What evidence is there that Fed policy ever did any good? Why do we worship the Fed chairman?

[Lumpenproletariat]

The best explanation why so many people believe in the Fed (or claim to)

#40


Loren Pechtel

At the peak level the Fed was pumping about a trillion per year into circulation. If this was a net benefit to the economy, why not increase it to 2 or 3 trillion to produce even more benefit?

How do they know what the cutoff point is beyond which it is not a net benefit to pump in the money?

In the real world there's always a balance between the pluses and minuses of a course of action. Of course there's a downside to QE, otherwise they would do it all the time.

This ignores the fundamental question: How do you know there is not a net downside, or NET NEGATIVE result, with ANY level of QE?

Everyone grants that there is a NET downside with a high level of QE beyond a certain point. But how do they know this without also knowing, or suspecting, there is net downside even at low levels of QE? i.e., that a low level results in a low negative downside, while a high level results in a high negative downside?

And thus, ANY QE is negative. How do they know that isn't the case? How do you know it? Why do you believe it?

You can't give any reason.

The same with interest rate suppression. (Let's call it SI)

How do you know a small degree of this doesn't produce a small negative impact on the economy? Everyone grants that a high degree of it produces a negative impact. At least if you follow it logically and suppose the possibility of NEGATIVE interest rates, which simply continues the same process further, going below zero.

You can't be naive enough to believe that an interest rate of .01% might produce a tiny increment of benefit, but that a rate of -.01% has to be produce a negative result. So it follows that the same logic applies to SI as to QE. If a large dose of QE or SI is known to be negative to the economy, how do you know that a small dose would not also be negative for the same reason? with the only difference between them being that the negative result gets smaller for ever-smaller doses?

No one is giving any reason for believing that small doses can produce a net small benefit, or positive effect, but that the result has to become a net negative when the doses become larger beyond some point.

Your failure to understand all the details doesn't say they don't understand what they are doing.

Yes. I think they understand, and I think you and I and many people do understand. Not the details, but the overall picture.

The details are irrelevant if the larger picture is not also understood and explained.

And I think the explanation is this:

QE and SI benefit NOT the whole economy, NOT all of us, but a minority of people. It is impossible to identify precisely who these people are and who they are not.

Economic "stimulus" obviously benefits some companies, when it takes the form of corporate welfare. Companies like GM and Solyndra, and also thousands of workers. And you could run a long list of other likely beneficiaries, and it's impossible to name all of them with certainty.

The simple explanation why many people favor QE and SI is that they believe they are among the beneficiaries. It will promote their particular business or job interest.

But at the same time they are not so empty-headed as to believe that it benefits the whole economy or all the population. Who cares about that? Everyone is interested in making their own personal individual gain, regardless who else may have to pay the price for it.

I suggest that QE and SI do net harm to the economy, in any degree, and that the majority of the population has to suffer a net loss in order to provide the benefit to the minority who profit from QE and SI. This net loss might be rather small, in low degrees of QE or SI, but it is a net LOSS for the economy, not a net gain.

This explains why the Fed does it and why so many people, especially the more educated, favor it. They benefit from it, probably, while others have to pay for it by suffering a net loss, but these losers are generally less educated and less critical and more trusting of those in power, so they don't put up any opposition, and the QE and SI are carried on with lots of speech-making and sloganism and econo-babble by the minority who benefit from them.

The nature of this benefit is the same as that of an airplane dropping a billion dollars cash over a city. Those who collect the greater share of the cash will benefit, who are a minority, and the rest will be made worse off because of the resulting inflation.

No one here is answering the question how we know that a certain level of QE or SI benefits the economy up to a certain point, while beyond that point it is a net harm. But there needs to be an explanation why so many claim that it's a net benefit in those small doses.

Since they can't give any reason to believe this claim, there must be a different explanation than their claim that there is a net benefit. And that explanation must be that they are among the ones who benefit, while others are the ones who suffer and pay the price for it. And they make this claim in order to promote a practice that benefits them.

Certainly this explains everything about the unsupported claim and blind faith of so many in the Fed's actions with QE and SI.

If this is not the explanation, then what is the explanation? Just saying it's too complicated and we have to trust these "experts" to tell us the truth is no explanation. They are simply telling the vocal minority who benefit from QE and SI what they want to hear.

 

[laughing dog]

With unemployment at 6 or 7%, why stop at only the 1 trillion? Wouldn't we get twice as many of those "jobs! jobs! jobs!" if we pumped in twice as much dollars?

Only if the economy is a strickly linear system - which it is not.

 

[SimpleDon]

But of course, the main job of the Fed is to maintain the stability of the banks and of the banking system as a whole. It is here that the Fed's biggest failure was in the years leading up to the Great Financial Crisis of 2008. The Fed has broad powers to regulate the banks, especially the large banks that control most of the country's deposits. The Fed was fooled into believing that banks could regulate themselves by the period of relative stability that was called The Great Moderation. Contributing a great deal to this failure was that to a person they believed in the ideology of free market capitalism, the rather ridiculous idea that markets left on their own would regulate themselves.

An interesting bit of recent history: Greenspan Admits ‘Flaw’ to Congress: http://www.pbs.org/newshour/bb/business-july-dec08-crisishearing_10-23/

My link to a story about that hearing is from the NY Times. (I can read some thousands of words per minute and don't have the patience to sit through 17 minutes of video to get information that I can get from reading for thirty seconds or so. And the truth be told my hearing isn't what it use to be.)

Some quotes from Greenspan from the hearing,

“Yes, I’ve found a flaw (in his ideology.) I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year (2007).”

... Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.

Mr. Waxman noted that the Fed chairman had been one of the nation’s leading voices for deregulation, displaying past statements in which Mr. Greenspan had argued that government regulators were no better than markets at imposing discipline.

“Were you wrong?” Mr. Waxman asked.

“Partially,” the former Fed chairman reluctantly answered, before trying to parse his concession as thinly as possible.

 

[SimpleDon]

Why? The thread concedes that the Fed has stabilized the economy. That, ultimately is all that the Fed is trying to do.

The rest of their questions are just hyperbole, all of them can be answered "because the Fed can't do that with the tools that it has" or "doing that would destabilize the economy."

A thread is not capable of conceding anything.

Imagine I'm a skeptic who rejects arguments based on faith and appeals to authority of the almighty thread.

What evidence do you have?

What a ridiculous thing to say. The whole purpose of these discussions is to arrive at a conclusion about the OP. Of course, the thread concedes points.

The original author of the thread conceded that the economy had been more stable since the Fed was formed. It is not a point of discussion in this thread. If you wish to make it one please present the evidence that makes you question the point raised by the author. I accept his point, he asked for examples of other benefits from the Fed. I simply said that that was the main one.

If you disagree then being such a evidenced based pursuer of truth then you must have a ton of it that fueled your belief. If you don't disagree with the point I don't know why you keep bringing it up.

But, excuse me if it was someone else, in another thread weren't you the one jumping in shouting ideology at the statement of a simple fact? It was the thread about the tax rate increase in California that was suppose to kill jobs but they had actually increased. That didn't sound like dedication to evidence based logic.

 

[SimpleDon]

#16


SimpleDon

The thread concedes that the Fed has stabilized the economy. That, ultimately is all that the Fed is trying to do.

The rest of their questions are just hyperbole, all of them can be answered "because the Fed can't do that with the tools that it has" or "doing that would destabilize the economy."

Why can't the Fed pump 2 trillion dollars into the economy with the same tools they used to pump in one trillion? "the Fed can't do that with the tools that it has" is false -- it has the tools.

The Fed needs to stop blabbering about its "toolbox" and start giving us some real facts about how it knows the exact dose of so much extra dollars pumped in and exactly how low the interest rates need to be suppressed.

"doing that would destabilize the economy"? That's what they've already done. Every such action they take destabilizes the economy an increment more.

Why is the destabilization of the economy they've already inflicted OK in order to produce a million new jobs, but a little further destabilization would NOT be OK in order to produce an additional million or 2 million jobs?

Why would that additional destabilization be any less tolerable than the destabilization they've already caused? and not a reasonable price to pay for all those additional precious "jobs! jobs! jobs!" that would surely result?

As I said, it is not possible for Fed to both control inflation and to reduce unemployment most of the time. The only effective tool that they have is the setting of some interest rates. If they try to use it to reduce unemployment it will create inflation. As a result they don't try to reduce unemployment, they concentrate on trying to control inflation.

What we have found out is that the Fed isn't very effective at pumping money into the economy, especially in a recession in which we have debt deflation. The QEs do create money but most of goes into the stock market or other savings instruments, not out into the real economy. They can't pump 2 trillion dollars into the economy if they can't pump 1 trillion dollars into it.

The toolbox that they have to work with is monetary policy. Monetary policy is largely ineffective in the face of a massive recession and debt deflation like we had in 2008. They can't create 2 million jobs because they can't create one million jobs.

Debt deflation simply means that economic activity is low because everybody is paying down debt. Monetary policy doesn't work because lowering interest rates can only stimulate the economy if people want to borrow money and banks are willing to lend it. People were trying to decrease their debt not increase it and because of the financial crisis banks weren't willing to write loans.

The toolbox really didn't have anything to do with the Fed's failures that lead up to the Great Financial Crisis and Recession. It was their failure to control the bad behavior of the banks, not their use of lower interest rates to stimulate the economy. The Fed had lowered interest rates to do that many times before without creating a massive financial crisis like occurred in 2007. The crisis was caused because of the banks use of derivatives to securitize home mortgages and to secure them with other derivatives called credit default swaps, CDS and collaterized debt obligations or CDOs.

As Greenspan testified to Congress in October of 2008, from the New York Times article I referenced above to Noble,

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said.

This had nothing to do with low interest rates, in fact the Fed raised interest rates to over 6% before the vast majority of securitized subprime mortgages were written and made into mortgage backed securities. And no it wasn't Fannie Mae and Freddie Mac, no it wasn't the CRA, the community reinvestment act. It was the failure to regulate the financial markets, the insane belief that the financial markets would self-regulate that was responsible for the crisis.

I am certain that I covered much of this in the post that you cut my quote above out of. I would appreciate it if you would include the back link to the post that you quote from, the quotation script reference like QUOTE=Lumpenproletariat;40613 between brackets.

 

[Lumpenproletariat]

Of all the responses here, no one gave any evidence that QE or suppressing of interest rates by the Fed ever did any net benefit to the economy.

Nor was any logic offered as to why a net benefit should be expected from these Fed actions.

Though Simple Don gave arguments that QE failed to produce the intended benefits.

So the only reasonable conclusion to draw is that QE was wrong and suppressing interest rates was and continues to be wrong because the damage it inflicts onto those who want to save is greater than any supposed benefit from all the "jobs! jobs! jobs! jobs! jobs! jobs! jobs!" it produces for all the riff-raff out there that we need to get off the streets.

 

[laughing dog]

Of all the responses here, no one gave any evidence that QE or suppressing of interest rates by the Fed ever did any net benefit to the economy.

Nor was any logic offered as to why a net benefit should be expected from these Fed actions.

Though Simple Don gave arguments that QE failed to produce the intended benefits.

So the only reasonable conclusion to draw is that QE was wrong and suppressing interest rates was and continues to be wrong because the damage it inflicts onto those who want to save is greater than any supposed benefit from all the "jobs! jobs! jobs! jobs! jobs! jobs! jobs!" it produces for all the riff-raff out there that we need to get off the streets.

Since every claim about the contents of this thread you have made is observably false, the only reasonable conclusion is that you have not bothered to read with comprehension the posts.

 

[Loren Pechtel]

Of all the responses here, no one gave any evidence that QE or suppressing of interest rates by the Fed ever did any net benefit to the economy.

People rarely try to prove that water is wet.

 

[Lumpenproletariat]

#47


laughing dog

Since every claim about the contents of this thread you have made is observably false, the only reasonable conclusion is that you have not bothered to read with comprehension the posts.

Is it false that Simple Don said the following?

Simple Don: What we have found out is that the Fed isn't very effective at pumping money into the economy, especially in a recession in which we have debt deflation. The QEs do create money but most of it goes into the stock market or other savings instruments, not out into the real economy. They can't pump 2 trillion dollars into the economy if they can't pump 1 trillion dollars into it.

The toolbox that they have to work with is monetary policy. Monetary policy is largely ineffective in the face of a massive recession and debt deflation like we had in 2008. They can't create 2 million jobs because they can't create one million jobs.

Is not this in effect a statement that QE did not work? that the Fed failed in in trying to pump money into the economy or to create jobs?

Is SD not contradicting the Fed chairman claiming they successfully pumped in a trillion dollars and thus benefitted the economy and saved lots of "jobs! jobs! jobs! jobs! jobs!"? Didn't the Fed chairman repeat many times the need served by pumping in this money, which SD here is denying?

But in contrast, where has anyone argued how QE has been successful, or how suppressing interest rates has been successful at making the economy better?

I know some say it is necessary to suppress interest rates in order to expand the money supply. But even if an increase in money supply is sometimes necessary, why must it be done by suppressing interest rates?

No one has answered this.

Until someone does, the only conclusion to draw is that there are some who benefit from it, and they propagandize and intimidate everyone else into believing this is good for all of us, but the truth is that the rest of us pay a cost for this, while only a few benefit, and the total harm is greater than the benefit.

It is best for all of us, i.e., the society, the people generally, to let the market set the price for a pair of shoes or a TV set or a car or interest rates. No one has ever shown otherwise. They just blow a lot of hot air babble semantics and tell you you're not educated enough to understand it.

Plus they huff and puff about "jobs! jobs! jobs! jobs! jobs! jobs!" and "economic growth" similarly to the Hare Krishnas who chant "Hare Krishna hare hare -- Hare Rama hare hare" etc.

 

[laughing dog]

#47


laughing dog





Is it false that Simple Don said the following?

Simple Don: What we have found out is that the Fed isn't very effective at pumping money into the economy, especially in a recession in which we have debt deflation. The QEs do create money but most of it goes into the stock market or other savings instruments, not out into the real economy. They can't pump 2 trillion dollars into the economy if they can't pump 1 trillion dollars into it.

The toolbox that they have to work with is monetary policy. Monetary policy is largely ineffective in the face of a massive recession and debt deflation like we had in 2008. They can't create 2 million jobs because they can't create one million jobs.

Is not this in effect a statement that QE did not work? that the Fed failed in in trying to pump money into the economy or to create jobs?

Is SD not contradicting the Fed chairman claiming they successfully pumped in a trillion dollars and thus benefitted the economy and saved lots of "jobs! jobs! jobs! jobs! jobs!"? Didn't the Fed chairman repeat many times the need served by pumping in this money, which SD here is denying?

The ....Fed did not fail to pump 1 trillion dollars into the economy. The Fed pumped liguidity into the economy in an attempt to held arrest the recession. Their efforts were moderately effective - the recession was abated.


As to your question about increasing the supply of money by suppressing interest rates - increasing supply tends to reduce prices when demand does not change. So, increasing the supply of money tends to reduce interest rates in many situations.

 

[Lumpenproletariat]

Still no one explains how QE was good for the economy.

#50


laughing dog

The ....Fed did not fail to pump 1 trillion dollars into the economy. The Fed pumped liquidity into the economy in an attempt to arrest the recession. Their efforts were moderately effective - the recession was abated.

Only "moderately"? If it was that successful, why didn't they pump in more, 2 trillion, or 3 trillion? And why are they stopping? If it worked, why not do it some more until the recession is completely stopped?

You have no evidence that the additional trillions would not have produced a proportionately greater benefit. You have no evidence that the liquidity they pumped in did any good that is not also evidence that additional liquidity would have done proportionately more good.

If you claim a higher injection of liquidity would have done damage, then you must also assume that the lower amount also did damage, and that this damage was proportionally just as bad for the economy as a higher dose would have been relative to the lower degree of benefit to be gained from a lower level of liquidity input.

Where is there any proof or evidence or logic to show that this particular level of added liquidity inputted to the economy produced a net benefit but that some lessor or greater amount would have produced a net harm?

If they had injected 2 trillion instead, and other higher amounts, over the same period, there would have been similar results, and you have no reason to claim that those results would have been a net harm rather than benefit. And we can only assume that you and others would have praised the Fed for its prudent actions to save the economy from the recession, just as you do now. Because you have no basis for any critical judgment of the Fed's behavior or testing the results to determine if it did the right thing.

You don't have any basis for claiming how much the recession was "abated" and judging whether it could have been successfully "abated" even more if higher amounts had been injected, or that lower amounts of injections would have been unsuccessful.

If you have absolutely no argument or logic or evidence to show how much is the right amount, then you equally have no argument to prove that any amount of this injected liquidity was good for the economy.

When all you can say for sure is that too much of something is bad, and there is no test or standard for how much is a net good, then our best judgment is that any of it is a net bad. You have no basis for judging that the entire QE experiment did a net benefit rather than net harm.

As to your question about increasing the supply of money by suppressing interest rates - increasing supply tends to reduce prices when demand does not change. So, increasing the supply of money tends to reduce interest rates in many situations.

"increasing supply" of what? you mean increased production? If you mean "increasing supply" of money, that doesn't reduce prices but increases them.

And your "increasing the supply of money tends to reduce interest rates" line has the cause-effect backwards, because you're supposed to be explaining why interest rates are suppressed in order to increase the money supply, not how increased money supply leads to lower interest rates.

You are not answering the question, which is why it is necessary to suppress interest rates in order to increase the money supply.

No one has answered this.

No one has answered why it has been necessary or beneficial to the economy to suppress interest rates so low that there is virtually no incentive to save. And also at the same time to maintain an inflation rate higher than the rate of interest.

Since no one can explain how this is beneficial to people generally, the only logical conclusion to draw is that there are some narrowly-based classes of people who benefit from these measures and that most of us are made worse off, and the few who benefit have more influence and are able to force through these measures by brute force to the detriment of most of us.

One class of people who benefit are the chronically-indebted, who hope to keep racking up higher and higher debt, and to pay off their previous debt with still more future borrowing, and they hope they can keep this debt cycle going at least as long as they live, or in some cases find ways to "refinance" or otherwise renege on their debt, so that others who stayed out of debt end up paying the price for their debt.

And no doubt many other special interests benefit from these Fed measures of encouraging more and more debt.

But no one has shown how the country generally, or the economy, or the people generally, are made better off overall from this on-going promotion of debt and suppression of interest rates and rewarding of the chronically-indebted.

It's not about making the country better off, but rather, about some people making themselves individually better off by leeching off others who have to pay for it. That best explains why the Fed suppresses interest rates and pumps excess money into the economy by QE. The ones who benefit from this are an aggressive breed who know how to distort the system to their benefit at everyone else's expense.

Unless someone can give a better explanation, which they have not so far.

 

[laughing dog]

Only "moderately"? If it was that successful, why didn't they pump in more, 2 trillion, or 3 trillion? And why are they stopping? If it worked, why not do it some more until the recession is completely stopped?.......

You keep repeating this question. The implicit assumption behind it is that the economy is some well-defined linear model: it isn’t. The Fed balances its effects on production with its effects on inflation/inflationary expectations. And this balancing is done with sophisticated guesswork.

And your "increasing the supply of money tends to reduce interest rates" line has the cause-effect backwards, because you're supposed to be explaining why interest rates are suppressed in order to increase the money supply, not how increased money supply leads to lower interest rates.

This indicates a deep lack of understanding of monetary economics. Interest rates are the result of the interaction between the demand for funds and the supply of funds. All other things equal, an increase in the supply of funds suppresses interest rates. Since the supply of money is one source of those funds, increasing the supply of money tends to suppress interest rates (assuming all other relevant factors are equal).

You are not answering the question, which is why it is necessary to suppress interest rates in order to increase the money supply.....

The answer is that there are only two avenues to suppress interest rates: suppress the demand for funds or increase the supply of funds. The Fed’s tools directly affect the supply of funds, so the Fed “suppresses” interest rates by increasing the supply of money.

 

[tupac chopra]

Where is the evidence that anything the Fed ever did produced a net benefit to the economy?

The job of the Fed is to transfer wealth from the poor to the rich. Now because the rich are so much smarter and are so clever at allocating capital, this benefits the economy.
Andrew Huszar: Confessions of a Quantitative Easer

I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

 

[Wiploc]

... where has anyone argued how QE has been successful, or how suppressing interest rates has been successful at making the economy better?

Paul Krugman handles it pretty well: http://krugman.blogs.nytimes.com/

I know some say it is necessary to suppress interest rates in order to expand the money supply. But even if an increase in money supply is sometimes necessary, why must it be done by suppressing interest rates?

That's often more palatable, less damaging than cutting government spending.

No one has answered this.

It's pretty obvious.

Until someone does, the only conclusion to draw is that there are some who benefit from it, and they propagandize and intimidate everyone else into believing this is good for all of us, but the truth is that the rest of us pay a cost for this, while only a few benefit, and the total harm is greater than the benefit.

Why do you get to pick a conclusion out of thin air, unsupported, and claim that it is the only conclusion to draw? Where is your support? If you say the Fed's opinion is a religion, why isn't your opinion a religion?

It is best for all of us, i.e., the society, the people generally, to let the market set the price for a pair of shoes or a TV set or a car or interest rates. No one has ever shown otherwise. They just blow a lot of hot air babble semantics and tell you you're not educated enough to understand it.

Keynes proved that, without government intervention, an economy can stabilize at less than full production. It could stabilize at fifty percent, or ten percent of full production. We could all be thrust into devastating poverty for no reason, with no upside, unless the government does its job of regulating the business cycle.

Why do you believe that we should always let the market set all prices? Where is your evidence? Why isn't that a religious belief?

Plus they huff and puff about "jobs! jobs! jobs! jobs! jobs! jobs!" and "economic growth" similarly to the Hare Krishnas who chant "Hare Krishna hare hare -- Hare Rama hare hare" etc.

Who's huffing and puffing now?

 

[Lumpenproletariat]

How do you know QE was good? Why should interest rates be suppressed? Still no answers.

#52


laughing dog

Only "moderately"? If it was that successful, why didn't they pump in more, 2 trillion, or 3 trillion? And why are they stopping? If it worked, why not do it some more until the recession is completely stopped?.......

You keep repeating this question. The implicit assumption behind it is that the economy is some well-defined linear model: it isn’t.

No, the only assumption is that you who claim this amount of QE was just the right dose must have a reason for claiming this. What is your reason? Why are you so certain that the 1 trillion was just the right dose, which produced a net benefit, whereas any more or less than this 1 trillion would have produced a net cost?

How do you know the entire QE act by the Fed did not cause a net cost or loss to the economy? Just as you understand that an input of 10 trillion would have caused a net loss, how do you know a smaller dose, like 1/10 as much, did not also cause a net loss, but a proportionally smaller loss than the 10 trillion would have caused?

If by "linear model" you mean that more of a bad thing leads to greater bad results, what is wrong with that model? Isn't it true that the damage done by disease or by crime or some other evil is made greater if that evil is increased? and that the damaging result is less if the amount of the evil causing it is less?

Isn't there still some damage done by crime even if the crime declines by 10%? Aren't there still the damaging results from the evil that is inflicted, even if that evil is done at a lower degree? And if there is both benefit and damage from the same cause, why isn't the ratio of the benefit to the damage the same no matter what the degree of the cause that produces the benefit and the damage?

Or even if the proportion of the damage to the benefit changes, why should we believe that a certain level of the causal element leads to a net benefit while a higher level leads to a net damage?

Give an example where we know FORE SURE that a certain cause, in the economy, leads to a net benefit if done at a low level but to a net loss if done at a high level.

If you can't name one example where we know this for sure, then what reason to we have to believe that there is ever any such case? Or if you can name such a case, how do you know that QE is a similar example of this phenomenon?

The Fed balances its effects on production with its effects on inflation/inflationary expectations. And this balancing is done with sophisticated guesswork.

But you can't give any example where there is evidence that the Fed got the best balance or produced the best result with its guesswork. You can give no reason why we should believe that the Fed was ever right in its balancing guesswork, because there is no test that can be applied and no results that can be measured and verified so as to prove that a different act by the Fed would have necessarily produced a worse result?

If there has been such a test or such verifiable and measurable results, when was this and what were those results?

Since the supply of money is one source of those funds, increasing the supply of money tends to suppress interest rates (assuming all other relevant factors are equal).

DAMN IT! I'm not asking how they suppress interest rates. Please respond to my question: Why should interest rates be suppressed?

Nevermind HOW they suppress interest rates! Explain WHY they should be suppressing interest rates.

You are not answering the question, which is why it is necessary to suppress interest rates in order to increase the money supply.....

The answer is that there are only two avenues to suppress interest rates: suppress . . .

"The answer" to what? Not to my question! I didn't ask what the avenues are to suppress interest rates. I'm asking --

WHY SUPPRESS INTEREST RATES?

I don't care if there are 2 or 3 or 10,000 avenues to suppress them. Why suppress those interest rates by ANY avenue?

. . . suppress the demand for funds or increase the supply of funds. The Fed’s tools directly affect the supply of funds, so the Fed “suppresses” interest rates by increasing the supply of money.

Thanks for answering what I did NOT ask. I'll be sure to call on you next time I want an answer to a question I didn't ask.

My point is still the same: No one has ever given a coherent explanation why the Fed needs to suppress interest rates.

 

[Wiploc]

Why are you so certain that the 1 trillion was just the right dose,

Do you know of anybody who makes that claim?

Give an example where we know FORE SURE that a certain cause, in the economy, leads to a net benefit if done at a low level but to a net loss if done at a high level.

We ran up a lot of government debt during WWII. We used that money to save the world from Nazi oppression. Net benefit.

We could have run up a much higher debt, one that would have eventually collapsed our economy.

So that is one example of something that created a net benefit at one level, but would have been destructive at a higher level.

Why should interest rates be suppressed?

WHY SUPPRESS INTEREST RATES?

I don't care if there are 2 or 3 or 10,000 avenues to suppress them. Why suppress those interest rates by ANY avenue?

THE BUSINESS CYCLE CAN BE SMOOTHED OUT BY INCREASING GOVERNMENT SPENDING OR BY LOWERING INTEREST RATES DURING RECESSIONS, AND BY LOWERING SPENDING OR INCREASING INTEREST RATES DURING BOOMS. IF YOU ARE INTERESTED IN ECONOMICS, YOU ALREADY KNOW THIS, SO IT'S HARD TO TAKE YOU SERIOUSLY. WHY ARE YOU BELLIGERENTLY DEMANDING THAT WE TELL YOU THINGS THAT YOU ALREADY KNOW?

 

[Lumpenproletariat]

#54


Wiploc

... where has anyone argued how QE has been successful, or how suppressing interest rates has been successful at making the economy better?

Paul Krugman handles it pretty well: http://krugman.blogs.nytimes.com/

He says nothing there about QE or suppressing interest rates.

Citing some optimistic figures about the economy proves nothing. We have no reason to believe the economy is performing better because the Fed did QE or suppressed interest rates. You can always cite some good and bad figures about how the economy is performing. You can always pounce on some good figures and claim this proves your prescription must be working, no matter what the numbers are and no matter what your prescription is.

If any numbers are bad, you can always point to them and say: "See how our program prevented the numbers from going even much worse."

There is no evidence that the economy would have performed worse if interest rates had not been suppressed.

But even if an increase in money supply is sometimes necessary, why must it be done by suppressing interest rates?

That's often more palatable, less damaging than cutting government spending.

You have it backwards: less government spending = decreased money supply. If taxes remain the same, i.e., tax revenue, and government spending increases, then there is an increase of money, not a decrease.

There are ways to do such an increase without borrowing more, or running up future debt. This would be more palatable than to suppress interest rates.

So why do they suppress interest rates? What is the need to do this? Why doesn't anyone have an answer?

. . . the only conclusion to draw is that there are some who benefit from it, and they propagandize and intimidate everyone else into believing this is good for all of us, but the truth is that the rest of us pay a cost for this, while only a few benefit, and the total harm is greater than the benefit.

Why do you get to pick a conclusion out of thin air, unsupported, and claim that it is the only conclusion to draw?

What is a better conclusion? Explain why so many people submit to the Fed suppressing interest rates and QEing the money supply, but no one can explain why it's good for the Fed to do this? and instead they just pretend that some expert somewhere proved it, but they can't say what the proof or the evidence is that the expert gave?

When people act obsessively as though they have the truth but can't give a "jot or tittle" of reason why they think it's the truth, aren't we entitled to suspect that maybe they gain something from it and are promoting it for their limited personal benefit? If it's good for everyone, why are they ashamed to explain how they know this is the truth?

If you say the Fed's opinion is a religion, why isn't your opinion a religion?

Those who demand a blank check and blind faith from the entire population and who cannot give any reason why we should believe their claim, other than their authority because they are the official "experts," are promoting themselves as a Priesthood and a religion. But those who question them and ask their disciples to explain how they know these Priests and Popes know all this truth that the rest of us cannot understand, are not promoting a religion.

Asking for answers is not a religion. Withholding answers and demanding power over everyone in society without giving people any reason to believe your decrees is similar to promulgating a religion.

Keynes proved that, without government intervention, an economy can stabilize at less than full production.

Why make a religion out of "full production"? Much of that "production" would be more costly than it is worth. Where is it engraved in Stone that a society is best if the maximum possible production is taking place?

China is producing lots of empty cities and bridges to nowhere. Is that good because it means a higher level of "production"?

It could stabilize at fifty percent, or ten percent of full production. We could all be thrust into devastating poverty for no reason, with no upside, unless the government does its job of regulating the business cycle.

Some "regulating" is needed for some things going on. That doesn't explain why interest rates should be suppressed or why money should be injected into circulation when the inflation rate is above zero.

Why do you believe that we should always let the market set all prices?

Isn't it good for the price for TVs to go up if the supply of TVs goes down or if the demand for them increases? Isn't that what the market does?

When is it bad for the market to set prices? When is it bad for prices to go up if the demand goes up or the supply goes down?

The reason we should let the market set the prices is that it does this based on the supply and demand, and you cannot give an example where supply-and-demand is not best, i.e., where the price should go up even though the demand goes down or the supply goes up. I.e., you cannot give an example where the market is wrong in its setting of prices.

And you cannot explain why interest rates should be an exception to this rule, i.e., why the price for credit should not also be set by supply-and-demand like other values bought and sold in the economy.

Why are we letting all those products and services be priced by the market if it's not good for supply-and-demand to determine the prices?

What prices should NOT be set by supply-and-demand, and why are these different than everything else which is or should be set by supply-and-demand? Why are interest rates to be singled out for exception to supply-and-demand pricing?

Where is your evidence?

The fact that most prices are set by supply-and-demand and everyone agrees that this is best, because higher supply or lower demand SHOULD result in lower price, and lower supply or higher demand SHOULD result in higher price. Right? Do you disagree? Doesn't everyone agree that something in shorter supply or higher demand should go to a higher price etc.?

Who doesn't agree with this? Why isn't this best? Doesn't this system incentivise producers/sellers to perform better at serving consumers with better production? Isn't it good for producers to increase the production of something that becomes scarce or more demanded by consumers?

Isn't this a good reason to let the market set the prices? Doesn't this lead to the best possible production for consumers? Isn't that what producers should do? i.e., serve consumers better?

Why isn't that a religious belief?

Because it is based on answers to the questions. Because it explains why some prices should go higher and others lower. What question is not answered here?

This principle applies to ALL commodities, even interest rates, that are bought and sold in the market. Why shouldn't it apply to ALL?

This is not a religious belief, because it answers the critical questions, and asks why the principle should not apply to EVERYTHING bought and sold. And it allows for exceptions if you can give an ANSWER why some items bought and sold should not be set by the market.

This principle allows the exceptions, but asks you to explain why any particular item should not be included within the principle.

If something bought and sold should NOT be priced by the market, explain WHY it should not be. This allows you to explain what prices should NOT be set by the market. If you can name some examples, then those can be exceptions to the rule.

You don't have to have blind faith in anyone. You just have to answer the questions if you want something in the market, like interest rates, to be set artificially by some expert instead of by the market. Give your reason.

That's not religion, when you are given reasons and are asked to give your own reasons.

Religion is bowing before some experts who proclaim what prices in the market must be set by them instead of letting buyers and sellers set them in the market, and then not giving coherent answers why these prices they set are better than the prices the market would set.

"religion" = not answering the questions

And no one is answering why QE and suppressing interest rates are good for the economy.

 

[laughing dog]

No, the only assumption is that you who claim this amount of QE was just the right dose must have a reason for claiming this....

I didn't make that claim at all.

But you can't give any example where there is evidence that the Fed got the best balance or produced the best result with its guesswork. You can give no reason why we should believe that the Fed was ever right in its balancing guesswork, because there is no test that can be applied and no results that can be measured and verified so as to prove that a different act by the Fed would have necessarily produced a worse result?

What kind of evidence are you looking for?

If there has been such a test or such verifiable and measurable results, when was this and what were those results?

DAMN IT! I'm not asking how they suppress interest rates. Please respond to my question: Why should interest rates be suppressed?

Actually, you did write"You are not answering the question, which is why it is necessary to suppress interest rates in order to increase the money supply." which is what I was answering. If you are not going to pay attention to what you post, why should anyone else?

Thanks for answering what I did NOT ask. I'll be sure to call on you next time I want an answer to a question I didn't ask.

As I proved, freetrader, I did answer the question you asked.

My point is still the same: No one has ever given a coherent explanation why the Fed needs to suppress interest rates.

There is coherent explanation as to why the Fed NEEDS to do anything, let alone suppress interest rates. There are plenty of available coherent explanations why the Fed chooses to reduce interest rates in certain situations. Whether you are capable or willing to accept those explanations as coherent is a different matter.

 

[Lumpenproletariat]

So there is no argument for QE or for suppressing interest rates. Fine. We agree.

#56


Wiploc

Why are you so certain that the 1 trillion was just the right dose?

Do you know of anybody who makes that claim?

So then you agree there was no basis for the Fed to QE 1 trillion dollars into circulation (in one year)? There was no basis for believing that this extra amount of dollars was beneficial in making the economy perform better?

I think many do believe this was good. But if they don't, then I stand corrected. And so no one is defending the Fed's decision to input this amount of extra money into circulation.

So we agree. The Fed was wrong to do this.

Give an example where we know FORE SURE that a certain cause, in the economy, leads to a net benefit if done at a low level but to a net loss if done at a high level.

We ran up a lot of government debt during WWII. We used that money to save the world from Nazi oppression. Net benefit.

We could have run up a much higher debt, one that would have eventually collapsed our economy.

So that is one example of something that created a net benefit at one level, but would have been destructive at a higher level.

That's a cost-benefit example that is not analogous to what we're talking about here. (My question above was worded poorly.) Yes, we pay a higher price for some additional benefit and the benefit diminishes beyond some point beyond which it's not worth it to pay more.

But that's not analogous to what we're doing in the case of QE or suppressing of interest rates (SI). These are not examples of increasing taxes or borrowing (with the intention of paying it back later) in order to raise revenue to pay for a public benefit.

An analogy to QE and SI would be something like paying ransom to kidnappers, to gain the benefit of the victims being released. It is a practice, a questionable one, which probably does more harm than good, at any level or degree of such a practice.

Or counterfeiting, which might produce some benefits even to someone other than the counterfeitors, and yet at any level it is bad for the economy or for the society. It doesn't matter that some people benefit or that it might have short-term benefit by some account. It is still bad for the society overall.

Another example would be pork programs, or corporate welfare, where some special interests benefit, and it is argued that it's good for everyone, but the overall cost paid by consumers and taxpayers is greater than any benefit, which is really limited to the special interests.

There are many examples. In all such cases it is wrong to say that these practices are good for society if they are done at a low level or degree and become harmful only if increased to a certain higher degree. They are harmful to all of society at any level.

Give an example of such a practice that is beneficial at a low level but not at a higher level. To be in this category, it must be something other than a public benefit that is paid for from government revenue, such as from taxes or borrowing, and which politicians argue over as to how much we need of this public benefit or how far is enough and beyond which it costs too much. Such as the WW2 example. That's not analogous to the kind of practice, such as QE and SI, which the Fed engages in.

"Economic stimulus" programs would be analogous, if this means borrowing to pay for something but not with the intention of repaying it from future tax revenue but only from additional borrowing in the future.

This is a PRACTICE, not a cost. It is the dubious PRACTICE that I'm questioning. Any level of such a practice is a net loss for the society in the long run, even though it might have an immediate appeal.

QE and SI are such questionable practices.

There is ambiguity (what is or is not this kind of questionable practice) when it involves paying for it by deficit spending and it is unclear whether the debt is to be repaid in the future.

Had WW2 been paid for with the explicit intent that the debt would never be repaid from future tax revenue but only from running up future debt in perpetuity, then maybe it would have been in this questionable category. However, this was not the understanding. And most U.S. war debt was paid down from future tax (or non-debt) revenue.

At any level, it is always wrong to run up debt if the intent is to repay it only by running up still future debt, with no end to the future borrowing. Just like paying kidnappers is always wrong, at any level, and allowing counterfeiting, and paying bribes to corporations to build factories in order to provide jobs.

These practices are wrong not because they exceed some particular cost limit, beyond which they become harmful, but they are wrong at even a very low level. The damage done is proportional to the degree of the practice.

This is not analogous to something like paying for a war or paying for schools or for filling potholes or for building bridges etc.

Give an example of such a questionable practice, like those I've listed above, which is good for the economy if done at a low level but bad if done at a high level. I think all of them are a net harm to the economy at any level no matter how low.

All of these questionable practices are ones which have to be paid for by inflicting future damage onto the economy, or a future cost, including costs on future generations. All for an immediate short-term gain only.

The right kind of benefit to the economy is one which does not inflict future harm down the line but has only a short-term (maybe high) cost and then long-lasting benefit.

WHY SUPPRESS INTEREST RATES?

I don't care if there are 2 or 3 or 10,000 avenues to suppress them. Why suppress those interest rates by ANY avenue?

THE BUSINESS CYCLE CAN BE SMOOTHED OUT BY INCREASING GOVERNMENT SPENDING OR BY LOWERING INTEREST RATES DURING RECESSIONS, AND BY LOWERING SPENDING OR INCREASING INTEREST RATES DURING BOOMS.

Why should government spending be based on an obsession with smoothing out the "business cycle"? Any such action the government takes is for short-term gain only, and is done at the cost of future damage to the economy.

Why shouldn't government spending be based instead on the need for public programs, so that if the needs increase then the spending increases? I.e., if more infrastructure is needed, then additional revenue is raised to pay for it? Why shouldn't this alone determine the level of government spending, rather than abstruse theories about the "business cycle"?

And why shouldn't interest rates be determined by the market only, instead of by an obsession with the "business cycle"? Making credit too cheap encourages irresponsible decisions by borrowers.

The idea that the "business cycle" needs to be "smoothed out" implies falsely that there is a desire for balance between "boom" and "bust" or that we have to soften the "boom" times with some contraction of the economy, and that deficit years will be offset by surplus years, and we must "reign in" the economy during those "boom" years.

This is false. The real obsession is with the "bust" years only, and the need to pump up the economy during recessions, to artificially boost employment and "economic growth" when the economy becomes too "sluggish." This is all the "business cycle" crusaders care about, not about "reigning in" the economy during all those horrible "boom" years. In the few instances that there is a "boom" at all, these crusaders close up shop and go fishing. And any idea that we need some surplus years to offset the deficit years is now consigned to the category of flat-earthism or the paranormal.

So don't complain about the "business cycle" as if you're concerned about "smoothing" out the boom and bust. All you're concerned about is the "bust" and doing whatever it takes to cause more "economic growth" and generate more "jobs! jobs! jobs! jobs! jobs! jobs!"

And it's all short-term instant gratification only. The "jobs" and "economic growth" you artificially cause today come only at the cost of future debt and QE and SI and more pork and bridges to nowhere and other waste which will be needed to further delay the costs that are accumulating and keep the addiction going still farther into the future. And the only rationale to it is: "In the long run we're all dead anyway."

"Economic stimulus" and QE and SI and such schemes are all based on this "In the long run we're all dead anyway" philosophy. Just like paying ransom to kidnappers.

That's not analogous to a costly government program, like WW2, where the immediate cost was high, and the rationale was not "in the long run we're all dead anyway" but rather that we're going to make a sacrifice today in order to secure a better future.

How can you claim that QE and suppressing interest rates is done for anything other than instant gratification? You know that's all it is.

 

[Lumpenproletariat]

Summary: Here is a good rule, not only for the Fed, but for everyone, including individuals.

Give an example where we know FORE SURE that a certain cause, in the economy, leads to a net benefit if done at a low level but to a net loss if done at a high level.

We ran up a lot of government debt during WWII. We used that money to save the world from Nazi oppression. Net benefit.

We could have run up a much higher debt, one that would have eventually collapsed our economy.

So that is one example of something that created a net benefit at one level, but would have been destructive at a higher level.

I think the basic principle here is this:

Whether it's the Congress, the Fed, or a private entity, a corporation or just a single isolated individual, any action is wrong, or bad for the society, if it would be harmful if done beyond a defined limit, instead of the defined limited scale, unless those proposing it can prove overwhelmingly that there is a needed benefit to be gained on the limited scale.

In other words, it is wrong even on a limited scale unless the proponents can prove the necessity for it.

In other words, the BURDEN OF PROOF is on those who propose that the act be done, including on a single individual intending to perform the act, and that proponent of the act must prove that the benefit to be gained will be greater than the cost or any injury.

Or further, if it can be shown, or if it is obvious, that this act if done widely would necessarily do clear damage to us all, i.e., to the whole society, to the vast majority, then it must be assumed at the outset, as a starting premise, that it would also be harmful if done on a limited scale, even in a very limited local scenario where only a small population would be affected.

Examples:

Polluting a river on a small scale, by only 1 or 2 people, is bad for society, even though the immediate damage by them is too small to measure. There is a small increment of damage to hundreds or thousands of others who are impacted, but this damage is too small to measure. But because we know that the damage would be measurable if committed on a much larger scale, we must assume that the damage is also too great even on a small scale. The damage vs. benefit ratio is the same.

Paying off kidnappers to release hostages may produce benefit now to the families of the hostages, but this leads to more kidnappings later, and if this is done on a wide scale it leads to much more frequent and obvious harmful results for the future generally. Making an exception for one case is never justified, because each case that is excepted leads to a slightly greater increment of incentive to future kidnappers.

A Good Samaritan parking meter donater who plugs a parking meter about to expire, thinking this is a good deed, is actually doing net damage to society, even though they are doing a favor for the owner of that car. (There have been cases of this in some cities, and some of these Good Samaritans were arrested or harassed by the police for it.) If this practice were done on a large scale, it would undermine the legitimate function served by parking meters. Thus, even on a small scale it does harm, giving encouragement to car owners who are neglectful to pay the meter.

Bank bailouts are a major example. Each exception only gives encouragement to more bad behavior by the banks in the future.

Minimum wage, which is beneficial in a superficial way, in the short term, discourages companies from hiring all the workers they need in the long term, not just a few months beyond the minimum wage increase, but for years into the future. And some companies switch to independent contractors which has some negative consequences for the workers and for society. The harm is obvious when the increase is large and the impact is large, as in the case of Samoa, but where it is done on a small scale, the impact cannot be measured.

The rule should be: If any act would clearly be bad for the economy if it were to be done on a large scale, we should assume that it would also be bad for the economy if done on a small scale, unless the proponents of it can prove otherwise.

Where is the flaw in this rule?

Obviously QE and suppressing interest rates violate this rule. But prudently managing the price level, to stabilize inflation-deflation at near zero and keep it steady might be in keeping with this rule, provided it is not based on promoting future debt or suppressing interest rates when there are other measures to accomplish this which do not distort the market.

And the Fed always has to reassure us that it will stop its "stimulus" measures at a certain point beyond which we all know it would cause net damage. They cannot prove that their "stimulus" measure was a net benefit if done on the limited scale.

Nor can the Congress prove this with its "stimulus" measures.