The differences between 1929 and Today

[lehighguy]

We aren't going to have a contraction of the moeny supply because Bernanke is going to print dollars like crazy and destroy the currency. Hyperfinlationary recession or deflationary recession, take your pick. The fed can't create any real wealth by fiddling with this stuff. Eventually we'll be at 0.2Euro/Dollar and gas will be 6$/gallon or worse. Inflation will be unfathomable.

The dollar is losing its place as world reserve currency. World banks are tired of trading ever greater amounts of real goods for a continually depreciating paper currency. China is experiencing ever higher inflation because we export it too them. Central banks around the world have announced thier intention to diversify out of (i.e. dump) the dollar. Our currency has lost astonishing value in the last five years and especially the last month. This will only continue as Helicopter Ben lowers rates.

The dollar as a reserve currency has allowed us to expand the money supply at astonishing levels without fully experiencing the resulting inflation. Those extra dollars have led to an astonishing and reckless expansion of personal, corporate, and mortgage debt as well as unfathomable malinvestment. Now all of that inflation is about to come back to us as they sell off these reserves.

Your right about the gold standard. Foolish foriegn central banks could try to devlaue in response to our devaluation, causing huge worldwide inflation. Luckily the ECB, BOC, BOE, BOJ, and others haven't been retarded like that. Thier countries will get by.

I'm not going to try and predict what kind of retarded trade policies the pols could come up with in a deep recession. Only that the power that they wield today is far far greater then FDR ever had.

[Exsubmariner]

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contraction was a symptom of the weakness in the economy that existed in reality

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Correct me if I'm wrong, but I thought the position of the Austrians was that the contraction was a result of government intervention. I'll come back to this.

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symptoms of a weakened economy,

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Overall numbers on the economy are actually quite good, in spite of the problems you mention. link

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but they point to difficult times ahead.

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Conjecture.

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short and sweet what makes you think the fed is a successful organization?

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His name is Alan Greenspan.

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This won't provide any protection for the American consumer, this will be inflation in prices for them. This will also weaken the dollar further, people who used to save masses of dollars spending them will drive the value into the floor.


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The protection for the American consumer lies in continued employment, the availability of goods and continued economic activity in general. Wages will adjust.

Also, the holders or dollars do not have an incentive to deplete their own wealth. Does this statement make sense? "OMFG - The dollar is falling and we are having inflation....I know lets dump dollars and make our problems worse." No - The incentive is to create economic activity; i.e. INVEST dollars, not dump them.

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.


Honestly the one main difference between your position and the Austrian one is the view of what causes what. For an Austrian the majority of the problems in major crashes like this can be traced back to expansionary monetary policies while you believe that those expansionary monetary policies are the solution to these problems.

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We have a winner. You and I find ourselves in total agreement here. Economics is activity. Without the activity, the economy goes nowhere.

I think that intervention in the market by an organization like the fed is a means of encouraging and sustaining that activity. The non-interventionalists think that intervention undermines that activity. I submit that the interests of government and capital intersect in having a robust economy. I also assert a policy resulting in something that undermines that interest is highly unlikely, as self destruction is not the nature of government or business.

Government and business in the US complement each other, not work against each other. This is partly due to the aftermath of the depression and the effect of the Fed.

[Exsubmariner]

Thank you, sir.

[Exsubmariner]

+1. God bless our eternal friend and socialist (AHEM)uh, I mean savior, FDR.

[Exsubmariner]

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We aren't going to have a contraction of the moeny supply because Bernanke is going to print dollars like crazy and destroy the currency. Hyperfinlationary recession or deflationary recession, take your pick. The fed can't create any real wealth by fiddling with this stuff. Eventually we'll be at 0.2Euro/Dollar and gas will be 6$/gallon or worse. Inflation will be unfathomable.

The dollar is losing its place as world reserve currency. World banks are tired of trading ever greater amounts of real goods for a continually depreciating paper currency. China is experiencing ever higher inflation because we export it too them. Central banks around the world have announced thier intention to diversify out of (i.e. dump) the dollar. Our currency has lost astonishing value in the last five years and especially the last month. This will only continue as Helicopter Ben lowers rates.


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I'm going to say again what I said to tolbiny. Holders of dollars have no interest in taking any action that would make themselves poorer. The problems you mention in China is precisely why they will not flood the market with dollars. It would compound their problems. Everyone who holds $ has an incentive and a stake in keeping the game going. They aren't going to crash it.

If anything, they will diversify into commodities. Even more likely, they will look to invest all those dollars to create more economy or more ownership.

[DcifrThs]

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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.

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one thing to add here is that the ratings agencies were suspect when yields on a AAA rated CDOs were higher than similarly rated securities. but the excess liquidity forced investment into these since it was so attractive and so cheap to borrow.

one thing that wasn't aken into acct by ratings agencies was liquidity premium and other trading type considerations. these certainly affect the yield on securities and the market saw things that ratings agencies didn't.

Barron

[theseus51]

It was the fed printing too much money to begin with. Yeah, there was a "gold standard", but the fed kept printing money anyway. The only reason we went off the gold standard in 1933 was too many people wanted to redeem their paper federal reserve notes for real gold. We went off the gold standard once that couldn't be achieved, because there wasn't enough real gold to back the worthless pieces of paper issued be the fed.

What that means, is we never really had a gold standard to begin with. If we did, we wouldn't have run out of gold, and be forced to confiscate everyone's gold to make up the difference, as FDR did.

Cheap credit caused people to over invest and over speculate, leading to bubbles, which eventually burst. The depression of 1929 may not happen in exactly the same way (what two recessions are exactly the same anyway?). But I fear the federal reserve has set us up for a big downturn in the coming years.

[tolbiny]

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Correct me if I'm wrong, but I thought the position of the Austrians was that the contraction was a result of government intervention. I'll come back to this.

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The issue at hand here is what caused the depression and how are those factors working today. It was government intervention (from the Austrian perspective) trying to prevent the market correction that was the problem, not the specific mechanism they chose. If your driving 100 miles an hour and hit a patch of ice you screwed regardless of whether you hit the brakes or not, turn into the skid or not, the problem was driving far to fast.

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Overall numbers on the economy are actually quite good, in spite of the problems you mention. link


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Again there is a fundamental disagreement on what value these numbers hold. If you use the method of CPI calculation from 1980 to figure inflation then those numbers look far worse. From the Austrian perspective, the actions that produce short term "gains" like this in the third quarter will lead to long term losses. The fed rate cuts which appear to have boosted the economy have only done so by encouraging, enabling, or causing (depending on your view) higher inflation over the next X number of years.

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His name is Alan Greenspan.

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The funny thing about Alan Greenspan is the way his opinion on matters changes depending on his job title. Prior to his position at the fed he was in favor of the gold standard, with the fed he held rates at historic lows for long stretches, recently he's been talking about the likelihood of a recession, diversifying out of the dollar and risks of inflation. AG's position on the American economy going forward cannot be described as bullish for sure.

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Also, the holders or dollars do not have an incentive to deplete their own wealth. Does this statement make sense? "OMFG - The dollar is falling and we are having inflation....I know lets dump dollars and make our problems worse." No - The incentive is to create economic activity; i.e. INVEST dollars, not dump them.

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The Chinese, Saudis and other currency holders are not able to "create economic activity" simply with dollars, they can only look for good investment opportunities they cannot create them. If the fundamental problems exist in the economy pumping dollars into it won't help. China can't stop Bernake from printing more money by investing in the US, but they can limit their exposure to the fall by moving away from dollars. As long as you have more dollar sellers than dollar buyers you have a depreciating currency, for a country that imports far more than they export this bodes extremely badly for the US economy.



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I think that intervention in the market by an organization like the fed is a means of encouraging and sustaining that activity. The non-interventionalists think that intervention undermines that activity. I submit that the interests of government and capital intersect in having a robust economy. I also assert a policy resulting in something that undermines that interest is highly unlikely, as self destruction is not the nature of government or business.

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Businesses fail all the time, its not in the owners' interests to fail, but it happens. The market stays healthy through competition, government has no competition and government limits competition in the marketplace. Having a self interest is not enough, there needs to be a mechanism that correctly identifies good decisions and rewards them, and punishes bad decisions.

[tolbiny]

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I'm going to say again what I said to tolbiny. Holders of dollars have no interest in taking any action that would make themselves poorer. The problems you mention in China is precisely why they will not flood the market with dollars. It would compound their problems. Everyone who holds $ has an incentive and a stake in keeping the game going. They aren't going to crash it.

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China has already made the mistake of holding US dollars, they have no "good" way out. Of course they won't "crash" the dollar, but they will move out of it. Take their sovereign wealth fund they recently announced, it will be funded with 200 billion from their reserves. Their reserves are $US. Then they announced they are diversifying their reserves, more dollars on the market. The Saudis didn't follow the latest rate cuts with their own, Kuwait unpegged from the dollar to the basket of currencies and agreed to sell oil to the Japanese in Yen. Who is adding dollars to their reserves to counteract these measures? Just because the sell off is orderly and controlled doesn't mean it isn't a sell off.

[lehighguy]

Agreed. Your right that nobody wants a sudden crash. If they don't all panic and try to get out first they can do that. 10-20% yearly depreciation of the dollar, you bet.

You can only play a game of chicken for so long before Asians decide they have accumulated enough of our wealth ad they are going to focus on domestic demand.