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A Hundred Years Of Fed Solitude, Or An Artificial Lack Of Volatility In A Time Of Fiat Cholera
The following observations by John Lohman are a must read for all mean reversion junkies. By tracking the correlation between credit expansion and assorted metrics of volatility, Lohman concludes that the one primary tradeoff given up by the investor class (voluntarily) and the broader population (unknowingly) in exchange for a 98% decline in the value of the dollar, and thus purchasing power, since the inception of the Jekyll Island monster, is a constant and gradual decline in volatility. What this means, however, is that by entering the period of greatest systemic deleveraging, America is once again inviting volatility. What is more troubling is that unlike before, the ongoing dollar value destruction is not matched with a favorable attribute, namely an offset vol reduction. In other words, society and the investing class has gotten to the point where the marginal utility from having a Federal Reserve bank, has essentially disappeared. Which is simply all the more reason to disband the most destructive central-planning organization in the history of the communist world.
Per John Lohman:
The Federal Reserve Act of 1913 was largely a response to the panic of 1907. With the stroke of a pen, Woodrow Wilson created the mooncalf that will ultimately destroy the very entity it was designed to save. What was primarily intended to be a lender of last resort and a controller of “seasonal” fluctuations in money supply has morphed into a monstrosity that is attempting to control virtually aspect of financial markets and the real economy.
The first thing many opponents of the Fed point to is the (sometimes not so) steady erosion in the purchasing power of our currency. As shown in the chart below, consumer price inflation was effectively zero before 1913 but has risen virtually every year since. Also noteworthy is the period after 1933’s executive order that all gold be turned in to the Fed. Since then, inflation has risen just under 4% per year.
Now, this is the point at which Keynesian milksops would argue that the achievement of stability (via lower volatility) in prices outweighs the steady erosion of the dollar. The 4% annual increase simply becomes a part of expectations and is built into all business contracts and agreements (indeed, the Fed perpetuates this myth with its current inflation targets). The Krugmans would then point to something like the plot below which highlights the dramatic decline in the volatility of nominal output, noting that the Fed has successfully lowered the standard deviation from 20% to 2% since the Reserve Act was amended in the 1930’s (broadening the Fed’s powers).
So what could possibly be wrong with ‘price stability’ and lower volatility in overall nominal output? How could reducing the frequency and severity of recessions be a bad thing?
The answer, of course, is that artificially suppressing the amplitude of the business cycle paints a false perception of the underlying levels of risk. In effect, the Fed’s manipulation of the credit cycle over the course of its putrid existence had (until 2008) convinced consumers, businesses, and local governments that business cycle risk was a thing of the past. So America, en masse, did the obvious: dissave and take on levels of debt that were inconsistent with the real level of economic risk.
The eejitic Keynesian response at this point is that we can simply solve this debt problem with more debt. It has worked for the last 75 years, so it will work again.
No, it won’t. By definition, consumption (70% of the economy) cannot return to pre-crisis levels in a deleveraging environment. For evidence that future deleveraging will occur (as well as additional proof that business cycle volatility drives the debt cycle), consider the final chart below. It plots the same measure of volatility as above (but inverted this time) against home ownership. In all likelihood, we have barely begun the deleveraging process.
Thank you Ben & Company. You can go home now.
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Any chance we get a negative discount rate?
"If it were possible to take interest rates into negative territory I would be voting for that."
Janet Yellen
yes
http://en.wikipedia.org/wiki/Hull%E2%80%93White_model
WB7 well played.
Please consider - Cliffhangers.
http://www.youtube.com/watch?v=QqMVjsaGEZo
If Ben goes home. Will Jamie Dimon finally get his dream job. Yup !!! Oh Shit.
But Jamie is busy breaking into houses.
http://www.bloomberg.com/news/2010-10-15/foreclosure-error-may-lead-to-b...
Now is the time for buying land and seeds. Decide brothers. It will be upon us very soon. Many have already prepared. In 8 months it will be human cannibalism.
Who needs seeds? I've been fattening up my neighbors
LOL, you can have your gristley neighbors. I'll stick to my pork and beans, with which I will also get an endless supply of methane.
Eejitic?
Errrm ... "idiotic," maybe?
noun Definition: Ireland an offensive term that deliberately insults somebody's intelligence or foresight ( informal insult )
[Late 19th century. Representing a pronunciation of idiot]
A new one on me too. Google is a wonderful thing.
This article is essentially top ticking. It's quite dangerous to say in the coming two or three years, we will see the end of the fiat money system
Your avatar is essentially a Zhu Zhu pet. It's quite dangerous to take someone seriously who is masquerading as a Nazi Zhu Zhu pet.
Fed seems dishonest at times, sorry, i really think so
Deleveraging sure sounds like painful deflation. The Bernanke response is to helicopter drop dollars to inflate and prop up asset classes as an analgesic to calm the masses so we won't become bitter. I thought that's what the FEMA camps were for.
When did Bernanke become a psychologist?
Garcia Marquez drank coffee and chatted with my Dad and grandfather a couple of times/week for years in beautiful, peaceful 1960s colonial Cartagena, Colombia. He was a newspaper reporter at the time and would walk by my father's office every afternoon.100 Years of Solitude exemplifies a simpler, more peaceful and innocent time lost to the banksters' idea of "modernity".
How I fucking hate them.
+1
Nice
well said
charming lingo as always. the fat tailed mean reversion beta trade is subject to the buy sell merger arbitrage coincident in a long duration front month steepener option with a twist. Easy money.
http://i.imgur.com/KFxal.jpg
You must click this link if you missed the " Ben and Company " link at the bottom of the article. +1 Spy Nov P @ 0
"In other words, society and the investing class has gotten to the point where the marginal utility from having a Federal Reserve bank, has essentially disappeared. Which is simply all the more reason to disband the most destructive central-planning organization in the history of the communist world."
amen and amen!
Disband the Fed. Hmmmm. That . . . . might . . . . just . . . . work! Quick--to the Batmobile!
Where's the short the Fed ETF?
thats funny.
Oh, right, it's gold.
Tyler I would fucking LOVE to see that last housing chart going back to 1850!!! :)
100 years of solicitude to the money power.
"The Federal Reserve Act of 1913 was largely a response to the panic of 1907..."
Not precisely. The panic of 1907 was either caused by or fortuitously taken advantage of by those seeking to implement a central banking system. Ironically, and as is common in politics, the Act - secretly written by the banksters - was in response to a populist backlash against the banksters. Which is why the banksters that wrote it kept their involvement mysteriously secretive, and why they hedged on the name of it to make it sound more like a government program.
Note that throughout the late 1800s they publicly and repeatedly threatened to bring down the economy to make the people desperate - and they did just that, thereby causing pressure on any politicians who resisted their secret backroom deals.
Make no mistake - this was the plan for quite some time prior to 1913 - they just had to wait for the stars (and influence) to align, or to be aligned, as the case was.
It goes all the way back to Andrew Jackson and the Second National Bank.
I sure wish I was living a hundred years ago, those people had it good! At least that's what I gather from this article and the countless Austrian School references to how much value the fiat dollar has lost since 1913. The value of a 1913 dollar in terms of gold or goods doesn't tell us the standard of living a person could buy with it. I dare anyone to claim that Americans of the 1960's and 70's (when real wages were at their peak in this country) had a lower living standard than those of 1900; they enjoyed goods and services based on scientific/production breakthroughs that are incommensurable with 1900 currency. This is the whole problem with the retarded monetarist prism so many people on this site look at the world through. As an engineer, I find it laughable.
Exactly, but why let common sense ruin their scary story. I mean like hey, there's only 2% more to go until the dollar is worth zero! Isn't there?
In due time we will see that this "incommensurable" advancement was just a function of cheap oil and the abundant net energy resulting in enough spare time to stroll around for everyone. Remember its not the gadgets that make life worthwhile, but the interconnections to our fellow human beeings. What i do see is alienation through all this advancement. as incommensurable it may be. We had the best of times and it brought out the worst in men. Now lets see if the bad times serve us better. And i couldn´t care less if the technological advancement becomes undone.
Truly.
How many times have you flown across the continent and
not spoken to the stranger who is your aisle-mate?
How many cell phone their way past unmet neighbors?
The success of self-checkout at the grocery stores.
And of course, the drones and their gamester pilots.
Technological advances indeed.
At the expense of, or is it the freedom from having to deal with other,
can we still call them/us humans?
Not to worry, money was made which made it pure.
Until pure turns out to be a label that washes off.
Truly indeed DollarMenu.
We are living in the age of false detachment and the death of empathy.
Drones and their far-away pilots are an egregious example of technology as we know it making it feasible.
The human stain, indeed.
ORI
http://aadivaahan.wordpress.com
you, as an engineer, make me laugh. FDR was a gold-thieving thug. here is your education, since you asked for it so disrespectfully.:
Following for you is an excerpt from Bill Bryson's "At Home" (pages 233 - 235). It highlights the period in America where there was no income tax or other major 'redistribution of wealth', and there was no centralized (communist) policy for money planning. Ideas and wealth (capital) were pouring into America with this more favorable business environment. The "gap" between the wealthiest people and the poorest was, of course, boundless, but the additional wealth creation came in from overseas via massive exporting, and, in addition to the entrepreneurial "rich" creating manufacturing jobs, they threw parties and built homes that created jobs, and they funded universities and hospitals to secure their legacies (as the mega-rich very often do). They also brought art and worldly treasures to our shores that sit in our museums today. Importantly at this time, ambitious immigrant workers were certainly no less "exploited" than anywhere else in the world and, unlike the restrictive class barriers and lack of upward mobility in Europe, new and existing Americans were becoming millionaires by the tens of thousands. This growth was not agrarian via slavery (this ended in 1865) or cotton, but rather industrial via steel and ingenuity and, most importantly, via the power of property rights (including virtually no taxes, i.e. "right to your own wealth") and free markets. This unprecedented growth happened decades before "the roaring 20's" of easy credit, and long before the Federal Reserve was ever created.
"The Eiffel Tower was the most striking and imaginative large structure in the world in the nineteenth cetury, and perhaps the greatest structural achievement too, but it wasn't the most expensive building of its century or even of its year. At the very moment that the Eiffel Tower was rising in Paris, two thousand miles away in the foothills of the Appalachian Mountains in North Carolina an even more expensive structure was going up - a private residence on rather a grand scale. It would take more than twice as long to complete as the Eiffel Tower, employ four times as many workers, cost three times as much to build, and was intended to be lived in for just a few months a year by one man and his mother. Called Biltmore, it was (and remains) the largest private house ever built in North America. Nothing can say more about the shifting economics of the late nineteenth century than that the residents of the New World were now building houses greater than the greatest monuments of the Old. America in 1889 was in the sumptuous midst of the period of hyper-self-indulgence known as the Gilded Age. There would never be another time to equal it. Between 1850 and 1900 every measure of wealth, productivity and well-being skyrocketed in America. the country's population in the period tripled, but its wealth increased by a factor of thirteen. Steel production went from 13,000 tons a year to 11.3 million. Exports of metal products of all kinds - guns, rails, pipes, boilers, machinery of every description - went from $6 million to $120 million. The number of millionaires, fewer than twenty in 1850, rose to forty thousand by century's end. Europeans viewed America's industrial ambitions with amusement, then consternation and finally alarm. In Britain, a National Efficiency Movement arose with the idea of recapturing the bulldog spirit that had formerly made Britain pre-eminent. Books with titles like The American Invaders and The 'American Commercial Invasion' of Europe sold briskly. But actually what Europeans were seeing was only the beginning. By the early twentieth century America was producing more steel than Germany and Britain combined - a circumstance that would have seemed inconceivable half a century before. What particularly galled the Europeans was that nearly all the technological advances in steel production were made in Europe, but it was America that made the steel. In 1901, J.P. Morgan absorbed and amalgamated a host of smaller companies into the mighty US Steel Corporation, the largest business enterprise in the world had ever seen. With a value of $1.4 billion it was worth more than all the land in the United States west of the Mississippi and twice the size of the US federal government if measured by annual revenue.
America's industrial success produced a rollcall of financial magnificence: Rockefellers, Morgans, Astors, Mellons, Morgans, Fricks, Carnegies, Goulds, du Ponts, Belmonts, Harrimans, Huntingtons, Vanderbilts and many more basked in the dynastic wealth of essentially in exhaustible proportions. John D. Rockefeller made $1 billion a year, measured in today's money, and paid no income tax. No one did, for income tax did not yet exist in America. Congress tried to introduce an income tax of 2 per cent on earnings over $4,000 in 1894, but the Supreme Court ruled it unconstitutional. Income tax wouldn't become a regular part of American life until 1914, and in the meantime any money that was made was kept. People would never be this rich again."
How strange for you to quote Bryson. I just saw him on Colbert's show tonight talking about that book. Seemed interesting, now I just may have to read it.
Striking! Back when candybars were less than a nickel; and when candybars (and almost everything else) weren't made from corn.
For the record, I agree that the period before 1913 was one of very strong growth and innovation; further, the progress made after that date was typically in spite of the Fed, not because of it. I am against central banks but not against fiat currency per se. From 1913-34 the Fed was controlled by private directors who lent mainly to speculative financial markets, creating the bubbles and price distortions with which most zerohedgers are all too familiar. FDR's 1935 Federal Reserve Act put the Fed under government control and he used that power, along with RFC, WPA, and other programs, to channel money and credit directly to infrastructure, farming, and industry, bypassing the speculative markets. He was not the first or last President to use this power. JFK started such a national banking system before they got him. Lincoln had his greenbacks system, which gave birth to the Transcontinental RR, the Land Grant College system, etc. A national bank existed during most of the period 1791-1836, the first one being established by that damned communist George Washington. The Constitution itself calls upon the federal government to create money and regulate its value and the Founders realized that the volume of money and credit should be based on the productive capacity of the whole economy (scientific level, skills, resources, etc.) rather than the prevalence of one particular yellow metal. As I understand, good ol' Mises and Hayek were against the existence of any credit - shame on them.
thoughtful response. thank you.
one more thing from me: 'Public works' programs are a "broken window fallacy". Transportation is a great example:
http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes
When monopoly central governments take investment capital away from the private sector, they eliminate jobs. Conversely, when private organizations place their own capital at risk (creating jobs), where it results in profit (and not loss), they will direct even more capital towards this area of profit, thus creating more jobs. The marketplace is happy to finance the job creation.
Government is force. Centralized government is downright dangerous to freedom. We need only look at the corruption that surrounds our federal coffers. Government, namely the enforcement of 'the rule of law' (such as property rights) in order to protect the (unpopular) individual against 'mob rules', should be decentralized at absolutely every opportunity so that we may prevent mortal men from both dictating to us and seeking to eliminate (through dire means) those who oppose them.
Our federal government now controls 'edukation', transportation, autos, finance, healthcare, military, social welfare, police (FBI & BATF), etc. Power (wealth) continues to flow in one direction towards Washington D.C. (and the financial and military industrial complexes). The result is a ruling oligarchy.
THIS IS AN OUTRIGHT ASSAULT ON LIBERTY IN AMERICA.
peace!
I'll give you a great example of why I defend the necessity of large public works. Take the case of the Rural Electrification Admin. (REA) and Tennessee Valley Authority (TVA.) During the 1880's -1930's electrical power grids centered mainly around urban centers because private utilities could earn greater profit by selling to areas of high population density (more customers per square mile means less fixed capital in terms of power lines/stations per kWh sold.) This left farms and small towns out of the equation and even in the early 30's less than 5% of farms were electrified. The power companies argued that the cost of providing rural folk with juice would be too much for the latter to pay, so the demand simply didn't exist. Men like FDR, Sen. Norris, and Morris Cooke argued that if the feds got involved it could change: if the govt took the initiative to finance the lines and stations to make power affordable to the farmers, the latter would put the power to manifold uses which hadn't existed. The farmers would then purchase electricity in large enough amounts, giving the power producers steady business and economy of scale (the load factor, in utility speak), to make the whole thing profitable. Govt credit/public works could simultaneously create supply and demand. Damned if it didn't work and from 1935-1945 more than half of America's farms got electrified, the rest coming online in the following years. The productivity gains were tremendous. As for the TVA, FDR and company contended that the bloated holding company structure of utilities sent most of their revenue to shareholders, bondholders, and directors' salaries rather than construction or R&D. Roosevelt and Cooke said power cost 2-3 times more because of this so they used experimental communities to determine the true cost of power, which became the basis for the TVA. TVA was set up as a self-sufficient corporation (after the initial fed money) that would sell power at cost plus a small profit; the private companies could either sell their power at the TVA price (half theirs) or lose customers to the new entity. The result was cheap juice for the whole country and a thriving business for the utilities.
well studied. I especially understand your viewpoint coming from an engineer. Getting a 'public works' grant is the dream of every engineer, I am sure. For my money, still, the risk of 'government solutions', even when the benefits can be more strongly debated, such as in your aforementioned example, are not worth the 99% of other times they are a fiscal disaster. We can never measure how many jobs and how much wealth was sacrificed in their place.
I am from rural America, and grew up on land that was farmed (my mother rented our front field to a local farmer). Those family friends of ours who do not work for Caterpillar tractor are, in fact, farmers large and small. So, I appreciate the story.
However, we cannot say what would have eventually happened in the Tennessee Valley. Folks have to eat, of course, so private enterprise (corporate farming, for example) may have likely (eventually) brought electricity to rural outposts that are agriculturally productive. I concede that it had not yet happened at that particular time in our history, but do not concede that it would not have happened eventually without 'public works'.
all said, if the folks of Ohio, Indiana, & Illinois wish to pool their resources in order to build a dam to support regional electricity, then I am much more willing to step aside and allow the benefits and consequences of this action to play out.
I have a huge issue with centralized (Federal) government monopolies. These involve WAY TOO MANY RISKS, regardless of the 'public works' benefits, in my mind.
As for ANY public works, they should NEVER be embarked upon with 'deficit spending' (with a surplus only, if at all), and certainly not when interest payments on the borrowed money are being sent to foreign lenders. Again, I do not agree with federal public works programs to start (as I have said, they are a broken window fallacy as they relate to 'jobs'), let alone these 'infastructure' projects that are embarked upon with insurmountable amounts of public debt.
cheers.
Definitely.
I get an incredible education here @ ZH. I'm in disbelief at times; the truth always rings with clear satisfaction.
And the rub: Gov't: the abusive husband.
Sorry for delay; FDR's had a long day of work and long evening of drinking scotch. There was no risk in the TVA, or the Trancontinental RR or Kennedy's moon mission. The fruits of those investments were as certain as the law of gravity. The main gripe I have with classical liberals/Austrians is their misplaced faith in the exchange theory of value. Broadly, this is the notion that the economic value, and hence price, of a good or service is based on what the public demands combined with the ability of businesses to produce it. By this standard hard drugs have more value than nuclear power in the modern U.S.A.: the public wants meth, coke, etc. but is scared of/indifferent to nuke plants. In short, the public is wrong and therefore the businesses catering to their demands are also wrong. Believe it or not, goods and services do have an intrinsic value, but there is nothing assuring the markets will reflect this. I saw a CNBC "expert" recently assert that something isn't in a bubble if people want to buy it; presumably this applies to real estate, Dutch tulip bulbs or anything else. A commentator on another program puzzled at how the Chinese are able to quickly build up entire regions as a dictatorship (three of whose recent premiers or presidents have been electrical engineers I would add) whilst democratic America crumbles. I am not puzzled.
of course, this is exactly the dangerously dictatorial viewpoint of which I am afraid. It is that EARNED wealth possessed by each individual within 'the public' which should allow them to spend this earned wealth in whichever fashion that HE OR SHE FEELS IS BEST FOR THEMSELVES, not what is best for you. If you feel this way, then I've got some great ideas on how I would like to spend YOUR MONEY.
How do you consider yourself 'more right' about how to spend the wealth that another individual has earned? Perhaps an indvididual prefers to spend his/her marginal dollar on, for example, (black market, artificially high-priced) heroin over nuclear power (maybe they do not care about 'the future' and are living for today). Does this give you the right to be the judge and jury by then confiscating (at gunpoint) that marginal dollar in order to spend it where you value? So you get to direct both your money and the resources of another, too, all because YOU VIEW YOURSELF as 'right' and another individual as 'wrong'? Well, how dictatorial.
What if a heroin addict dies early and helps reduce the population by spending his/her own wealth on heroin instead of nuclear power? Does that hurt you? What if you confiscate their marginal dollar instead, and a nuclear power plant is realized so that we can support even greater populations? Does this help you more (or me)? Is it the desire to expand the population that empowers you to determine what is 'right' as it relates to someone else's property (wealth)?
'intrinsic value' relative to what? Its contribution to population growth? The "value" of one good can only be measured by what someone is willing to exchange for it (which changes by the moment). So, what would you exchange for the benefit of nuclear power (population growth)? I understand that you would (generously) sacrifice a heroin addict's marginal dollar for your nuclear power agenda, but would you sacrifice his/her life, too? Would you sacrifice your own life if this was the price to obtain nuclear power for others to enjoy? If the answer is RELATIVE to your own needs and contraints, then where is this 'intrinsic value' that you speak so much of?
it is precisely your viewpoints that scare me so very much. You are doing a GREAT JOB at proving all of my points.
'Quickly building up entire regions' may or may not be the best long-term decision for China or any other dictatorial power; only time can be the judge of this, not you on this day. The USSR misallocated resources routinely by 'building up entire regions', how did that work out?
Again, even when a project proves 'successful' (although, again, we can never measure how much wealth/jobs were sacrificed in its place), this does not mean that central planning AS A POLICY is successful. Rather, it is likely that central planners 'got it right' on this very, very, very rare occasion. Again, even if 'success' were, in fact, true then this is the exception, not the rule. You point to one or two 'public works' programs and are bias to ignore the abundance of failures, some of which can result in starvation and death when central planners 'get it wrong'.
'Public works' programs ARE COMMUNISM. This is a very, very, very dangerous 'road down which to travel' (pun intended).
As for "democratic America" crumbling. ??? Aren't you clever? what planet are you on, sir?
Our country's origins are in that of a Constitutional Republic. As we continue our full sprint away from this valued model, we continue to both fail miserably and secure our place in the footnotes of history. "Mob rules" 'democracy', if that is what you wish to call it, is precisely what our Founding Fathers worked so tirelessly to prevent. Originally, only landowners could vote, for example. Today, I would simply settle for anyone who actually pays taxes, whether it be a tomato picker, bag boy, or cabbie. Instead, we have 53% of the country paying taxes while the other 47% do not. Consider that today it is easier than at any other point in our history to break a filibuster. Until 1917, there was no way to shut down debate, and until 1975, it took 67 votes; now, it only takes 60. This is MOB RULES DEMOCRACY where the majority can always take from the minority. A REPUBLIC OF LAWS, sir, was intended to protect against 51% of the people taking property from minority (even unpopular) individuals (such as those who wish to keep their earned marginal dollar to spend on heroin, to use our example).
Most importantly, we have had Communist (centrally planned) money since 1913 resulting in both prolonged booms and devastating busts (including the Great Depression and this Great Recession that is ongoing). "Public Works" programs at the federal level, including the Welfare State and Military spending, are key culprits to our current downfall. AND YOU WONDER WHY AMERICA IS CRUMBLING? It is you, sir, and all arrogant central planners with your views about why it is okay to take others property "for the good of society". Of course, it is always your version of 'good', and you insist on voting with other people's money.
As someone who makes my living trading the markets, understanding the mechanisms of cause and effect, I can assure you of this:
You may be a fine engineer, but you know absolutely nothing about economics or human nature. In these areas you are an amateur AT BEST, and you have a lot of growing up to do, too. One of these days you may not have the luxury of being on the planning side of things, but rather on the side where you are 'planned out' entirely. In your case, you will deserve it.
Sorry, its true!!!
I have yet to read from you or anyone else on this site how free market liberalism is responsible for America's historic prosperity. If government creation/regulation of money is communism, why not brand George Washington a Red for creating the First Bank of the U.S. (as I satirically did)? Protectionism is obviously against the free market, and yet we were protectionist for the most part until the 1970's; you had mentioned all the manufactures the U.S. led in by the late 19th century, many of them steel products. The steel industry grew exponentially after Lincoln's 100% steel tariff and the tycoons you listed, like Carnegie, were pro-tariff almost to the last man and the RR tycoons among them benefitted greatly from the govt land grants. The "communist" public works, supported by most presidents from Washington onward, are too numerous to mention. In the case of rural electrification, you assured that private industry would have gotten around to it eventually; 50 years wasn't enough time? Really? Maybe the reason that our infrastructure is not being maintained or expanded, our soil being depleted and drying out from lack of irrigation, etc. is presicsely because the blessed free market doesn't want to make huge initial investments in something that doesn't return the investment for decades, when quick profits are to be had from derivatives, real estate, arbitrage, etc. Your historical references aside, your outlook is the result of post-1968 cultural decadence which posits all values (economic or otherwise) as purely relative and subjective; your views have nothing in common whatever with the people who built this country up, which by your own definitions were all communists anyway. But why should evidence matter to the Austrian School partisans of this site? It is the ONLY school of economic thought which considers real world evidence to be irrelevant, preferring instead to weave a self-contained system out of logical deductions from allegedly self evident assumptions of individual human nature (based mainly on the "Robinson Crusoe" paradigm.) Technically, this means it is not even a science. Rather, it is a religious cult, utilizing the methods of the Medieval Scholastics, deductively reasoning from their Bible and Aristotle while averting their gaze from the real world. As much as you folks look at charts or cite history, this is only to be fitted into the pre-existing theories, which themselves are never subject to revision or analysis. Finally, your indignance at my policies interfering with people's Constitutional rights is odd considering that document gave the government the right in the first place to regulate international trade and the monetary system. At any rate, nobody can enjoy those rights when they're dead, and if we don't have some serious economic growth now we won't even be able to feed ourselves in the near future. But I suppose it is the inalienable right of the stupid majority to push the whole country into the abyss with us in it by refusing to allow productive investments to occur, lest it interfere with their God, the free market that came into being after our last decent leaders were gunned down in the 1960's.
great speech, FDR. I can tell that you are frustrated. Most likely, this is the cognitive dissonance taking place as a result of the internal war within you as it relates to what you wish to be true and what is actually true.
Either way, I will be fine. If you succeed in your efforts to gain $Billions in public works programs at the expense of the taxpayer, then I will continue to short the $US and buy physical gold, and laugh all the way to the bank. These are simply laws of financial physics, no matter how you wish to deny them. The facts are that the economic blunders of central planners continue to create the opportunity of a lifetime for me and my family. I thank you for aiding them (albeit at the expense of our country, sadly).
Again, you erroneously assign your wished cause to an effect rather than the actual cause to an effect. Our natural resources, in general, are being rapidly depleted because we have a central money planning policy of "full employment" which creates artificial demand and excessive waste at the expense of conservation and sustainability.
'quick profits' are only made easy due to the blunders of our central planners who punish saving and investment and reward excessive risk-taking through artificially low interest rates and artificially prolonged expansions. The booms are exacerbated along with the busts. everyone knows this but you, apparently.
I never said non-economic 'values' were relative and subjective. Socrates, Plato, Aristotle, and Aquinas would concur that certain permanent moral and political truths are accessible to human reason. Do not place words in my mouth unfairly. as for economic prices/values being relative, I have stated my case, and you have failed to describe where or why it is wrong. All you can say is this understanding has "nothing in common whatever with the people who built this country up". Well, being as I am both a descendant of William Brewster and have Cheerokee in my bloodline, and my ancestors fought in both the Revolutionary and Civil Wars, I believe I understand what my own family has achieved to help build our country better than you.
no, my family is not communist. You are. At least you admit it indirectly by desperately attempting to drag lovers of liberty posthumously into your camp of false beliefs.
What does this have to do with our conversation? Who said anything about the 'Austrian School'? Why are you attempting to label me?
'public works' are not productive. this is a 'broken window fallacy'. conversely, private investments are either lost or they create jobs that are happily financed by customers. "Public works" always cost jobs, it is only a question of how many.
Then you'd better prepare to either starve of adjust your plans; because our 'growth' has been largely a result of artificially induced and prolonged expansion made possible by fiat money, fractional reserve lending, and central money planning. We can also blame dunderheads such as yourself for empowering central planning such as the Welfare State and 'public works' projects. It is now virtually impossible for any policy decision to reverse the inevitable contraction. However, it is entirely possible that, like FDR's "public works" programs during the Great Depression, policy decisions may continue to aid in prolonging the Next Great Depression.
A few more words about central planning and regulation:
The (failed) SEC, for example, is yet another case of failed central government planning. Do you believe the SEC should be rewarded with more regulatory authority now?
Further, the TBTFs (Wall Street industrial complex) are an extension of central money planning (both The Fed Bank and its issued FRNs as 'legal tender') and central government regulation (moral hazard of FDIC insurance). For those who rant about how the SEC fails to adequately regulate the TBTFs, this is to focus on the symptoms rather than the cause, which lies squarely with communist/centralized money planning, fractional reserve counterfeiting, and fiat (faith-based) paper money.
Of course, in a productive environment intranational regional economies are open to competing currencies, including gold and silver. Further, fractional reserve lending is outlawed. In essence, if folks wish their money to be lent in order to earn interest, then they buy bonds. If folks wish to protect their wealth, then they hire a safety deposit box or buy a safe. Citizens can police their own bonds, or hire someone else to do this on their behalf. Most importantly, everyone has the freedom to fail.
Stock and derivatives exchanges can police themselves, too. If they do a poor job of policing the publicly traded companies listed or individuals trading on their exchange, then folks are free to boycott this exchange and seek investment elsewhere (which is what we are seeing now). Any exchange, for example, that polices against fraud (including such participant reducing activities as HFT) will be rewarded by gaining participants. Currently, the NYSE has failed miserably at this and is suffering the consequences. The CME Group has done slighty better (for example, they have never experienced a counterparty default during any crisis or otherwise), but they are now suffering a drop in participation due to allowing HFTs to 'co-locate' and gain other advantages over the broader market.
DECENTRALIZATION and DEREGULATION are the solution. Both include reducing the power of central planners in favor of liberty. Both are the optimal solution for a strong foundation for economic prosperity. Niether can be achieved without the other, or by halves. A return to these principles sooner rather than later will be an enormous step in the right direction. However, this is unlikely due to those individuals who think like you. Most importantly, non of this is possible as long as the big government that you empower continues to grow in its various monopolies and controls at the expense of freedom.
At the end of the proverbial day, I know that it is impossible to 'change your mind'. You have an entire identity based on false beliefs. However, to change those viewpoints, you would need to let go of your labels, reverse engineer the psychology that caused you to arrive at (or be programmed with) these beliefs, and then rebuild your understanding upon reality. Of course, this is unlikely to occur.
Either way, I will be fine, because I understand the mechanisms of cause and effect. The policies of The Fed and this Presidential Administration have made it very easy to position a portfolio for profit, if only by acting on pure common sense. I expect this to continue until the inevitable failure of our current communist money system. To be clear, communism and corporatism are precisely the same thing, which is to say that a handful of individuals are circumventing and undermining free trade.
As for you. I am sorry that your entire identity is built upon a lie. You are not alone, as there are many products of our communist skool system who have been programmed similarly to how you have been programmed.
So, I will see you at the polls! OR, when a revolution occurs, I will see you in the streets!
GOOD LUCK, you're going to need it. ;)
A good engineer should know what constitutes a standard. Explain to us mere mortals what the "standard" means in a "standard of living", and explain how it's a standard at all?
And with that, you're really not comparing the same thing. A good way to think about this is that in 1900, a dollar would buy you MORE contemporary scientific advancements than a dollar in the 1960s would buy you.
Explain why the third world today suffers from poverty unknown to the privileged western powers, though scientific advancements beyond their wildest dreams exist? The answer is because their money isn't worth enough to buy our scientific advancements. So whether they exist or not is irrelevant in the big picture, because the relevance is whether the value of the money system is at par with a reasonable level of acquisition of said technologies.
Last, to claim that scientific advancements are "all that" betrays an ignorance of the ingenuity of early America. They may not have had ipods engineered by imported Indian labor, but that doesn't make them dumb. When things fall apart, you'll wish you knew what they did - how to live without a government crutch and a scientific centralized food supply to sustain you.
So much for engineers.
Edmon,
Engineers understand boundaries and limits. Everything they do (I am one) is an attempt to push at a boundary or make something that works within it. It's true for all engineering tasks, fractally speaking.
Finance has two things alien to engineers:1) No limits (long cycle limits, but look how long we've dragged this one out) and 2) Arbitrage. Engineers work on compromise, finance/business works on arbitrage.
Funny thing, this entire mess has been enabled by engineers (HFT/Algos's/dark math etc.).
ORI
http://aadivaahan.wordpress.com
FDR,
The Federal Reserve was not responsible for the technological progress which created the increase in the standard of living during the twentieth century. The standard of living rose dramatically during the nineteenth century (Industrial Revolution) but there was a mild deflationary trend during that time.
Without the inflation deliberately fostered by the Federal Resereve the increase in standard of living during the twentieth century would likely have been even more impressive and the disparity between the rich and the poor would not be as massive as it is today.
The Fed is a tool of oligarchy. He who defends it is no friend of the common man.
One could easily argue that improvements in standard of living came despite the existence of the Federal Reserve and all the quasi-socialist 'blessings' bestowed on 20th century United States of America by progressives and their willing accomplices.
Are you arguing that there was no standard of living improvement in this country prior to the establishment of a central bank and the fiat money system it brought about?
thing is MrFDR fiat works fine for .. a while.. maybe a few decades.
then it gets abused by ... anyone with marginal abuse rights
gub program balloons .. only one way to keep the Zeppelins flying
after a few decades of exponential deficit gap fills
you get to
the
end
of life as fiat knows it. used, abused,,, shagged out
the 60s, fiat's sweet spot
.
Finally! Someone practical. Doesn't matter "the value of money"...car's still gotta run, don't it? The Nazi's didn't have money "but their cars sure ran great" so to speak. The point of ZH and why you were junked though not by me is "we are operating on theories" relative to money. This in and of itself is "very scary." But the "biggest theory of all is one of deflation" and what is called "pushing on a string." This theory states that "we must print our way to prosperity and whatever the deleterious consequences we can handle that." Right now it sure looks like we're "poking Godzilla in the eyeball" and "have been for some time now." This is the problem with theories...there are facts that go along with them..and if we do not wake up to these facts..well, maybe Godzilla will do more than simply eat our Fed Chairman since he's "but a snack." Maybe "he'll devour Massachusetts." As an engineer I thought you might be interested in "the practical guide to being a ZHer." Now by all means...join the party.
yeah man, ruining a world class culture and monetary system for a few decades of cheap thrills before a horrible collapse is sure worth it!!!!11
i have a feeling that something appealing to mainstream tastes will not be terribly appealing to folks here. well this is the chance to put that to the test: a playlist inspired from my little sister's itunes. i present a grab bag of jam bands, hipster rock, sad songs, old songs and rap.
coisas da irmã (a playlist):http://www.youtube.com/view_play_list?p=B66475A34C59B734
"Invalid parameters".
Here's my musical contribution:
http://www.youtube.com/watch?v=qC_hF31z130
Or, how about some Always Sunny comedy to lighten the mood instead:
http://www.dicktowel.com/dicktowel.html
Shit man. I was into that Bassnectar. I had only a few weeks before I loved me some "Blast Off" and "Timestretch".
Coisas da Irma = Things of the Sister. Now you've struck my interest from knowing Portuguese as a second language.
http://www.youtube.com/view_play_list?p=B66475A34C59B734
sorry about that, dont know what happened...and keep the contributions coming, team effort!
http://www.youtube.com/watch?v=HIofSxwkkQE
http://www.youtube.com/watch?v=_3EXHdT8DKM
http://www.youtube.com/watch?v=PT3B1EN4rXc
I'd add more but I'm sure you will delve further without my assistance if you haven't already been there before.
I find you laughable as an engineer.
+1
Highly recommended reading..... Hyper-i in a deflationary context, none of the central bankers have noticed.....
http://www.bloomberg.com/news/2010-10-15/fed-wants-to-hoodwink-public-fo...
Can someone please tell me in plain English what exactly is being measured in the Declining Volatility in Nominal Growth graph??
It says "Rolling 15 year standard deviation in nominal growth" as measured by "industrial production YOY% + Consumer price index YOY%"
HUH?
Why would you combine Industrial production index and Consumer price index? Shouldn't you isolate one or the other? Is the author saying the FED smoothed fluctuations in rate of change of production, or is he saying it smoothed the rate of change of prices? How are the two anything but independent variables?
Whenever I see this kind of stuff, I automatically think that someone is simply trying to make a pretty graph. Can anyone tell me where I'm wrong?
They seem to be doing a good job keeping price stability on the downside, but not slowing any price fluctuation on the upside (bubbles).
Forget about the graphs for a minute and think back to a couple of generations ago. Then pepole could have a few kids, pay off thier home and maybe even have a vacation home on one blue collar income. Now both parents have to work to pay thier underwater mortgage.....that is the destruction of the dollar purchasing power.
I beg the question, what is wrong with some managed deflation?
After Bush Sr. set up the liquidation process for the S&L bust and cleaned up some balance sheets, the foundation was set for the massive growth of the 90's.
FED have no balls to force painful decisions that have longer term benefits. After 30 years of rapid debt accumulation...pain is coming one way or another. I prefer the one that rewards savers.
great response "Djirk." rhymes with something though you need not infer anything from that. "no balls" is one way of looking at "creating the conditions for an equity driven economy." i believe that is the INTENDED consequence of Bernanke's actions as inferred by his retired boss Alan Greenspan (who had balls so big he broke all the banks of Wall Street!) it is now succeeding. as i've said before "the surgery is successful...but the patient died." there are as will all these experiments "unintended consequences." we follow ZH for "the big ones." when a state attorney general comes on your site and "orders people to hit the complaint button"--you've REALLY done it! Don't get that on CNBC or SA! When it results in a "Presidential Veto"--PRICELESS! And with the Prez "on vacation in Hawaii for the next 2...years" who will be in White House to "run things." I think I know and I think "all of us are going to know soon."
oh well
I remember 1913 well. Only way to get around was to walk or horseback. Watching silent movies with a piano player keeping time. Children dying of strep throat and whooping cough. Adults dying of pneumonia. No real "medicine" per se, just hope. Roads paved with, well, dirt. No cars. No air conditioning. No Twinkies.
Good times.
Are you suggesting that the Fed is what brought all this advancement about.
Perhaps, just perhaps, we could of achieved all of this and 100x more without the fed.
+1
...probably have a cure for cancer by now.
ZH is infiltrated with the tools of TBTF ,, can you tell who they might be..is that you Liesman?
Ya. All enhancements in health can first and foremost be attributed to the refigerator.
yadda, yadda, yadda....How can the trillions in bonuses going to a few members of the Tribe be stopped?
That's what we really need to know.
Must they be smitten with a mighty sword?
"Which is simply all the more reason to disband the most destructive central-planning organization in the history of the communist world."
Exactly.
I don't know. It seems more like "The Fed Chairman in His Labyrinth" or possibly "The Story of an Economic Death Foretold". Either way.
Really this is a great post from an expert and thank you very much for sharing this valuable information with us.
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