The Federal Reserve: Love it or Hate it

[Kaj]

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For the austrians here, what statistics should we be using to measure the health of an economy?

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This is like asking the Austrians, "Ok, so if you don't like democracy, how SHOULD we pick our national leaders?"

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I'm pretty good in ACese, but this flew completely over my head. You guys keep saying how everyone's life will be better under AC, but where would the evidence show up?

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It's about freedom, not increasing some economic metric. Improving quality of life is a bonus.

If I could make you my slave and our combined income was higher than it was before you were my slave, I have not justified slavery. Yet this is how most people view economics.

[Copernicus]

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I agree with you, the dollar has tough times ahead, but it has nothing to do with central banking, but the economic disaster that a Democratic administration could bring.

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You need to have your head examined. The loose monetary policy of the Federal Reserve via the massive creation of money and credit is what is causing the dollar to tank. M3 growth is over 13% and will be 20% by next year (shadowstats.com). We are only in the 2nd or 3rd inning of this ballgame. Gold is going well into 4 digits and the Canadian will be at $1.25.

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and this same bs has been spouted for the last 35 years, while gold tanked. Someday someone will even be right.

[Copernicus]

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Gold has tripled in recent years because it was such a terrible investment prior to that. It has barely returned to its 1980 price.

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Well why is it no longer a terrible investment? <font color="red">This is a speculative statement. All you can ask is "Why was it not a terrible investement for the last 3 years." It may or may not be a terrible investment now. </font>

Also, what does this period and that period have in common?
"Friedman also alleged that the Fed caused the high inflation of the 1970s. When asked about the greatest economic problem of the day, he said the most pressing was how to get rid of the Federal Reserve." <font color="red"> The high inflation of the 1970s was a compounding of many different factors, including some missteps by the Fed. </font>

Also, you think USD are worth as much now as they were in 1980 relative to all other goods and currencies?

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<font color="red">relative to "all" other goods and currencies? Obviously not. relative to the majority of other goods and currencies? Yes. The raising of the worldwide standard of living, which is reflected in those relative market basket statistics, is in good part attributable to the strength and breadth of the US economy. Relative values of the dollar to other currencies is meaningless. If Luxembourg discovers and sells uranium reserves and its already leading GDP/capita triples and its distributed to every citizen, what does that say about the US? Nothing. It is absolute purchasing power and standard of living that matters, and the US is still a world leader. </font>
I agree with you, the dollar has tough times ahead, but it has nothing to do with central banking, but the economic disaster that a Democratic administration could bring.

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lol. right, thats the only reason. <font color="red">not the only reason, but the primary reason. </font> Should republicans come in for another term there will be no housing crisis <font color="red">there is no housing crisis...yet. </font> , no credit crunch <font color="red">this will clearly be exacerbated by higher taxes and wealth transfers </font> , no entitlement obligations to wane in, <font color="red"> yeah, and the Democrat record on entitlements is exemplary </font> no increase and actually necessary decreases in federal spending and/or bureaucracy, <font color="red"> read the platforms and you decide which party will spend more. Look at the current Congress and tell me about how much more effective they are in reducing bureaucracyt </font> no costly foreign military and political obligations, no inflation, and no abuses from foreign debt holders? <font color="red"> if you think the Dems are better for the US economy, Ive got a bridge in Minnesota you may want to buy, it needs some minor renovation </font>

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I don't speculate in currencies or commodities, the markets are too susceptible to manipulation and psychology. I much prefer simple hedging strategies that are low risk and relatively high return.


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Manipulation from who? Didn't you just say there was free competition in the market and freak out at me for claiming otherwise? <font color="red"> link? </font>

Psychology is what makes opportunities for profitable investment. Your rational market analysis should be taking advantage of my irrationality. <font color="red">this is only true of a large investor with long time horizons so volatility is less important. for an individual investor managing risk is far more important. </font>

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I much prefer simple hedging strategies that are low risk and relatively high return.

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So hedge your bet with me if you want somewhere else. I dont care. Why are you actually so afraid to put your money where you mouth is?

[/ QUOTE ] <font color="red">I already told you, I dont speculate, and that I agreed with your short term assessment, so why would I bet against something I agree with? Reading comprehension problems? </font>

[DcifrThs]

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supply and demand. this is the very basis of why we need some sort of management. read the post above i quoted. flexibility is necessary.

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Precisely why the fed is bad. The fed doesn't offer flexibility it offers one solution to a nation of differing problems. There is ZERO reason that competing fiat monies can't exist the way that competing TV sets do. The fed prevents this and thus prevents the flexibility of people choosing between differing options.

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you are taking it literally. i'm using it as an example as to how "bad management" is actually irrational. for exmaple, why is it that the average mutual fund investor does FAR worse over time than the average mutual fund even controlling for dollar weighting?

because of the above extrapolative fallacy. people move money into mutual funds that have recently performed well in the past and out of mutual funds that have recently performed poorly (thus extrapolating that their performance will continue). people would do better if they just left their money in the fund.


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Why is it that people are heavily invested in the stock market when they don't understand it at all?

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do you believe in capitalism? should investors by compensated for taking risk?

if so, then you clearly see why investing money passively in the stock market (and other markets in a diversified portfolio) is clearly better than leaving your money in your desk. over time, you earn a risk premium that you don't need o understand to receive.

if you don't see that clearly, then we have to take a step back to think about why that is the case.

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Centralized banking like the fed has eliminated alternatives for the middle and lower classes to save money.

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if the working and middle/lower classes have a choice between earning nothing on their money, and earning something by investing, why would they consider earning nothing by hiding it away?

what in the world has the fed done to eliminate the ability of anybody to invest in anything?

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You can't hide it in your own home without losing money on a regular basis, and competition between banks is limited by federal regulations keeping interest payments that banks will offer much lower than inflation (internet banking has started to alter this and pushed interest rates up). A heavily inflated money supply has forced people into vehicles they don't understand .

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again, you don't need to understand anything about how stocks, bonds, commodities, etc. are priced in order to earn a risk premium.

EDIT: in order to maximize yoru risk adjusted return, yes, you do have to understand asset pricine and performance expectations etc. (or find soembody who does and pay them), but to earn a 0.30 sharpe ratio over time, you certainly don't need to understand anything tough about investing that couldn't be explained in an hour to anybody.

high interest rates (risk free rates) hamper investment and reduce economic activity for a few reasons. first, individuals, when choosing between consuming and saving, will choose saving over consuming marginally more than with a low interest rate. that will reduce earnings for companies and demand for their products. further, the cost of new projects will be higher and higher returns wil be demanded for taking them on.

without a managed economy of some sort, interest rates would move around a ton more and this tradeoff would be very volatile. sure, for a time, your average joe would earn a real 5% return in the bank (or 8% or whatever), but then demand for goods would fall, companies earnings would fall, investment would fall, the demand for money would be reduced and interest rates would come right back down hard and fast.

why is that a good thing?

Barron

[Zygote]

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Well why is it no longer a terrible investment?- This is a speculative statement. All you can ask is "Why was it not a terrible investement for the last 3 years." It may or may not be a terrible investment now.

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Okay why was it not a terrible investment for the last three years. Also, I am speculating based on my market analysis that it continues to be a good investment. Do you not think im ignorant and disagree with me?

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relative to "all" other goods and currencies? Obviously not. relative to the majority of other goods and currencies? Yes.

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ummm... no! the only time price decreases have occured is when production efficiency improvements outruns inflationary pressures.

Have you ever looked at the CPI or forex values over this period? Although CPI decreased in percent, prices have not maintained their value and there has always been a positive CPI. The USD index is hard to measure with other currencies having different structures through the period but USD has net declined since but no where near as much as it will since this decline wanst fully absorbed since China has accumulated so many dollars to lock away.

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The raising of the worldwide standard of living, which is reflected in those relative market basket statistics, is in good part attributable to the strength and breadth of the US economy. Relative values of the dollar to other currencies is meaningless. If Luxembourg discovers and sells uranium reserves and its already leading GDP/capita triples and its distributed to every citizen, what does that say about the US? Nothing. It is absolute purchasing power and standard of living that matters, and the US is still a world leader.


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i never said anything was wrong with the US economy underlying strength per se. The problems are sourced to monetary policy and fiscal policy.

I agree with your Luxembourg analysis but i dont see the point. The index of other items relative to USD have increased in value due to US inflation. If you want to make a case for otherwise and discuss the other factors for this secular trend outside of monetary policy, be my guest.

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I agree with you, the dollar has tough times ahead, but it has nothing to do with central banking, but the economic disaster that a Democratic administration could bring.

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nothing to do with central banking? How did the housing bubble start? What happened in this last republican administration? When did i say things would be better under a democrat?

Im saying US is screwed, regardless which party wins, unless they get a fiscal and monetary hawk like Ron Paul in.

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there is no housing crisis...yet.

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Okay. Lets call it a bubble with a few needle pricks.

Why do you think the fed still considers inflation its major bias but wont raise interest rates?

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this will clearly be exacerbated by higher taxes and wealth transfers

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so?

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yeah, and the Democrat record on entitlements is exemplary

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who ever said that?

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read the platforms and you decide which party will spend more. Look at the current Congress and tell me about how much more effective they are in reducing bureaucracy

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platforms and action are two different things. though again, we;re screwed either way.

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if you think the Dems are better for the US economy, Ive got a bridge in Minnesota you may want to buy, it needs some minor renovation

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if you think putting words in my mouth is a good way to argue then ive got a bridge in a Minnesota you may want to buy. You obviously believe central management is superb.

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this is only true of a large investor with long time horizons so volatility is less important. for an individual investor managing risk is far more important.

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that is not only true for a large investor. its true for anyone. its got to do with expected value.

further manipulations are often the best opportunities to make money because they cant manipulate forever and you can exploit the manipulations too in a variety of ways.

Lastly, if you want to manage your risk go ahead. Get some options or make a play on the VIX or watever you want.

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I already told you, I dont speculate, and that I agreed with your short term assessment, so why would I bet against something I agree with? Reading comprehension problems?

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if republican other than Ron Paul is elected will you take the bet?

[Copernicus]

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Why is it that people are heavily invested in the stock market when they don't understand it at all?

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Why do people drive cars when they dont know the difference between an engine and a transmission? Because it has utility.

[Zygote]

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Why is it that people are heavily invested in the stock market when they don't understand it at all?

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Why do people drive cars when they dont know the difference between an engine and a transmission? Because it has utility.

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who said that quote?

[Copernicus]

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Well why is it no longer a terrible investment?- This is a speculative statement. All you can ask is "Why was it not a terrible investement for the last 3 years." It may or may not be a terrible investment now.

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Okay why was it not a terrible investment for the last three years. <font color="red">Because it was. The "gold gurus" have been touting it for 30 years, they finally got it right. Since their analyses were wrong for so long, clearly they were missing some aspect of the gold market and whatever they were missing changed. Thats why its speculation. </font> Also, I am speculating based on my market analysis that it continues to be a good investment. Do you not think im ignorant and disagree with me? <font color="red">I don't know your financial situation to know whether speculation makes sense and for how much of your portfolio. I do know if you think that youve got some insight into the gold market that will beat the market over the long run you are deluding yourself, and if you think youve got some insight into the gold market that isnt priced into the market you'll do better after transaction costs betting don't pass and taking full odds. </font>

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relative to "all" other goods and currencies? Obviously not. relative to the majority of other goods and currencies? Yes.

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ummm... no! the only time price decreases have occured is when production efficiency improvements outruns inflationary pressures.

Have you ever looked at the CPI or forex values over this period? Although CPI decreased in percent, prices have not maintained their value and there has always been a positive CPI. The USD index is hard to measure with other currencies having different structures through the period but USD has net declined since but no where near as much as it will since this decline wanst fully absorbed since China has accumulated so many dollars to lock away.

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<font color="red"> all of which doesnt say a thing about my comment. </font>
The raising of the worldwide standard of living, which is reflected in those relative market basket statistics, is in good part attributable to the strength and breadth of the US economy. Relative values of the dollar to other currencies is meaningless. If Luxembourg discovers and sells uranium reserves and its already leading GDP/capita triples and its distributed to every citizen, what does that say about the US? Nothing. It is absolute purchasing power and standard of living that matters, and the US is still a world leader.


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i never said anything was wrong with the US economy underlying strength per se. The problems are sourced to monetary policy and fiscal policy.

I agree with your Luxembourg analysis but i dont see the point. The index of other items relative to USD have increased in value due to US inflation. If you want to make a case for otherwise and discuss the other factors for this secular trend outside of monetary policy, be my guest.

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<font color="red">if you want to make a case the US standard of living has gone down, be my guest. You havent done it yet. </font>
I agree with you, the dollar has tough times ahead, but it has nothing to do with central banking, but the economic disaster that a Democratic administration could bring.

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nothing to do with central banking? How did the housing bubble start? <font color="red">it started from the bull market and increases in real wealth and demand exceeding supply, just like any other market. That in turn, as it has in every real estate boom in the past, invites highly leveraged speculators into the market and some of them always get caught. The actual subprime market defaults are concentrated with the speculators and flippers, not primary residences. </font> What happened in this last republican administration? <font color="red">you tell me. What were the spending that resulted in the deficits (which, by the way, are on their way down and projected to surpluses in 4 years or so). </font> When did i say things would be better under a democrat? <font color="red"> when you dismissed my comment about the reasons the dollar has tough times ahead and listed policy issues, clearly implying the Dems would be better.</font>

Im saying US is screwed, regardless which party wins, unless they get a fiscal and monetary hawk like Ron Paul in. <font color="red">No question somebody with solid grounding in fiscal and monetary policy would be beneficial. Ron Paul isnt it except for tax policy, where he has nothing over the other Republicans. There are clearly no Dems who are, because none of them that I know of are talking about tax cuts or even maintaining current tax levels. </font>

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there is no housing crisis...yet.

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Okay. Lets call it a bubble with a few needle pricks.

Why do you think the fed still considers inflation its major bias but wont raise interest rates? <font color="red">Uhhh maybe because theyve been increased substantially over the last few years and we are in a non-inflationary economy? If anything you'll see interest rate cuts soon, which I already pointed out is dangerous in combination with the increased liquidity and needs to watched closely. </font>

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this will clearly be exacerbated by higher taxes and wealth transfers

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so?

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yeah, and the Democrat record on entitlements is exemplary

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who ever said that?

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read the platforms and you decide which party will spend more. Look at the current Congress and tell me about how much more effective they are in reducing bureaucracy

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platforms and action are two different things. though again, we;re screwed either way.

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if you think the Dems are better for the US economy, Ive got a bridge in Minnesota you may want to buy, it needs some minor renovation

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if you think putting words in my mouth is a good way to argue then ive got a bridge in a Minnesota you may want to buy. You obviously believe central management is superb. <font color="red"> Its better than the alternatives as dcifr has clearly explained. </font>

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this is only true of a large investor with long time horizons so volatility is less important. for an individual investor managing risk is far more important.

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that is not only true for a large investor. its true for anyone. its got to do with expected value. <font color="red"> You don't read too well. I said it is MORE important for the small investor. That does not imply that isnt also important for a large investor with long time horizons, so saying "its true for anyone" is not disagreement.</font>

further manipulations are often the best opportunities to make money because they cant manipulate forever and you can exploit the manipulations too in a variety of ways. <font color="red"> back to the craps table </font>

Lastly, if you want to manage your risk go ahead. Get some options or make a play on the VIX or watever you want. <font color="red">which is precisely what I do, other than the few times when I eliminate risk by moving out of the market altogether, such as when the Dow was in the 13900s, and I will do again when the primaries start to shake out and before the Democratic risk premium is fully priced in. </font>

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I already told you, I dont speculate, and that I agreed with your short term assessment, so why would I bet against something I agree with? Reading comprehension problems?

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if republican other than Ron Paul is elected will you take the bet?

[/ QUOTE ] <font color="red">What part of "I don't speculate" don't you understand? </font>

[Zygote]

your arguments are getting much weaker..

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Because it was. The "gold gurus" have been touting it for 30 years, they finally got it right. Since their analysis were wrong for so long, clearly they were missing some aspect of the gold market and whatever they were missing changed. Thats why its speculation.

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what gold gurus? what are you talking about? wtf does this have to do with anything?

people having been saying the fed is great for a hundred years but the record shows theyve done negative things along the way, therefore you're wrong. Cool?

Also, are you saying that one event cant be deemed more likely to occur than another event through analysis? Who cares if its speculation or not - thats obvious? You speculate when you play poker but that doesn't mean you cant make money as a player.

Further what kind of investing is NOT speculation? i really dont see why this is relevant.

You seem to be saying you are just as good placing random bets as you're from economic analysis tied to prediction?

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if you want to make a case the US standard of living has gone down, be my guest. You havent done it yet.

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How bout not answering a question with a question. Also why the hell would i try do that when i never made any statement regarding the US standard of living other than if anything that its over inflated? WTF does this have to do with anything that we're discussing? We're talking about the pros and cons of monetary policy. Or at least thats what ive been talking about.

If im just not understanding the relation then please spell out it to me like a baby.

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it started from the bull market and increases in real wealth and demand exceeding supply, just like any other market.

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If demand exceeds supply prices rise. Has demand changed since or is that people were given loans who never should have gotten any?

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That in turn, as it has in every real estate boom in the past, invites highly leveraged speculators into the market and some of them always get caught. The actual subprime market defaults are concentrated with the speculators and flippers, not primary residences

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What invited the speculators were overtly and artificially low interest rates. Even right now the only reason the fed will not fight inflation is because they're continuing to keep interest rates as low as they can to help the housing market.

People in that market are calling for cuts still.

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you tell me. What were the spending that resulted in the deficits (which, by the way, are on their way down and projected to surpluses in 4 years or so).

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its a number of things. way too many to list off. Im really not concerned with which party did what though. Neither of them are fiscal conservatives.

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when you dismissed my comment about the reasons the dollar has tough times ahead and listed policy issues, clearly implying the Dems would be better.

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Thats a stretch. Im saying Dems and Repubs will both screw it up. You say only one of the two will. Therefore you should benefit against betting with me in favor of the dollar, since im speculating that its more likely to fail than you are.

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No question somebody with solid grounding in fiscal and monetary policy would be beneficial. Ron Paul isnt it except for tax policy, where he has nothing over the other Republicans. There are clearly no Dems who are, because none of them that I know of are talking about tax cuts or even maintaining current tax levels.

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Ron Paul has nothing over the Repubs for tax policy? I also said specifically we need someone hawkish, not just with a solid grounding in monetary policy.

Mike Gravel wants to abolish IRS and supports tax cuts i believe. Richardson ive also heard was a fiscally conservative governor but never looked at the record myself.

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Uhhh maybe because theyve been increased substantially over the last few years and we are in a non-inflationary economy? If anything you'll see interest rate cuts soon, which I already pointed out is dangerous in combination with the increased liquidity and needs to watched closely.

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Do yourself a favor and read any of the recent fed statements. If you disagree with the fed and support them there must be some contradiction.

From recent fed statement which was the least hawkish of all just because so many were expecting immediate bail outs:

"Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information."


So you think inflation has already been weeded out and is not a concern, but the fed disagrees with you. If anything they'll bail out the markets at the at the cost of further inflation. Interest rate cuts will not come because of a strong economy. They will come to bail out the economy at the expense of the currency.

As of now the fed's primary bias, even among all this turmoil, is still inflation.

If the economy was non-inflationary why do you see interest rate cuts as dangerous?

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Its better than the alternatives as dcifr has clearly explained.

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not its not as Ludwig von Mises and followers clearly explained. Where is dcifr's proof of this btw?

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further manipulations are often the best opportunities to make money because they cant manipulate forever and you can exploit the manipulations too in a variety of ways. back to the craps table

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lol. i dont even have time to go over this one.

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which is precisely what I do, other than the few times when I eliminate risk by moving out of the market altogether, such as when the Dow was in the 13900s, and I will do again when the primaries start to shake out and before the Democratic risk premium is fully priced in.

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i wasnt asking about your portfolio. I was asking why you were using that as an excuse to avoid committing to a bet.

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What part of "I don't speculate" don't you understand?

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Do you have any cash? Do you have any stock? You are speculating. Get over it.

[laSENZA]

The Federal Reserve is a scam based upon the Bank of England. Private banks (owned by individuals, with individual interests) should not own national money or control a nations money.

I'm not sure if this has been mentioned before but watch

"The Money Masters" on google video and visit http://www.perfecteconomy.com and http://www.libertydollar.com for realistic and safer alternatives.