So debt default is proposed. Is this instead of, or in addition to, the abolition of the FRB, and the possible replacement of the Dollar with some other currency?
Let interest rise to where the market takes it. That will instantly take out some of zombie's who should not be in business. The zombies do the US economy a LOT of harm they are like gang green that needs removed. There will be a lot of people unemployed at first from the zombies who need to go better places. When the free market finally equalizes, prices will establish levels that reflect true supply vs demand allowing production to become even more efficient. After rising interest, the bubbled up housing market will crash allowing young people to enter it again. The stock market will also have a serious correction but price to earnings will normalize again.
There will no doubt be a lot of contagion to manage at this point. The dollar might actually survive if the bond holders take a some kind of haircut. But IMO still better for the country than kicking the can even further. After all the dust settles you will have a population that once again has faith (in whatever is left of the dollar) knowing the economy is real. Therefore less need to hoard food, move away from the city, and prepare for super crash as you see today.
3) You just threw out the primary means the government uses to keep the economy on approximately an even keel. Look at inflation before and after the Fed. The swings were much wider in the past--and those swings cause harm, especially when they swing negative.
The other two points are not particularly relevant but this one ... it needs a response.
While there were swings of both inflation and deflation before the Federal Reserve, they averaged out to a very mild deflation. After the Federal Reserve we've had constant inflation without any averaging out. The swings are no longer inflation - deflation but mild inflation - high inflation.
Your statement also relies on the Keynesian fallacy that deflation is bad in and of itself, without exception. He believed that if we had deflation, basically all economic activity would stop because everyone would hold on to their money until prices fell even further, causing prices to fall even further, causing people to hold on to their money even more until prices fell even further, etc. It is an absurd way of thinking about deflation that no reasonable person can agree with.
Here's the key point that Keynes was trying to cover up with his made up horror stories about deflation: deflation helps the poor, inflation helps the rich.
Of course, most of the swings of inflation and deflation were caused by the previous attempts by the government. Sometimes it was by the previous attempts to institute a central bank. Sometimes it was the emergency measure of unbacked government currency as in "not worth a continental". Pointing out every time the government makes a mess as a reason to have government intervention is an odd way of arguing in favor of government intervention.
Since the beginning of their existence in 1913, briefly taking in sail during the 1930's. But at present normalizing to a 2% model. At least in the past they gave lip service to keeping inflation at zero or as low as possible.
As low as safely possible = 2%. Aiming below that causes periods of deflation that are far more harmful than a bit of inflation.
And a steady inflation rate does not inflate your money away--you should have your money in things that make more than that steady inflation rate. It's factored into interest rates because lenders don't want their money inflated away.
So debt default is proposed. Is this instead of, or in addition to, the abolition of the FRB, and the possible replacement of the Dollar with some other currency?
Let interest rise to where the market takes it. That will instantly take out some of zombie's who should not be in business. The zombies do the US economy a LOT of harm they are like gang green that needs removed. There will be a lot of people unemployed at first from the zombies who need to go better places. When the free market finally equalizes, prices will establish levels that reflect true supply vs demand allowing production to become even more efficient. After rising interest, the bubbled up housing market will crash allowing young people to enter it again. The stock market will also have a serious correction but price to earnings will normalize again.
In the long run interest must track inflation because interest increases the money supply--and any increase in the money supply beyond what is absorbed by the economy growing eventually shows up as inflation. You can't separate it out, inflation is Δmoney_supply/goods_and_services.
There will no doubt be a lot of contagion to manage at this point. The dollar might actually survive if the bond holders take a some kind of haircut. But IMO still better for the country than kicking the can even further. After all the dust settles you will have a population that once again has faith (in whatever is left of the dollar) knowing the economy is real. Therefore less need to hoard food, move away from the city, and prepare for super crash as you see today.
Most people who are preppers fear things other than the economy going south. Note that the gold dealers keep drumming up the fear in order to sell gold, so long as we have sanity in Washington we aren't going to see an economic collapse. Whereas what you envision would make the great depression look like nirvana.
And note that the world you envision was subject to considerably greater economic swings than present. The Fed's job is to act as a damper on economic swings, rather like the dampers you find in many tall buildings to keep people from getting seasick in skyscrapers.
As for stocks and houses--same factor at work. Low interest rates do not erode the value of money as fast and thus make the net present value of a long series of payments a higher multiple of a single payment. You get your fantasy of high interest and house prices will plummet--but house payments will not. Because it's house payments that determine how much house most people buy, house prices aren't very relevant to most customers. People will just build equity in their house slower. Once again shooting yourself in the foot. I sure hope you have kevlar boots considering how often you try to shoot your feet.
I think he's referring to AOCs Green New Deal, which has a practical effect of being bad for the environment as it replaces nuclear plants with fossil fuels. Everything else is pretty much pie in the sky.
3) You just threw out the primary means the government uses to keep the economy on approximately an even keel. Look at inflation before and after the Fed. The swings were much wider in the past--and those swings cause harm, especially when they swing negative.
The other two points are not particularly relevant but this one ... it needs a response.
While there were swings of both inflation and deflation before the Federal Reserve, they averaged out to a very mild deflation. After the Federal Reserve we've had constant inflation without any averaging out. The swings are no longer inflation - deflation but mild inflation - high inflation.
The swings are generally between zero and moderate. Although what constitutes moderate is subjective. We did swing high at one point when they tried to use it to create economic growth and learned the hard way that doesn't work.
Your statement also relies on the Keynesian fallacy that deflation is bad in and of itself, without exception. He believed that if we had deflation, basically all economic activity would stop because everyone would hold on to their money until prices fell even further, causing prices to fall even further, causing people to hold on to their money even more until prices fell even further, etc. It is an absurd way of thinking about deflation that no reasonable person can agree with.
It depends on the amount of deflation. He's completely correct for large deflation--when you can make more sticking your money under your mattress than putting it to constructive ends you will totally crater your economy. Mild deflation just suffers from a loss of control authority--harmful only if it happens to go towards more deflation because you're helpless to stop it.
Here's the key point that Keynes was trying to cover up with his made up horror stories about deflation: deflation helps the poor, inflation helps the rich.
And the key point is that you are utterly wrong about this.
Inflation/deflation does not favor one over the other so long as it isn't too big. An increase in the inflation rate helps the borrower, a decrease in the inflation rate helps the lender. Perhaps you are looking at deflation as being a stealth pay increase for the poor--but in time the jobs will go away instead.
Of course, most of the swings of inflation and deflation were caused by the previous attempts by the government. Sometimes it was by the previous attempts to institute a central bank. Sometimes it was the emergency measure of unbacked government currency as in "not worth a continental". Pointing out every time the government makes a mess as a reason to have government intervention is an odd way of arguing in favor of government intervention.
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
(1) Discussing the reasons why a moderate rate of inflation is GOOD, I overlooked one of the most important reasons: It gives the central bank the ability to stimulate the economy with interest rate cuts.
For example, if inflation is 2% and interest is 3%, the central bank might respond to a sluggish economy by reducing interest to 1%. If businesses can borrow at 1% to buy capital equipment which will have nominal appreciation of 2% they will have a big incentive to borrow and invest. But if inflation were zero instead of 2%, the central bank would need to impose a NEGATIVE interest rate to achieve the same effect. This was tried in Europe recently with bad results. Since savers prefer to hoard cash rather than to "earn" negative interest in a bank account, governments were even exploring ways to punish cash hoarders!
(2) Upthread an "inflation" graph was posted, with a linear y-axis where honest statisticians would have used logarithmic. The linear y-axis was chosen to make the graph look "scary"! Whenever I see such a graph it makes me think badly about the poster. Are they so innumerate they don't understand that a logarithmic y-axis would be more appropriate? Or, do they know that much, but hope fellow Infidels are innumerate and will be scared into submission or confusion? I think the anti-central bank folk here should know that numerate Infidels ignore such graphs except to wonder whether the poster is trying to confuse, or is himself confused.
(3) The distinction between EXPECTED inflation and SURPRISE inflation is very important. (I even linked to a paper which seeks to quantify the relationship.) The anti-central bank folk here have yet to acknowledge the distinction. I ask them to explain, if they can, whom they think expected inflation hurts.
(4) The establishment of central banks and the elimination of the link between money and precious metals are two DISTINCT events, but they sometimes seem to be conflated in the thread.
(5) There is an on-line data-set which constructs a retail-price index for England that extends all the way back to the 13th century. (U.S. data from here differs from the British data in details.)
Remember that until 1930 the value of British money was directly coupled to the market value of precious metals. (Because of that coupling, the value of those metals was partly stabilized.)
When I "crunch" the numbers from the English historic data, I see erratic fluctuations during late medieval times (partly due, I'll guess, to the difficulties of constructing the data-set). There was slight net inflation mostly due to debasement: The Carolingian standard was that 20 silver pennies contained one ounce of sterling silver, but by the time of Queen Elizabeth it took 62 pennies to get an ounce of sterling silver. 62 pennies = 1 ounce of silver remained the standard until Newton switched to a de facto gold standard (see Spoiler).
is a brief excerpt from Newton's report which led to Britain's adopting a de facto gold standard:
Sir Isaac Newton Master of the Royal Mint said:
May it please your Lordships : In obedience to your Lordships order of reference of August 12, that I should lay before your Lordships a state of the Gold and Silver Coins of this Kingdom in weight and fineness, and the value of Gold in proportion to Silver, with my observations and opinion, and what method may be best for preventing the melting down of the silver coin ; I humbly represent, that a pound weight Troy of Gold, eleven ounces fine, and one ounce Allay, is cut into 44½ Guineas, and a pound weight of Silver, eleven ounces two penny wt. fine, and eighteen penny weight Allay, is cut into 62 shillings, and according to this rate, a pound weight of fine Gold is worth 15 pounds weight 6 ounces, 17 penny weight and 5 grains of fine Silver, reckoning a guinea at £1, 1s. 6d in Silver money. But
Silver in Bullion exportable is usually worth 2d. or 3d. per ounce more than in Coin. And if at a medium, such Bullion of standard Allay be valued at 5s. 4 d. halfpenny per ounce, a pound weight of fine gold will be worth but 14 pound weight 11 ounces, 12 penny weight 9 grains of fine silver in Bullion. And at this rate, a Guinea is worth but so much silver as would make 20s. 8 d. When ships are lading for the East Indies, the demand of Silver for exportation raises the price to 5s. 6d. or 5s. 8d. per ounce, or above ; but I consider not those extraordinary cases....
The fluctuations just mentioned were greatly reduced after the establishment of the Bank of England. There was inflation (modest by today's standard) during the Napoleonic Wars, but then prices fell: in 1835 the price index was back to what it was in 1796. During the height of the Napoleonic Wars, British paper money could not be readily redeemed for gold, but redemption resumed by 1820 (at the SAME gold price as mandated by Isaac Newton). This remained the market price of gold until 1930 (except for a brief excursion 1919-1925). Realize that throughout this period the value of British money was DEFINED in terms of the market value of gold. That market value fluctuated only slowly BECAUSE of its ties -- via money -- to ALL prices.
Although the price of gold remained stable relative to the British monetary pound, beginning about 1878 there was steady DEFLATION relative to consumer prices. This was caused by the increased scarcity of gold, relative to the size of the economy, and to the discontinuance of silver as money, as silver's price fell relative to gold.
From 1914 to 1920 there was severe inflation in Britain, followed by deflation 1927-1933. Inflation returned with World War II and remained for decades.
Summary.
* With precious-metal money and weak banking, prices fluctuated but NET inflation was near zero. Modest fluctuations correlated with financial crises.
* With precious-metal money and a central bank, prices fluctuated much less.
* When precious-metal ceased to be money, there was general (but often moderate) inflation.
* Severe war often led to inflation, with redemption of paper money often suspended.
* Deflations often occurred, under precious-metal regimes, after periods of inflation.
The FRB was established in 1913 just before a very severe war in Europe. Because of this conjunction it may be difficult to separate out effects specific to the FRB's founding.
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
Yes. One need look no further than W.J. Bryan and his "You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." Does Mr. Harvestdancer think Bryan represented wealthy financiers rather than struggling farmers and laborers?
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
Do I read this correctly that you say when facts and theory contradict each other we should ignore the facts? If not, what in the world are you trying to say?
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
Do I read this correctly that you say when facts and theory contradict each other we should ignore the facts? If not, what in the world are you trying to say?
3) You just threw out the primary means the government uses to keep the economy on approximately an even keel. Look at inflation before and after the Fed. The swings were much wider in the past--and those swings cause harm, especially when they swing negative.
The other two points are not particularly relevant but this one ... it needs a response.
While there were swings of both inflation and deflation before the Federal Reserve, they averaged out to a very mild deflation. After the Federal Reserve we've had constant inflation without any averaging out. The swings are no longer inflation - deflation but mild inflation - high inflation.
The swings are generally between zero and moderate. Although what constitutes moderate is subjective. We did swing high at one point when they tried to use it to create economic growth and learned the hard way that doesn't work.
No. Since the founding of the Federal Reserve we have not had zero inflation except when the Federal Reserve was unable to stop it. Inflation has always been the tool of the Fed.
Your statement also relies on the Keynesian fallacy that deflation is bad in and of itself, without exception. He believed that if we had deflation, basically all economic activity would stop because everyone would hold on to their money until prices fell even further, causing prices to fall even further, causing people to hold on to their money even more until prices fell even further, etc. It is an absurd way of thinking about deflation that no reasonable person can agree with.
It depends on the amount of deflation. He's completely correct for large deflation--when you can make more sticking your money under your mattress than putting it to constructive ends you will totally crater your economy. Mild deflation just suffers from a loss of control authority--harmful only if it happens to go towards more deflation because you're helpless to stop it.
In that case severe inflation is also bad, but you don't hear the horror stories about it from monetarist or keynesian economists the way you hear about the dreaded deflation. The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation. They see that they cannot control it at all except by reversing it, so in their minds a little does lead to a lot does lead to collapse. They're completely wrong, but that is their view.
Here's the key point that Keynes was trying to cover up with his made up horror stories about deflation: deflation helps the poor, inflation helps the rich.
And the key point is that you are utterly wrong about this.
Inflation/deflation does not favor one over the other so long as it isn't too big. An increase in the inflation rate helps the borrower, a decrease in the inflation rate helps the lender. Perhaps you are looking at deflation as being a stealth pay increase for the poor--but in time the jobs will go away instead.
It is true that you can look at it as a lender/lendee relationship. You can also look at it from the point of view of those who hold most of their weath in cash (generally the poor) and those who hold most of their wealth in assets (generally the rich).
But since you insist on looking at it from a lender/lendee point of view, who is the biggest debtor in the country? Whose debt alone exceeds the collective debts of the poor?
Of course, most of the swings of inflation and deflation were caused by the previous attempts by the government. Sometimes it was by the previous attempts to institute a central bank. Sometimes it was the emergency measure of unbacked government currency as in "not worth a continental". Pointing out every time the government makes a mess as a reason to have government intervention is an odd way of arguing in favor of government intervention.
Are you actually arguing that before the founding of the Federal Reserve the government didn't interfere with the economy? Are you not familiar with the First Bank of the US or the Second Bank of the US? Or issuing paper currency to pay for wars?
That's counterintuitive. Can you explain how you conclude it? The normal expectation is that deflation helps creditors because loans are paid back with bigger dollars, while inflation helps debtors because loans are paid back with smaller dollars; and as a rule, although there are of course many individual exceptions, the rich are more frequently creditors and the poor are more frequently debtors.
When most of your wealth is in cash, lower prices on items are good. When most of your wealth is in commodities, lowering prices lowers net worth. There are people on this forum who think rich people are sitting on large piles of cash, but generally that isn't true and their net worth is an estimate based on the value of their holdings.
Do I read this correctly that you say when facts and theory contradict each other we should ignore the facts? If not, what in the world are you trying to say?
I messed up. In my previous post where I wrote " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation." I meant " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little deflation as they are a lot of deflation."
I hope that those who respond to me notice this correction.
I messed up. In my previous post where I wrote " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation." I meant " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little deflation as they are a lot of deflation."
I hope that those who respond to me notice this correction.
The correction is noted but unnecessary as it is just as untrue as the uncorrected statement. Depending on the cause of the deflation, there is much more to be afraid -10% change in the price level than -0.1%.
I messed up. In my previous post where I wrote " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation." I meant " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little deflation as they are a lot of deflation."
I hope that those who respond to me notice this correction.
The correction is noted but unnecessary as it is just as untrue as the uncorrected statement. Depending on the cause of the deflation, there is much more to be afraid -10% change in the price level than -0.1%.
Your inability to notice context is not my problem. I was pointing out how monetarist and keynesian economists fear 0.1% deflation just as much as they fear 10% deflation, which is true. They mistakenly think any and all deflation is bad.
I messed up. In my previous post where I wrote " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation." I meant " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little deflation as they are a lot of deflation."
I hope that those who respond to me notice this correction.
The correction is noted but unnecessary as it is just as untrue as the uncorrected statement. Depending on the cause of the deflation, there is much more to be afraid -10% change in the price level than -0.1%.
Your inability to notice context is not my problem. I was pointing out how monetarist and keynesian economists fear 0.1% deflation just as much as they fear 10% deflation, which is true. They mistakenly think any and all deflation is bad.
I messed up. In my previous post where I wrote " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little inflation as they are a lot of inflation." I meant " The problem is, the economists of the schools that favor the Federal Reserve are just as afraid of a little deflation as they are a lot of deflation."
I hope that those who respond to me notice this correction.
The correction is noted but unnecessary as it is just as untrue as the uncorrected statement. Depending on the cause of the deflation, there is much more to be afraid -10% change in the price level than -0.1%.
Your inability to notice context is not my problem. I was pointing out how monetarist and keynesian economists fear 0.1% deflation just as much as they fear 10% deflation, which is true. They mistakenly think any and all deflation is bad.
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