Bernanke led economy proving critics clueless

[samjones]

It looks like world production picked back up with the onset of the recession but US production just got tapped out a decade ago.

YABBUT!! Yeah, but you don't know that. You can't tell that by looking at that chart. The chart doesn't prove that and it can't disprove that. For whatever reason gold production didn't pick up in the US in '08. My guess would be that it takes dollars to make gold and that kind of finance has been hard to come by recently. The '10 and '11 numbers will probably look better.

I'm not saying that I can prove you wrong - I'm only saying that it's jumping to a conclusion to assume that America is running out of gold.

 

[samjones]

You said there is robust gold production. Gold production falling over a decade while prices quintuple is not "robust."

Yes, it is. I don't dispute your facts. I dispute your analysis, because you're only choosing to look at the facts that support your presumption.

From 1979 through 2007 gold remained at a relatively consistent price with alot of volatilty within the $300 - $600 range. It was a snake in a box. In 2006 and 2007 the price started increasing substantially, but only hindsight is the proof of that. It would not have been quite so clear in 2007 that gold was going to continue to go through the roof. Gold tripled between 2008 and 2011.... no disputing that, but the "quintuple" figure largely happens because of your creative selection of dates.

I could easily say that gold prices were unchanged from 1980 to 2006, but that hardly describes what happened to gold in that period.

Gold production - as the USGS data shows - changed very little, increasing slightly every year to 2000 and then decreasing slightly to 2006.... when the apocalypse hit, the gold mining industry started increasing production to realize these unanticipated profits.

The gold mining industry may take some time to respond to market price fluctuations, but not 150 years and not the "7 - 10 years it takes to get a mine up and running". They just increase production in existing mines and step up the search for new sources. It's an industry - it's not some old prospector walking around with a pick axe.

At $1500+ per ounce(t) you can believe that you'll be seeing alot of fresh gold hit the market.

 

[itfitzme]

It looks like world production picked back up with the onset of the recession but US production just got tapped out a decade ago.

YABBUT!! Yeah, but you don't know that. You can't tell that by looking at that chart. The chart doesn't prove that and it can't disprove that. For whatever reason gold production didn't pick up in the US in '08. My guess would be that it takes dollars to make gold and that kind of finance has been hard to come by recently. The '10 and '11 numbers will probably look better.

I'm not saying that I can prove you wrong - I'm only saying that it's jumping to a conclusion to assume that America is running out of gold.

Absolutely. That's why I said, "It looks like" instead of "proves" or "Is" or whatever. It can "look like" lots of things. I could have said "guess" but I'm not willing to even go that far.

As you suggest, it also can be interpreted as production taking a while to get started up. It must take at least a year, even if everything goes perfectly. Excellent point.

The secondary production is, apparently, recycled gold. It started back up in 2006.

The world production started back up in 2008.

It's kinda unfortunate that this data only goes to '09. But it isn't approprate to mix data sets. If you read the pdf, the author points out some issues in having combined data from different sources. But, it gives some idea of things.

So 1971, 2001, 2005-06 and 2008 were years when something changed. 1971 is obvious. For all we know, in 2006 someone got clever and started a business in recycled gold.

Here are a few more, Cumulative World Quantity, Price Vs World Output, and Price Vs Cumulative World Quantity. Of course, all the data points are equilibrium points.

Cumulative World Output

http://i776.photobucket.com/albums/yy42/thefitz3/CumulativeWorldOutput.gif

Price vs World Output

http://i776.photobucket.com/albums/yy42/thefitz3/PriceVsWorldOutput.gif

Price vs total world

http://i776.photobucket.com/albums/yy42/thefitz3/PriceVsWorldTotal.gif

The price quantity data points are equilibrium points.

So here is the price vs qty with "pretend" s and d curves. Who knows what the slope is for them. Elasticity is seldom zero or infinite, so we can make an educated guess as to what has been going on.

Price vs production with made up S-D curves

It would be serendipitous if the slopes matched the data and we are looking at periods where demand and supply shifted in isolation. It could happen.

If the elasticity for supply and demand hasn't changed, then it seems to indicate that supply and demand has shifted. That's the whole bitch about econ, macro and micro, is we don't have the data that nails down the underlying relationship, only the equilibrium point.

Data itself seldom proves anything. It is just a starting point to narrow down what to look at.

 

[Paulie]

You people who are advocating a GOLD STANDARD don't really know what you're talking about.

The Gold standard has not historically prevented central banksters from printing up more money.

I know you think it ought to but it never happens in reality.

Mankind's civilizations have had economic depressions in every economic system we have ever created.

We had them when we were on a Gold standard and had no central bank, and we've had them when we were on the gold standard and had a central bank, and we've had them when we were not on the gold standard and ONLY had a central bank.

Your theories are interesting (they even have a kind of simpli9tic logic behind them, too), but they are not supported by reality.

Optimally I'd just like for competing currencies to be legal. The government can keep their FRN's as "legal tender for all debts public and private" and any other currencies that come to market can be legal for private debts.

Let's let the market decide what currency works best.

 

[itfitzme]

More recent gold production data is at

USGS Minerals Information: Gold

including

http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2011-gold.pdf and http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2012-gold.pdf

These interesting.

The USGS reports 2010 production up 3.6% from 2009. 2011 was up 2.6% from 2010.

Still, there has been a net import of gold and those 3% per year increases are hardly a blip on the graph compared to the decline since 2000. If it is any indicator of the rate at which domestic production can increase, then it will be another decade before domestic production reaches 2000 level.

2011 report -

"Domestic gold mine production in 2010 was estimated to be 3% more than the level of 2009. This marks the first increase in domestic production since 2000. Increased production from new mines in Alaska and Nevada, and from existing mines in Nevada, accounted for much of the increase. These increases were partially offset by decreases in production from mines in Montana and Utah. Because of the large increase in imports of gold products, the United States was not a net exporter of gold in 2010. The increases were mostly from imported ore and concentrates from Mexico, which were processed and refined in the United States."

2012 report -

"Domestic gold mine production in 2011 was estimated to be 3% more than the level of 2010. This marks the second consecutive increase in annual domestic production. Increased production from restarted mines in Montana and Nevada and from existing mines in Nevada accounted for much of the increase. These increases were partially offset by decreases in production from mines in Nevada and Utah. Because of the substantial amount of imports of gold products, the United States was not a net exporter of gold in 2010 and 2011. Much of the recent surge in imports is ores and concentrates from Mexico shipped into the United States for processing."

 

[samjones]

Optimally I'd just like for competing currencies to be legal. The government can keep their FRN's as "legal tender for all debts public and private" and any other currencies that come to market can be legal for private debts.

Let's let the market decide what currency works best.

This is a perfect example of how out-of-touch Ron Paul Whackjobs are with reality.

Here's my question. If 2 parties agree that a debt is to be paid in Yen then who really would care? Certainly this happens frequently.

 

[KissMy]

Wall Street Journal: Why we can not believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100% or more.

 

[EdwardBaiamonte]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

yes and thats not to mention that they missed the housing bubble until well after it had exploded right in their face. And, they missed the Great Depression for years without even knowing that had caused it.

 

[Toro]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

Economists are awful forecasters.

 

[itfitzme]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

yes and thats not to mention that they missed the housing bubble until well after it had exploded right in their face. And, they missed the Great Depression for years without even knowing that had caused it.

You mean you missed the housing bubble and lost your pants. Now you want to blame the Federal Reserve for the fact that the Bush 2005 change to bankruptcy law didn't stop the wave of property investors from walking away from third and fourth mortgages.

 

[DSGE]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

Economists are awful forecasters.

Yes. Any economist will tell you that economists are awful forecasters.

 

[Oddball]

Such bad forecasters that many of them, somehow or another, believe in central economic planning.

 

[DSGE]

Such bad forecasters that many of them, somehow or another, believe in central economic planning.

Like who?

 

[itfitzme]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

Economists are awful forecasters.

Unlike those stock fund managers and roulette wheel players who will tell you that they hit their mark all the time. (Except when they don't in which case they can't be found)

The article isn't a free read. And the provided quote is out of any context. So it is meaningless. What forecast. The forecast of what? How is it measured? By 50% of what?

The weatherman is off in his temperature forecast 100% of the time.

If the target is 1 and you hit 2, you are off by 100%. If the target is 10 and you hit 11, you are off by 10%. If the target is 1 and you hit 2, one hundred times, you are off by 100%, 100% of the time.

That is the thing about making vague and general statements, they are never wrong because they never say anything.

Here is the monthly CPI with the target and the average.

The pink line very close to zero is the target. The straight black line is the actual performance of the CPI.

The target of the CPI was 3% a year or .25% a month. It is now 2% a year or .18% a month. The CPI standard deviation is +/-0.42%. Three standard deviations is 1.26%. So 95% of the time, the CPI swings randomly by 523%.

So the Fed forecasts a CPI near .25% a month. The average is right on the forecast and the month to month random swing is all over the place.

 

[KissMy]

Free Read of the WSJ article: Why we can not believe the Fed

The Fed studied its own staff's forecasting performance over the period 1986 to 2006. It found that the average root mean squared error—or the deviation from the actual result—for the staff's next-year gross domestic product (GDP) forecasts was 1.34, compared with 1.29 by what the Fed describes as a "large group" of private forecasters. That is, the Fed's predicting performance was worse than that of market-watchers outside the Fed. For next-year CPI forecasts, the error term was 1.03 for Fed staff, and only 0.93 for private forecasters. The Fed's conclusion? In its own words, its "historical forecast errors are large in economic terms."

 

[EdwardBaiamonte]

Wall Street Journal: Why can not we believe the Fed

A review of the Federal Reserve from 1986 to 2006 discovered that they missed with their forecast 100% of the time. Most of the time the Fed missed the forecast by 50% or more. And 50% of the time the Fed missed with their forecast by 100%.

Economists are awful forecasters.

Yes. Any economist will tell you that economists are awful forecasters.

ah but you are they guy who had a Nazi-like faith in the Fed I thought.
Restore GDP, 2% inflation, full employment.... now that they have their act together!!! Wasn't that you??

 

[itfitzme]

Free Read of the WSJ article: Why we can not believe the Fed

The Fed studied its own staff's forecasting performance over the period 1986 to 2006. It found that the average root mean squared error—or the deviation from the actual result—for the staff's next-year gross domestic product (GDP) forecasts was 1.34, compared with 1.29 by what the Fed describes as a "large group" of private forecasters. That is, the Fed's predicting performance was worse than that of market-watchers outside the Fed. For next-year CPI forecasts, the error term was 1.03 for Fed staff, and only 0.93 for private forecasters. The Fed's conclusion? In its own words, its "historical forecast errors are large in economic terms."

I see the problem now. The problem is that the WSJ doesn't understand math.

A large sample results in a smaller standard deviation.

A smaller sample group results in a larger standard deviation.

We expect the standard deviation for a small sample of Federal Reserve staff to be a little higher than the standard deviation of a larger group of private forecasters.

There is nothing interesting here.


RMS error = Standard deviation = Root ( mean ( square ( x - x')))

= Root ( Sum( (x-x')^2))/(n-1))

That is, you square each forecast number. You subtract the square of the actual value from it. You then add them all up. This gets divided by the total number of forecasts minus one. This then is square rooted.

Another similar measure of error is to use the absolute value of the differences.

Both methods produces a number that is internally consistent in given some scale that represents error.

One thing is that the final reported GDP itself is an estimate from a sample. So the forecasts are not being compared to the GDP, they are being compared to another estimate of the GDP which itself has an unknown error.

For a large group, n is larger so the standard deviation is smaller.

For a small group, n is smaller so the standard deviation is larger.

The problem isn't the Fed, the problem is the Wall Street Journal doesn't understand what a standard deviation is.

You really don't need to go that far. All you gotta ask is what 1.34 - 1.29 = .05 means?


What does .05/1.29=.003 mean? That is a .3% difference between the two.

If two batters have batting averages of 300.0 and 300.7, what does that mean? Is one better than the other? It's the same percentage difference.

If you were driving on the freeway with a speed limit of 65 mph and a CHP sightsyou for speeding because he clocked you at 65.195 mph, would you be okay with that?

If the target is 0 and the forecast misses by .2, the percentage error is (.2-0)/0. What is that percentage? I'll give you a clue, it is really big.

What does all this mean? What is means is that the small group of Federal Reserve staff are awesome because they can nail the forecast that it takes a huge group of private investors to get close to.

Why, you ask, would the Fed say that they sucked when, in fact, they are awesome? Because they have really high standards for themselves. They expect themselves to be awesomely awesome. For them, being just mediocre-ly awesome just isn't good enough. They are their own worse critics.

What you have to ask yourself is if you can depend on the reporting of the Wall Street Journal. You would expect that they do the research and would present the information honestly, in a manner that learns you something that you don't have the time to study. Instead, they totally misrepresent it. Is it because they don't know better or because they are simply lying? Perhaps, they will tell you what you want to hear so you will buy the stuff that is advertised on their site. Or maybe, they just don't think that you can handle the truth.

Now that you know, are you going to write a letter to the editor and complain? I would. I sure wouldn't read news from a news agency that didn't think I could handle the truth. I want to hear the truth, no matter how bad it makes me feel.

 

[itfitzme]

Economists are awful forecasters.

Yes. Any economist will tell you that economists are awful forecasters.

ah but you are they guy who had a Nazi-like faith in the Fed I thought.
Restore GDP, 2% inflation, full employment.... now that they have their act together!!! Wasn't that you??

DSGE and the Fed have high expectations of there own performance. They nitpick themselves and find fault in the smallest things. As such, they just keep getting smarter and smarter.

You, on the other hand, make excuses for everything. Rather than check yourself for errors, you make gross and insane errors, then reach for anything to explain it away. As such, you get crazier and crazier.

The difference is in external and internal feedback as well as the multiplier for that feedback. DSGE and the Fed use external negative feedback and multiply the magnitude of the error by a lot so that they correct to very fine levels.

You use internal positive feedback and multiply it by a large amount. As such, you get further and further away from reality.

It is actually measurable, just from reading the posts.

 

[EdwardBaiamonte]

DSGE and the Fed use external negative feedback and multiply the magnitude of the error by a lot so that they correct to very fine levels.

very fine levels??? how reassuring, so the next time the Fed won't get hit over the head with a Great Depression, 4% yearly inflation, numerous recessions, or a depression inducing housing bubble!! Maybe to you a depression is within the bounds of fine tuning??

 

[itfitzme]

DSGE and the Fed use external negative feedback and multiply the magnitude of the error by a lot so that they correct to very fine levels.

very fine levels??? how reassuring, so the next time the Fed won't get hit over the head with a Great Depression, 4% yearly inflation, numerous recessions, or a depression inducing housing bubble!! Maybe to you a depression is within the bounds of fine tuning??

Perfect. And you don't see anything wrong with any of these ideas?

a) the Fed won't get hit over the head with a Great Depression.

b) 4% yearly inflation.

c) numerous recessions.

d) a depression inducing housing bubble.

e) Star: Ireland currenly has 15% unemployment and a economy that is 15% below its peak and its still in recession,

Ed: Actually, Europe is in recession because of financial crisis, not because of low Irish corporate taxes. OMG!!

Nothing about your responses strikes you as odd?