The Federal Reserve: Love it or Hate it

[Zygote]

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to be clear, i'm calling anybody who firmly states as a fact (what you did)something contrary to those points a fool.

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Where?

fact: Major business cycles are sourced to money supply changes and monetary policy and got worse since the creation of the fed.

to be clear, i'm calling anybody who firmly states as a fact (what you did)something contrary to this point a fool. further, it isn't worth arguing with somebody that dense. on the other hand, if somebody made that statement (something contrary to those points) and wants to learn as to why they are facts, i'll gladly engage and relay the theory that leads them to be true.

(i actually wouldnt say this and dont believe it. Just want you to see what its like to talk to like jackass)

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Do you have any cash? Do you have any stock? you are speculating, get over it



that is an embarrasing (for you) belief.

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Why dont you explain something wrong with what was said instead of insults?

[mmbt0ne]

iron,

The politics forum is getting a little shaky again. I really hate how the typical thread has become "Make smarmy comment, then respond with shock and appall when someone does the same to you and insist that you deserve an explanation instead of these baseless attacks."

More Borodog (even though I disagree with him a lot) type posts please.

[rpr]

I think the Federal Reserve has done a lot of good things, as far as allowing us to live beyond our means (if you consider that good). But I don't think it's a sustainable system and certainly couldn't be used on a global scale (meaning not everyone in China or India could have our standard of living and amount of debt).

The problem with the FED is no one really debates it. It definitely was created under questionable circumstances. Many intelligent people throughout history have warned against such a system. But either people don't know the facts about it or get all conspiratorial regarding it. There's little legitimate academic debate on it.

Fractional reserve banking seems to be congruent to oil and fragmented based energy. If you want to keep the masses in an economic slavery, it seems like the system to use. But if fusion-based energy were a reality, I think fractional reserve banking wouldn't be needed.

I'd love to see some real economists or finance people debate the economic model presented in Silent Weapons for Quiet Wars, using a model of electricity for economics. If that's a real possibility, then I think the FED is to be hated.

[iron81]

Point taken, I'm going to ask you guys to settle down in this thread.

[Zygote]

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Point taken, I'm going to ask you guys to settle down in this thread.

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im committing to try be more polite in all my answers.

[iron81]

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I'd love to see some real economists or finance people debate the economic model presented in Silent Weapons for Quiet Wars, using a model of electricity for economics. If that's a real possibility, then I think the FED is to be hated.

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DcfirThs is a real finance person. He's probably one of the best contributors in Business, Finance and Investing. The problem with this thread is, DcfirThs has a much better understanding of conventional economic theory than any of us, but he is unfamiliar with Austrian theory. What this thread amounted to was each side trying to hash out their theory to the other side which doesn't understand it well.

[Zygote]

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I'd love to see some real economists or finance people debate the economic model presented in Silent Weapons for Quiet Wars, using a model of electricity for economics. If that's a real possibility, then I think the FED is to be hated.

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DcfirThs is a real finance person. He's probably one of the best contributors in Business, Finance and Investing. The problem with this thread is, DcfirThs has a much better understanding of conventional economic theory than any of us, but he is unfamiliar with Austrian theory. What this thread amounted to was each side trying to hash out their theory to the other side which doesn't understand it well.

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I think Austrians are more famaliar with both sides since most of the Austrians spend their time criticizing the status quo.

Very very rarely do I see defenses of those criticism came back towards the Austrians position specifically. If anyone can cite academic works that show fault with Austrian theory, id love to see.

So far Austrians have pretty good record:

-Predicted fall of communism in the 20's
-Showed Keynesian their initial theory was extremely flawed and non-sensical in many senses. Neoclassicals also jumped in but Keynsian's eventually had to reform their position when stagflation was born, however neokeynsians are still principally flawed according to Austrians.
-Mises predicted great depression
-Austrains predicted fall of bretton woods
-Austrians introduced marginalist theory
-Austrians have improved on Kantian philosophy in their outline of scientific epistemology.
-Austrians predicted gold was under valued more often than random chance
-Austrians predicted bubble bursting in late 1980s Japan
...and on and on


Greenspan on Austrians:
"
Mr. GREENSPAN. Well, I will be glad to give you a long academic discussion on the Austrian school and its implications with respect to modern views of how the economy works having actually attended a seminar of Ludwig Mises, when he was probably 90, and I was a very small fraction of that. So I was aware of a great deal of what those teachings were, and a lot of them still are right. There is no question that they have been absorbed into the general view of the academic profession in many different ways, and you can see a goodly part of the teachings of the Austrian school in many of the academic materials that come out in today's various journals, even though they are rarely, if ever, discussed in those terms.

We have an extraordinary economy with which we have to deal both in the United States and the rest of the world. What we find over the generations is that the underlying forces which engender economic change themselves are changing all the time, human nature being the sole apparent constant throughout the whole process. I think it is safe to say that economists generally continuously struggle to understand which particular structure is essentially defining what makes the economy likely to move in one direction or another in the period immediately ahead, and I will venture to say that that view continuously changes from one decade to the next. We had views about inflation in the 1960's, and in fact, the desirability of a little inflation, which we no longer hold any more, at least the vast majority no longer hold as being desirable.

The general elements which contribute to stability in a market economy change from period to period as we observe that certain hypotheses about how the system works do not square with reality. So all I can say is that the long tentacles, you might say, of the Austrian school have reached far into the future from when most of them practiced and have had a profound and, in my judgment, probably an irreversible effect on how most mainstream economists think in this country."

[rpr]

It essentially says that from the Harvard Economics Research Project in the 1940s, that this secret was discovered that economics obeyed the same laws of electricity. And that fractional reserve banking and debt are intricately connected to war -- "in an economic model, human life is measured in dollars, and that the electric spark generated when opening a switch connected to an active inductor is mathematically analogous to the initiation of war".

And that war balances the economic inductance of the system caused by printing currency in excess of GNP.

It's a very intriguing essay but is there anything to it? It is from a conspiracy book, which alleged its a technical operations manual from some globalist organization.

http://www.lawfulpath.com/ref/sw4qw/index.shtml

[Copernicus]

this was going to be my last response to you, taking Dcifr's advice. However since you have started digging deeper holes continuing to respond may have some entertainment value.


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your lack of ability to understand them doesnt make them weak

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is there a possibility you are lacking the ability to understand mine or the austrian position or havent inquired enough into it? <font color="red">lack of ability to understand? No. Economics is not rocket science. (That does not mean there are some aspects that I misunderstand, that is always possible). Haven't inquired enough into it? No. Ive read all of Mises and Rothbard extensively, as well as the counters to AE. </font>

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it has to do with your inference that the run up in gold the last few years was somehow predictable and a "good investment" a priori. When you continually throw darts at a dart board you'll eventually hit the bulls eye. That doesnt mean your aim has gotten any better.

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it was a good investment a priori. Read "The coming collapse of the dollar and how to profit from: gold" by James Turk. that came out in 2004. This was the early secular bull market for gold that was glaringly obvious. <font color="red">and you can find the same predictions on the book lists every year for the last 30. As I said, keep throwing darts eventually youll get it right. </font>

I invested a priori. Ill make predictions for the future for you right now if you like and you can check up on them. <font color="red"> good for you. I wish you continued success investing in gold. No need for your predictions. Your contributions to this thread are clear indication that they would be less than interesting </font>

What you seem to mis-understanding is just because some in the market realize the same information i do doesnt mean things arent mis-priced. If more people are putting money against the information than for it there still exists opportunity to make money. This happens often for a variety of reasons. I dont see how you deny it. You seem to think every long term profitable investor was just lucky besides those in index funds or fully hedged positions? <font color="red">You seem to think that there are a lot of "long term profitable investors" who made those profits through publicly available information. That isnt supported by the data. In an essentially random process there will be outliers for any given period of time. Again, no professional investment firm has beat the market for more than two consecutive periods of 5 years or longer, after transaction costs. </font>

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im not sure whether you are making this statement or being sarcastic about someone elses, or perhaps Im misunderstanding it altogether. It makes no sense as a serious statement.

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im reducing your argument to an absurdity. It wasn't meant to be serious.

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No, Im saying that when the events you are talking about are investments where you have no information that the market doesnt have, no one has been consistently +EV.

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Again, just because other people know the likely eventual path of a currency doesnt mean they will outnumber those who put their money against this. Some market participants/manipulators, like China, buy securities for political reasons which is one reason why there are +ev bet available, for example.

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No but it means that if you can't you shouldn't play.


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Okay so? You seemed to be denying that its possible to make money while speculating. <font color="red">I have clearly distinguished between naked speculation and solid investment strategies that are demonstrably +EV. Perhaps we had a symantic difference early in the thread on the meaning of "speculation", but I clarified what I meant long ago. Its about time you stopped going around in circles on this. </font>

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Once again the issue isnt whether it is speculation, its whether you can speculate profitably. Hedged investing and indexed investing with long timr horizons have proven to be profitable...one that requires expertise, and one that doesnt. Naked commodities investing, market timing, fundamental analysis etc have demonstrated for decades that they are not profitable

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Fully hedged positions are the opposite of profitable. You hedge to minimize risk not increase profits. <font color="red"> ROFLMAO. Talking about reducing your own arguments to an absurdity. Minimizing (or more accurately balancing) risk and increasing profits are not mutually exclusive. </font>

Your reasoning with indexes still doesnt make sense. You are saying its possible that indexes are mispriced but its not possible that stocks or commodities within the index are mispriced. How can this be true? <font color="red"> I never said indices are mispriced. I will restate what I said more clearly. Stock averages grow over time not because of "mis-pricing" but because underlying broad market growth is productivity growth. Broad indices capture that productivity growth and are therefore expected to be profitable (and have proven to be in the past). </font>

I also never said anyone can predict perfect times for anything but that in no way means people cant still recognize general trends and find positive value investments.

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after transaction costs and over the long term yes. Im not the one saying it, decades of tracking investment professionals says it

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please cite a study that proves that profitable investing besides fully hedged positions and index funds is a myth and no investor can do better than a random dart throw, regardless of how well he/she can describe the market? <font color="red">You find the ones that can. Ive sat on investment committees for the last 30 years where fund managers track every major investment companies returns vs benchmark for 1, 3, 5, 10 and 20 year periods..to the extent that some of them survive that long. There are none (at least none that publish their results) that have consistent success at beating the indices. </font>


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you started the discussion about CPI and the relative values of currencies. I guess I wasnt clear enough. All of that amounts to statistical games if the standard of living has continued to improve

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and i said standard of living is not close to a definite measure of whether or not monetary policy has been successful. I also said specifically that the standard of living right is artificially high right now so a measure of going up doesnt say much. Obviously the standard of living would be high when you're prosperity rests on borrowing. <font color="red">you can characterize things as "artificially high" as much as you want. People have been doing it with regard to one statistic or another as long as there has been a study of economics. </font>

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both. If there were no lack of demand currently then the quality of loans would be irrelevant, because the borrower could sell his way out of unaffordable debt.

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its not the people dont demand the houses its that there is no one who can actually afford to be he's debt. He couldnt afford and many other on the market couldnt afford theirs. They still want home, but there isnt enough resources to support them. This bubble started from artificially low interest rates. <font color="red">"Artificial again", lol. If I can even parse my way through the awful English here, you are wrong. Maybe if I capitalize it you will understand better. THE CURRENT RATE OF SUB-PRIME DEFAULTS ARE NOT SIGNIFICANTLY HIGHER THAN HISTORICAL STANDARDS FOR PRIMARY RESIDENCES. THE DEFAULTS ARE PRIMARILY FROM SPECULATORS WHO GOT INTO THE MARKET TOO LATE AND TOO THINLY CAPITALIZED. </font>

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the level of defaults that have actually occurred is miniscule with regard to the total mortgage market. The reaction to date has been way overblown.

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Im saying its going to get a lot worse from my analysis. Are you speculating that its not? <font color="red">Since for the short term its primarily psychology I won't speculate either way. I do know that the fundamentals of the real estate market are sound. Prices of SFR's are not declining except in distress sales and in a handful of markets that ran up too fast..again mostly speculators bailing out. Turnover has slowed down, but prices havent come down. Income and commerical properties have high occupancy rates and prices are increasing in most major markets. Retail and resort properties continue to increase. Is it possible things will get worse in the short term? Obviously. No market goes up steadily, and economic factors can always lead to a downturn. However, there is no reason for the current level of panic. </font>

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do you even follow the Feds interest rate movements? If anything they were raised too quickly for the level of inflation..

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I quoted the fed to back up my argument. Why dont you quote them to back up yours. <font color="red">Because "dueling quotes" isnt a game I enjoy. I much prefer analysis of fundamentals over public statements that are often as much window dressing as substantive policy indications. </font>

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People in that market are calling for cuts still. cool you got one right. Of course virtually everyone is calling for cuts still, so that wasnt exactly a brilliant observation

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show me any recent past statements that show the fed is even seriously considering them. <font color="red">Where in the quoted statement is anything said about what the Fed is or isnt considering? It discusses what the market is CALLING FOR. Despite your jumping off track, the obvious answer is that the Fed is ALWAYS seriously considering cuts or increases. There last release prior to the injection of funds into the market certainly implied that while their focus is still on inflation they recognized that "Readings on core inflation have improved modestly in recent months." and that "...the downside risks to growth have increased somewhat". That is the kind of language that indicates that rates arent going up and they are looking at decreases. Layer on top of that any failure of the markets to respond to the increased liquidity and its obvious that cuts would seriously be considered.</font>

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No, I said the candidates have made it clear that one of the two will definitely be worse.

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so? you brought this up to reason that problems will only occur if dems win the race. Why did you bring it up if not? <font color="red">Again you need a reading comprehension course. I said that the Dems would be a disaster, not that that no problems might occur if they lose. </font>

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nothing youve said here disagrees with anything Ive said, other than the opinion of many that the Fed has been too conservative with regard to the threat of inflation

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So you agree you and the fed are interpreting the market differently? You think they have been too conservative with regard to inflation and they are saying they must be very conservative now. <font color="red"> No, I dont read them as saying they "must be very conservative now". The language of the last release was typical of indications of the possibiity of rate cuts. In fact part of the recent market decline was caused by disappointment that there werent cuts, despite them giving some hope for them </font>

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If the economy was non-inflationary why do you see interest rate cuts as dangerous? I said interest rate cuts in combination with the expansion of the monetary supply are dangerous. DUCY?

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Um thats what ive been saying. Am i going crazy or did you not say the markets are non-inflationary and the fed has been too tight? How can the interest rate cut negatively effect the money supply under those circumstances? A rate cut will always result in the increase in money supply, but if the markets are not currently inflationary and in fact deflationary like you claim then this is not bad in any sense. <font color="red"> You really like to put words in peoples mouths, eh? I never said the current market is deflationary, I said inflation was moderate. Whether you characterize moderate inflation as "inflationary" or not I dont know, since that word is generally not used in the absolute, but to indicate more than acceptable inflation. Further, you seem to be reversing cause and effect. Monetary policy is used to influence interest rates, not the reverse. How does a rate cut increase money supply?</font>

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not its not as Ludwig von Mises and followers clearly explained. Where is dcifr's proof of this btw? LvM, lmao. If Austrian economics was demonstrably better it would be the prevailing theory. It isnt, its not.

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Im personally not so interested in appeals to majority or things along that long. Core ideas matter much more to me. Id expect someone who calls themselves Copernicus to not defend an argument by appealing to the status quo. <font color="red">You are confusing appeals to majority with appeals to authority, and the latter are only a logical fallacy when the authorities can be shown to be unreliable. There as no "appeal to status quo". </font>

further neoclassical economics has adopted an extremely large share of Austrian economics. <font color="red">neoclassical economics has evolved, certainly, and AE has contributed to it. It also rejects much of AE, and resists the AE penchant to go beyond economics and into politics, sociology and philosophy. </font>

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perhaps I didnt explain clearly enough. If you arent one of the manipulators you are simply guessing at when to get in or out of a market.

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not pure guessing. for example china has little reason to continue buying us securities for much longer and many other factors will tempt them away in the near future and may even results in a sell off of current assets. <font color="red"> it sure sounds like your guessing here, espcially with regard to timing. "little reason", "may", "tempt", "may", </font> Either way this will likely contribute to a secular downtrend in USD, on top of the fact that the fed has their hands tied when it comes to fighting inflation.

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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. you really are f$%^ing dense, arent you?

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must be.

also im curious to why you think the democratic risk premium isnt fully priced in. How that possible? <font color="red">because the market was on a steady climb with the exact same information it has now with regard to the election. Is it possible some of the democratic risk is built in the volatility since 14,000? sure, but there is no reason to think it is </font> and after transaction costs? must be negative ev.

[/ QUOTE ] <font color="red">speak English please. </font>

[Copernicus]

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Copernicus, you've outlined your thoughts pretty well and i agree w/ many if not most of them.

i would like to say though, that you should probably give up on this point (despite the fact that it is exceedingly obvious).

"a wise man told me 'don't argue with fools, cause people from a distance can't tell who is who.'"


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This is a pretty lame cop-out

I'm an ACist but I'm open minded. I'd really like to understand your point of view but I dont see it as a good explanation for business cycles. Now mabey its just because the austrian theory is an over simplification, but its not like we are talking about quantum mechanics here. You guys should be able to give a rough explanation for us laymen. If not, is there any good resources that give an in depth explanation of current money markets?

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Im confused here, Ian. How can you classify yourself as an ACist in one breath and then admit to needing an in depth explanation of money markets in another? Doesnt one need at least a solid understanding of money markets to be an ACist (or to have any opinion, really, not just AC).

Or are you talking about the political/sociological aspects of AC rather than the economic ones, which, imo, really cant be divorced.