........and suddenly someone in the MSM said it (Time to KILL the FED!)

[Mega]

http://blogs.telegraph.co.uk/finance...deral-reserve/

Mike

[ASH]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

AEP isn't really the MSM. At least, he's a bearish outlier. And this is a blog entry rather than one of his journalistic articles. Also, the headline doesn't really reflect the content of his blog entry. That said, the subject of his blog entry -- a paper by a federal reserve wonk criticizing the value of internet economic commentary by those of us who aren't professionally trained economists -- is of some interest to this community.

[Starving Steve]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

"Time to kill the Fed" is a no-brainer. And the comment by a Fed wonk that comments about the Fed and its policies on the internet coming from economists that don't believe in the garbage offered as "enlightened" economics in the Samuelson textbook in college, and those who don't trust econometric models and those who don't speak in Greenspanese are not to be believed.... Yes, time to kill the Fed; it's a no-brainer, indeed. So welcome to the Greenspan-Bernanke Great Recession, the recession that never ends, and the recession hidden in lies and messaged and altered statistics to hide the unemployment and the inflation caused by mis-guided and failed policies of the Federal Reserve Bank.

[ThePythonicCow]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

Mega links to the article:

http://blogs.telegraph.co.uk/finance...deral-reserve/

That article has in it the phrase:

Friedman-Schwartz lessons on the quantity theory of money

Variations on the Quantity Theory of Money are a common part of our "ordinary" understanding of money. We expect that if, say, the Fed prints enough dollars, then we will see inflation (prices up, dollar worth less.) We sometimes explain that such inflation has not yet happened to a large degree in America because the "velocity" of the newly printed money is low. That money is sitting on the balance sheets of the Fed and some major banks, going nowhere slow. As soon as that money comes unglued somehow ... Katy bar the door!

This Quantity Theory of Money, and in particular the key term Velocity of Money has stuck in my craw, but so far I have only managed the occasional incoherent mumbling objection.

Now I see a more substantial objection.

In what amounts to mostly a "cash" society, if there is more money chasing the same goods, prices tend upward. My father lived in such a world. If he needed something, he'd look in his wallet. If he had the cash, he might spend it. Otherwise, he did without. End of story. When I settled his estate, thanks to his sister who was a part time legal intern providing some free services, I ended up with an inheritance of $83. I sold his old car to pay for the funeral expenses.

As the dear reader may have noticed by now, we're not in Kansas anymore. Most ("middle class") people's outgo is directly or indirectly debt service, and much of the rest indirectly funds long term social service commitments. The nominal amounts of such payments are relatively fixed. The price of our utilities is substantially determined by the cost of debt service on the infrastructure. Certainly rent and mortgage are debt service. Most of our taxes goes toward debt and social service. A few of our social services supposedly have Cost of Living Adjustments (COLA), but those are a joke; the nominal amounts are nearly fixed.

Because of these long term contracts (for debt and social services), a large portion of our price structure is very sticky.

In such cases, pricing ends up varying inversely to the volume of business, not to the volume or velocity of money.

If a company with a large fixed cost structure requires X Dollars to service debt and meet other such fixed expenses, and if they sell Y Units of their product, they had better charge at least X/Y Dollars per Unit, or else they go bust. If they sell more units, then they might charge less if it is to their competitive advantage. But if they sell fewer units, they must charge more per unit or go bankrupt. The fixed overhead expenses must be met.

Until the economic activity (the expansion of the monetary supply or its velocity) expands to cover these fixed expenses (*), we will not see broad scale inflation. We are seeing some price increases or quantity/quality decreases, as companies struggling to stay afloat squeeze more revenue out of fewer sales transactions. But any "surplus" cash floating about is just going to plug holes in leaky balance sheets, with the most powerful getting in line first.

Individuals behave similary. If one's relatively fixed income no longer adequately covers ones relatively fixed expenses, and if one cannot borrow more easy money, then one buys fewer units of discretionary products, trying to make ends meet and "pay the bills" (mostly debt service.) If you get a little extra cash or a small pay increase in such cases, you mostly use it to retire debt a little quicker.

The quantity and velocity theory of money seems to leave out the stickiness of nominal price levels established by long term debt and social contracts.

Disclaimer: I dropped out of Econ 101 after the first week, which may aid or hinder the proper understanding of these matters.

(*) P.S. -- or until the level of fixed costs for debt and social services shrinks (aka, defaults) to what our level of economic activity can afford ...

[ThePythonicCow]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

"Time to kill the Fed" is a no-brainer.

Yeah - but what do we get in its sted?

I fear we will get a "bigger Fed", some World Bank/IMF/BIS concoction.

[Starving Steve]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

If we are lucky, we might end-up on a gold standard with a gold-backed and gold-redeemable world currency.

The next step is for Congress to ask for Bernanke's resignation and for Congress to audit the Fed. Hopefully, Congress will end the TARP too.

The TARP was passed in an emergency session of Congress on a weekend, and within hours, on the following Monday, thanks to the urging of Nancy Pelosi, the bail-outs of AIG and the banks on Wall Street began, including Goldman Sachs Bank. I remember Nancy Pelosi saying to the Congress that the TARP had to be passed because, to use her own words, "We have never been spoken to like this before by the Federal Reserve Bank. This is an emergency."

On the bail-out Monday which followed, the executives of the nation's leading banks chose to pay bonuses to themselves. Some of the bonuses were in the tens of millions of dollars.

With any luck, the Congress might now audit the TARP and its bonus programme for managers of failing banks. Who got what, and why?

[thriftyandboringinohio]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

If we are lucky, we might end-up on a gold standard with a gold-backed and gold-redeemable world currency.

The next step is for Congress to ask for Bernanke's resignation and for Congress to audit the Fed. Hopefully, Congress will end the TARP too.

The TARP was passed in an emergency session of Congress on a weekend, and within hours, on the following Monday, thanks to the urging of Nancy Pelosi, the bail-outs of AIG and the banks on Wall Street began, including Goldman Sachs Bank. I remember Nancy Pelosi saying to the Congress that the TARP had to be passed because, to use her own words, "We have never been spoken to like this before by the Federal Reserve Bank. This is an emergency."

On the bail-out Monday which followed, the executives of the nation's leading banks chose to pay bonuses to themselves. Some of the bonuses were in the tens of millions of dollars.

With any luck, the Congress might now audit the TARP and its bonus programme for managers of failing banks. Who got what, and why?

Steve, I agree with every point you make here. Had to happen sooner or later!

[Roughneck]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

Cow, very interesting points. I tend to think that the reason we have not had inflation on a massive scale despite the money the fed has pumped in is because banks are sitting on the money and buying treasuries. A safe way to repair balance sheets when you are to scared to lend and people are too debt ridden to borrow. In a debt based money system no lending = no money creation. In fact debt destruction is contacting the money supply despite helicopter bens best efforts.

As for ending the fed the question becomes who will control the issuing of money. If you read some of Ellen Browns' work we should let the congress print money and take the bankers and their interest sufferage out of the equation. Of course I'm not sure you can trust those clowns with printing money either. Although North Dakota has a state bank which has worked well. http://www.webofdebt.com/articles/
I think the basic principle is that lending money into the public domain should not be the exclusive privledge of private bankers. I can agree with that. I just can't quite get the idea of how you would control the supply of money and credit. I'm sure this would work for consumer lending but what about the commercial paper markets for business?

[ThePythonicCow]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

I tend to think that the reason we have not had inflation on a massive scale despite the money the fed has pumped in is because banks are sitting on the money and buying treasuries.

Yup - Agreed, as I said (more obscurely) above:

But any "surplus" cash floating about is just going to plug holes in leaky balance sheets, with the most powerful getting in line first.

As for ending the fed the question becomes who will control the issuing of money.

If I were King for a Day, I might be asking what should be done.

But since I am just cynical low life, I ask instead what crap they are going to try on us next.

Hopefully others more worthy and capable of leadership roles will step forward.

===========

On the other hand, the systems designer in me has a proposal:

How about a world-wide network of well regulated and audited bullion banks, which can provide something analogous to the check clearing function of existing banks, only do so with 100% gold backed accounts, capable of holding gold deposit accounts for rich and poor individuals and corporations, and capable of rapidly and reliably clearing inter-bank transfers of gold down to a thousandth or a ten-thousandth of a gram.

Each such bank would be incorporated in some specific nation, and subject to the laws, such as taxes, search warrants and disclosure of account information, of that nation. Various of these banks would specialize as they chose in certain markets or capabilities. Many merchants would add the capability to receive payment using these gold transfers.

Sort of a goldmoney.com, on steroids, proliferated, and integrated into a world-wide transfer clearing network.

[ThePythonicCow]

Re: ........and suddenly someone in the MSM said it (Time to KILL the FED!)

On the other hand, the systems designer in me has a proposal:

First however we have an enormous bezel to clear. We've had a few centuries of deeply corrupt financial and political power culminating in the Most Magnificent Humongous Pile of Corrupt Debt, Derivatives and Swaps in Human History (MMHPCDDSHH).

Until this clears, no solution, however sensible, can be honestly and sensibly applied.

After this clears, we'll all be a tad lucky if we're still here in this life.

The money printing, or not;
the "sterilization" of that printing, or not;
the lending, or not;
... all that's but decorations on the bezel.