

The Great Depression was a direct result of being on a gold standard.

Yes, and no... The Gold Standard was not the cause of the Great Depression. The Federal Reserve, in theory, should have created new money to supply liquidity to the banks. The Federal Reserve refused to do this. In cases where the dollar is tight, individuals and foreign banks will turn in their gold in exchange for dollars. Much of the Gold came in from overseas, including it's ally Great Britain. The Federal Reserve was suppose to use this new gold in the creation of new money. But the Fed didn't. It just locked this Gold away as if it never existed.

The Gold Standard was a last resort which could have changed everything regarding the Great Depression. I guess this idea made far too much sense to pursue.

 

[oldfart]

It is not my fault you cannot express economic ideas clearly. If you had any economics training you cold make an economic argument rather than a political rant.

I believe FoxFyre is trying to suggest or imply that Keynesian economies generally benefits mostly/only Government instead of the market which is designed to help, in times of an economic downturn.

I don't see how this is political.

Here's the post I was responding to. While this is the post in it's entirety, I object to the language I have marked in bold.

Yes I wasn't arguing with that. That is the macro view of economic times during the advent of the "New Deal" economics; i.e. FDR's version of keynesianism. The big picture is what you look at re the effects of economic policy and not to the anecdotal incident in which somebody received help and therefore deems the system good.

That is one of the most damning aspects of keynesian economics, American style. It takes from some taxpayers in order to feed an ever growing, ever more bloated, ever more inefficient, ineffective, authoritarian and hungry federal government/bureaucracy and just enough extra to funnel bribe money to enough people to ensure that the government will be allowed to continue unimpeded by much, if any, resistance from the people.

Even many receiving the doled out assistance deplore the growing deficits and unsustainable debt. But not enough to forego that government benefit. They just shut out the warnings that once government has all the power and the people can no longer resist it, they will no longer be of any use to that government. Thus there will be little reason for the government to continue that subsidy.

There are several political arguments in this post, including the idea that government programs are simply bribes and that government is authoritarian, but I can see no actual economic argument. No economic institutions or policies are actually identified other than a vague reference to "makers--takers" which again is a political rather than economic argument.

So I stand by my comment. If there is an economic argument in this post, I would like to see it stated in economic rather than political terms. As it stands, there is nothing to reply to that would use any economics, which I believe was the subject of the thread.

 

[AmazonTania]

The Federal Reserve is just one explain I've already given. It's enacted in response to market crisis and recessions, but in essence when given an active role in the market place, it can make inherent problems bigger. There is really no reason why the American economy shouldn't be able to operate without the Federal Reserve.

I understand that people in the securities and financial sector don't like institutions like the Fed until it's time for those institutes to save the entire financial sector from self-inflicted total bankruptcy with a few trillion dollars. But does the industry need regulation? Of course not. This is the definition of cupidity. But then again you said you had no problem with monopoly power.

In a robust free market system all of the major financial institutions would have failed in 2008--9. In retrospect that would have been a better outcome for America. And I suppose you would be working in another industry.

We need a central bank, that's for sure. Free banking was a colossal and massive failure.

How do you figure that? 'Free Banking' in the United States lasted less than 30 years. The longest and most devastating financial panics/recessions happened after this era in US financial history and right before the creation of the Federal Reserve.

Even then, some wouldn't exactly call it this era Free Banking. There were still plenty of state and local regulations on banks. Not exactly as free as many Free Banking advocates would have liked, but still more free than any point in US history. That's for sure.

 

[CrusaderFrank]

Confiscated individual gold in 1933, but implemented a Gold sterilization program in 1937. So combined with the Jihad on "Undistributed profits" he sent the economy (the economy is not the same as the US government) into a tailspin

I've read this four times and have no idea what it means. You seem to have developed a new language. That is not a compliment.

Sorry you have no idea about economics.

 

[Kimura]

By the way, for all the gold bugs on here, I'd like a moment to point out that governments can't viably stimulate the economy during recessions or depressions on a gold standard. It also tended to favor surplus counties for the most part.

So?

Under a fiat system, the government can spend in a counter-cyclical fashion. It also has the ability to add net financial assets to the private sector through deficit spending.

Historically, the Federal Reserve agreed to control the price of gold by purchasing and selling it rectify any supply or demand imbalances. The point of the exercise was that there wouldn't be any massive gold discoveries, so was controlled through demand or fix supply so to speak. It become a nightmare. If the country had any type of trade imbalances, such as import/export problems, the result was that gold needed to be physically shipped between countries to fund these imbalances. This whole thing was absurd in retrospect.

Absurd trade imbalances, at least for the United States, didn't start occurring until shortly after the abandonment of the Gold Standard during the 1970's. Then inflation during this time period caused gold to skyrocket.

It was cost-pull inflation which was the problem. The FED and Paul Volker made it much, much worse by raising interest rates.

Other than that, most countries do not have the same exporting/importing issues the United States has. The only way the United States gets away with having a large trade imbalance is because it currency holds the reserve currency and it's largest trade partner is willing to take your worthless paper in exchange for their goods and services.

The trade deficit actually benefits Americans immensely. It's actually a benefit when we think about it.

We'd have situations where the government couldn't increase the base supply of currency of the economy was running a trade deficit. The whole idea was that the gold standard served to control the money supply and prices levels in other countries in tandem with their trade balances. It was like monetary policy and productions levels were directly controlled by a barbaric relic.

The Great Depression was a direct result of being on a gold standard.

Yes, and no... The Gold Standard was not the cause of the Great Depression. The Federal Reserve, in theory, should have created new money to supply liquidity to the banks. The Federal Reserve refused to do this. In cases where the dollar is tight, individuals and foreign banks will turn in their gold in exchange for dollars. Much of the Gold came in from overseas, including it's ally Great Britain. The Federal Reserve was suppose to use this new gold in the creation of new money. But the Fed didn't. It just locked this Gold away as if it never existed.

The Gold Standard was a last resort which could have changed everything regarding the Great Depression. I guess this idea made far too much sense to pursue.

It was the primary cause.

When the US was on a gold standard, banks simply could not operationally guarantee their funding. Fixed exchange regimes could only operate with a supply side constraint on a convertible currency. The banks had to hold, as reserves of convertible currency, a sufficient amount of money to meet the withdrawal needs of their depositors. Banks simply couldn't function with 100% reserves. This entire system hung on the fragile premise that depositors didn't go into actual panic mode and go on a bank run.

The United States experienced a sizable amount of depressions in the 19th century, with the Panic of 1907 being terrible enough to be one of the primary reasons for the creation of the FED. The initial depression of 1930 was more serious than what had transpired in 1907. During this decent into economic and social hell, the Federal Reserve was supposed to act as the lender of last resort, but it couldn't since the US was on the gold standard. The gold standard actually prevented the Federal Reserve from lending the banks the very convertible currency required to meet any and all withdrawal demands. There was a bank holiday and we had a bank reorganization. Logically, in 1934, when all the banks reopened, convertibility into gold was permanently suspended. We also created federal deposit insurance. The Federal Reserve was simply unable to prevent the Depression, but abandoning the gold standard did help the United States on the road to recovery.

 

[Kimura]

I understand that people in the securities and financial sector don't like institutions like the Fed until it's time for those institutes to save the entire financial sector from self-inflicted total bankruptcy with a few trillion dollars. But does the industry need regulation? Of course not. This is the definition of cupidity. But then again you said you had no problem with monopoly power.

In a robust free market system all of the major financial institutions would have failed in 2008--9. In retrospect that would have been a better outcome for America. And I suppose you would be working in another industry.

We need a central bank, that's for sure. Free banking was a colossal and massive failure.

How do you figure that? 'Free Banking' in the United States lasted less than 30 years. The longest and most devastating financial panics/recessions happened after this era in US financial history and right before the creation of the Federal Reserve.

Even then, some wouldn't exactly call it this era Free Banking. There were still plenty of state and local regulations on banks. Not exactly as free as many Free Banking advocates would have liked, but still more free than any point in US history. That's for sure.

Free banking was an unmitigated disaster in this country. We could start a whole thread on it. Our fiat monetary system has performed orders of magnitude better than when we were on a gold standard.

Here's what the gold standard has given just the United States: the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1907 and the Great Depression.

 

[AmazonTania]

By the way, for all the gold bugs on here, I'd like a moment to point out that governments can't viably stimulate the economy during recessions or depressions on a gold standard. It also tended to favor surplus counties for the most part.

So?

Under a fiat system, the government can spend in a counter-cyclical fashion. It also has the ability to add net financial assets to the private sector through deficit spending.

At the expense of the value of the nation's currency. That's really not a good thing.

It was cost-pull inflation which was the problem. The FED and Paul Volker made it much, much worse by raising interest rates.

A draconian solution to a very big problem. Then again, there wouldn't would have been that much inflation at all if there wasn't an abandonment of the Gold Standard.

The trade deficit actually benefits Americans immensely. It's actually a benefit when we think about.

There is always someone benefiting when it comes to trade between two nations. America's trade deficit is more of a small silver lining in a sea of black clouds. The rewards doesn't necessarily outweigh the risk. You can't live off the charity of the rest of the world for very long.

It was the primary cause.

Now that is absolutely ridiculous...

When the US was on a gold standard, banks simply could not operationally guarantee their funding. Fixed exchange regimes could only operate with a supply side constraint on a convertible currency. The banks had to hold, as reserves of convertible currency, a sufficient amount of money to meet the withdrawal needs of their depositors. Banks simply couldn't function with 100% reserves. This entire system hung on the fragile premise that depositors didn't go into actual panic mode and go on a bank run.

Banks still cannot guarantee their funding. Never can, never will, especially when banks operate under a Fractional Reserve Banking System. Banking is not risk free. It never was and never will be. What people don't seem to understand is the moment you deposit your cash into a bank, this makes you a creditor of the bank. Being a creditor doesn't necessarily entitle anyone to their losses if and when their investments go south.

The United States experienced a sizable amount of depressions in the 19th century, with the Panic of 1907 being terrible enough to be one of the primary reasons for the creation of the FED. The initial depression of 1930 was more serious than what had transpired in 1907. During this decent into economic and social hell, the Federal Reserve was supposed to act as the lender of last resort, but it couldn't since the US was on the gold standard. The gold standard actually prevented the Federal Reserve from lending the banks the very convertible currency required to meet any and all withdrawal demands. There was a bank holiday and we had a bank reorganization. Logically, in 1934, when all the banks reopened, convertibility into gold was permanently suspended. We also created federal deposit insurance. The Federal Reserve was simply unable to prevent the Depression, but abandoning the gold standard help the United States on the road to recovery.

It's not that the Federal Reserve couldn't. It just didn't. There was really nothing keeping the Fed from using that Gold to supply extra liquidity. Lots of Gold was pouring in from Great Britain, which recovered faster than the United States during this economic downturn.

Abandoning it did nothing but worsen the recovery. The Gold Standard wasn't really adopted again until World War II. The Fed released it's stranglehold on the money supply when the Government needed to fund the war effort. Most of the money created went straight into the war, but after the war was completed, the new money finally got the United States out of the Great Depression.

If you strip away the economic effects the war had on the economy, the Great Depression didn't end until 1947 or 1949. There was no reason why the Federal Reserve couldn't use the Gold and prevented all of this.

 

[AmazonTania]

We need a central bank, that's for sure. Free banking was a colossal and massive failure.

How do you figure that? 'Free Banking' in the United States lasted less than 30 years. The longest and most devastating financial panics/recessions happened after this era in US financial history and right before the creation of the Federal Reserve.

Even then, some wouldn't exactly call it this era Free Banking. There were still plenty of state and local regulations on banks. Not exactly as free as many Free Banking advocates would have liked, but still more free than any point in US history. That's for sure.

Free banking was an unmitigated disaster in this country. We could start a whole thread on it. Our fiat monetary system has performed orders of magnitude better than when we were on a gold standard.

Here's what the gold standard has given just the United States: the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1907 and the Great Depression.

We are talking about fiat-money versus gold standard now? I thought we were still talking about banking... And I really can't tell if you are being serious. Are you trying to suggest that the Gold Standard caused all of those financial panics? More than half of those panics happened before the very adopting and implementation of the Gold Standard...

The Gold Standard didn't cause any of those panics; however, what I have highlighted in Red are the periods in history where an existence of a Central Bank. The type of currencies alone doesn't cause recessions. You should know this... To be fair, the Gold Standard might have actually caused one of those financial panics, which was the panic of 1973, but this was due to the demonetisation of silver. There still was no actual Gold Standard in effect around this time.

As I have said before, booms and bust are much larger with a central bank. After the Free Banking period, recessions lasted longer than the historical average. The longest recession during the Free Banking Period lasted 4 years, and only two recessions lasting longer than 2 years. After the Free banking period the longest recession... well, you already know the rest.

 

[Toro]

Confiscated individual gold in 1933, but implemented a Gold sterilization program in 1937. So combined with the Jihad on "Undistributed profits" he sent the economy (the economy is not the same as the US government) into a tailspin

I've read this four times and have no idea what it means. You seem to have developed a new language. That is not a compliment.

I haven't seen anything on undistributed profits tax, but such a tax would have an adverse effect on investment, at least in the near term.

Doug Irwin at Dartmouth writes about gold sterilization - see his article on Voxeu. Interestingly, he argues against pre-emptive tightening to fight inflation, which is what Krugman is arguing regarding ending QE too early.

 

[Kimura]

At the expense of the value of the nation's currency. That's really not a good thing.

How so? There's more to inflation than simply increasing the supply of money.

A draconian solution to a very big problem. Then again, there wouldn't would have been that much inflation at all if there wasn't an abandonment of the Gold Standard.

If we really analyze this further, under the gold standard, gold mining was inherently inflationary as well. The capital invested and destroyed in adding to the net gold supply to maintain the nominal gold supply was patently ridiculous.

There is always someone benefiting when it comes to trade between two nations. America's trade deficit is more of a small silver lining in a sea of black clouds. The rewards doesn't necessarily outweigh the risk. You can't live off the charity of the rest of the world for very long.

Actually, the rest of the world is living off the charity of the United States. The foreign sector, such as China, is dependent on US credit creation. They also desire to save in the form of US financial assets. If the US lost reserve status, which I think is what you're getting at, nothing would change, except for some sectoral balances.

Now that is absolutely ridiculous...

Not really, but I can get into detail, I'm simply poking and prodding.

.

Banks still cannot guarantee their funding. Never can, never will, especially when banks operate under a Fractional Reserve Banking System. Banking is not risk free. It never was and never will be. What people don't seem to understand is the moment you deposit your cash into a bank, this makes you a creditor of the bank. Being a creditor doesn't necessarily entitle anyone to their losses if and when their investments go south.

First of all, I’d like to preface this by stating that the money multiplier and fractional reserve banking concepts taught to econ undergraduates are largely incorrect.

Loans basically create deposits so to speak. We’re dealing with a balance sheet operation, which is quite different from any reserve effect that may occur as part of an interbank clearing mechanism. A bank gives a customer a loan; it then creates a deposit, which automatically increases its balance sheet. This type of expansion can move across different banks when the issuing and depositing bank are different issuing banks are different.

Private banks are in no way, shape or form constrained by the quantity of the reserves they have on hand. Banks do not lend out reserves in any capacity whatsoever. If we analyze even further, banks basically trade reserves between themselves on a commercial level, but this does not add or subtract from the total net volume of reserves in the overall banking system. The only thing that can change reserve volumes are what we call vertical transactions.

This whole notion that reserve balances are required to finance balance sheet expansion through adding excess reserves is simply false. A banks ability to increase its balance sheet isn’t dependent on fractional reserves or any type of reserve quantity. In other words, loans create deposits, which are then settled by reserves after the fact. The credit lending mechanism (the creation of bank liabilities) isn’t related to any reserve ratios of the bank.

It's not that the Federal Reserve couldn't. It just didn't. There was really nothing keeping the Fed from using that Gold to supply extra liquidity. Lots of Gold was pouring in from Great Britain, which recovered faster than the United States during this economic downturn.

Abandoning it did nothing but worsen the recovery. The Gold Standard wasn't really adopted again until World War II. The Fed released it's stranglehold on the money supply when the Government needed to fund the war effort. Most of the money created went straight into the war, but after the war was completed, the new money finally got the United States out of the Great Depression.

If you strip away the economic effects the war had on the economy, the Great Depression didn't end until 1947 or 1949. There was no reason why the Federal Reserve couldn't use the Gold and prevented all of this.

It was still the primary cause. The FED had drawn down the money supply when banks needed it most to provide liquidity. This resulted in massive bank failures.

Under a gold standard, the federal government was revenue-constrained because the Federal Reserve could only permit a certain amount of money in the overall economy based on its gold holdings and overall value of the currency. Simply put: the Federal Reserve could only allow so much gold in the economy relative to its gold holdings.

In the event the government needed to spend more, it would have to take money away from someone else in the economy, so the money supply would remain fixed so to speak. This is why the government was required to borrow and tax under a gold standard.

I wouldn’t mind discussing this further when I get home this evening.

 

[Kimura]

How do you figure that? 'Free Banking' in the United States lasted less than 30 years. The longest and most devastating financial panics/recessions happened after this era in US financial history and right before the creation of the Federal Reserve.

Even then, some wouldn't exactly call it this era Free Banking. There were still plenty of state and local regulations on banks. Not exactly as free as many Free Banking advocates would have liked, but still more free than any point in US history. That's for sure.

Free banking was an unmitigated disaster in this country. We could start a whole thread on it. Our fiat monetary system has performed orders of magnitude better than when we were on a gold standard.

Here's what the gold standard has given just the United States: the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1907 and the Great Depression.

We are talking about fiat-money versus gold standard now? I thought we were still talking about banking... And I really can't tell if you are being serious. Are you trying to suggest that the Gold Standard caused all of those financial panics? More than half of those panics happened before the very adopting and implementation of the Gold Standard...

The Gold Standard didn't cause any of those panics; however, what I have highlighted in Red are the periods in history where an existence of a Central Bank. The type of currencies alone doesn't cause recessions. You should know this... To be fair, the Gold Standard might have actually caused one of those financial panics, which was the panic of 1973, but this was due to the demonetisation of silver. There still was no actual Gold Standard in effect around this time.

As I have said before, booms and bust are much larger with a central bank. After the Free Banking period, recessions lasted longer than the historical average. The longest recession during the Free Banking Period lasted 4 years, and only two recessions lasting longer than 2 years. After the Free banking period the longest recession... well, you already know the rest.

The gold standard helped cause all the panics of the 19th and 20th centuries. They caused massive deflation, money supply shortages, bank failures, credit collapses, insufficient funds to conduct trade, massive unemployment, commodity prices collapses, money shortages unable to meet increasing stock prices, etc., etc. ad infinitum.

We've fared much better under a fiat monetary system. You can manage recessions, inflation and deflation in a far superior manner. Boom and busts are inherently built into capitalistic systems, there really isn't a way around them, except through counter-cyclical action by the government during certain time periods.

And yes, free banking was a disaster, about half of them went bust in around five years, with roughly a third unable to redeem their notes. This isn't something to brag about quite frankly. The Michigan Act allowed these bank to engage in massive fraud.

 

[Foxfyre]

It also seems like Walter Williams has never bothered to write about rent-seeking behavior in some of his more geriatric diatribes. Or how concepts such as marginal productivity theory should be relegated to the dustbin of history.

There's no such thing as a free market. Yeah, we had a "free market" when humans were hunter-gatherers, but once humans started to organize city-states, we entered the realm of political economy.

Well I'm sure you are a very smart man, but I frankly don't have any issues with Dr. Williams theories on free markets and economics in general. What specifically do you have to quarrel with in his illustration of the modern supermarket and the can of tuna that is sold there? See Post #39.

I don't have a quarrel with his supermarket analogy.

My problems are that he never properly addresses total market failures, such has health care, for example, nor does he address sectoral balances and basic accounting identities to his readers. He's either a) disingenuous or b) ignorant. Either way, he's still comes across as a disingenuous ideologue at times.

Disingenuous ideologue? He is as pure a libertarian as they come and no kind of ideologue at all. Ignorant? For several years he headed the Dept. ol Economics at George Mason University and continues to hold a full professorship and is active at that institution of higher learning. He has written more on healthcare marketing than most and will continue to do so as the disaster called "Obamacare" unfolds.

Further he also understands that forcing one person to provide medical services to another is getting pretty close to the definition of slavery. Forcing one person to pay for the medical services for another is getting pretty close to the defintion of aggravated robbery. Only in the free market system can our unalienable rights be recognized and protected AND medical services be available for all.

And it is very difficult to argue with that logic.

True rights, such as those in our Constitution, or those considered to be natural or human rights, exist simultaneously among people. That means exercise of a right by one person does not diminish those held by another. In other words, my rights to speech or travel impose no obligations on another except those of non-interference. If we apply ideas behind rights to health care to my rights to speech or travel, my free speech rights would require government-imposed obligations on others to provide me with an auditorium, television studio or radio station. My right to travel freely would require government-imposed obligations on others to provide me with airfare and hotel accommodations.

For Congress to guarantee a right to health care, or any other good or service, whether a person can afford it or not, it must diminish someone else's rights, namely their rights to their earnings. The reason is that Congress has no resources of its very own. Moreover, there is no Santa Claus, Easter Bunny or Tooth Fairy giving them those resources. The fact that government has no resources of its very own forces one to recognize that in order for government to give one American citizen a dollar, it must first, through intimidation, threats and coercion, confiscate that dollar from some other American. If one person has a right to something he did not earn, of necessity it requires that another person not have a right to something that he did earn.
A MINORITY VIEW

 

[AmazonTania]

At the expense of the value of the nation's currency. That's really not a good thing.

How so? There's more to inflation than simply increasing the supply of money.

The general supply of money is rising faster than the supply of goods and services.

If we really analyze this further, under the gold standard, gold mining was inherently inflationary as well. The capital invested and destroyed in adding to the net gold supply to maintain the nominal gold supply was patently ridiculous.

How do you figure? Mining for gold is no different from any other commodity collectivisation. If the cost of drilling or mining is greater than the overall spot price, the investment isn't worth the general risk. Right now, the cost of mining is $500 - $700 per gold equivalent ounce. Some mining companies can operate at much lower cost.

Actually, the rest of the world is living off the charity of the United States. The foreign sector, such as China, is dependent on US credit creation. They also desire to save in the form of US financial assets. If the US lost reserve status, which I think is what you're getting at, nothing would change, except for some sectoral balances.

What charity would that be? America doesn't offer much of anything economically to the world, and it doesn't export much of anything. The only thing America seems to export very well are it's bad economic ideas and inflation. The US Dollar has a hard time maintaining it's value, even against the weakest foreign currencies.

And I never pondered the thought that the United States would lose it's Reserve Status. I mentioned that it is the only reason it is allowed to get away with it's economic foolishness. I hardly doubt little would change if it ever lost this status.

Not really, but I can get into detail, I'm simply poking and prodding.

Yes. Yes it is...
.

First of all, I’d like to preface this by stating that the money multiplier and fractional reserve banking concepts taught to econ undergraduates are largely incorrect.

Loans basically create deposits so to speak. We’re dealing with a balance sheet operation, which is quite different from any reserve effect that may occur as part of an interbank clearing mechanism. A bank gives a customer a loan; it then creates a deposit, which automatically increases its balance sheet. This type of expansion can move across different banks when the issuing and depositing bank are different issuing banks are different.

Private banks are in no way, shape or form constrained by the quantity of the reserves they have on hand. Banks do not lend out reserves in any capacity whatsoever. If we analyze even further, banks basically trade reserves between themselves on a commercial level, but this does not add or subtract from the total net volume of reserves in the overall banking system. The only thing that can change reserve volumes are what we call vertical transactions.

This whole notion that reserve balances are required to finance balance sheet expansion through adding excess reserves is simply false. A banks ability to increase its balance sheet isn’t dependent on fractional reserves or any type of reserve quantity. In other words, loans create deposits, which are then settled by reserves after the fact. The credit lending mechanism (the creation of bank liabilities) isn’t related to any reserve ratios of the bank.

That's nice, although I don't really see what relation this has to what I am saying. It doesn't take away from anything that I have said. Anytime anyone deposits their money inside of a bank, they become a creditor of that bank. And being a creditor of that bank does entitle anyone to their losses if their investments fly south. Loans creates deposits, but these new deposits also creates money from nothing with money being drawn from the future to the present to back up current money being used by other depositors. It's merely a game of musical chairs. As long as the music keeps playing, there are no losers.

It was still the primary cause. The FED had drawn down the money supply when banks needed it most to provide liquidity. This resulted in massive bank failures.

The inflow of liquidity and the expansion of the money supply was the initial problem in the first place. The Federal Reserve tried to prop up the British Pound by devaluing the US Dollar. All the extra liquidity and mal-investment went straight into stocks. And the rest is a financial disaster.

Under a gold standard, the federal government was revenue-constrained because the Federal Reserve could only permit a certain amount of money in the overall economy based on its gold holdings and overall value of the currency. Simply put: the Federal Reserve could only allow so much gold in the economy relative to its gold holdings.

In the event the government needed to spend more, it would have to take money away from someone else in the economy, so the money supply would remain fixed so to speak. This is why the government was required to borrow and tax under a gold standard.

Yes. This really wouldn't have made a difference at the time. The money supply is relatively much smaller compared to the money supply today. Even still, the Federal Reserve had billions of dollars of gold on reserves and could have used this gold at any time during the Great Depression. To say that the supply of gold prevented the Fed from creating new money is an erroneous statement. Nothing stopped the Federal Reserve from increasing the money supply during the 1920's to create a wealth effect in the economy. Perhaps this was the reason why it didn't use the extra liquidity in the first place. The Fed Chairman was spooked by the Stock Market boom it created during 1927 - 1929 and didn't want to repeat the same mistake.

Gold prevents the government from excess spending and money printing in times when the Government thought, justifiably or wrongly (most often, wrongly) thought that these polices were a good idea. Under the Gold Standard, the money supply is determined by the value of Gold, not just the amount of Gold in reverses. During the 1920's, the US Dollar was worth 1/20th of an ounce. In other words one US Dollar was worth 20 ounces of Gold. The money supply can still generally increase relative to the spot price of Gold, but at a stable rate. Far more stable than today.

I wouldn’t mind discussing this further when I get home this evening.

Um, yay?

 

[AmazonTania]

Free banking was an unmitigated disaster in this country. We could start a whole thread on it. Our fiat monetary system has performed orders of magnitude better than when we were on a gold standard.

Here's what the gold standard has given just the United States: the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1907 and the Great Depression.

We are talking about fiat-money versus gold standard now? I thought we were still talking about banking... And I really can't tell if you are being serious. Are you trying to suggest that the Gold Standard caused all of those financial panics? More than half of those panics happened before the very adopting and implementation of the Gold Standard...

The Gold Standard didn't cause any of those panics; however, what I have highlighted in Red are the periods in history where an existence of a Central Bank. The type of currencies alone doesn't cause recessions. You should know this... To be fair, the Gold Standard might have actually caused one of those financial panics, which was the panic of 1973, but this was due to the demonetisation of silver. There still was no actual Gold Standard in effect around this time.

As I have said before, booms and bust are much larger with a central bank. After the Free Banking period, recessions lasted longer than the historical average. The longest recession during the Free Banking Period lasted 4 years, and only two recessions lasting longer than 2 years. After the Free banking period the longest recession... well, you already know the rest.

The gold standard helped cause all the panics of the 19th and 20th centuries. They caused massive deflation, money supply shortages, bank failures, credit collapses, insufficient funds to conduct trade, massive unemployment, commodity prices collapses, money shortages unable to meet increasing stock prices, etc., etc. ad infinitum.

Something tells me you hate the Gold Standard, and people generally hate what they cannot understand. The gold standard has no relation to any of those things. Although, plenty of these problems exist today in many countries around the world, under a fiat monetary system. All of the above, including hyperinflation, wage devaluation, massive asset bubbles, wealth disparity, zombie banks, stagnant economic growth in many economies around the world, wars, and commodity speculation.

See, I can do it too. It's really not that difficult.

We've fared much better under a fiat monetary system.

The greatest economic growth and prosperity in America happened under a Gold Standard. The entity which has fared better under a fiat system is the Government. A few emerging economies in Asia have already started the process of reverting their fiat money standard into a Gold Legal Tender from the failed experiments involving a fiat monetary system. I think more countries will do the same. Not because of the failures of their own monetary system, but due to watching the train wreck that is the United States economy.

It's a race to the bottom, and I think the United States is going to win this one.

You can manage recessions, inflation and deflation in a far superior manner.

That's about all you can do under a fiat monetary system. And you've not very good at doing this to be honest.

Boom and busts are inherently built into capitalistic systems, there really isn't a way around them, except through counter-cyclical action by the government during certain time periods.

There isn't any way around them. Period. Booms and bust are a natural part of the business cycle. These cycles are much more difficult to manage when the Government has a role in micro-managing the economy.

And yes, free banking was a disaster, about half of them went bust in around five years, with roughly a third unable to redeem their notes. This isn't something to brag about quite frankly. The Michigan Act allowed these bank to engage in massive fraud.

How exactly was this any different in any time before or after the Free Banking era. Financial institutions had the same banking life are were subjected to the same amount of failures. Bank runs were no more common or rare before or after this period.

 

[Toro]

We are talking about fiat-money versus gold standard now? I thought we were still talking about banking... And I really can't tell if you are being serious. Are you trying to suggest that the Gold Standard caused all of those financial panics? More than half of those panics happened before the very adopting and implementation of the Gold Standard...

The Gold Standard didn't cause any of those panics; however, what I have highlighted in Red are the periods in history where an existence of a Central Bank. The type of currencies alone doesn't cause recessions. You should know this... To be fair, the Gold Standard might have actually caused one of those financial panics, which was the panic of 1973, but this was due to the demonetisation of silver. There still was no actual Gold Standard in effect around this time.

As I have said before, booms and bust are much larger with a central bank. After the Free Banking period, recessions lasted longer than the historical average. The longest recession during the Free Banking Period lasted 4 years, and only two recessions lasting longer than 2 years. After the Free banking period the longest recession... well, you already know the rest.

The gold standard helped cause all the panics of the 19th and 20th centuries. They caused massive deflation, money supply shortages, bank failures, credit collapses, insufficient funds to conduct trade, massive unemployment, commodity prices collapses, money shortages unable to meet increasing stock prices, etc., etc. ad infinitum.

Something tells me you hate the Gold Standard, and people generally hate what they cannot understand. The gold standard has no relation to any of those things. Although, plenty of these problems exist today in many countries around the world, under a fiat monetary system. All of the above, including hyperinflation, wage devaluation, massive asset bubbles, wealth disparity, zombie banks, stagnant economic growth in many economies around the world, wars, and commodity speculation.

See, I can do it too. It's really not that difficult.



The greatest economic growth and prosperity in America happened under a Gold Standard. The entity which has fared better under a fiat system is the Government. A few emerging economies in Asia have already started the process of reverting their fiat money standard into a Gold Legal Tender from the failed experiments involving a fiat monetary system. I think more countries will do the same. Not because of the failures of their own monetary system, but due to watching the train wreck that is the United States economy.

It's a race to the bottom, and I think the United States is going to win this one.



That's about all you can do under a fiat monetary system. And you've not very good at doing this to be honest.

Boom and busts are inherently built into capitalistic systems, there really isn't a way around them, except through counter-cyclical action by the government during certain time periods.

There isn't any way around them. Period. Booms and bust are a natural part of the business cycle. These cycles are much more difficult to manage when the Government has a role in micro-managing the economy.

And yes, free banking was a disaster, about half of them went bust in around five years, with roughly a third unable to redeem their notes. This isn't something to brag about quite frankly. The Michigan Act allowed these bank to engage in massive fraud.

How exactly was this any different in any time before or after the Free Banking era. Financial institutions had the same banking life are were subjected to the same amount of failures. Bank runs were no more common or rare before or after this period.

Per capita GDP from after the Civil War to WWI was roughly the same as it was in the 20th century.

Also, economic volatility has been less under central banks and fiat currency than under the gold standard. Now, one could also argue that's a bad thing since it allows excesses to build.

 

[AmazonTania]

The gold standard helped cause all the panics of the 19th and 20th centuries. They caused massive deflation, money supply shortages, bank failures, credit collapses, insufficient funds to conduct trade, massive unemployment, commodity prices collapses, money shortages unable to meet increasing stock prices, etc., etc. ad infinitum.

Something tells me you hate the Gold Standard, and people generally hate what they cannot understand. The gold standard has no relation to any of those things. Although, plenty of these problems exist today in many countries around the world, under a fiat monetary system. All of the above, including hyperinflation, wage devaluation, massive asset bubbles, wealth disparity, zombie banks, stagnant economic growth in many economies around the world, wars, and commodity speculation.

See, I can do it too. It's really not that difficult.



The greatest economic growth and prosperity in America happened under a Gold Standard. The entity which has fared better under a fiat system is the Government. A few emerging economies in Asia have already started the process of reverting their fiat money standard into a Gold Legal Tender from the failed experiments involving a fiat monetary system. I think more countries will do the same. Not because of the failures of their own monetary system, but due to watching the train wreck that is the United States economy.

It's a race to the bottom, and I think the United States is going to win this one.



That's about all you can do under a fiat monetary system. And you've not very good at doing this to be honest.



There isn't any way around them. Period. Booms and bust are a natural part of the business cycle. These cycles are much more difficult to manage when the Government has a role in micro-managing the economy.

And yes, free banking was a disaster, about half of them went bust in around five years, with roughly a third unable to redeem their notes. This isn't something to brag about quite frankly. The Michigan Act allowed these bank to engage in massive fraud.

How exactly was this any different in any time before or after the Free Banking era. Financial institutions had the same banking life are were subjected to the same amount of failures. Bank runs were no more common or rare before or after this period.

Per capita GDP from after the Civil War to WWI was roughly the same as it was in the 20th century.

That doesn't tell you very much. Only that GDP increased at a relatively stable rate to the increasing size of the population. It doesn't change the fact that prosperity everyone believes was so great before the 1980's happened before the embrace of Fiat Money.

Also, economic volatility has been less under central banks and fiat currency than under the gold standard. Now, one could also argue that's a bad thing since it allows excesses to build.

Volatility is less now than ever before? Do tell...