Grand Illusion: The Federal Reserve (Part 3) 103 comments
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Voices of Reason
The Chairman of the House Banking & Currency Committee, Louis T. McFadden, fought a lonely battle against the Federal Reserve in the early 1930s. He was swept out of office when his opponent in the next election received thousands of dollars in campaign contributions.
Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed have cost enough money to pay the National debt several times over. This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.
-Louis T. McFadden – Representative from PA 1934
Mr. McFadden has a soul mate in Representative Ron Paul from Texas. Mr. Paul has been on a one man mission to abolish the Federal Reserve for over a decade. He seems to be the only person in Congress with the courage, fortitude and intellect to understand the damage that has been caused by the Federal Reserve and call for its abolition. The entrenched political class, despise Mr. Paul because his call to abolish the Federal Reserve would destroy their ill begotten wealth and power.
Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.
From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts. In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.
-Ron Paul – Sept 10, 2002
Representative Paul sized up his colleagues in Congress and the Federal Reserve perfectly in 2006 when they were oblivious to the impending disaster that was about to befall the nation. He was belittled by the mainstream press and fellow Congressmen.
The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.
Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available – and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.
The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability – and certainly no legal or moral right – to decide how much money should exist and what the cost of borrowing money should be.
-Ron Paul – July 11, 2006
Before he became a tool of the political ruling elite and the bankers who truly control the country, Alan Greenspan actually understood and supported a currency backed by gold which couldn’t be manipulated by corrupt politicians. The confiscation of middle class wealth through the insidious use of inflation has proceeded unchecked for 96 years.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
-Alan Greenspan – 1966
I’m Mad as Hell & I’m Not Going to Take it Anymore
Howard Beale, the news anchor in the movie Network, could have spoken the same lines today that he was speaking in 1976. He describes our current financial crisis to a tee.
I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.
I want you to get mad!
I don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street.
All I know is that first, you've got to get mad.
You've gotta say, "I'm a human being, goddammit! My life has value!"
So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell,
"I'm as mad as hell, and I'm not going to take this anymore!!"
Anyone who is not mad as hell at this point is not paying attention. Your tax and spend corrupted politician leaders and your banker controlled Federal Reserve have borrowed and spent your tax dollars, your children’s tax dollars, and their children’s tax dollars desperately attempting to prop up this bankrupt system. The unleashing of a never ending tsunami of printed dollars by the Federal Reserve makes every dollar worth less. They have systematically created inflation that has slowly but surely reduced your standard of living. Politicians in the pocket of lobbyists, corporate interests, and bankers have used their power to tax in order to spend trillions on worthless projects in their districts to insure re-election. The combination of taxing and printing has led to a National Debt of $11 trillion.
Bankers love debt. The more debt, the more interest they collect. Issuing credit cards and collecting 21% interest and billions in late fees seemed like a can’t miss proposition. It was until people couldn’t pay the debt back. Now the unwinding of the greatest debt bubble in history has created a 2nd Great Depression. Instead of learning from the past, the Federal Reserve has chosen to do exactly what led to the crisis. They have lowered rates to 0% and have printed money at prodigious rates. The Fed has doubled their balance sheet in the last 12 months.
They have loaned billions to the bankrupt banks that inhabit our financial system while accepting worthless pieces of paper as collateral. They have hailed back to Jekyll Island and the cloak of secrecy. They will not reveal to the public the banks they have loaned money to or the collateral that backs up those loans. The arrogance of Ben Bernanke proves that the Federal Reserve answers to bankers, and not to the American public. The books and records of the Federal Reserve are not open to scrutiny by the General Accounting Office. Ron Paul has introduced the Federal Reserve Transparency Act which would open their books to the public. No organization with as much power as the Federal Reserve should be permitted to operate in the shadows.
A recent article by David Galand from Casey Research pointed out the insidious methods by which the government extracts our money for their self serving schemes:
- Accounts Receivable Tax
- Building Permit Tax
- CDL License Tax
- Cigarette Tax
- Corporate Income Tax
- Dog License Tax
- Excise Tax
- Federal Income Tax
- Federal Unemployment Tax (FUTA)
- Fishing License Tax
- Food License Tax
- Fuel Permit Tax
- Gasoline Tax
- Gross Receipts Tax
- Hunting License Tax
- Inheritance Tax
- Inventory Tax
- IRS Interest /IRS Penalties
- Liquor Tax
- Luxury Taxes
- Marriage License Tax
- Medicare Tax
- Personal Property Tax
- Property Tax
- Real Estate Tax
- Service Charge Tax
- Social Security Tax
- Road Usage Tax
- Sales Tax
- Recreational Vehicle Tax
- School Tax
- State Income Tax
- State Unemployment Tax (SUTA)
- Telephone Federal Excise Tax
- Utility Taxes
- Vehicle Sales Tax
- Watercraft Registration Tax
- Well Permit Tax
- Telephone State and Local Tax
- Telephone Usage Charge Tax
- Vehicle License Registration Tax
- Workers Compensation Tax.
- Telephone Federal Universal Service Fee Tax
- Telephone Federal, State and Local Surcharge Taxes
- Telephone Minimum Usage Surcharge Tax
- Telephone Recurring and Non-recurring Charges Tax
After digesting this disgusting list, do you feel under taxed?
Depression & Collapse
The future is cloudy but the direction is clear. Government will spend trillions of dollars. Congress will increase taxes on the rich and secretly raise taxes on the masses by calling them cap and trade fees. The Federal Reserve will pull out all stops to create inflation. When you owe the rest of the world $11 trillion, inflation makes the debt less burdensome. The dollar will decline versus gold. With the enormous amount of currency creation and spending by the government, the economy will eventually pull out of this depression. The acceleration will take the Federal Reserve by surprise. They will be hesitant to raise interest rates. The inflation genie will get out of the bottle and will not go back. The hyperinflation that takes hold will lead to social unrest, rioting, and a drastic reduction in the American standard of living.
There is no solution that will not be painful to everyone in the United States. The only solution that would put America back on a path of sustainable prosperity would be a gold/precious metals backed currency that would force government and its citizens to live within its means. Congress would need to vote for something that would take away its power. With our current political system, this is impossible. Money is power. This leads to only one conclusion. The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America. It may take decades, or it may happen in 2010. No one knows. If the country can be convinced to follow the wisdom of Ron Paul, we still have a chance to avoid this fate.
When the Federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.
Disclosure: No positions.
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On Mar 10 11:11 PM bricki wrote:
> National debt was 120% of GDP in 1949. A gold standard didn't prevent
> that.
>
> On Mar 10 01:06 PM James Quinn wrote:
Who is "we"? And those "people" we told must have quite an understanding of how the world works to be believe "we" telling them. You obviously advocate the great shepherd protecting his flock of laborers. The point is, without a Fed to create demand through an increasing money supply those laborers wouldn't have had the opportunity to act on their own stupid impulses. Is there a distinction between the "we" and the "people" in your remark above? If I recall Dutch capitalists did the same thing with Tulip bulbs centuries ago - is that overturning centuries old doctrine or repeating it?
The difference between Japan and the US is Japan was never a net importer that had the benefit of printing the world's reserve currency to offset a trade deficit. It is a different set of circumstances. Economists like to run stats and regress them and compare the two but they might as well be regressing their own heads up their arses.
As far as an exhaustive list of commodities - I am not an academic and do not have time to produce that for something that gives me no benefit. I work for a living and enjoy coming on here to debate and read.
On Mar 11 12:55 PM Aristophanes wrote:
> On Mar 11 11:05 AM MinAkkar20 wrote:
> "We engineered artificial house price increases using horrible contract
> law (no equity, no collateral, resets, CDO's and MBS's, systemic
> risk) and told people their real value was in their houses, not in
> their labour, overturning over 200 years of solid capitalist theory
> and practise."
>
> Who is "we"?
Phil Gramm. De-regulators. Those who believed OTC, "free market" self-regulation would cure all ills, especially in a shadow banking system with no accounting oversight and zero transparency. Any senior manager at AIG. Lehman, Bear Sterns.
>And those "people" we told must have quite an understanding
> of how the world works to be believe "we" telling them.
Some were voted for. It's a collective responsibility. Gotta love democracy. It's been like that since Ancient Greece. Read Aristophanes and you'll understand.
>You obviously
> advocate the great shepherd protecting his flock of laborers. The
> point is, without a Fed to create demand through an increasing money
> supply those laborers wouldn't have had the opportunity to act on
> their own stupid impulses.
Ah, berating the poor, dumb sheep. The Japanese Central Bank did exactly the same thing for over a decade and their trade imbalance and rates of personal consumption went the other way from America or stayed in balance. Yet they have a gadget-obsessed culture.
Proves you wrong. Monetary policy is only marginal in affecting personal economic behaviour. Other factors are more relevant. Culture trumps Alan Greenspan.
>Is there a distinction between the "we"
> and the "people" in your remark above? If I recall Dutch capitalists
> did the same thing with Tulip bulbs centuries ago - is that overturning
> centuries old doctrine or repeating it?
As I said, capital can be misallocated. Crowds go mad.
> The difference between Japan and the US is Japan was never a net
> importer that had the benefit of printing the world's reserve currency
> to offset a trade deficit. It is a different set of circumstances.
> Economists like to run stats and regress them and compare the two
> but they might as well be regressing their own heads up their arses.
The US$ is by far the world's reserve currency. Japan's Yen has been used in a carry trade. Big, big difference. According to the Austrian School the outcome in any country with similar monetary policies should be identical because the Austrian School is the epitome of normative economic theories. They outcomes are not identical. Therefore, other factors of greater relevance are at play that determine the behaviour. That is simple logic, no matter what your economic background.
> As far as an exhaustive list of commodities - I am not an academic
> and do not have time to produce that for something that gives me
> no benefit. I work for a living and enjoy coming on here to debate
> and read.
I am an academic. I am a Classical historian of economics. I'll answer the question: Every single commodity—energy, food, transportation, livestock, minerals, wood products, water, manufactured goods—have become far less expensive in real cost per labour unit worked.
That is why you have a computer. The fact you are typing on one demonstrates the benefits of massive declines in input prices to expand the goods and services that give you the standard of living you enjoy. This leads to technological advances that make the application of capital more efficient. The levers of the Fed are a minor factor in this balance. The exact same process was going on for hundreds of years before there were central banks. Therefore, they are far less relevant than this article and the Ron Paul is Jesus faction would have you believe. Giving them too much credence is simply something they don't deserve.
It's kind of a trick question. The most volatile category is actually labour. The compensation for labour (in a capitalist society that means the sale of work) has varied enormously based on the distribution of the proceeds of capital investment. Economies function best when the distribution is more fair, and worse when it is less fair. We have come through a brutal "less fair" phase and that mal-investment is what we are caught up in right now. If you work for a living, then I would suggest that, before you worry about what the central banks are doing, you worry about getting fair value for your labour.
You seem to think that workers need to be protected by government to ensure the social contract of capital. Protected by who? The great minds behind government policy that have protected some so well throughout history?
That said, you've managed to annoy me out of this debate. Just like you seemed to do to the author. It must be a lonely world for classical economists....
On Mar 11 03:10 PM Aristophanes wrote:
> On Mar 11 02:33 PM MinAkkar20 wrote:
> Reading that diatribe you just spewed reminded me of all the things
> I hated about 8 years at a university. The bottom line here is the
> Fed's actions have harmed the country - you have even admitted monetary
> policy is complicit.
Everything macroeconomic is complicit. Is an interlocked system with many levers.
But is monetary policy eroding your historical buying power?
No. Every single fact say not. It is unequivocal. This article is factually and mathematically incorrect.
>The author wrote a great article with good
> research and made people think and you are nitpicking about theories
> (economics is not empirical). Even with all you said about commodities
> being cheaper per unit of labor than they were so long ago - that
> doesn't mean they aren't relatively more expensive than they would
> be without an inflated money supply.
That's irrelevant. Without a known inflationary factor, there would be no capitalism, no investment. If your economy grows and your population grows (back to Japan again, proving the normative experiences wrong).
You presuppose a fact that has no data! Absolutely zero evidence. It's the economic equivalent of arguing for the Earth to be flat because maps are flat.
There is the historical record. Monetary expansion has been matched by real productive and material gain. Period. Everything else is just outlying hypothesis by "embezzlement" theorists.
>Plus, stop thinking along a
> regression line. Easy money caused $5 gasoline as malinvestment
> was fostered by excess capital. Energy traders raked in, while W-2
> guy paid up. Albeit temporarily, these things frequently happen
> because of government intervention, whether the Fed's self-serving
> manipulation, or the "brilliant" minds in academia & the government.
Except Europe, Japan and other areas have had $5 gasoline for years!! If there had been proper, unsubsidized, politically manipulated (how about that war in Iraq and al those threats against Iran boosting the price?) then you'd have adequate pricing based on known supply. You think the Fed had more to do with the August 2008 price than W's wars?
You are extrapolating one regression into a normative fact.
> Nothing serves the populace better than a free market. Any intelligent
> person knows that Fed money standing behind Freddie & Fannie
> combined with a Barney Frank mandate to sell crappy loans caused
> the bubble, not Phil Gramm.
So, Phil Gramm's rampant defense of the $900 trillion CDS market is a non-factor compared to Barney Frank's $8 billion effort to get lower income earners mortgages?
Frank is a moron, but get some perspective. He was the little firecracker and Gramm was the US Navy. The unregulated market blew itself up and created the products that are called "crappy loans". Until Phil Gram's friends at Countrywide threatened to outflank Fannie & Freddy, they were not touching the toxic stuff.
Guess what? The Austrian School believe foremost in supply. So the supply of credit products (those "crappy mortgages") came before the demand.
Read the historical record. It's right there. Understand your own theories..
> You seem to think that workers need to be protected by government
> to ensure the social contract of capital. Protected by who? The
> great minds behind government policy that have protected some so
> well throughout history?
Or, who saw capitalism rise as the greatest economic achievement in human emancipation.
Is it really that bad? Or did you really invest with Madoff? What on Earth makes normally lucid people run towards silly conspiracies about the Fed when the causes of wage stagnation are as obvious as the rage the public feels towards Wall St. private bankers now sucking at the public teat. Private capital can be just as stupid as public officials. Why would anyone voluntarily bet their company by issuing zero equity, no collateral loans is beside me. Then they have the gall to blame the Fed and the government? Capitalism is about wise investment and private know-how in the means of production.So blaming government for those actions is misplaced "irrational" to quote Greenspan.
> That said, you've managed to annoy me out of this debate. Just like
> you seemed to do to the author. It must be a lonely world for classical
> economists....
There's about 15 of us. We drink a lot.
Oh, and the author, could find no historical economic data to support his "loss" hypothesis. That's because there is none. He has absolutely zero factual evidence. Real prices have fallen faster than the money supply has inflated, by a significant amount.
before the detractors of this article get carried away, you need to think for a moment how the currency and economical function of our society is not in the control of the people.
there was a armed revolution that began in 1775 by people who were taxed without representation. i would love someone to point out where my representation is for the control of our economy. this task was specifically given to congress in the constitution, and they subcontracted it out - and literally threw away the control mechanisms.
it is now time to sit back and take stock of what is going on. wake up people, the point is you have no control even through representative government. we need a rethink. this is the point of the $hit Jim is throwing out. if you just view any version of the makeup and function of the Fed with a critical mind - you will be alarmed.
and ask yourself - are we in this recession because the fed did not do its job.
I would suggest that you go to John Williams' Shadowstats site and read his CPI analysis.
www.shadowstats.com/ar...
Using his adjustment to CPI at this link, the median household income would need to be approx $80,000 to have kept up with costs since 1971.
www.shadowstats.com/in...
I await your 5,000 word pompous academic response.
On Mar 11 06:52 PM Aristophanes wrote:
> On Mar 11 05:37 PM MinAkkar20 wrote:
Yes, I do distrust government stats. I read Peter Schiff. I've bookmarked shadowstats. But there are legitimate concerns about his math as noted in earlier posts and elsewhere in these forums. I take his numbers with a grain of salt. He's extreme, but does highlight official fudging, which, by the way, he was late to the party about. "Academics" have been questioning official stats for decades. Long before he started writing the exceptions for food and energy have been debated.
Now look at Williams' terminal date range—2007. Try running those same numbers using the massive deflation in housing, energy, and commodities up to last month, compared to incomes which are very slow to decline (historically wage deflation is rare and modest). His numbers are only dramatic when run against the very height of inflated equity. Pop the bubble and suddenly the $80k drops by perhaps $20k as covering basic needs via his adjusted CPI comes back down to reality, giving greater weight to the food and energy portions and less to iPods. Since housing has dropped almost 40% on average and makes up about 40% of household expenditures in mortgage servicing costs………you get the point.
Also, despite numerous promises on his website, Williams' been delayed in his stats for the 2008 meltdown precisely because they show that the gap has narrowed incredibly, closer to his extreme margin of error. His next update can only show a severe crimping of his gap. We've just experienced the single biggest deflationary plunge since the 1930's.
I agree that the Fed and gang were important in stoking the imbalance. They were not the cause. Ron Paul is tilting at windmills. Greenspan and Bernanake are merely pool boys. Someone else owns the house and they are not paying the staff enough.
So, guess what? Once the bubble pops, shadowstats information shows precisely that wage stagnation is the far more important issue. As a percentage of GDP the median family income is falling relative to all other measures. You'll get that using the CPI stats; you'll get that using William's stats. That means terrible income distribution is the primary cause of our economic ills.
You see monetary policy as the cause. Invert that and you have it right. Monetary policy has been used to cover up the inadequacies of economic distribution despite productivity gains. The underlying hosing problem was not that too many low income people got mortgages; the real issue is that there are still too many low income people! Williams' stats demonstrate what much larger pie we have since 1970, but also how much stress the middle class in particular has been under.
Denigrate with the Fed all you want. Get rid of it. Go back to the gold standard. It won't make a difference so long as their is this severe and growing imbalance. A Henry Ford knew you cannot have economic growth without first paying your workers wages to buy your products. solve that problem in 2009 and you'll go most of the way of solving ridiculously easy credit issues as well (you won't need so much credit because people will save more from their higher earnings).
And you still have not demonstrated to me which asset class have become less affordable in real terms over the decades. The average price of a car has dropped 15% in just 3 months. That is deflation catching up to those suppressed wages.
On Mar 11 09:22 PM James Quinn wrote:
> The median household income according to the census bureau was $9,028
> in 1971 and was $50,233 in 2007. If you use the government supplied
> CPI figures of 40 in 1971 and 202 in 2007, then income has exceeded
> inflation. As an academic, I'm sure you are properly skeptical of
> the government produced numbers.
>
> I would suggest that you go to John Williams' Shadowstats site and
> read his CPI analysis.
>
> www.shadowstats.com/ar...
>
> Using his adjustment to CPI at this link, the median household income
> would need to be approx $80,000 to have kept up with costs since
> 1971.
>
> www.shadowstats.com/in...;y1=1971&m1=1&...
>
>
> I await your 5,000 word pompous academic response.
In fact, the real wage of a Ford autoworker is nearly double what I said
www.nytimes.com/2009/0...
And as for Min's assertion that Japanese transplant automaker workers are earning $15/hr, it's baseless, absurd and completely untrue. If you check the facts, you'll see Nissan, Toyota, and Honda workers earn more than my $30/hr estimate. My argument is strengthened by the real data. When a groundless assertion is proven untrue, admitting your error is the honorable thing to do.
Now, turning to the general tone of the comments on this post, what gets me is that people, while they are entitled to their opinions, don't have the decency to admit when they are wrong and instead resort to name calling, histrionics, and deflection from the truth. The whole dialogue on this thread has devolved into ad hominem attacks by several people who feel threatened when educated, knowledgeable posters point out inconsistencies and polemics in their arguments. I think most people on this board are of the opinion that our current economic system is on the precipice of catastrophe. It's the same kind of arrogance that got us here--that some display when they reject criticism out-of-hand.
Williams stats should show a dramatic deflationary drop from 2008 onward, but guess what - median household income will plunge also due to the massive unemployment that is underway.
The other fact that supports my contention that median households have not made enough income to keeps up with their costs is the astronomical increase in household debt since 1971. Why would people need to borrow and carry credit card balances if they were making enough income to keep up with their costs?
On Mar 12 12:17 AM Aristophanes wrote:
> You just made my point.
>
> Yes, I do distrust government stats. I read Peter Schiff. I've bookmarked
> shadowstats. But there are legitimate concerns about his math as
> noted in earlier posts and elsewhere in these forums. I take his
> numbers with a grain of salt. He's extreme, but does highlight official
> fudging, which, by the way, he was late to the party about. "Academics"
> have been questioning official stats for decades. Long before he
> started writing the exceptions for food and energy have been debated.
>
>
> Now look at Williams' terminal date range—2007. Try running those
> same numbers using the massive deflation in housing, energy, and
> commodities up to last month, compared to incomes which are very
> slow to decline (historically wage deflation is rare and modest).
> His numbers are only dramatic when run against the very height of
> inflated equity. Pop the bubble and suddenly the $80k drops by perhaps
> $20k as covering basic needs via his adjusted CPI comes back down
> to reality, giving greater weight to the food and energy portions
> and less to iPods. Since housing has dropped almost 40% on average
> and makes up about 40% of household expenditures in mortgage servicing
> costs………you get the point.
>
> Also, despite numerous promises on his website, Williams' been delayed
> in his stats for the 2008 meltdown precisely because they show that
> the gap has narrowed incredibly, closer to his extreme margin of
> error. His next update can only show a severe crimping of his gap.
> We've just experienced the single biggest deflationary plunge since
> the 1930's.
>
> I agree that the Fed and gang were important in stoking the imbalance.
> They were not the cause. Ron Paul is tilting at windmills. Greenspan
> and Bernanake are merely pool boys. Someone else owns the house and
> they are not paying the staff enough.
>
> So, guess what? Once the bubble pops, shadowstats information shows
> precisely that wage stagnation is the far more important issue. As
> a percentage of GDP the median family income is falling relative
> to all other measures. You'll get that using the CPI stats; you'll
> get that using William's stats. That means terrible income distribution
> is the primary cause of our economic ills.
>
> You see monetary policy as the cause. Invert that and you have it
> right. Monetary policy has been used to cover up the inadequacies
> of economic distribution despite productivity gains. The underlying
> hosing problem was not that too many low income people got mortgages;
> the real issue is that there are still too many low income people!
> Williams' stats demonstrate what much larger pie we have since 1970,
> but also how much stress the middle class in particular has been
> under.
>
> Denigrate with the Fed all you want. Get rid of it. Go back to the
> gold standard. It won't make a difference so long as their is this
> severe and growing imbalance. A Henry Ford knew you cannot have economic
> growth without first paying your workers wages to buy your products.
> solve that problem in 2009 and you'll go most of the way of solving
> ridiculously easy credit issues as well (you won't need so much credit
> because people will save more from their higher earnings).
>
> And you still have not demonstrated to me which asset class have
> become less affordable in real terms over the decades. The average
> price of a car has dropped 15% in just 3 months. That is deflation
> catching up to those suppressed wages.
>
> On Mar 11 09:22 PM James Quinn wrote:
On Mar 12 02:59 PM PROXIMO wrote:
> I've had a blast watching Aristophanes and the author go back and
> forth for the past couple of days.
> I completely agree with your statements about the pie not being sliced
> fairly. The rich get richer and the poor get poorer. Why?
Consensus is good. According to Obama, we don't "disparage wealth". Maybe some wealth should be disparaged in the same way poverty should be discouraged.
I completely agree with you that the Fed is a problem, but I believe it is the wrong target. Get a grip on the wage/productivity gap and the Fed will become less a political tool. Since the Greenspan worship era (and Volcker had some contribution to this lovefest) the Fed has been used or been complicit in trying to paper over more fundamental problems concerning the wage/productivity tension. It's like blaming the painter for a cracked foundation. Worse, politics is using the painter to fix the underlying problems. When you need a hammer, you get a hammer, not a paintbrush.
> Williams stats should show a dramatic deflationary drop from 2008
> onward, but guess what - median household income will plunge also
> due to the massive unemployment that is underway.
Not quite true.
Households with employment will do OK—in fact, with deflation, they'll be in better shape. Those who are employed and looking to buy land will be in terrific shape locking in a low 30-year. Unfortunately, that means job losses will hit staggering levels before wages will decline. Households with no employment go to zero. So the measure of median household income is less important than the complete loss of customers on the demand side.
Wages decline slowly, if at all as most manufacturers realize this will lead to less product being sold and a death spiral sets in. Adam Smith noted this as a consequence of capitalism's focus on specialization. The entire coat is useless if the button maker is not getting his due. Stable wages are a key component of capitalism's mutual support network. Yes, there can be abuses; it's a big, complex system. The UAW is an abuse, as are Wall St. bonuses.
Throughout capitalism's history, business prefers modest, controlled inflation where the real price benefits accrue through productivity, technological advantage, trade and economies of scale. Business does not want to reduce its own consumer base through wage declines. That makes it impossible to pay back investors after suppliers are paid. Henry Ford again.
Is the CPI being gamed? Absolutely. Is it off by as much as shadowstats says? It cannot be. If you extrapolate Williams' chart data it would appear to be that he is only using a multiplier to shift the numbers upwards, and there are other valid criticisms of this math. He provides a decent service by demonstrating how the CPI methodology has been politicized. Macro-economically and metaphorically this is like asking the fellow doing the crown moulding to help the painter fix the foundation. It's not the real issue.
> The other fact that supports my contention that median households
> have not made enough income to keeps up with their costs is the astronomical
> increase in household debt since 1971. Why would people need to borrow
> and carry credit card balances if they were making enough income
> to keep up with their costs?
The Japanese and Koreans have seen even greater per capita standard of living increases than Americans since the 1970's, and they have done so without significant personal debt. They also have much higher personal taxes and virtually no natural resources. This can be said of many European nations as well. So the issue cannot simply be one of US monetary policy.
The US business and political climate is extremely hostile towards wage gains and income distribution. It is seen by the "investor class" as a deprivation of capital. The issues are political, ethical, and cultural, and therefore much harder to identify and solve. The prime lesson from this crisis is: if you underpay your middle class and then create and sell hazardous debt to cover up the gap in earnings, the economic catastrophe will be gigantic. It will get worse if you print money to cover up the gap again, but messing with the money supply did not cause this mess. This whole focus on the role of the Fed is a blinding distraction.
I did find one area that has experienced real price inflation over the last while, and that is in healthcare. It is rapidly outstripping normative inflation, as well as wages, but is an odd case in the more technology adds cost as much as it increases productivity. A universal insurance system would actually create a better economy of scale because right now the costs for the uninsured are borne at higher margins than if there was pre-existing, mandatory insurance. As with the cultural difference towards cash shown by Asians countries and their savings rates, a cultural thing like the Hippocratic Oath means that those without the means still get the service, and the cost distribution is disturbingly inefficient and immoral. I am just demonstrating that structural issues like ethics and culture can have major economic effects that trump monetary policy by shrunken little gurus like Greenspan.
Still I reiterate that your argument stating 95% of real purchasing power has been lost is nowhere near valid. The math simply does not show that. Not in the real world and especially not when comparing value (nutrition, automobile safety, prescription drugs, computing power) over time. Even the demographic data backs this up showing we live longer and are, surprisingly, healthier (there's always exceptions, like diabetes). Worldwide it is the same with much less famine despite a booming population. Any hypothetical statement without historical data comparing real prices over the decades measured against each unit of worker productivity is just that, hypothetical. The reality is we are materially better off now than 20 years ago, and, even with wage stagnation, capitalism's efficiencies have raised our living standards. Fix the wage/productivity gap and greater economic security will be the result and there will be no need to manipulate the money supply or the CPI.
Thank-you for the discussion. Even if we disagree, every contribution is good for democracy.
And if you think my posts are too long. So what? Are you going to invest using Twitter feeds?
On Mar 13 10:33 AM Aristophanes wrote:
> On Mar 12 08:17 AM James Quinn wrote:
On Mar 10 12:14 PM James Quinn wrote:
> Doesn't mean he wasn't right.
On Mar 13 12:19 PM grayfox wrote:
> No. But he needs to be more rational and focused. My impression of
> RP was that he was all mouth and no deed. Many of his ideas would
> require induced comas to prevent fatal shock during implementation.
> Others, although having some validity, were too extreme to have any
> degree of rationality. Finally, a few of his suggestions could be
> employed today without much opposition - why hasn't he been more
> instrumental in getting these suggestions put in place?
Aristophanes - I understand my theories fine. You can't see the forest for the trees. Austrian schools teach that behavior of the individual is a large part of the economic equation. You can't regress it, you can't quantify it. Japan has distinct cultural differences from the US - they save whether the real savings rate is negative or 5% or whatever. The "rational actor" espoused in economic theory is slightly more real than a unicorn. Why are there always so many unintended consequences when economic theory is put into practice? The US consumer lives in a culture of excess, spoon fed advertising, etc... having the same monetary policy will not produce the same results when the culture and behavior of consumers are accounted for.
The problem with the Fed is that it is complicit with the government and banking sector at the expense of the taxpayer. When you appropriate taxpayer dollars through taxes, or printing money (since the dollars are property of the taxpayer) without true representation you are stealing. The Fed has allowed Congress to bailout bad actors by providing a bottomless pool of capital. Even if I concede Phil Gramm was a larger cause of financial crises than Barney Frank (which is arguable because the underlying securities for much of the leveraged CDS market you refer to are low-income MBS), they are both politicians who by their very nature are in direct competition with taxpayers for resources. You obviously think by your Fabian comments that this is ok - however I subscribe to a different theory.
People can experience increased living standards without inflating a money supply from a Central banker working from the shadows - unless you are telling me that living standards didn't increase before passage of the Reserve Act. And you can point to great increases after that and try and correlate it all to a money supply, but there are so many other factors that no economist can account for (compounding effects of education and technology for one). I have no problem with your arguments, but in the way that you post them on here as fact. Because they are not facts.
Because people buy a lot more overpriced, useless crap than they did in 1971. I make enough income to keep up with my costs, and so do most people. But I could still rack up credit card debt if I had no self-discipline and bought a bunch of extra stuff I don't need.