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  • Making The Rich Richer [View article]

    I think part of your problem is that you believe dogma is equitable to logic, reason, and facts.

    Just because you and the supporters of a gov monopoly of banking and money make claims about what that monopoly can do, does not mean it is true. Just because you link to people who share similar claims, or repeat the claims over and over, will also not make those claims true.

    The arguments for the Fed were clear. They, just like you, made claims that gov intervention would stop the so called chaos. The ironic thing, is the chaos they referred to (the booms and panics) had been created by prior gov intervention. Granted not everyone made the same argument, but it was clear there were those making the case that a central bank would stop economic downturns.

    Only gov intervention causes a business cycle. The reason is that gov force cannot compel greater productivity, but it can compel capital consumption. Capital consumption is a consumption binge. A binge gets measured in an equity index via the form of earnings. That inflates equity prices, which attracts people away from bonds, that increases bond yields, and you get the typical risk-on. Eventually, something (usually the regulators) pops the risk-on, and like typical regulators (or advocates of same), the blame game begins. A free market would have no gov imposed tyranny, so the regulators blame a free market for the problems caused by their tyranny, when the free market ceased to exist as soon as they imposed their tyranny.

    If you want to have credibility you just can't continue to rely on repeating dogma, and then making excuses for why you dogma didn't produce the results you claimed it would or then constantly revising what your dogma is. You need some predictive capacity to your comments that actually come to pass, and saying things like "a central bank will just make things BETTER". The problem is BETTER is relative.

    What we can do is exam explicit comments. BB and Yellen both said the purpose of QE was to lower LT rates. Every time when QE was deployed, rates went up. Clearly they were wrong. They only resort they have left is to make excuses are attempt to revise their dogma. Which is what will happen.
    Jul 20 02:39 PM | 4 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "which is my point. "

    Just so you know, QE didn't begin until 2008. It didn't begin in 1980. The downtrend in interest rates began from 1980 forward, which is a general downtrend from tax reform and regulatory reform in the 80s that made the US a more attractive place for capital, combined with growing mercantilism from Japan and China. It was not because QE began in 1980 as you seem to think.

    If you look closer at a 10yr chart, you will see that when QE starts and ends, rates and equities go up during QE, and drop when QE is off. This is typical of gov provided consumption subsidies. Before each round of QE, BB would claim it was being done to lower rates, but each time he did it, rates went up.
    Jul 20 02:20 PM | 3 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "The Federal Reserve Bank (NYSE:FRB) did not cause the Real Estate Bubble nor did it "pop" it."

    Ahhh, fundamentalist dogma. Its like a warm blanket.

    The main problem with your comments is they provide no predictive capacity. You guys have been consistently wrong about the direction of interest rates and the ability of the Fed to stop economic downturns.
    Jul 19 05:09 PM | 1 Like Like |Link to Comment
  • Making The Rich Richer [View article]
    "The Federal Reserve Bank does not have a monopoly on the supply of money."

    Try starting a bank or a bank holding company without the permission of the FDIC or Federal Reserve and see what happens to you.
    Jul 19 05:08 PM | Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "Yes in fact it did[1]. "

    You need to learn to read charts.

    At then end of 2008 when QE1 was announced, the 10yr fell from about 4% to about 2%. This happened before QE1 even began. Once QE1 began, the 10 yr went from 2% back to 4%. Just so you know 4% is a higher yield than 2%.
    Jul 19 05:06 PM | 1 Like Like |Link to Comment
  • Making The Rich Richer [View article]

    I suggest you do a little more reading.

    "No one ever said that the Federal Reserve Bank (NYSE:FRB) would end all economic downturns or eliminate the business cycle."

    "In addition, Hoover used differentiation to blame the Democrats for the start of the depression. In St. Louis, Hoover presented quotations from President Wilson, Secretary McAdoo, and Senator Glass in which they boasted that the creation of the Federal Reserve System would prevent economic "booms, slumps, and panics."

    Lyman Gage in his last testimony before Congress as Sec Treas also claimed that the creation of a central bank would also end economic downturns.

    I always find it curious that those who advocate for all these magical gov regulatory cures, always forget the promises of what the regulators would accomplish when it is pointed out that the regulators didn't accomplish what was promised.

    Then the next step is to modify the promise.

    "However what monetary policy can accomplish is minimizing the depth and length of economic contractions. "

    When this is not accomplished either, another case of amnesia will set in, then followed by an admission of what was promised, but then followed by an excuse for why its not their fault the promise was delivered on, and then finally followed by some sort of condescension or insult, like," you are just not smart enough to understand our promises" or "you are a racist".
    Jul 19 05:03 PM | 2 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "there is a Business Cycle that exists independent of central banks and monetary policy"

    Yes, its caused by other gov subsidies that stoke a consumption binge just like a central bank can. However, a central bank consumption binge tends to be more pronounced.

    Here is an early example of the proto-Keynesian, central bank model.

    Though we have never had a free market, if we ever did achieve one, there would be no more business cycle.
    Jul 19 04:45 PM | 1 Like Like |Link to Comment
  • Making The Rich Richer [View article]
    Yeah, if he is such an expert, why couldn't he see the parallel between what he was doing and what Young did in 1929. Strong was the first Fed chair (he was basically JP Morgan's appointee to the Fed since Strong was essentially JP's employee - so much for the Fed being for the little guy), and Strong kept rates low during the 20s. Strong died in 1928, so Young took over, and guess what they fretted about during 1929? That's right, a bubble in the stock market (they actually wrote papers to this effect). Now to give Young some credit, he was reluctant to raise the discount rate, but he went along with the board and took the discount rate up to over 6% (just like BB did in 2006), and guess when he did that? That's right, in the fall of 1929. Anyone remember what happened in Oct of 1929?

    Even more than death and taxes, the one thing you can count on is regulatory failure.
    Jul 19 06:43 AM | 2 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    Chile was able to do it.
    Jul 19 06:37 AM | 1 Like Like |Link to Comment
  • Making The Rich Richer [View article]

    I like this chart.

    Also, scroll down to the 2nd chart. Note how increases in the FF rate (driven by the discount rate) precede recessions. Generally, accommodative Fed policy translates to a consumption subsidy. That will mean inflated asset prices. That makes people feel wealthier, so they spend, that tends to show up in inflation, the Fed gets nervous, it gets less accommodative, asset prices falter, people panic, stop spending, GDP goes down, and, boom, recession.

    Keep in mind, the natural state of an economy is to grow. As long as gov regulators don't totally kill it, like in N Korea or Cuba or other socialist/communist countries (of course even then black markets provide for people), the economy will improve its asset creation.

    So, what to look for is the consumption binges created by gov. Gov can do this from fiscal subsidies or it can do it from outright monetary subsidies. So you have to watch both. I call it the subsidy mix.

    Look at the period in the second chart during the 80s, after 82. The FF rate went up, but there was no recession. Why? Remember we had tax reform. Top marginal rates were lowered, which means more Fed notes were left in the system (mimicking accommodative policy) to provide support for asset prices. This is a case of the subsidy mix showing how fiscal policy can offset monetary policy to keep asset prices up.

    If gov were price sensitive, fiscal and monetary policy would work hand in hand, but since it is price insensitive, you can count on regulatory panics to pop asset prices. The trick is not to panic ourselves and get ready for them to reinflate.

    I keep an eye on the Fed balance sheet here.

    You can see how the growth of the balance sheet has slowed with taper, and thus risk-off is returning (10 yr has dropped from 3% to 2.40s/50s) as the consumption subsidy the Fed was providing is being tapered.

    Given the current subsidy mix (increasing regulations and increasing Fed note collection by the IRS-taxes), as the Fed becomes less accommodative, risk-off returns. If they shrunk the balance sheet drastically, it would be 2008 all over again.

    Keep your eye on them. They seem to be shaping up for another regulatory mistake. Death, taxes, and mistakes by regulators are the only things that are guaranteed.
    Jul 18 04:01 PM | 1 Like Like |Link to Comment
  • Making The Rich Richer [View article]
    I would argue that since the Fed has monopolized the supply of money mediums, then they have a duty to get the supply right. Since they can never know what the right supply is, they would be better off to just create the money and never destroy it. If you got a period of pretty hot inflation, the Fed should just stand pat. Eventually gains in technology and production would allow for asset creation to catch up with the excess notes and inflation would calm down.

    However, since the Fed labors of the false impression that they need to "manage" the economy, the are forever fiddling with the hot and cold, and thus causing booms and busts. If you learn to watch for the signals of their bungling, you can learn to have their bungling work to your advantage.

    The first step, is to admit they have a problem. The next step is to realize their problem is ignorance, so you need to find ways to protect yourself.
    Jul 18 03:46 PM | Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    If BB was such a master, why did he pop the asset bubble by pushing the discount rate up to 6% in 2006 and keep it there until 2007 when the S&P started to fall apart?
    Jul 18 02:15 PM | 3 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "But, you don't get the deflationary spiral if you keep the game going and keep printing money to prevent the deflation"

    No, that's not necessarily true. For instance, if the current subsidy mix resulted in massive commodity inflation, say in oil, that rising price would drive up the cost of production, which would discourage production, people would loose their jobs, people stop spending, GDP goes down, and presto, a recession with a resulting flight to safety (risk-off). People would then chase safety assets, which would push up their price (yields down).

    Generally though, it is regulatory panic that pops the bubble the regulators created. However, if they didn't, then another natural price spiral would.

    "On the other hand, poor monetary policy that breeds excessive deflation can hinder the economy from growing properly. "

    What you are really trying to say is that money creation should be price sensitive. Since gov is not price sensitive, it is the gov that gets the money creation ratio wrong (really we are talking about money mediums - money is just the contract for exchange - gold, notes, or rice is just the medium that represents that exchange).

    So, what you need to look for is the consumption binge, ride up the risk-on scenario (equities up and yields up) and then look for the signs of the of regulatory panic, and then get ready for the bust. In theory what you would want to do is sell your equities, move to bonds with higher yields, wait for the crash, then sell your bonds for gains, and then move back to equities. Eventually the regulators will create another consumption binge and the risk-on will return. Via this method (granted it is very big picture), what you will be effectively doing is taking advantage of the wealth transfer that happens via the gov coercion.

    In the end, the Fed was created to make the rich, richer. Granted that is evil, but it is what it is and its not going away. Once you are willing to admit that all a central bank is, is just another consumption subsidy, you can take advantage of that wealth transfer engine, and have wealth transferred your way.

    For instance, what happens during QE (which is a consumption binge)? Do equities and rates go up, or do they go down? And, what happens when the Fed backs off QE? Do equites and rates go up or down?
    Jul 18 02:14 PM | 2 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "For me at least, there is a very substantial difference between a FRN, a US Treasury Bond, and a computer byte. "

    This is the point. You have to learn to think big picture if you want to understand the real impact of a central bank rather than just the arguments that are touted for what it does. Whether you are talking about an actual piece of paper in your pocket (whether it is a Treas note or FRN) or a computer representation of that note (a byte), like when a bank pledges a security at the FHLB and draws an advance but never receives actual pieces of paper, the reality is all these "notes" are abstractions. They are just claims on labor. So in that sense there is no real difference between them in the fact that they all represent claims on human labor.

    So, just because you double the claims on a human's labor, does not mean the human is capable of doubling productivity. As such, claims on labor (notes) need to be price sensitive in their creation. When they are not (like in the case of a central bank) their creation will accelerate faster than labor productivity (asset creation) and the result is capital consumption (a consumption binge).

    In other words, all a gov can do is facilitate a consumption binge. A railroad subsidy is a consumption binge, a war is a consumption binge, and a non-price sensitive bank (i.e. a central bank) is also a consumption binge. A consumption binge leads to an inflationary spiral, followed by a deflationary spiral. That's why you see collapses and periods of deflation, because it is nature correcting the gov inflationary bubble, whether created by fiscal policy, monetary policy, or both.

    So, it doesn't matter if gov issues Treas bonds to subsidize railroads, or it issues FRN to buy Treas from banks (which are really just branches of the Fed Res - they all have to use the same notes), the effect is the same - a consumption binge. Once you are able to accept that, your predictive capacity will be credible. If you can't accept that, what you will wind up doing is forever making excuses for why the predictions of what a central bank can do, never come to pass. Remember we were told that the Fed Res would end all economic downturns. Has that prediction come true? We were also told, that when the Fed engaged in QE, interest rates would go down. Did rates go down during QE?
    Jul 18 12:30 PM | 2 Likes Like |Link to Comment
  • Making The Rich Richer [View article]
    "Every Federal Reserve Note is backed by a US Treasury Security and that is not nothing"

    Well, that's not really my point. My point is that just because the Fed doesn't issue paper for all its transactions, does not mean there is some sort of substantial difference between the paper and computer bytes.

    Fiat is not really fiat. All notes are backed by a claim on labor. The danger is breaking the link between price sensitive notes and non-price sensitive notes (like central bank notes).
    Jul 18 11:42 AM | Likes Like |Link to Comment