Topic: Bitcoin as a GET System (Read 18433 times)

I agree that any government metric should be doubted, in fact I am a big critic of the CPI. But the point is that macroeconomics uses the terms price inflation and price deflation to refer to the prices of the CPI, and using it in another way just adds confusion. There is no doubt that house prices are down (and they still have some way to go), there has been an stock crash (and another might be coming, probably smaller though), and day to day consumer goods prices (CPI goods) have remained flat. Semantical discussions are a bit pointless in my opinion and I prefer to use the definition the majority of economist use.

And yes, the gov CPI is a big scam, but because the CPI is always reported lower than it is in reality! not higher. This happens thanks to the hedonic method and other inventions. Check shadowstats.com : http://www.shadowstats.com/alternate_data/inflation-charts You can see that even during this crisis prices have been rising quite fast, which matches better the real life impressions. This CPI manipulations allows the government to pay less in its obligations like pensions, because they are updated by the CPI. Also, the real GDP number is corrected by the deflactor that comes from the CPI. If the CPI is lower than it should the real GDP number is bigger... By just changing a method the economy is "growing" faster! Isnt government statistics great?


And the panic of 1907 was only possible because of the banking laws approved by Lincoln at the end of the civil war, that centralized the credit around the New York banks (one of the main reasons Wall Street grew so big).

The most funny thing about all this is the legend that Herbert Hoover was a free market proponent and did nothing when the crash of 1929 happened. Hoover was the Secretary of Commerce when the 1920 crash happened (and btw, the 1920 crash happened because of the bubble created by the Fed to finance IWW) Hoover urged the president to intervene the economy and raise gov spending. But the president dismissed Hoover and listened to his Secretary of Treasury, Menlow, who recommended lowering taxes and lowering gov spending. The crisis was over quick. Hoover tried to intervene and created some government programs from his position as Secretary of Commerce, specially subsidizing farming businesses, but he had not enough power and did not had a significant impact in the economy.

Fast forward to the 1929 crash, and now Hoover is the president, and Menlow is still the Secretary of Commerce. Menlow again recommends the president a non interventionist approach to the crisis, but Hoover is a staunch interventionist, and not only dismisses his advice, but also teams with the Subsecretary of the Treasury to implement the measures that Menlow was refusing, in effect putting Menlow out of power. Hoover even said that he was going to put the USA government to work like never had been seen before. And he did.

But Hoover's rhetoric used the market language while FDR rhetoric used the labor language, and because of that some historians portrayed Hoover as a non interventionist free market supporter, when in reality it was the opposite. In fact, FDR accused Hoover repeatedly during the campaign of being an interventionist and that it would prolong the crisis (for some reason he changed his mind once he got in power). Even one of the subsecreatries of Treasury of FDR said that Hoover reforms where a big help and that the FDR just renamed and continued most of his programs.

It is so ridiculous to portrait Hoover as a non-interventionist...

The official CPI is a government metric, and should be suspect.  It does not include energy or equities, and only considers real estate indirectly via 'owners equivalent rent' which (presumedly by design) tends to dampen the effects of inflation or deflation upon the real estate sector.  There are better metrics to base your opinions upon.


Indeed.  I find that it's incredibly difficult to get people to consider the motivations of the creation of the Fed, beyond the official story.  The idea that the Panic of '07 was so terrible, but it only lasted for a year.  And during the depression of 1920, the Fed did nothing at all, and the economy recovers in 18 months.  So what was different in 1929?  The classic story that the Fed waited too long to provide stimulus is historicly dishonest.  The reality is that the Fed was stimulating for several years leading up to the crash, mostly by keeping the interest rate too low, encouraging risk-taking.  As the cracks started to show in the economy, the Fed started to tighten up, triggering the crash themselves.  We would be better off without monetary management, but like anything else, it's very difficult to get a professional to admit to any client that his services are counterprodutive; or even unneccesary.

In macroeconomics, price deflation is defined as a decrease in the general price level, meaning the CPI. There has been a stock crash and a housing crash, but there has been no significant price deflation. It really is a stupid issue, since its only a definition. I dont really care about the definition as long as everybody knows what its happening in reality, but using standard definitions makes everything easier.

There should have been price deflation but the government has stopped it.


This is something very few people understands for what I've seen. The government could print more and create more price inflation, but they fear the consequences this could have in 1 or 2 years, because it could even create hyper-inflation as you said. But for some reason, people has a big problem understanding this.

Except for the pesky little fact that the Fed isn't neutralizing the deflation.  The deflation is here and now, reflected in the falling real estate values, the drop in state sales tax revenues, the rapid contraction of credit outstanding (due to both mass bankruptcies and a sea change in the public towards austerity) and vast unemployment and under-employment.  It's not that the Fed is incapable of creating enough new FRN's to come close to what you seem to believe that they already have done, it's that they fear hyperinflation in a couple of years as a direct result.  The things that they already have done, although they would be vastly inflationary under other circumstances, have done very little towards replacing the contraction in credit extended by the Fed's member banks.  2009 was the first year in two decades that American's were net savers, and that was by a measly 1%.

It is in the best interest of the political powers, in the near term, to compel the Fed to participate in stimulus.  But to do more than the appearance of complying risks the hyperinflationary death of the currency.  Since this would spell the end of the game, the Fed, and the private banking interests that they represent, are simply not willing.  I see no conditions that could change that in the foreseeable future.   

Absolutely.

We should be having major price deflation. Instead printing is neutralizing it. There is not a vacuum large enough to bring it all back in. The next boom is the crack up boom, imo.

Amen.  Red, you should also consider the flip side of price deflation, for there are always winners and losers in the ebb and flow of a free market.  During price deflation the losers are banks and businesses, for neither can sell their wares for as much as they once could.  But who, then, are the winners?  The consumers who can, temporarily, buy more groceries or a better car or a newer home for less money than they could have before.  This is when the prudent saver is rewarded for foregoing the high life during the boom.  Said another way, the Fed's basic mission, to avoid deflationary cycles, known in our modern economic speech as a "recession", is to, openly and without pause, benefit finance and business at the expense of everyone else; forever.  They haven't been very successful at that, but it is not for a lack of trying. 

If you would rather die than pay for your own health care, then you will die, for it is not free.  Someone else must be taxed to fund your care, just as you will be taxed to fund the health care of others. There is no such thing as a free lunch, nor free health care. 

So? Price inflation is a bad thing, it creates bubbles and deindustrializes a country (its one of the main reasons the jobs are going to China). Price deflation is one of the signs of a sane and healthy economy.


The real goals of the Fed are not those, but even if they were the Fed is a complete failure:

There has not been stable prices, on the contrary, since the Fed was founded the dollar has lost 95+ % of its value. Housing became totally unaffordable, the difference between the rich and the poor has widen (again, it happens always when inflationary policies are pursued), etc...

There is not maximum unemployment and crisis have become deeper and longer, so people go without a job for longer period of times.

Moderating long-term interest rates is something the Fed has done, but its actually a bad thing to do, because if a form of price control and messes up the economy.

And the promotion of sustainable economic growth is laughable seeing how it has turned an industrialized country into a deindustralized and completely debt dependent country.


Where did the money to do all this came from? What would have happened if the Fed did not supplied cheap interest rates to Wall Street and the rest of the banks? Why do you look at the symptoms but dont look at the root?

I would rather die without any nonfree medical treatment than to pay for my health. I appreciate Japan's health industry.

Who says that it has to suck?


You have your causes and effects mixed up.  The Fed forced rates below the market value during the post-Y2K recession in order to 'stimulate' the economy, and kept those rates artificially too low for too long.  Unnaturally low interest rates encourage indebtedness and risk taking.  Yes, fradulent criminal elements took advantage, but that is what always happens.  The root cause is always the manipulation of the markets, and that is solely the Fed's doing.  There is always someone in a position of power that stands to gain from market manipulations, otherwise those events wouldn't happen to start with.


You're a bright man, Red.  (At least I assume that you are a man.)  But you have fallen victim to the image.  The fact that some industries are doing okay is in spite of the manipulation, not because of it.  And that may yet change, as different industries tend to be affected in differnet ways.  There is no area outside of the 'game'.


Again, you are mixing up your causes and effects.  Yes, higher education costs rose as a direct result of the easy money available from student loan programs.  Yet, that money is only backed by Sallie, not loaned by it.  Student loans are funds loaned from private institutions, mostly those same banks, whose own borrowing costs were held artificially low by the Fed for too long.  Follow the money, and it always leads back to Fed manipulation of the availability of credit, usually via the prime interest rate.


American medical advancments have been huge over the last several decades, but the costs associated with them still have to be paid by someone.  Who paid the money, and where did they get it?  Much of the cost increases in medical care occurred on the "you need to do this or you will die" end of the spectrum.  Some of that was borne by insurance companies, which in turn passed those costs onto the pool of covered via higher premiums.  Some of it, however, was borne directly by households.  The doctor says that grandpa is likely to die without a new kidney, and Jr is a match, but the cost of the operation is still more than the value of everything that grandpa owns.  So how does the family get the money?  They aren't going to let grandpa die if they can work it out, so Jr's sister and her family get a home equity loan on the inflated value of their home, and suddenly the money is now available to save grandpa.  Of course, that equity value was an illusion created by Fed manipulation over the previous several years, and the money loaned to Jr's sister was also money borrowed from the Fed at an unnaturally low interest rate by her bank.

Now grandpa is broke, and so is Jr's sister.  And Jr is screwed if he has a similar medical need when he hits 60.  But at least the medical professionals got paid.

See how this works?

In the us. Lived here for lots of years. It still doesn't suck where I live.


Real estate spiked mostly in particular areas, CA, FL, AZ, NV. It wasn't the Feds doing. It was wall street's fuckup. It is very simple to understand and explain. The actual criminals were mortgage brokers who didn't vet loans. They basically gave out loans to anyone then sold them the same day to Fannie, Freddie, and real estate trusts. Bankers bought in to wall streets fuckup. It turns out letting them do that was a bad thing in retrospect. To big to fail served us just as well as it served the soviet union.

Yes there was a central policy fuckup, but it was that the government should be in the real-estate business without paying any attention. It wasn't the Feds fuckup though. Outside of the areas being gamed things remained stable.


Education is again a central planning fuckup and an organized scam. But it isn't the Feds fault either. Sallie allowed any crappy fake university take government backed student loans. This increased competition, but again it was competition against state supported universities. Who then just raised their prices to cover losses of aid flowing elsewhere. Again, state universities are always too big to fail. Now students are defaulting at much higher rates from fake universities. So we have the big O is nationalizing the whole program without fixing any of the problems.


Medical care spiked because insurance and government subsidies make an even more horrible combination than subsidies alone. But the industry made huge improvements in care and technology over thirty years. Americans however made impressive strides in how far we are willing to go to abuse our bodies over the same time period.

This time it's not a too big to fail problem, it's a "too stupid to die" problem. Again not the Feds fuckup. If anyone fucked up, it's American restaurants for providing huge food value at minimal cost.

Are you talking about the United States, or some dreamworld?  The Fed has consistantly failed at it's assigned tasks, which are fundamentally impossible.  The free market did a better job of tempering the business cycle than the Fed, and that was it's original purpose.  In reality, the Fed has managed to extend the length of the normal business cycle to the point that it allows malinvestments to accumulate for more than a decade.  The spike in real estate values that ended in 2007 is *entirely* the doing of the Fed, for nothing but central monetary planning could have kept the prime interest rates *too* low for so long.  As far as real estate values have fallen nationwide, we *still* are not back down to the long term trendline relative to average household incomes.  That is price inflation in a nutshell, and it was in the double digits in the fields of real estate, medical technology and higher education for at least a decade; the short lived post-Y2K recession notwithstanding.  I can never understand how rational people opposed to cenral planning and price fixing in all things can be blind to the fact that is exactly what the Fed does, because that is what their mission is!

The part to the right of 1960, that excludes the 70's which sucked. But even when things sucked in the US, they sucked more in other countries at the time.

But ever since 1980, you see a consistent ability to keep inflation slightly positive, with no deflationary dips. 2010 might actually be deflationary dip, but it won't be one because of the fed.



The goals of the fed are:
maximum employment
stable prices
moderate long-term interest rates
promotion of sustainable economic growth


http://www.federalreserve.gov/pf/pdf/pf_2.pdf

What reality?

The point of the Fed system is to separate banking from politics. It deliberately makes it hard to change policy. The congress could disband the fed but reality shows that the fed is succeeding at its assigned task. Congress however is much less effective at its tasks.

It's hard for the pot to call the kettle black, when the kettle is shiny copper.

I dont agree with the above, but it does not matter at the end. You are criticizing the government rules to elect the member of a federal government agency, The Board of Governors. There is nothing private in that. One can argue that the government regulations for that agency are more or less prone to corruption. But that does not make it private.

The secretaries of the Treasury have banking employees for the last decades as well. Yet nobody is saying that the Treasury is private. To a certain point, it makes sense that central bank employees and even that treasuries employees come from finance.

The Board of Governors, the agency setting monetary policy in the USA is a federal government agency, not a private agency. Another discussion would be if the government regulations regarding that agency are better or worse, or more or less prone to corruption. You wont find disagreement with me there. I find that most areas of government are geared towards corruption and corporate profit. Also, you have to think that the legal actions of a central bank are already extremely favorable to commercial banks. One of the legal functions of a central bank is to provide liquidity to member banks of the cartel. By "provide liquidity" they mean that the banks can borrow money at an interest that nobody in the market can get. This allows banks to over-extend credit a lot a lot a lot more than they could naturally (and earn the interests), because it protects them from failure. And protecting them from failure stops competition and creates the big banks (at the end its a government created cartel of banks). And this is all legal.

Those previously nominated board members, that were ratified by the US Senate, must also be acceptable to the sitting board for practial reasons.  Again, it's impossible for any sitting president to pack the board during his two terms, so any attempt to nominate anyone that the board doesn't approve of would upset the sitting board.  If the Senate doesn't nix the nomination, then that person will be entirely ineffective their entire time.  So for practical purposes, all board members that are nominated come from a pool of acceptable employees of the Federal Reserve banking structure itself.  Which, in turn, recruits from a pool of applicants with a history of employment with the member banks.  So yes, there is and are private entities involved, and they hold most of the cards.  You are taking what is seen and drawing the conclusions that they desire that you come to, and failing to look at the unseen to understand the entire process.  The Federal Reserve system is intentionally designed to give the appearance of a government entity with a measure of independence, while for all practical purposes, they are a private business with monopoly powers.  As a wise man once said, if the common man understood how the montary system of the United States actually worked, there would be a revolution before tommorrow morning.


Yes, the federal government could revoke the charter of the Federal Reserve; and yes, the Fed does have an incentive to keep those politicians happy.  But to assume that Congress is actually in control is to ignore the obvious.  The Fed has significant influences upon a large number of members of Congress, because it's very difficult to get anyone to understand anything that he benefits from not understanding.


Bernanke is the front man for banking power.  That is the point that I was trying to make.


To varying degrees, yes. 

The president can only nominate to Chairman someone who is already part of the Board of Governors, correct. But all the members of the Board of Governors are previously nominated by the president and ratified by Congress... I am not discussing how great or bad this works. All I am saying is that there is no private entity involved in the process. Whatever the rules are, is a government issue.

The Board of Governors of the Federal Reserve is a federal government agency, and is the one setting the policy.


Take it to the extreme. The government created the Fed. If the politicians are not happy on how the Fed operates they could decide to change the law. Check Ron Paul recent Audit the Fed bill that had great support among congressman until it was taken down. The Fed knows that all its power, the monopoly on money, comes from the government. So its in its own interest to keep politicians happy.

That said the bill Audit the Fed failed because there was evident pressure on Congress to not audit the Fed. And that pressure did not come from Bernanke, but from banking power.

Again, I honestly think that saying that the Fed is a private institution is highly inaccurate. About who controls who... I think we might have slightly different suppositions on how that works. I think we can agree that banking power controls both.

Well, yes.  It's a public/private arrangement.


Yes, but the president can only nominate from within the ranks of the sitting board.  It's as false as the choice of voting for or against your local representative.  By the time the public gets a say, their choices are effectively reduced to only two people, both of whom are already parts of the political machine.  This is not similar to a Supreme court nomination.


Only to a point.  If he were to fail to get renominated by the next president, he would *still* be a member of the board until his original 14 year term was up.  He may risk his position by upsetting the politicians, but not his paycheck.  This gets back to my comment about the tail wagging the dog.  The Senate *does not* have the power to affect the personal finances of the members of the board by *any* legal process; but the reverse is not true.  The decisions of the board can dramaticly affect the personal finances of the members of the Senate in the same way that they affect the entire nation times the size of their fortunes.  Who do you think has more power? 


I think that is a fiction.

creighto, yes we are discussing the exact tonality while we agree in the color. But for the sake of it:


You could say that the Federal Reserve is a mixed thing:

- The local Federal Reserve branches are "private". And I use brackets because its not private in the common sense. The system has its unique government regulations, for example, the private banks that own the stocks can not sell them. So this "private" system does not operate under the market rules, and certain sentences have declared that they are not even private but a mix of private corporations and government entities, because of the unique regulations they have to obey. Also, bear in mind that the local Federal Reserve branches are not the ones that decide the Federal Reserve policy.

- The Board of Governors of the Federal Reserve (Bernanke and the rest) is a federal government agency. Wikipedia is not the best source, but hope its enough for this: http://en.wikipedia.org/wiki/Federal_Reserve_System#Board_of_Governors (or you can do your own research). The Board of Governors is the one that decides the Federal Reserve policy. The members of the Board of Governors are nominated by the president and ratified by congress. And yes, once they are nominated they are supposedly independent from political pressure. But its not true that the Fed is politically independent, f.e. Bernanke knows that to be re-elected again, he has to please the politicians.

So I think its very inaccurate to say that the Federal Reserve is a private institution. You could argue that its not a 100% government institution, that its a mixed thing between private and government, but still the government is the one holding control over the institution that sets the policy. If you want a more exact and legal approach, check this: http://mises.org/daily/4171

So I would say that the political system holds good power over the Federal Reserve. That is not to say that the corporate system does not benefit or controls the Federal Reserve. They do, but I think its mainly through the control they have over the political system.