Bernanke led economy proving critics clueless

[DSGE]

You can't print up specie out of thin air.

On any other kind of explicit target you can't either. On a gold standard you can only print money when your gold stock increases. On a k-percent rule you can only print money so that the money supply grows at k-percent. On an exchange rate target you can only print money so that the exchange rate remains the same. On a price level target you can only print money to attain the target price level.

The point is that there's nothing special about the gold standard. It's not like your only options are gold standard or complete monetary discretion. All of the other possible targets have the desirable property that the central bank can't just print up some money whenever it feels like it.

But what happens if the central bank breaks the law and starts printing too much money? Under which regime are they more transparent: price level/NGDP/exchange rate/etc which are all measurable independent of the Fed and can be used to check if they're fucking up; or a gold standard where we either have to physically inspect that the Fed has the monetary gold reserves it says it does, or speculate that there'll be lots of inflation and cash in our medium of exchange for gold?

What the congress and the Fed have been doing the last few years, viz. monetizing the debt, is illegal...Who's going to prosecute them?

Do you have evidence supporting that claim?

 

[DSGE]

Sheldon Filger: Federal Reserve Begins Massive Monetization of U.S. Government Debt

The Federal Reserve Will Not Monetize The Debt? in [Market-Ticker]

Fed Treasury Purchases `Monetizing Debt,' May Spur Inflation, Hoenig Says - Bloomberg

The first two don't actually provide any evidence that government debt is being monetized. The third is using the phrase "monetized debt" in a different context. Usually when we say "the Fed is going to monetize the debt" we mean they're going to print money and buy bonds from the government so that the government can spend the money or pay off debt. Hoenig is saying it in a more general case. Open Market Operations is where you exchange created money for bonds. That's technically "monetizing debt" but it's not giving money to the government to spend. It's an open market operation; it occurs in the secondary market for treasuries. All it's doing is swapping one asset for another. That's how the money supply is controlled.

 

[Oddball]

Why?

In today's world, a far better distribution of information.

That coupled with taking away the ability of fiat banksters to pump up value bubbles, via extending interest at levels far below the point where natural market forces would have them, can't do anything but help the situation....Which would lead to a taxation system that wouldn't lend itself to politicians meddling in the marketplace and creating bubbles.

You might be right about the competency of those running monetary policy.

However, history disagrees with you. The economy was more volatile before we had the Fed than after.

And so does theory. It's not about information distribution. It's about meeting the demand for money balances. It is assumed by those who support a gold standard that gold will come to market to meet higher prices. That may be true over the very long-term but it there is absolutely no reason to believe it is true in either the near or medium term. Gold has risen from $300 to $1700 over the past 10 years yet the amount of gold pulled out of the ground around the world is about the same as it was a decade ago. In dogmatic theory, this shouldn't happen, even though all in marginal costs have risen from ~$500 to ~$1000. Yet, in the real world, it does. Dogma often fails in the real world. More practically, when the economy grows, the demand for money grows. When the demand for money grows, the interest rate will rise. If the supply of gold is inelastic, as it often is, the real rate of interest will rise, which needlessly brakes the growth of the economy. The money supply should grow at the rate of the economy over the cycle. But gold does not necessarily do that. It certainly hasn't in the biggest bull market in gold of all time. That, in a nutshell, is why the gold standard is an awful monetary system.

Now, I concede that in the end, an awful monetary system is better than a catastrophic monetary system, which is what we may be running now.

Right...The supplies of gold, silver, copper, etcetera are relatively inelastic...This is a good thing....Makes inflation of the money supply virtually impossible....Being so, prices would necessarily adjust downward to fall in line with a currency of tangible value.....The upshot would be the return of 5¢ beer in the saloon.

This would also mean that the suppliers of credit would be the owners of the property and manufactured goods, rather than the big banks...This would have the effect of decentalizing the creation of credit and would *tend to* keep credit collapses localized, rather than the recent giant bubble collapses created mostly by easy fiat credit from the big eastern banks.

Prefect?..Hardly...Problematic?...You bet...Catastrophe?.....Nope.

 

[Oddball]

Sheldon Filger: Federal Reserve Begins Massive Monetization of U.S. Government Debt

The Federal Reserve Will Not Monetize The Debt? in [Market-Ticker]

Fed Treasury Purchases `Monetizing Debt,' May Spur Inflation, Hoenig Says - Bloomberg

The first two don't actually provide any evidence that government debt is being monetized. The third is using the phrase "monetized debt" in a different context. Usually when we say "the Fed is going to monetize the debt" we mean they're going to print money and buy bonds from the government so that the government can spend the money or pay off debt. Hoenig is saying it in a more general case. Open Market Operations is where you exchange created money for bonds. That's technically "monetizing debt" but it's not giving money to the government to spend. It's an open market operation; it occurs in the secondary market for treasuries. All it's doing is swapping one asset for another. That's how the money supply is controlled.

I don't suppose the President of the KC Fed knows what he's talking about, then.

“Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.”

Hoenig, the lone dissenter from every Fed meeting last year, warned that the central bank’s near-zero interest rates and record monetary stimulus could lead to asset price bubbles and increase inflation in a few years. He voted against the Fed’s plan to purchase $600 billion in U.S. Treasury securities through June during the final two meetings of 2010.

 

[DSGE]

Sheldon Filger: Federal Reserve Begins Massive Monetization of U.S. Government Debt

The Federal Reserve Will Not Monetize The Debt? in [Market-Ticker]

Fed Treasury Purchases `Monetizing Debt,' May Spur Inflation, Hoenig Says - Bloomberg

The first two don't actually provide any evidence that government debt is being monetized. The third is using the phrase "monetized debt" in a different context. Usually when we say "the Fed is going to monetize the debt" we mean they're going to print money and buy bonds from the government so that the government can spend the money or pay off debt. Hoenig is saying it in a more general case. Open Market Operations is where you exchange created money for bonds. That's technically "monetizing debt" but it's not giving money to the government to spend. It's an open market operation; it occurs in the secondary market for treasuries. All it's doing is swapping one asset for another. That's how the money supply is controlled.

I don't suppose the President of the KC Fed knows what he's talking about, then.

“Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.”

Hoenig, the lone dissenter from every Fed meeting last year, warned that the central bank’s near-zero interest rates and record monetary stimulus could lead to asset price bubbles and increase inflation in a few years. He voted against the Fed’s plan to purchase $600 billion in U.S. Treasury securities through June during the final two meetings of 2010.

Like I said, different context. Words and phrases do have more than one meaning, you know. Even within the same field, dependent on context.

"Monetizing debt" in the way he's using it is more general. Yes, created money is being traded for bonds. That's "monetizing" the bonds. That's how money is injected into the economy. That's how it's injected under a fiduciary standard, that's how it's injected under a gold standard. It's not especially controversial.

Then there's monetizing government debt, or monetizing "the" debt. That's where government spending is funded not through taxation exclusively, but through the central bank giving them created money in exchange for bonds. That is illegal, and does not happen. When the Fed creates money and injects it into the economy, it is not allowed to buy bonds from the US Treasury. It's allowed to buy existing treasuries in the secondary market. That means when the Fed buys bonds, it's not handing money to the government; it's just increasing the amount of reserves in the banking system.

 

[Oddball]

The first two don't actually provide any evidence that government debt is being monetized. The third is using the phrase "monetized debt" in a different context. Usually when we say "the Fed is going to monetize the debt" we mean they're going to print money and buy bonds from the government so that the government can spend the money or pay off debt. Hoenig is saying it in a more general case. Open Market Operations is where you exchange created money for bonds. That's technically "monetizing debt" but it's not giving money to the government to spend. It's an open market operation; it occurs in the secondary market for treasuries. All it's doing is swapping one asset for another. That's how the money supply is controlled.

I don't suppose the President of the KC Fed knows what he's talking about, then.

“Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.”

Hoenig, the lone dissenter from every Fed meeting last year, warned that the central bank’s near-zero interest rates and record monetary stimulus could lead to asset price bubbles and increase inflation in a few years. He voted against the Fed’s plan to purchase $600 billion in U.S. Treasury securities through June during the final two meetings of 2010.

Like I said, different context. Words and phrases do have more than one meaning, you know. Even within the same field, dependent on context.

"Monetizing debt" in the way he's using it is more general. Yes, created money is being traded for bonds. That's "monetizing" the bonds. That's how money is injected into the economy. That's how it's injected under a fiduciary standard, that's how it's injected under a gold standard. It's not especially controversial.

Then there's monetizing government debt, or monetizing "the" debt. That's where government spending is funded not through taxation exclusively, but through the central bank giving them created money in exchange for bonds. That is illegal, and does not happen. When the Fed creates money and injects it into the economy, it is not allowed to buy bonds from the US Treasury. It's allowed to buy existing treasuries in the secondary market. That means when the Fed buys bonds, it's not handing money to the government; it's just increasing the amount of reserves in the banking system.

I can't believe you honestly buy into that line of crap.

What you're basically saying is that you're not enabling burglars because you buy your stolen property from a fence.

 

[DSGE]

I don't suppose the President of the KC Fed knows what he's talking about, then.

Like I said, different context. Words and phrases do have more than one meaning, you know. Even within the same field, dependent on context.

"Monetizing debt" in the way he's using it is more general. Yes, created money is being traded for bonds. That's "monetizing" the bonds. That's how money is injected into the economy. That's how it's injected under a fiduciary standard, that's how it's injected under a gold standard. It's not especially controversial.

Then there's monetizing government debt, or monetizing "the" debt. That's where government spending is funded not through taxation exclusively, but through the central bank giving them created money in exchange for bonds. That is illegal, and does not happen. When the Fed creates money and injects it into the economy, it is not allowed to buy bonds from the US Treasury. It's allowed to buy existing treasuries in the secondary market. That means when the Fed buys bonds, it's not handing money to the government; it's just increasing the amount of reserves in the banking system.

I can't believe you honestly buy into that line of crap.

What you're basically saying is that you're not enabling burglars because you buy your stolen property from a fence.

What are you talking about?

 

[itfitzme]

and Ron Paul's standard that fully complies with the rules of standard, not the childishly simplistic business cycle and gold standard.

we were on a gold standard in 1929. We did not follow the rules of the gold standard in place in 1929 according to Friedman and Bernanke.

You need to show how this logically follows into this:

If we had there would have been no Great Depression.

Do you ever get the impression that some people start from the position that their chosen authority is correct then go about modifying the meaning of words or seeking out the definition that they want so that it fits with the validates the authority?

Do you ever get the impression that some people only read so much as they find some statement that validates the position of the authority?

I believe it is a form of confirmation bias. Even the best researchers have often run into such a problem, so sure of their hypothesis that they found only what they already were looking for in the data. It has been described by graduate assistants that were scratching their heads and looking at each other in disbelief.

Do you ever get the impression that some people are intentionally vague to avoid others being able to use the same "fault finding" argumentative style that they themselves use so often?

You might find this interesting

Liberal vs. Conservative: Does the Difference Lie in the Brain? | Healthland | TIME.com

------------------------

Gosh, you would think that, if Bernanke considered the lack of following the rules of the gold standard in place in 1929 as the solution, he'd have been asking for it to be re implemented.

I don't recall it as being one of his points in his research paper on the Great Depression. And, it seems a bit inconsistent with his increase in the monetary base by 208%.

What is tremendously interesting is the following:

"More recent research, by economists such as Peter Temin, Ben Bernanke and Barry Eichengreen, has focused on the constraints policy makers were under at the time of the Depression. In this view, the constraints of the inter-war gold standard magnified the initial economic shock and was a significant obstacle to any actions that would ameliorate the growing Depression. According to them, the initial destabilizing shock may have originated with the Wall Street Crash of 1929 in the U.S., but it was the gold standard system that transmitted the problem to the rest of the world.[33]

According to their conclusions, during a time of crisis, policy makers may have wanted to loosen monetary and fiscal policy, but such action would threaten the countries’ ability to maintain its obligation to exchange gold at its contractual rate. The gold standard required countries to maintain high interest rates to attract international investors who bought foreign assets with gold. Therefore, governments had their hands tied as the economies collapsed, unless they abandoned their currency’s link to gold. By fixing the exchange rate of all countries on the gold standard, it ensured that the market for foreign exchange can only equilibrate through interest rates. As the Depression worsened, many countries started to abandon the gold standard, and those that abandoned it earlier suffered less from deflation and tended to recover more quickly.[34]"

Causes of the Great Depression - Wikipedia, the free encyclopedia

I find it a bit difficult as I have gained such a sense of things that I can guarantee what I will actually find. This is a problem from a reasoning position as it sets up the potential for confirmation bias. It doubles the effort to ensure that I don't fall to it.

Just to be sure, how do you take the above passage of research by Ben Bernanke?

 

[DSGE]

Do you ever get the impression that some people start from the position that their chosen authority is correct then go about modifying the meaning of words or seeking out the definition that they want so that it fits with the validates the authority?

Do you ever get the impression that some people only read so much as they find some statement that validates the position of the authority?

I believe it is a form of confirmation bias. Even the best researchers have often run into such a problem, so sure of their hypothesis that they found only what they already were looking for in the data. It has been described by graduate assistants that were scratching their heads and looking at each other in disbelief.

Do you ever get the impression that some people are intentionally vague to avoid others being able to use the same "fault finding" argumentative style that they themselves use so often?

Yes, it's extremely annoying. Another thing I've noticed that they do is invent this villain who has all the opinions they find most repugnant and argue against that rather than a real person. You may have noticed with Edward's "liberal". If you disagree with them, rather than listening to your argument, understanding it and addressing it, they instantly assume you're this golem they've created in their own mind.

What is tremendously interesting is the following:

"More recent research, by economists such as Peter Temin, Ben Bernanke and Barry Eichengreen, has focused on the constraints policy makers were under at the time of the Depression. In this view, the constraints of the inter-war gold standard magnified the initial economic shock and was a significant obstacle to any actions that would ameliorate the growing Depression. According to them, the initial destabilizing shock may have originated with the Wall Street Crash of 1929 in the U.S., but it was the gold standard system that transmitted the problem to the rest of the world.[33]

According to their conclusions, during a time of crisis, policy makers may have wanted to loosen monetary and fiscal policy, but such action would threaten the countries’ ability to maintain its obligation to exchange gold at its contractual rate. The gold standard required countries to maintain high interest rates to attract international investors who bought foreign assets with gold. Therefore, governments had their hands tied as the economies collapsed, unless they abandoned their currency’s link to gold. By fixing the exchange rate of all countries on the gold standard, it ensured that the market for foreign exchange can only equilibrate through interest rates. As the Depression worsened, many countries started to abandon the gold standard, and those that abandoned it earlier suffered less from deflation and tended to recover more quickly.[34]"

Causes of the Great Depression - Wikipedia, the free encyclopedia

I find it a bit difficult as I have gained such a sense of things that I can guarantee what I will actually find. This is a problem from a reasoning position as it sets up the potential for confirmation bias. It doubles the effort to ensure that I don't fall to it.

Just to be sure, how do you take the above passage of research by Ben Bernanke?

I take it as meaning that the gold standard was responsible for the depth and length of the Depression as well as transmitting it to the rest of the world. Countries that left it earlier recovered more quickly.

 

[Toro]

The Fed is monetizing debt in everything but name only. There have been TARP operations where bonds that were newly-issued by the Treasury wound up on the Fed's balance sheet only a few days later. That technically is not monetizing the debt but we are arguing form over substance.

I came across an article about the stability of the economy under the gold standard this morning. History says that economies aren't more stable under a gold standard.

I presume that Grant would be advising any would-be policy-makers who listen to him the sort of thing that he wrote in 2010:

The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.​

I thought it would be worthwhile reviewing some of the reasons why I disagree with Grant on this point.

The graph below records the behavior of short-term interest rates over 1857 to 1937. Over much of this period, the U.S. maintained a fixed dollar price for an ounce of gold, and prior to 1913 (indicated by a vertical line on the graph) there was no Federal Reserve System. The pre-Fed era was characterized by frequent episodes such as the Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1896, and Panic of 1907 in which even the safest borrowers would suddenly find themselves needing to pay a very high rate of interest. Those events were associated with significant financial failures and business contraction. After establishment of the Federal Reserve, the U.S. short-term interest rate became much more stable and exhibited none of the sudden spiking behavior that used to be so common.

The pre-Fed financial panics were also accompanied by long contractions in overall economic activity, as indicated by the NBER dates for economic recessions noted in the graph below. Although of course we still had recessions after the Federal Reserve was established in 1913, they tended to be less frequent and shorter in duration.

Econbrowser: Why not abolish the Fed and return to the gold standard?

 

[Paulie]

You referred to it as a business cycle in paraphrasing Ron Paul.

I referred to a business cycle but did not say a business cycle was a depression. Agreed?

So why don't we clear it up?

Do you think business cycles would still happen on the gold standard?

I do. I don't think there's any way human beings can just STOP business cycles from happening. They don't happen solely because of monetary policy. They're a product of human behavior. I simply believe that they would be less frequent and extreme absent the policy of the Federal Reserve.

 

[Paulie]

The Fed is monetizing debt in everything but name only. There have been TARP operations where bonds that were newly-issued by the Treasury wound up on the Fed's balance sheet only a few days later. That technically is not monetizing the debt but we are arguing form over substance.

I came across an article about the stability of the economy under the gold standard this morning. History says that economies aren't more stable under a gold standard.

I presume that Grant would be advising any would-be policy-makers who listen to him the sort of thing that he wrote in 2010:

The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.​

I thought it would be worthwhile reviewing some of the reasons why I disagree with Grant on this point.

The graph below records the behavior of short-term interest rates over 1857 to 1937. Over much of this period, the U.S. maintained a fixed dollar price for an ounce of gold, and prior to 1913 (indicated by a vertical line on the graph) there was no Federal Reserve System. The pre-Fed era was characterized by frequent episodes such as the Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1896, and Panic of 1907 in which even the safest borrowers would suddenly find themselves needing to pay a very high rate of interest. Those events were associated with significant financial failures and business contraction. After establishment of the Federal Reserve, the U.S. short-term interest rate became much more stable and exhibited none of the sudden spiking behavior that used to be so common.

The pre-Fed financial panics were also accompanied by long contractions in overall economic activity, as indicated by the NBER dates for economic recessions noted in the graph below. Although of course we still had recessions after the Federal Reserve was established in 1913, they tended to be less frequent and shorter in duration.

Econbrowser: Why not abolish the Fed and return to the gold standard?

This all being said though, you've stated many times that you believe the Fed's easy money policies led to the housing crisis, which was responsible for the worst recession since the GD.

So I'm just curious...how do you reconcile that opinion with the opinion you appear to be espousing with this data?

 

[Toro]

This all being said though, you've stated many times that you believe the Fed's easy money policies led to the housing crisis, which was responsible for the worst recession since the GD.

So I'm just curious...how do you reconcile that opinion with the opinion you appear to be espousing with this data?

Like I said to Oddball earlier, the gold standard may be an awful monetary system, but an awful monetary system is better than a catastrophic monetary system.

I don't know what the answer is. But we should understand the context of history.

 

[Paulie]

This all being said though, you've stated many times that you believe the Fed's easy money policies led to the housing crisis, which was responsible for the worst recession since the GD.

So I'm just curious...how do you reconcile that opinion with the opinion you appear to be espousing with this data?

Like I said to Oddball earlier, the gold standard may be an awful monetary system, but an awful monetary system is better than a catastrophic monetary system.

I don't know what the answer is. But we should understand the context of history.

I haven't skimmed through all the pages of this thread so if you were already questioned on this I apologize. But what do you mean by awful vs. catastrophic? You say gold standard is awful, but awful is better than catastrophic. Under the context of this exchange, that implies that Fed policy is catastrophic. Is that what you're saying? Gold is better than Fed?

 

[Toro]

This all being said though, you've stated many times that you believe the Fed's easy money policies led to the housing crisis, which was responsible for the worst recession since the GD.

So I'm just curious...how do you reconcile that opinion with the opinion you appear to be espousing with this data?

Like I said to Oddball earlier, the gold standard may be an awful monetary system, but an awful monetary system is better than a catastrophic monetary system.

I don't know what the answer is. But we should understand the context of history.

I haven't skimmed through all the pages of this thread so if you were already questioned on this I apologize. But what do you mean by awful vs. catastrophic? You say gold standard is awful, but awful is better than catastrophic. Under the context of this exchange, that implies that Fed policy is catastrophic. Is that what you're saying? Gold is better than Fed?

Maybe. I don't know.

Maybe a combination of the two is better.

 

[Paulie]

Like I said to Oddball earlier, the gold standard may be an awful monetary system, but an awful monetary system is better than a catastrophic monetary system.

I don't know what the answer is. But we should understand the context of history.

I haven't skimmed through all the pages of this thread so if you were already questioned on this I apologize. But what do you mean by awful vs. catastrophic? You say gold standard is awful, but awful is better than catastrophic. Under the context of this exchange, that implies that Fed policy is catastrophic. Is that what you're saying? Gold is better than Fed?

Maybe. I don't know.

Maybe a combination of the two is better.

I just found that exchange and read it. The bull market in gold has little to do with gold supplies though. It's the result of lost confidence in the fiat currency system.

We have posters here claiming that there's no reason to assume the Fed's policies of the last 15 years or so have been inflationary, but yet we see gold up almost 1000% over that time.

Are all of these people running to gold just retarded, or are they on to something?

 

[Truthmatters]

has gold ever experienced a bubble?

 

[Truthmatters]

There are reasons we went off the gold standard

 

[Toro]

I haven't skimmed through all the pages of this thread so if you were already questioned on this I apologize. But what do you mean by awful vs. catastrophic? You say gold standard is awful, but awful is better than catastrophic. Under the context of this exchange, that implies that Fed policy is catastrophic. Is that what you're saying? Gold is better than Fed?

Maybe. I don't know.

Maybe a combination of the two is better.

I just found that exchange and read it. The bull market in gold has little to do with gold supplies though. It's the result of lost confidence in the fiat currency system.

We have posters here claiming that there's no reason to assume the Fed's policies of the last 15 years or so have been inflationary, but yet we see gold up almost 1000% over that time.

Are all of these people running to gold just retarded, or are they on to something?

I know. I've been a gold bull for 10 years and remain so, though with much less conviction today. But your point is the point I'm trying to make - even though the price of gold has soared over a decade, the supply has not, and is not in anyway related to the demand for money balances vital for the economy.

 

[Truthmatters]

The gold bubble will burst soon and many of you will likely STILL not learn the lesson