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

[ralfyman]

No one elected the Federal Reserve board members and neither the Congress nor the President have any control over what they do.

This does not counter my argument, that it’s the financial elite that controls the U.S. economy.

 

[ralfyman]

Yeah, and the two we had in the US before the Federal Reserve both failed and were done away with.

That’s because capitalism requires increasing production and consumption of goods, which in turn requires increasing money supply. Given that, one starts with capitalists and a government that legalizes businesses. After that, the former takes over. Hence, the Fed.

Which you can get through real savings. You do not have to use the printing press.

The printing press is the source of those savings. When those savings are invested, more money is created via interest. To pay back what is borrowed (which is the money saved) plus interest, profit has to be generated, which means even more money created. As banks lend more than what they have (which is what happens given less regulation), then even more credit is created. And when savings are used to speculate in financial markets, then even more credit is created.

Why do you think global unregulated derivatives ballooned to a notional value of over a quadrillion dollars, or twenty times the size of the global economy?

No, bubbles are caused by cheap credit injected into the economy. Do you think there would be so much speculation and risk taking in wall street if the Fed wasn’t injecting so much cheap credit into the economy? Businesses no longer care about taking huge risks and speculating because they know both the Federal Reserve and the federal government will bail them out.

That’s my point.

So? Recession is a natural part of the business cycle just like loss is a natural part of Capitalism. That is, until Keynes came along and convinced everyone that we can do away with recession and have a permanent “quasi-boom”. But, as we have seen, that is not possible. Keynesian macroeconomic policies result in bubbles and busts, not permanent “quasi-boom”. It seems the federal government thinks we can do without the loss part too.

Much of what we are seeing right now, including a global unregulated derivatives market with a notional value of over a quadrillion dollars, or amounts generated that go way beyond the money multiplier belief:

“The myth of the money multiplier”

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

has gone way beyond Keynesian economics.

It still doesn’t change the fact that the Federal Reserve turned a mild recession into a Great Depression because of their mishandling of the money supply.

Yeah, they should have bailed out the financial elite.

How can one overconsume if they don’t have the money to do so?

Easy. Banks can only earn money by lending money, and given competition they have to lend more money each time. What takes place for producers of physical goods also applies to the financial sector.

 

[ralfyman]

Low interest rates and emphasis on borrowing and spending is not free market capitalism, it’s Keynesian macroeconomic theory. Stop equating the two, they are not the same. There are many schools of economic theory that don’t support the Fed, low interest rates, or emphasis on borrowing and spending. Like the Chicago School, which is one of the biggest advocates of free market Capitalism around. Milton Friedman was a Chicago School economist and supported free market Capitalism and he hated the Fed.

Free market capitalism requires increasing production and consumption of goods to ensure more profits, and these in turn require and lead to increasing credit. To ensure the latter, one needs low interest rates, which leads to lots of borrowing and spending.

That’s why organizations like the Fed are needed, as it is a consortium of private banks. And banks, together with the rest of the financial sector, thrive of increasing borrowing and spending.

Boom and bust cycles will take place, but the trend line for production and consumption of goods as well as money supply is always upward.

Thus, Keynesian economics is a creation of free market capitalism.

Which wouldn’t be possible without an environment of low interest rates, cheap credit, and governments bailing out businesses.

Exactly. And for the U.S., it’s not exactly governments bailing out businesses but the Fed bailing out banks.

I would say the Fed isn’t either. It is autonomous and it is trying to keep this sorry excuse for an economy afloat through low interest rates and cheap credit.

You’re not countering my argument.

Also, keep in mind that easy credit was fostered through the early '80s onward. Take a look at the chart in this article for details:

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

Essentially, we are looking at all sectors (government, households, businesses, and the financial sector) that were heavily dependent on borrowing and spending for more than three decades. That was made possible through deregulation and not the opposite.

 

[ralfyman]

That’s only if you look at things from the borrower’s point of view. At the Fed’s pre-determined low interest rates, especially at the 10-yr and 30-yr level afforded by QE, banks are hesitant to lend. Sometimes, depending on economic conditions, they would rather take the Fed’s money and invest it in oil and other commodities, artificially driving up those prices. Then they sell them off and cause crashes. That’s not the way free markets are supposed to work.

Historically they kept interest rates at 3% above the inflation rate. I believe for some 40 years this brought healthy and steady growth into the economy. Then Nixon decided to take us off the gold standard and the Fed has gone crazy with money printing since. First the hyperinflation of the 70’s, followed by the 18% rates to slow that down, then a lowering of rates till they couldn’t lower it anymore. So much for refinancing careers among other things.

That’s because free market capitalism is essentially self-contradictory. One starts with a free market, and then some become stronger than others, which is what happens in capitalist systems. Then they take over:

“Revealed – the capitalist network that runs the world”

newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html

 

[ralfyman]

As the Chinese representative said to Hank Paulson in the movie “Too Big To Fail,” (a great movie, by the way), “The relationship of private companies and the government is not so simple.”

When people start arguing whether the Fed (and their 12 member banks) are private or government, that I believe is the wrong argument. They all have balance sheets and they’re all out of whack. Sure people can credit Greenspan, Bernanke and Yellen for stimulating the economy, but they’re the ones who promoted the housing and oil bubbles, inevitably causing the crashes of those markets in the first place.

When you have a Fed giving bailouts at zero or near-zero interest rates, and which allows the financial elite not just to recover what they lost during the crash but to engage in more financial speculation, then it’s that simple.

Behind all this is a petro-dollar propped up by the military, for which households get their easy credit and cheap goods imported abroad, the government its ability to assert dominance over other countries, businesses a consumer spending economy which allows for more sales of goods and services, and a financial elite more means to profit.

This went on for decades, and most did not complain, thinking that the U.S. economy itself is “too big too fail.”

 

[freeRadical]

This does not counter my argument, that it’s the financial elite that controls the U.S. economy.

I never said otherwise. Of course the Federal Reserve controls the economy, they control the money supply don’t they?

 

[freeRadical]

The printing press is the source of those savings. When those savings are invested, more money is created via interest. To pay back what is borrowed (which is the money saved) plus interest, profit has to be generated, which means even more money created. As banks lend more than what they have (which is what happens given less regulation), then even more credit is created. And when savings are used to speculate in financial markets, then even more credit is created.

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.

Why do you think global unregulated derivatives ballooned to a notional value of over a quadrillion dollars, or twenty times the size of the global economy?

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.

That’s my point.

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 what we are seeing right now, including a global unregulated derivatives market with a notional value of over a quadrillion dollars, or amounts generated that go way beyond the money multiplier belief:

“The myth of the money multiplier”

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

has gone way beyond Keynesian economics.

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

Yeah, they should have bailed out the financial elite.

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?

Easy. Banks can only earn money by lending money, and given competition they have to lend more money each time. What takes place for producers of physical goods also applies to the financial sector.

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

 

[freeRadical]

That’s because free market capitalism is essentially self-contradictory. One starts with a free market, and then some become stronger than others, which is what happens in capitalist systems. Then they take over:

“Revealed – the capitalist network that runs the world”

newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html

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

 

[freeRadical]

When you have a Fed giving bailouts at zero or near-zero interest rates, and which allows the financial elite not just to recover what they lost during the crash but to engage in more financial speculation, then it’s that simple.

Behind all this is a petro-dollar propped up by the military, for which households get their easy credit and cheap goods imported abroad, the government its ability to assert dominance over other countries, businesses a consumer spending economy which allows for more sales of goods and services, and a financial elite more means to profit.

This went on for decades, and most did not complain, thinking that the U.S. economy itself is “too big too fail.”

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

 

[freeRadical]

Free market capitalism requires increasing production and consumption of goods to ensure more profits, and these in turn require and lead to increasing credit. To ensure the latter, one needs low interest rates, which leads to lots of borrowing and spending.

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.

That’s why organizations like the Fed are needed, as it is a consortium of private banks. And banks, together with the rest of the financial sector, thrive of increasing borrowing and spending.

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.

Thus, Keynesian economics is a creation of free market capitalism.

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

Exactly. And for the U.S., it’s not exactly governments bailing out businesses but the Fed bailing out banks.

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

You’re not countering my argument.

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.

Also, keep in mind that easy credit was fostered through the early '80s onward. Take a look at the chart in this article for details:

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

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

Essentially, we are looking at all sectors (government, households, businesses, and the financial sector) that were heavily dependent on borrowing and spending for more than three decades. That was made possible through deregulation and not the opposite.

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

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.

 

[ProVobis]

That’s because free market capitalism is essentially self-contradictory. One starts with a free market, and then some become stronger than others, which is what happens in capitalist systems. Then they take over:

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

 

[ProVobis]

Free market capitalism requires increasing production and consumption of goods to ensure more profits, and these in turn require and lead to increasing credit. To ensure the latter, one needs low interest rates, which leads to lots of borrowing and spending.

That’s why organizations like the Fed are needed, as it is a consortium of private banks. And banks, together with the rest of the financial sector, thrive of increasing borrowing and spending.

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.

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.

 

[ProVobis]

When you have a Fed giving bailouts at zero or near-zero interest rates, and which allows the financial elite not just to recover what they lost during the crash but to engage in more financial speculation, then it’s that simple.

Behind all this is a petro-dollar propped up by the military, for which households get their easy credit and cheap goods imported abroad, the government its ability to assert dominance over other countries, businesses a consumer spending economy which allows for more sales of goods and services, and a financial elite more means to profit.

This went on for decades, and most did not complain, thinking that the U.S. economy itself is “too big too fail.”

 

[ProVobis]

When you have a Fed giving bailouts at zero or near-zero interest rates, and which allows the financial elite not just to recover what they lost during the crash but to engage in more financial speculation, then it’s that simple.

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.

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.

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.

 

[ProVobis]

Also, keep in mind that easy credit was fostered through the early '80s onward. Take a look at the chart in this article for details:

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

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!

 

[freeRadical]

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.

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

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!

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

 

[ProVobis]

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

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

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.

 

[freeRadical]

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.

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.”

 

[ralfyman]

I never said otherwise. Of course the Federal Reserve controls the economy, they control the money supply don’t they?

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

 

[freeRadical]

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

Of course. What is your point?