The Fed: Dishonest or Incompetent?

[jk]

Re: The Fed: Dishonest or Incompetent?

But an even bigger issue is what I'm referring to as "credit in the broadest sense" - i.e. "claims on stuff". This includes not only credit in the conventional sense of bonds an other fixed income securities, but stocks as well. They are "claims on stuff", too. The delineation between "stuff" and "claims on stuff" I am making here is probably closer to the notion of paper versus physical assets. Here, though, I'm emphasizing the relationship between the two in such a way as to suggest there is a fundamental link and certain bounds on how far "credit" can go. It it very literally like a game of musical chairs when the amount of credit (claims on stuff) exceeds the actual stuff - when government and banks deliberately expand credit, they are actually encouraging the development of such a state of affairs - and this relationship tells us why such artifically expanded credit must eventually come back into line with physical reality.

re claims on stuff v stuff

from goldmoney.com commentary by james turk: "Less than one year ago REFCO, a New York based financial services company, collapsed. Last week the London Metals Exchange took the extraordinary step to postpone what looks like the inevitable default of contracts in its nickel market. What do these two events have in common?

The customers of these firms who thought they owned metal in fact didn't. The defaults made clear to these firms' customers that they owned someone's promise to deliver metal to them, but they did not own the metal itself."



jimmy rogers' commodities fund thought it owned futures, but it didn't. now it is an unsecured creditor in the refco bankruptcy.



this also connects to bill gross' latest piece, http://www.pimco.com/LeftNav/Late+Br...ember+2006.htm
referred to in another thread here. i've seen gross' argument in a piece some time ago by john mauldin. basically it says that demographics limit the efficacy of any financial solutions to funding the boomers' retirements. if there are only so many people working, producing only a certain amount of stuff, then all the financial claims accumulated by the boomer generation can only purchase that amount of stuff. there's no more to be had.




so one way or another, financial claims can't exceed the value of the stuff those financial claims can purchase. [this is the concrete expression of finster's obsession ;) with the value of the dollar versus the value of stuff.]

[bart]

Re: The Fed: Dishonest or Incompetent?

Interesting... possible to download the data?

But of course - GDP is available already in an Excel file at http://www.bea.gov/bea/dn/gdplev.xls and census data is from http://www.census.gov/popest/datasets.html and http://www.census.gov/statab/www.

If you have trouble with them or want data going further back than what's there, holler and I'll try and yank the relevant data out of the tabs in my (now 565MB) master Excel sheet.

If it seems counterintuitive, remember part of the thesis is that inflation drove the dollar down at such a rate as to outrun the decline in real credit, so that in nominal terms there was expansion. But an even bigger issue is what I'm referring to as "credit in the broadest sense" - i.e. "claims on stuff". This includes not only credit in the conventional sense of bonds an other fixed income securities, but stocks as well. They are "claims on stuff", too. The delineation between "stuff" and "claims on stuff" I am making here is probably closer to the notion of paper versus physical assets. Here, though, I'm emphasizing the relationship between the two in such a way as to suggest there is a fundamental link and certain bounds on how far "credit" can go. It it very literally like a game of musical chairs when the amount of credit (claims on stuff) exceeds the actual stuff - when government and banks deliberately expand credit, they are actually encouraging the development of such a state of affairs - and this relationship tells us why such artifically expanded credit must eventually come back into line with physical reality.

Look again at the chart - you can almost see it happening.

I sometimes forget that the FDI is global in scope, and it appears on reflection that it happened again here.

Amen on the ever so slippry definitions of money too, in the credit, asset and even derivatives senses.

This just reminded me of a thread not quite a year ago where we were going back & forth on "credit demand" - here's the 3rd of 3 charts from that thread:

[Finster]

Re: The Fed: Dishonest or Incompetent?

I sometimes forget that the FDI is global in scope, and it appears on reflection that it happened again here.

Happens a lot, but not this time. This chart doesn't invoke the FDI at all. It's purely stocks in terms of gold. It happens that you see somewhat of a similar pattern if you plot stocks using the FDI, but it is much more muted and elements of timing are different. This is because the FDI takes into account the prices of both assets and claims on assets into account. In this chart, gold is a proxy for just actual physical assets alone.

Amen on the ever so slippry definitions of money too, in the credit, asset and even derivatives senses.

This just reminded me of a thread not quite a year ago where we were going back & forth on "credit demand" - here's the 3rd of 3 charts from that thread:
...

Indeed. The variability in the unit (dollar) makes it hard to assess, but once real credit volume exceeds equilibrium, it takes ever-more pushing from the Fed to expand it. Eventually it contracts anyway, giving you deflation, regardless of whether it is papered over by currency dilution and inflation or not.

The Keynesian dream is just that.

...(now 565MB) master Excel sheet.

In-freaking-sane!

You have out-geeked, out-spreadsheet-jockeyed, not only me, but probably the IRS, NASA, and FRB combined ...

[bart]

Re: The Fed: Dishonest or Incompetent?

Happens a lot, but not this time. This chart doesn't invoke the FDI at all. It's purely stocks in terms of gold. It happens that you see somewhat of a similar pattern if you plot stocks using the FDI, but it is much more muted and elements of timing are different. This is because the FDI takes into account the prices of both assets and claims on assets into account. In this chart, gold is a proxy for just actual physical assets alone.

I consider myself partially "finned" then... ;)

Gold did do a pretty fair job during the '70s of emulating the FDI though.

Indeed. The variability in the unit (dollar) makes it hard to assess, but once real credit volume exceeds equilibrium, it takes ever-more pushing from the Fed to expand it. Eventually it contracts anyway, giving you deflation, regardless of whether it is papered over by currency dilution and inflation or not.

The Keynesian dream is just that.

Dream... and nightmare too the way it has been and is being practiced. Keynes will surely get much blame one of these days, and yet he also said things like this:

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."

In-freaking-sane!

You have out-geeked, out-spreadsheet-jockeyed, not only me, but probably the IRS, NASA, and FRB combined ...

Quantified be me?
I only have about 2.5 terabytes online though, the NSA has nothing to worry about. ;)

[EJ]

Re: The Fed: Dishonest or Incompetent?

I was, and I changed the behavior in the User Control Panel and no longer deal with the default tree. This board's software is pretty powerful.

We put some effort into researching the best BB software. Most are free and pretty good. This one is not free and we think the best.

Only the best for the smartest guys on the web.

[bart]

Re: The Fed: Dishonest or Incompetent?

We put some effort into researching the best BB software. Most are free and pretty good. This one is not free and we think the best.

Its the best and by far the most configurable I've seen. Kudos to your research and decision.

[jk]

Re: The Fed: Dishonest or Incompetent?

The Keynesian dream is just that.

if i'm not mistaken, keynes believed that excess liquidity injected during times of stress was supposed to be soaked back up during times of strength. the soaking back up never happened in practice. it reminds me of alcoholics who use the beneficial effects of 1-2 glasses of wine as an excuse to get soaked themselves. so don't blame keynes. he was a smart guy.

[FRED]

Re: The Fed: Dishonest or Incompetent?

if i'm not mistaken, keynes believed that excess liquidity injected during times of stress was supposed to be soaked back up during times of strength. the soaking back up never happened in practice. it reminds me of alcoholics who use the beneficial effects of 1-2 glasses of wine as an excuse to get soaked themselves. so don't blame keynes. he was a smart guy.

The Keynesian cure of tax cuts, deficit spending, and easy money is intended to prevent an economy from falling into a self reinforcing deflationary spiral, as happened in the US in the 1930s and in Japan in the 1990s. But, as an economy recovered, these stimuli are meant to be withdrawn; taxes raised, budgets brought back into the black, interest rates raised to neutral and money supply sufficient to support economic growth without generating high inflation. What Keynes didn't count on is that once these measures are in place, politicians will figure out a way to keep them there, inventing theories about why deficits don't matter and why, even though we're on the wrong side of the Laffer Curve, post bubble tax cuts can remain in place forever. He may not have foreseen the unique geopolitical and historical circumstances that has allowed the US to break the rules. The US economy happens to be the one that's printing the world's reserve currency, and is acting as the world's main borrower/consumer just when the world's newly minted ex-communist or ex-socialist capitalist savers/producers needed one, so the US has gotten away with leaving the Keynesian cure in place without having to pay high interest rates, at least for a while; until ex-communist or ex-socialist capitalist savers/producers start to develop more domestic consumption and trade more with each other than with the US, and start using other currencies, such as euros, other than the US dollar for trade.

No, don't blame it on Keynes. He's probably turning over in his grave.

[fogger]

Re: The Fed: Dishonest or Incompetent?

Keynes provided a sellable framework that worked for those in power. He fully understood. Read more Keynes (not his economics).



why is (was) the US the richest nation?
why is the 3rd world so far behind?
how do you think the US has maintained power after bankruptcy in 1933 and then again in 1971?

Answer: money and its flow



can you name an interest-free currency in history? there are numerous successful examples, so why can't you name one?

why does a govt that has the constitutional power to "coin money" pay interest on its money?


You might remember a saying: "history is written by those who win"


know our enemy. this has been going on for 6000 years:
http://yamaguchy.netfirms.com/astle_d/astle_index.html

[fogger]

Re: The Fed: Dishonest or Incompetent?

Quote from John Maynard Keynes:

"Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."


A few more quotes:
http://www.fame.org/NotableQuotes.asp

[fogger]

Re: The Fed: Dishonest or Incompetent?

Personally I like this one:

"Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back."

Sir Josiah Stamp, former President, Bank of England

[fogger]

Re: The Fed: Dishonest or Incompetent?

some more quotes:
http://www.modernhistoryproject.org/...Article=Quotes


I believe I may have identified your resistance to seeing the truth:

- The morality of Producers is the antithesis to the morality of Parasites.
- Since most people are good, you assume most people in power are good
- You extrapolate your moral/social interactions to the world at large

In short, you refuse to believe they can exist.


those who seek success in business believe in the virtue of their merit
those who seek success in politics believe in their ability to manipulate

parasites are the minority, but they tend to band together

[fogger]

Re: The Fed: Dishonest or Incompetent?

if you have a problem with conspiracy, think of it as the pursuit of power by parasites. with money being the expression and representation of that power.

some parasites have become excellent at their game
they have taught their techniques to others (or others have learned them)


i believe the greatest challenge of the common man today is to remove the tools that allow the parasites to thrive. (and sadly the supposedly very smart people on this board are entirely blind to it even when it's pointed out repeatedly)

the geek/jock fairy tale misses the possibility that some people have a very different morality.

[bart]

Re: The Fed: Dishonest or Incompetent?

some more quotes:
...

You'll likely enjoy these too, they were sent to me about two years ago with the actual source way down the page:


This war is a defensive war. It was forced upon us by our enemies, who wish to destroy our nation. The only thing we cannot afford to lose in this war is our freedom, the foundation of our life and our future. No one has the right to complain about limitations on his personal freedom caused by the war.

.

Why of course the people don't want war. But it is the leaders who determine policy, and it is always a simple matter to drag the people along.
All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country.


Joseph Goebbels, Sept 1943


Source:
http://www.calvin.edu/academic/cas/gpa/goeb45.htm

[fogger]

Re: The Fed: Dishonest or Incompetent?

"A few who can understand the system (check money and credits) will either be so interested in itīs profits, or so dependent on itīs favors, that there will be no opposition from that class (THE TOP, Maybe YOU.), while on the other hand, the great body of the people (THE BOTTOM, Most likely YOU.) mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear itīs burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - Rothschild Brothers of London