Pope Francis claims global economy is close to collapse and describes youth unemployment rates as an ‘atrocity’ in damning message

[ralfyman]

Do you know what real savings are? The printing press is not real savings, it is inflation. When the Fed pumps money into the economy it is not real savings, it is inflation. When that money is invested in assets, such as housing, it is inflation that is driving those new investments, not real savings. This leads to a bubble and then a bust. An economy needs real savings to invest in projects, not inflation-driven investment. Otherwise, you inevitably will have a bubble and then a bust.

Real savings consist of money, and ultimately involves profit and interest, both of which increase money supply.

Also, the mainstream view is that the Fed or a central bank injects money into the system, and then money supply increases as what is injected is lent and borrowed. What actually happens goes beyond that:

“The myth of the money multiplier”

To Neoclassical economists, it’s just the way banking works: bank lending is controlled by the Fed because, "even if banks hold no reserves”, Fed control over the currency means that private banks must do what the Fed wants.

And to anyone who’s done empirical research, it’s a myth.

businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

Because you have central banks pumping excess money into the economy, keeping interest rates low, and bailing out the financial sector in conjunction with governments bailing out businesses. The reason there is a global unregulated derivatives crisis is because of central banks, period.

Money is not simply created and pumped into a system. Rather, it is borrowed into existence.

Banks and businesses ultimately prefer low interest rates because that means more money, which in turn leads to more expansion, production, and sales.

I’m not sure what your point is to be honest. You claim bubbles are caused by financial risk and speculation and I claim they are caused by central banks.

Much of money consists of credit, and it’s not created by central banks. The largest component is unregulated derivatives. According to the expert, the notional value of the global market is over one quadrillion dollars.

Only a fraction of that was needed to bring the global economy to its knees in 2008, and there’s a lot more where that came from.

The money multiplier is Keynesian economics 101. What we are seeing right now is the result of Keynesian macroeconomic policies, period.

Given the actual size of M2, very likely not. More details in the article shared.

What are you talking about? The Depression was caused by the Fed contracting the money supply by 2/3 during a recession when they should have expanded it. It was caused by their mishandling of the money supply. How does that have anything to do with bailing out the financial elite?

Bailing out the financial elite means increasing money supply.

Exactly my point. You can only overconsume if you have a banking system, led by a central bank, continuously pumping money into the economy.

It’s the other way round: you promote overconsumption by increasing money supply.

And much of money supply isn’t being created by governments pumping money into the system.

 

[ralfyman]

How is free market capitalism self-contradictory? Who takes over?

It starts with businesses competing with each other. Some become stronger and then take over. From there, there is no more free market; rather, a global economy controlled by mega-corporations and governments that work for them.

That’s why the Fed is not a government central bank but a consortium of private banks.

That’s why most of money supply is created by private banks and not central banks.

That’s why the largest component of credit worldwide is over a quadrillion dollars (notional value) in unregulated derivatives.

That’s why the Fed quickly bailed out the financial elite.

That’s why governments are supporting businesses by keeping interest rates low, which allows more borrowing for more expansion, production, sales, and profits.

That’s why the financial elite have not only recovered their losses but are engaged once more in financial speculation. Meanwhile, workers are stuck with unemployment problems, high food and oil prices, etc.

 

[ralfyman]

Sounds like the problem is the Federal Reserve, which is exactly what I’ve been saying.

Recall that the Fed is a consortium of private banks.

 

[freeRadical]

Recall that the Fed is a consortium of private banks.

Yes, that is true. What is your point and what does it have to do with what I posted?

 

[freeRadical]

It starts with businesses competing with each other. Some become stronger and then take over. From there, there is no more free market; rather, a global economy controlled by mega-corporations and governments that work for them.

That’s why the Fed is not a government central bank but a consortium of private banks.

That’s why most of money supply is created by private banks and not central banks.

That’s why the largest component of credit worldwide is over a quadrillion dollars (notional value) in unregulated derivatives.

That’s why the Fed quickly bailed out the financial elite.

That’s why governments are supporting businesses by keeping interest rates low, which allows more borrowing for more expansion, production, sales, and profits.

That’s why the financial elite have not only recovered their losses but are engaged once more in financial speculation. Meanwhile, workers are stuck with unemployment problems, high food and oil prices, etc.

Okay, so it sounds like the Fed is the problem, not free market capitalism, which is exactly what I’ve been saying. The Fed and free market capitalism are not synonymous. It seems we are going in circles. None of that would have been possible without the Fed.

And, yes, the Fed is a central bank and it is the model that all the other country’s central banks are built on.

I really don’t think you are understanding what I am saying. You keep posting the same thing over and over again. It is like you are not even reading my posts at all.

 

[freeRadical]

Real savings consist of money, and ultimately involves profit and interest, both of which increase money supply.

Real savings is when people save money. What the Fed is doing is not real savings, it is inflation-driven investment.

Also, the mainstream view is that the Fed or a central bank injects money into the system, and then money supply increases as what is injected is lent and borrowed. What actually happens goes beyond that:

“The myth of the money multiplier”

businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

Yes I understand the mainstream economic views and the money multiplier. It is Keynesianism 101.

Money is not simply created and pumped into a system. Rather, it is borrowed into existence.

Money can be created if the government wants to do it. What the Fed is doing is not borrowing though.

Banks and businesses ultimately prefer low interest rates because that means more money, which in turn leads to more expansion, production, and sales.

Yes, of course banks and businesses prefer low interest rates but I don’t really care what they want.

Much of money consists of credit, and it’s not created by central banks. The largest component is unregulated derivatives. According to the expert, the notional value of the global market is over one quadrillion dollars.

Only a fraction of that was needed to bring the global economy to its knees in 2008, and there’s a lot more where that came from.

This is like the fifth time you have posted the same thing about unregulated derivative. There would be know unregulated derivatives if you didn’t have a central bank keeping interest rates loan and pumping excess interest free credit into the economy, plain and simple

Bailing out the financial elite means increasing money supply.

How does bailing out the financial elite increase the money supply?

It’s the other way round: you promote overconsumption by increasing money supply.

Which is exactly what I said. Seriously, it’s like you either aren’t reading my posts or don’t understand them. You cannot have overconsumption without a central bank keeping interest rates low and pumping excess credit into the economy.

And much of money supply isn’t being created by governments pumping money into the system.

You’re right. It is created by central banks pumping money into the system.

 

[ralfyman]

You can have increasing production and consumption of goods without a central bank pumping credit into the economy and keeping interest rates low. Emphasis on borrowing and spending is not required for increasing production and consumption. Increasing production needs savings and investment, not borrowing and spending. Increased production leads to increased consumption. It is called Say’s Law and it has never been proven wrong.

Definitely, as much of money is created through the money multiplier, and even more because money is essentially borrowed into existence. That’s why M2 is many times larger than it should be. More details in the article shared earlier.

The Fed is not needed, period. Yes, of course the financial sector thrives on borrowing and spending but increased borrowing and spending is not required for economic growth. Savings and investment grow the economy, not borrowing and spending.

Absolutely, and for reasons I gave in my previous message. What’s needed are private banks.

On the other hand, the Fed is a consortium of private banks.

But they are not the same things. Keynesian macroeconomic theory may be the dominant theory but it is not the only theory.

They are definitely not the same. As I pointed out, it’s a creation of free market capitalism.

Yes, we agree on this point. All the more reason to get rid of central banks.

The Fed is not exactly a central bank but a consortium of private banks.

I don’t understand what argument you are trying to make. You keep posting the same stuff over and over. It’s like you are not even reading my posts.

The Fed is not a central bank. It is a consortium of private banks. That consortium supports private banks, especially those that are part of Wall Street.

Those Wall Street banks gambled heavily and lost. The consortium bailed them out.

Do you understand what’s happening? The financial elite controls the U.S. money supply and bailed itself out. That’s why loans were given at zero or near-zero interest. That’s why the financial elite recovered what they lost, even profited, and are now engaged once more in financial speculation. That return to financial speculation is part of Pope Francis’ argument.

Yes, because of a central bank following Keynesian macroeconomic policies.

The Fed is not a central bank. Most of money supply is created by private banks.

It is possible because of central banks pumping excess credit into the economy and keeping interest rates low.

The credit is increased multiple times through fractional reserve banking, and increased further through endogenous money. The financial elite, many of which control the same private banks that borrow and spend, profited from this.

Several of these private banks form a consortium, which is the Fed.

Deregulation did not cause excessive borrowing and spending. The Fed caused that by pumping excess credit into the economy and keeping interest rates low. The federal government caused that through its fiscal policies and tax code.

When money supply is controlled by the financial elite, then that’s deregulation.

 

[ralfyman]

Maybe you never had a free market economy to begin with.

Highly unlikely, as modern capitalism began only during the last few hundred years.

 

[ralfyman]

You keep repeating this as though it were fact but $4 trillion dollars sitting doing nothing says the Fed can’t do much just by printing money, lowering interest rates, buying long-term bonds, etc.

It is a fact, and we’re looking at more than just $4 trillion. Try unregulated derivatives with a notional value of $400 trillion, and part of a $1.2 quadrillion global market.

You forget an important component of the GNP equation which is VELOCITY. The manipulation of prices, interest rates, currency, etc by the government or the Fed only has only managed to stifle the economy, since no one knows what the manipulators are going to do next. Even many of the manipulators have managed to lose their shirts but that won’t stop them from continuing with their losing theories of economic growth, borrowing, and spending.

Recall that the Fed is a consortium of private banks and works independently of the government. Also, most money isn’t created by the Fed but through the same money exchange, and that businesses flourish through low interest rates.

Given that, what the government and Fed did was not “stifle the economy” but the complete opposite, and this went on from the early 1980s onward, as seen in the chart presented in this article:

blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

In short, government deregulated, allowing Wall Street to play hard and profit, with other sectors participating, leading to increasing levels of borrowing and spending across the board.

 

[ralfyman]

This totally ignores that segment of the economy which depends on modest interest rates to survive without raising premiums, depleting capital, wiping out savings, etc., such as insurance companies, pension funds, retiree income, etc.

Yes, but lower interest rates also means more money borrowed, which in turn means more people getting insurance, more capital created, and more investments in all sorts of funds. Why do you think financial speculation and investment kept growing for many years?

This is no insignificant segment either. Ask AIG. Even Bernanke and Yellen have admitted that artificially low interest rates distort demand and supply of money which impacts the economy in negative ways. Yet they keep harping on some fictitious inflation number to show their policies to be working.

Yes, but you forgot to note that this went on for decades, and everyone profited.

And their admission only strengthens my argument concerning the global economy and free market capitalism.

BTW, in that movie, which is supposedly true, Bernanke and Paulson harped on the moral hazards of the Fed intervention, though they themselves violated their own principles.

Don’t forget that the Fed is not a government bank but a consortium of private banks, that more money is created beyond what the Fed lends into existence, and even more is created as endogenous money. More details in the article I shared.

 

[ralfyman]

If anything, this is evidence that asset prices and employment can grow even when interest rates are at 10%. Savers were happy, homeowners were happy, and so on.

Or you can argue that the lowering of rates afforded refinancing opportunities and increasing employment. (Of course this can’t be done at 0%. I believe it’s called a liquidity trap that the Fed has put themselves in.)

The Keynesians should have been happy with 5% or even 4% or 3%. But NOOOO!

Yes, but private banks have to keep lending to earn more money, financiers and even investors want better returns on their investment, and households want to spend more on all sorts of middle class conveniences. Hence, teaser loans, synthetic CDOs, maxing out on credit cards, flipping houses, etc.

 

[ralfyman]

Of course! That is because saving and investment are the true engines of economic growth, not borrowing and spending.

To earn enough to save and invest, and then to earn a return on investments, someone else has to borrow and spend.

Hayek didn’t refer to it as a “liquidity trap”, he called it a broke banking system

More like a banking system that’s part of a capitalist system, which requires increasing money supply to finance increasing production and consumption of goods to ensure better profits and return on investment, which in turn increases money supply further.

Given that, it’s not just the banking system that’s broken.

 

[ralfyman]

And by the QE buying of 10-yr and 30-yr bonds they essentially want to make it permanent, never mind the growing danger of (serious) price inflation. Not much exit strategy there either.

This has been going on in one way or another for the past three decades. The reason why it became more prominent during the last few years was because the financial elite gambled heavily, lost, bailed themselves out at the public’s expense, and have now returned to financial speculation.

Why didn’t households notice this? Because they assumed that the U.S. economy, like Wall Street banks, is “too big to fail,” especially given the belief that the world needed the U.S. dollar and would continue exporting cheap goods to them. That’s also why most did not complain when the U.S. military attacked one country after another to keep the petro-dollar propped up and to show everyone else who’s boss. Meanwhile, it voted one administration after another to power which did nothing more than continue Reaganomics. That’s why borrowing and spending across the board kept increasing.

Finally, FWIW, I think Pope Francis also recognizes this problem:

“Pope Francis Denounces ‘Idolatry of Money’ And ‘Tyranny’ of Capitalism”

reuters.com/article/2013/11/26/us-pope-document-idUSBRE9AP0EQ20131126

 

[ralfyman]

Of course. The Keynesian believe they can manipulate the economy into a permanent “quasi-boom”. As we have seen, that has been far from the case.

This whole situation in the US, and around the world, reminds me of one of my favorite quotes of Hayek:

“The curious task of economics is to demonstrate to men how little they know about that which they imagine they can design.”

It is highly unlikely that Keynesians would have been able to create a global unregulated derivatives market with a notional value of over a quadrillion dollars. Very likely, this was due to high levels of speculation among members of the global financial elite.

With that, what we are seeing is not a manipulated global economy but the complete opposite: one that is out of control.

 

[ralfyman]

Of course. What is your point?

Much of money supply is borrowed into existence through private banks.

 

[freeRadical]

It is highly unlikely that Keynesians would have been able to create a global unregulated derivatives market with a notional value of over a quadrillion dollars. Very likely, this was due to high levels of speculation among members of the global financial elite.

With that, what we are seeing is not a manipulated global economy but the complete opposite: one that is out of control.

You posted the same thing again. Are you even reading my posts?

There would be not be high levels of financial speculation if central banks were not keeping interest rates low, pumping excess credit into the economy, and bailing out financial institutions, and propping up Wall Street. Plain and simple.

What we are seeing is the result of Keynesian macroeconomic polices. Plain and simple.

 

[ralfyman]

Okay, so it sounds like the Fed is the problem, not free market capitalism, which is exactly what I’ve been saying. The Fed and free market capitalism are not synonymous. It seems we are going in circles. None of that would have been possible without the Fed.

And, yes, the Fed is a central bank and it is the model that all the other country’s central banks are built on.

I really don’t think you are understanding what I am saying. You keep posting the same thing over and over again. It is like you are not even reading my posts at all.

The Fed is not the only problem, it’s free market capitalism, which requires increasing money supply, etc.

The Fed and free market capitalism are not synonymous. Rather, the latter led to the formation of the former. The U.S. started with industrialists, with several forming powerful banks. From there, the Fed was formed consisting of several of those banks.

The Fed is not a central bank from which others are modeled. It’s a consortium of private banks and works independently of the government. In addition, unlike central banks of other countries, the Fed controls the global reserve currency.

Finally, most of money supply isn’t created by the Fed. It’s created through a money multiplier, and even that is questioned, as M2 is far larger than what it should be. The reasons are given in the article I shared.

 

[freeRadical]

You posted:

Definitely, and that’s the same money supply involved in economic views that criticize the Fed.

To which I replied: Of course, what’s your point?

To which you replied:

Much of money supply is borrowed into existence through private banks.

What does your second post have to with the first?

And no, money isn’t borrowed into existence, it’s loaned.

But that’s a moot point since what the Fed is doing is not borrowing, it’s printing.

 

[freeRadical]

The Fed is not the only problem, it’s free market capitalism, which requires increasing money supply, etc.

Why is an increasing money supply a problem?

The Fed and free market capitalism are not synonymous. Rather, the latter led to the formation of the former. The U.S. started with industrialists, with several forming powerful banks. From there, the Fed was formed consisting of several of those banks.

The Fed may have arose out of free market capitalism but it is not free market capitalism and it is not required for free market capitalism.

The Fed is not a central bank from which others are modeled. It’s a consortium of private banks and works independently of the government. In addition, unlike central banks of other countries, the Fed controls the global reserve currency.

Yes, the Fed is a central bank. It doesn’t matter that it is a consortium of private banks and independent from the government. It controls the money supply, it controls interest rates, and it controls banks. It is a central bank. Period.

The only reason the Fed controls the global reserve currency is because the global reserve currency is the US dollar.

Finally, most of money supply isn’t created by the Fed. It’s created through a money multiplier, and even that is questioned, as M2 is far larger than what it should be. The reasons are given in the article I shared.

You’re right, most of the money supply isn’t created created by the Fed, but it’s not created through a money multiplier since the money multiplier doesn’t really exist. It is a Keynesian fabrication. If there is a money multiplier, it is very small and negligible.

Most of the money supply is created though private real savings which, in turn, is loaned out. However, that part of the money supply is dwindling thanks to low interest rates, a tax code that discourages saving, and a government that encourages borrowing and spending. Thus, the Fed has had to pick up the slack with inflation-driven investment, which are not real savings, and the result is bubbles and busts.

 

[ralfyman]

Real savings is when people save money. What the Fed is doing is not real savings, it is inflation-driven investment.

The money saved by people is printed by the Fed and is borrowed into existence through loans made from private banks. That’s why M2 is much higher than one expects given the money multiplier principle.

Yes I understand the mainstream economic views and the money multiplier. It is Keynesianism 101.

What has been taking place goes beyond the money multiplier and Keynesian 101. That’s why M2 is many times greater than what it should be. That’s why we have a global unregulated derivatives market with a notional value of over a quadrillion dollars.

Money can be created if the government wants to do it. What the Fed is doing is not borrowing though.

Most money is not created by government. Most credit is not created by government. For the U.S., the organization that prints most money isn’t even a government office.

Yes, of course banks and businesses prefer low interest rates but I don’t really care what they want.

Where do you think citizens get their wage increases, promotions, bonuses, easy credit, and returns on investment needed to pay for middle class conveniences?

This is like the fifth time you have posted the same thing about unregulated derivative. There would be know unregulated derivatives if you didn’t have a central bank keeping interest rates loan and pumping excess interest free credit into the economy, plain and simple

Most of credit involved in unregulated derivatives don’t involve central banks because most of money supply is created through the money multiplier and endogenous money. In addition, these financial instruments are unregulated, which means governments have no control over them.

How does bailing out the financial elite increase the money supply?

Bail outs consist of money.

Which is exactly what I said. Seriously, it’s like you either aren’t reading my posts or don’t understand them. You cannot have overconsumption without a central bank keeping interest rates low and pumping excess credit into the economy.

Sorry about that. I’d like to point out, though, that most of money supply isn’t created by the Fed but by private banks. See the article shared earlier for details.

You’re right. It is created by central banks pumping money into the system.

It’s created by private banks, and is borrowed into existence. That’s why given the money multiplier, M2 is many times greater. But because of endogenous money, M2 is even higher than what is expected. More details are given in the article shared earlier.