Fed inaction caused the Great Depression?

[Thunder]

http://en.wikipedia.org/wiki/The_Great_Depression#Monetarist

fascinating little summary. it suggests Fed inaction turned a regular recession into the Great Depression.

plus the fact that it seems that what the US govt. and the Fed did NOT do in 1930, is exactly what the US govt. and the Fed DID do in 2008, thereby preventing another massive Depression.

I guess sometimes we actually learn from the past. :)

[Sceptic-PK]

One of the major reasons another Depression was avoided was the fact that good ol' Ben was one of the pre-eminent experts on the subject. A good read:

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

[The Fallen Serpent]

I bring this up when people complain about the Fed trying to prevent wide spread deflation. Usually I am met with incredulity. I did eventually achieve success in explaining to one person why the gold standard was weaker than modern systems. When the arguement was brought up that at least the dollar back then represented something, I pointed out it still does today. It represents the value of property, labor and credit under the auspice of the US dollar.

[Chucky]

http://en.wikipedia.org/wiki/The_Great_Depression#Monetarist

fascinating little summary. it suggests Fed inaction turned a regular recession into the Great Depression.

plus the fact that it seems that what the US govt. and the Fed did NOT do in 1930, is exactly what the US govt. and the Fed DID do in 2008, thereby preventing another massive Depression.

I guess sometimes we actually learn from the past. :)

Not enough. No one is talking much about when we had a real mountain of debt at the end of WWII and within 5 years it was gone and we were the superpower. There must be lessons there but it's not a hot topic in the liberal media.

[Thunder]

I should read more about this Milton Friedman guy. He seems to know his ****.

[apophenia]

I should read more about this Milton Friedman guy. He seems to know his ****.

There's a book / video (Commanding Heights) that argues that the last half century has been a battle between the advocates of market regulation (Friedman), and those who advocate "free markets" (Hayek). It makes a convincing case for Hayek's views. I think they misrepresent the ultimate consequences of Reagan and Thatcher's economic policies though, so I remain unconvinced.

They are still arguing over the causes of the 2007 depression recession, so I look askance at most economic arguments. I believe that economics is still largely a soft science, with all that entails, including a destructive pluralism wherein multiple errant view can maintain simultaneously plausible claims on truth.

Anyway, it's a fascinating video if you find this stuff interesting; I highly recommend it.

[Thunder]

tanks. :)

[Puppycow]

I should read more about this Milton Friedman guy. He seems to know his ****.

Check this out if you have time:

http://www.youtube.com/watch?v=E1lWk4TCe4U

This is from back before the Jerry Springerization of daytime talk shows.

[Thunder]

woaaah...I don't get it.

Friedman was against emissions regulations...but wanted a tax on emissions?

makes no sense.

[Puppycow]

woaaah...I don't get it.

Friedman was against emissions regulations...but wanted a tax on emissions?

makes no sense.

It makes plenty of sense. Instead of the clumsy mechanism of regulation, you simply put a price on emissions, and people will adjust their behavior accordingly. If the emission-creating behavior is not very important, they will do it less if the price goes up. But if it is important, it will still be worth paying more for.

That way, for example, people who don't need a gas guzzler will be encouraged to buy a car with better mileage. Maybe they will carpool more or take fewer unnecessary trips. It's a simpler, more elegant solution than CAFE regulations for example. People will buy more fuel efficient cars and drive them less when gas costs $4 than when gas costs $2.

[lomiller]

There's a book / video (Commanding Heights) that argues that the last half century has been a battle between the advocates of market regulation (Friedman), and those who advocate "free markets" (Hayek).

That doesn’t sound right at all. Freidman was an active vocal proponent of de-regulation.
I should read more about this Milton Friedman guy. He seems to know his ****.

He’s one of the giants. The things he got right have become some of the cornerstones of modern economic policy. The things he got wrong took decades to understand why they were wrong, (He essentially argues that regulation is unnecessary and undesirable) and the outcome of those debates also play a big role in modern economics. IMO Greenspans admission before congress that he was wrong when he thought regulation was unnecessary because the market would resolve such things was the final word in that debate, and the real issue now is what types of regulation are needed/will work.

[lomiller]

woaaah...I don't get it.

Friedman was against emissions regulations...but wanted a tax on emissions?

makes no sense.

It’s a question of externalities and the fact a free market doesn’t work properly when they are in play.
Shifting those costs to someone uninvolved with your business or transaction is known as externalizing them. For a free market to function all the costs of the product/service you are selling must be built into the price, and if it isn’t there will be an competitive advantage that has nothing to do with producing a better product for a lower price.

Overall, being able to produce better products for a lower price benefits everyone because you have more/better stuff to go around. When companies compete on other basis however there are no such benefits and what tends to happen is they unfairly shift a huge amount of their costs onto others. What business becomes under these conditions is a race to see who can screw over the most people rather than a race to see who can create the most wealth to spread around.

Pollution, is a good example of this type of externality. Instead of the cost being paid by the person buying the product it’s paid by the people breathing the air/drinking the water. Typically these people received nothing in exchange so you could also consider it a form of theft.

[daenku32]

Not so much that it caused it, as much as it failed to prevent it.

[apophenia]

That doesn’t sound right at all. Freidman was an active vocal proponent of de-regulation.


I believe you're right. I think I was confusing him with Keynes. Friedman of course, as a light in economic theory, is in the documentary.

[apophenia]

What business becomes under these conditions is a race to see who can screw over the most people rather than a race to see who can create the most wealth to spread around.

I think most of us are familiar with the screwing over part, but many of us are still waiting on the "spreading around".

:D

[lomiller]

I think most of us are familiar with the screwing over part, but many of us are still waiting on the "spreading around".

:D

If you live in any western country you need simply look out your window...

[tempesta29]

http://en.wikipedia.org/wiki/The_Great_Depression#Monetarist

fascinating little summary. it suggests Fed inaction turned a regular recession into the Great Depression.

plus the fact that it seems that what the US govt. and the Fed did NOT do in 1930, is exactly what the US govt. and the Fed DID do in 2008, thereby preventing another massive Depression.

I guess sometimes we actually learn from the past. :)

Barf.

Do you really think anything the Federal Reserve has done will prevent economic collapse? All they've done is delay the inevitable and compound its future severity. How high does the price of gold need to go before you realize there is a problem? The US economic system is already destroyed internally. All we see now is an empty facade.

[Thunder]

Do you really think anything the Federal Reserve has done will prevent economic collapse? yes.

[CDFingers]

I believe the Great Depression was fueled by Fed inaction: the Fed refused to regulate the buying of stocks on very low margin. When the margin was called, the market crashed.

Financial regulation supposedly protects consumers from predatory, rich, faceless entities.

CDFingers

[tempesta29]

yes.

And you think the dollar is healthy?

[Thunder]

And you think the dollar is healthy?

I think if the dollar went back to the Gold standard, the world economy would collapse.

[tempesta29]

I think if the dollar went back to the Gold standard, the world economy would collapse.

So you don't see hyper inflation as a serious threat then I take it.

[drkitten]

So you don't see hyper inflation as a serious threat then I take it.

Since no one with the economic understanding of a C-level Econ 101 student does, I don't see why he should be any different.

Look around you. In the US, we're actually seeing historically low levels of inflation, and the bond market says that this low level of inflation is expected to persist for the lifetime of a thirty-year Treasury security (or the Fed wouldn't be able to auction the securities off for such incredibly low yields.)

Mortgage brokers are giving mortgages away at five percent fixed rate for the next thirty years; this again is much lower than historical averages and reflects the judgement of the bankers that inflation is expected to be fairly low for the foreseeable future.

So, no. At this point, all rational observers agree that hyperinflation in the United States is a less significant economic threat than global warming. Or than an invasion by body snatching aliens from the Gamma quadrant.

[drkitten]

Do you really think anything the Federal Reserve has done will prevent economic collapse? All they've done is delay the inevitable and compound its future severity. How high does the price of gold need to go before you realize there is a problem?

The rising price of gold is no more a problem than the rising price of Christina Ricci DVD's. Gold is one of the few industrial goods that's almost entirely divorced from the actual economy and so can float freely with no consequences to the rest of the economy.

Buying gold is almost pure gambling; you're betting that a greater fool than yourself will take it off your hands later. But since the only reason anyone would want to buy gold in the first place is as an investment (since the industrial use for the metal is almost nil), you're basically hoping that there's someone else out there even dumber than you are who will buy it at an even more inflated price.

[tempesta29]

Yet gold continues to rise in dollar terms. That's inflation. More money is being created. That's inflation. What numbers are you even using to measure inflation, the CPI? Anyone who drives their car to the grocery store to buy food knows those numbers are ********. It's funny that you rely on the expectations of the mortgage industry rather than the price of gold. That speaks volumes about your perspective. You generally omit one fact as well: gold is money. It always has been. When people lose faith in paper money they turn to gold, and that's exactly what is happening.

[drkitten]

Yet gold continues to rise in dollar terms. That's inflation.

Nope. Macroeconoically, inflation is a general rise in prices; when a single good rises in prices, that's just supply or demand shift. For example, a crop failure in northern Mexico could cause the agave cactus harvest to go down, which will make tequila more expensive, but wouldn't have a noticeable effect on the price of bourbon or beer.

More money is being created. That's inflation.

Again, nope. inflation is produced by a combination of money supply and the velocity of circulation; you can get deflation even with an increasing money supply if people are hoarding money instead of spending/lending/investing it. Which is basically what has been happening for the past two years, which is why inflation numbers were so low despite the stimulus spending.

What numbers are you even using to measure inflation, the CPI?

Yes, the CPI. For some reason, I trust the numbers systematically gathered by professional economists over anecdotes mistold by "Anyone who drives their car to the grocery store." As a matter of fact, distrust of the core CPI as a measuring instrument for inflation is one of the extremely reliable signs of a tinfoil-hat-wearing conspiracy 'tard.

It's funny that you rely on the expectations of the mortgage industry rather than the price of gold.

Yeah. I rely on the people who actually need to predict inflation to be able to make money, because their only hedge is the interest rate upfront. That speaks volumes about your perspective.

You generally omit one fact as well: gold is money.

Well, it's good that I omit it, because I like to omit so-called facts that simply aren't true. If you disbelieve me, try paying your grocery bill -- or tax bill -- or credit card bill --- in gold.

[Puppycow]

So you don't see hyper inflation as a serious threat then I take it.

Nope. If you think it's a serious threat please commit to a date and a number. I made a thread just for the purpose (http://forums.randi.org/showthread.php?t=154230).

You don't have to be exact, but something like, by date X, inflation will be at least Y% would be nice.

[Sceptic-PK]

Yet gold continues to rise in dollar terms. That's inflation.

:dl:

[tempesta29]

Nope. Macroeconoically, inflation is a general rise in prices; when a single good rises in prices, that's just supply or demand shift. For example, a crop failure in northern Mexico could cause the agave cactus harvest to go down, which will make tequila more expensive, but wouldn't have a noticeable effect on the price of bourbon or beer.

Yet the CPI is ultimately just an arbitrary index deemed "general" by those who stand to gain from favorable numbers.

Again, nope. inflation is produced by a combination of money supply and the velocity of circulation; you can get deflation even with an increasing money supply if people are hoarding money instead of spending/lending/investing it. Which is basically what has been happening for the past two years, which is why inflation numbers were so low despite the stimulus spending.

Circulation is indeed required. Bush and Obama have spent a fantastic amount of money. I don't believe the CPI is a genuine reflection of inflation at all. The price of gold is a reflection of expectations of consumers that fiat money will implode. There is significance in those expectations.

Yes, the CPI. For some reason, I trust the numbers systematically gathered by professional economists over anecdotes mistold by "Anyone who drives their car to the grocery store." As a matter of fact, distrust of the core CPI as a measuring instrument for inflation is one of the extremely reliable signs of a tinfoil-hat-wearing conspiracy 'tard.

You trust the government. Good for you. I don't.

Yeah. I rely on the people who actually need to predict inflation to be able to make money, because their only hedge is the interest rate upfront. That speaks volumes about your perspective.

Mortgage lenders have had an incredible track record as of late too, right? How have their predictions fared in the last few years?

Well, it's good that I omit it, because I like to omit so-called facts that simply aren't true. If you disbelieve me, try paying your grocery bill -- or tax bill -- or credit card bill --- in gold.

Try paying your grocery bill in pounds sterling or sheqels. What's your point?

[Sceptic-PK]

As a matter of fact, distrust of the core CPI as a measuring instrument for inflation is one of the extremely reliable signs of a tinfoil-hat-wearing conspiracy 'tard.

http://forums.randi.org/search.php?searchid=979185

He called it folks!

[psionl0]

http://forums.randi.org/search.php?searchid=979185

He called it folks!


Sorry - no matches. Please try some different terms.
If this isn't a typo then I am missing the point.

[Thunder]

You trust the government.

trusting not one single government agency or employee..does not require much thought.

honestly, in a nation as big as the USA, with soo many agencies and departments, its quite ignorant to simply say "I don't trust the government".

[Thunder]

So you don't see hyper inflation as a serious threat then I take it.

the USA barely has any inflation right now. prices are pretty stationary.

[Sceptic-PK]

If this isn't a typo then I am missing the point.

Yeah, not sure what I did there, sorry.

http://forums.randi.org/search.php?searchid=980837

[drkitten]

Yeah, not sure what I did there, sorry.

http://forums.randi.org/search.php?searchid=980837

Same (lack of) results. I don't think that the forum saves search results for later access. Perhaps you should just tell us what the search terms are, or summarize what you found.

Although I'm fairly confident of what I'd find if I simply hit the "find more posts by tempesta29" button.

[Sceptic-PK]

Ah, oops. I am noob! Yeah, it was just a collection of tempesta29's posts which included wonderful discussions on freefall, thermite and the like. Colour me not surprised!

[Slayhamlet]

Ah, oops. I am noob! Yeah, it was just a collection of tempesta29's posts which included wonderful discussions on freefall, thermite and the like. Colour me not surprised!

Yeah, the forum software doesn't save search results. Try this (http://forums.randi.org/search.php?do=finduser&u=45713) instead: Just copy the link location of the "Find all posts by [member]" button under the "Statistics" tab on the desired member's profile page (http://forums.randi.org/member.php?u=45713) and paste it into your address bar. This will create a new search results page with unique identification (you can tell because the number at the end of the URL for the results page will be different every time). You can of course also paste the URL into a post to create a link with tags, as I did above.

[tempesta29]

trusting not one single government agency or employee..does not require much thought.

honestly, in a nation as big as the USA, with soo many agencies and departments, its quite ignorant to simply say "I don't trust the government".

I'm speaking both generally and in the context of economic policy. I did not say nor imply that I distrust every single government employee in the US.

[Thunder]

I'm speaking both generally and in the context of economic policy. I did not say nor imply that I distrust every single government employee in the US.

that's good, cause I am one of them. as was my dad and my uncle.

and my good friend now works for the State Department, and is former DOD and CIA.

:)

[Puppycow]

If you disbelieve me, try paying your grocery bill -- or tax bill -- or credit card bill --- in gold.

If this clueless maroon (http://thinkprogress.org/2010/12/29/georgia-gold/) gets his way, taxpayers will have to pay in gold or silver.

Pre-1965 silver coins, silver eagles, and gold eagles shall be the exclusive medium which the state shall use to make any payments whatsoever to any person or entity, whether private or governmental. Such coins shall be the exclusive medium which the state shall accept from any person or entity as payment of any obligation to the state including, without limitation, the payment of taxes; provided, however, that such coins and other forms of currency may be used in all other transactions within the state upon mutual consent of the parties of any such transaction.

Why? I guess only he knows the reason.

How does such a lunatic get elected to public office?

[tempesta29]

Heaven forbid a metal of perennial value be used as a monetary medium. We should definitely just back a useless piece of paper backed by jack squat instead.

[Sceptic-PK]

Heaven forbid a metal of perennial value be used as a monetary medium. We should definitely just back a useless piece of paper backed by jack squat instead.

Go to school and learn about economics. You're making a fool of yourself, child.

[tempesta29]

Go to school and learn about economics. You're making a fool of yourself, child.

This is the kind of thing people say who have no point. There are world-renowned economists who agree with me.

[Sceptic-PK]

There are world-renowned economists who agree with me.

Not many, and obviously nobody that is being listened to (and that's really what counts). Go learn about the various causes of the Depression and try and understand how the gold standard contributed to it. Then you might finally grasp some of the reasons why commodity-backed currencies are an antiquated notion (and why it was abandoned). Until then you're just another naive conspiracy theorist who pays lip service to ideas you don't really understand, probably due to a distinct lack of proper education on the subject.

[psionl0]

Heaven forbid a metal of perennial value be used as a monetary medium. We should definitely just back a useless piece of paper backed by jack squat instead.
The gold standard gives neither the value nor stability to currency that you might think it does. In fact, it often has the opposite effect because it leads to money shortages.

For example, the currency act of 1764 outlawed the paper based "colonial script" and mandated the use of gold to pay bills and taxes. Within a year a massive depression resulted and a few years later, the american colonials had rebelled against British rule.


The great depression of the 1930's was made worse than it might have otherwise been by the need for governments to seek deflationary policies (higher taxes, less spending) in order to keep the value of the dollar up. The government had to abandon the gold standard then confiscate the peoples' gold before they could take measures to get the economy moving again.

In both cases (and many others), it wasn't the lack of resources or labour that caused the depressions, it was a lack of money.

[Puppycow]

Heaven forbid a metal of perennial value be used as a monetary medium. We should definitely just back a useless piece of paper backed by jack squat instead.

If you saw a $20 bill lying on the sidewalk, would you pick it up?

[The Fallen Serpent]

Modern currency is not backed by "jack squat" it is backed by the economy it represents. Backing currency with a more limited set of physical goods does not create a more stable system. Gold has two basic uses that I can think of myself, and likely more beyond. It is pretty and malleable so good for ornamentation and ostentation. It is important in electronics. The first use heavily drives up the cost for the second use. Returning to having gold backed currency would remove more product from the supply and further drive up costs in the electronics usage.

Gold is a commodity like so many others. Why limit the currency in a system to one or a few commodities? Yes, the system is more complex that we have now. Complex does not mean worse. Using gold and silver would provide a very hard limit on what the economy could do. That limit being the amount of gold and silver. Populations have doubled since the fifties. The gold and silver supply has not necessarily done so.

[Tippit]

The gold standard gives neither the value nor stability to currency that you might think it does. In fact, it often has the opposite effect because it leads to money shortages.



Of course a gold or silver currency give value and stability to money, you are merely making the claim (without evidence) that this is a bad thing, and necessarily leads to shortages.



For example, the currency act of 1764 outlawed the paper based "colonial script" and mandated the use of gold to pay bills and taxes. Within a year a massive depression resulted and a few years later, the american colonials had rebelled against British rule.



Sound money reveals the true rate of taxation, and the theft of your labor. When you know your money is inviolate, it becomes immediately apparent exactly who the culprit is - the one with their hands directly in your pockets. The depression you described wasn't caused by sound money, it was caused by British tyranny, taxation. The issuance of colonial "scrip" resulted in prosperity to the degree that by and large, American people benefited from the fruits of their own labor, instead of British tyrants. This was short lived, of course, until the issuers of scrip figured out they could tax their own people by issuing more:

By the end of 1778, Continentals retained from 1/5 to 1/7 of their face value. By 1780, the bills were worth 1/40th of face value. Congress attempted to reform the currency by removing the old bills from circulation and issuing new ones, without success. By May 1781, Continentals had become so worthless that they ceased to circulate as money. Franklin noted that the depreciation of the currency had, in effect, acted as a tax to pay for the war.

(emphasis mine)

http://en.wikipedia.org/wiki/Colonial_scrip



Of course Franklin knew that the depreciation of currency, which occurs whenever new currency is issued, in spite of the general price level, is nothing more than a (regressive) tax.



The great depression of the 1930's was made worse than it might have otherwise been by the need for governments to seek deflationary policies (higher taxes, less spending) in order to keep the value of the dollar up. The government had to abandon the gold standard then confiscate the peoples' gold before they could take measures to get the economy moving again.

In both cases (and many others), it wasn't the lack of resources or labour that caused the depressions, it was a lack of money.

The problem with this hypothesis, is that the government wasn't seeking a "deflationary policy" (nor should they have been), it was the Fed who, after inflating the money supply to cause the boom in the twenties, contracted the money supply by some 30% which resulted in a spectacular economic crash. After the Fed started debasing the currency in the twenties, it triggered gold redemptions. The important point here is that the fed was tightening credit as late as 1937 - four years after the gold standard was dropped. Fiat money can be made scarce, too.

It's disappointing that people really belive that FDR, our apparent savior, had to first steal all of our gold before the "helping" commenced.

[MattusMaximus]

Yet gold continues to rise in dollar terms.

P.T. Barnum had a simple explanation for this: "There's a sucker born every minute" :D

[psionl0]

It is hardly rocket science to appreciate that if you create too much money, you get inflation. As the Wiki (http://en.wikipedia.org/wiki/Colonial_scrip) you linked to points out: The paper bills issued by the colonies were known as "bills of credit". Bills of credit were usually fiat money; that is, they could not be exchanged for a fixed amount gold or silver coins upon demand. Bills of credit were usually issued by colonial governments to pay debts. The governments would then retire the currency by accepting the bills for payment of taxes. When colonial governments issued too many bills of credit, or failed to tax them out of circulation, inflation resulted. This happened especially in New England and the southern colonies, which unlike the middle colonies, were frequently at war.This is probably preferable to the situation where, due to a lack of gold in the colonies, they had to borrow the gold and pay interest as well as taxes on it.

The wiki also makes the following point:Another problem was that the British successfully waged economic warfare by counterfeiting Continentals on a large scale. Benjamin Franklin later wrote:The artists they employed performed so well that immense quantities of these counterfeits which issued from the British government in New York, were circulated among the inhabitants of all the states, before the fraud was detected. This operated significantly in depreciating the whole mass...and this was the reason for the massive devaluation of the colonial script.

I agree that the theft of the peoples' gold had nothing to do with economic reform and everything to do with making a massive profit from the resale of that gold.

[Kay]

Heaven forbid a metal of perennial value be used as a monetary medium. We should definitely just back a useless piece of paper backed by jack squat instead.

And what backs gold? What gives gold value?
That's the thing I've never understood about gold diggers. They rant about how the Fed backed money has no real value, but gold possesses no real value either. Philosophers have observed for hundreds if not thousands of years that we are willing to kill each other over a metal that is frankly only useful because it is rare.

[Tippit]

P.T. Barnum had a simple explanation for this: "There's a sucker born every minute" :D

Are you referring to the suckers who hold, and who have their labor contracts denominated in what is essentially, monopoly money?

[Tippit]

And what backs gold? What gives gold value?
That's the thing I've never understood about gold diggers. They rant about how the Fed backed money has no real value, but gold possesses no real value either. Philosophers have observed for hundreds if not thousands of years that we are willing to kill each other over a metal that is frankly only useful because it is rare.

Gold's numerous properties have made it suitable as money for thousands of years. These properties also make gold useful for many things, but, as history dictates, it is most suitable as money. Anyone who rants about how Fed backed money has no value, is a fool. Of course it has value. It's value is determined by the full coercive power of the government. If you don't pay your taxes in Federal Reserve Notes, stormtroopers with guns will come and take everything you have and throw you in jail. The problem with Federal Reserve Notes, is that their value is being stolen in perpetuity, not that they don't have value.

People aren't only willing to kill other people for gold, but for money in general. People are willing to kill for the things money can buy. In fact, the biggest murderers thoughout history have been the armies of national governments, paid largely with paper money. Direct taxation for war is and hopefully always will be unpopular. This why national governments need to surreptitiously use the inflation tax to fund their wars, in such a manner as, to quote Keynes, not one man in a million is able to diagnose.

[Tippit]

It is hardly rocket science to appreciate that if you create too much money, you get inflation. As the Wiki (http://en.wikipedia.org/wiki/Colonial_scrip) you linked to points out: This is probably preferable to the situation where, due to a lack of gold in the colonies, they had to borrow the gold and pay interest as well as taxes on it.

The wiki also makes the following point:and this was the reason for the massive devaluation of the colonial script.



By the proper definition, if you create any money, you will get monetary inflation, which results in a transfer of wealth from everyone else, to you. Whether this is offset by productivity or not, possibly resulting in price inflation, is irrelevant. If you counterfeit some money for yourself and spend it, thereby extracting scarce goods and services from the economy without contributing anything in return, it hardly matters if society somehow manages to produce more. It may make your theft virtually unnoticable, but it doesn't change the fact that you're a thief.

As far as what happened in the colonies, you are missing the point. It was British tyranny that was the problem. The fact that scarce gold was exiting from the colonies to British tyrants was made obvious, because gold is valuable, and since they can't devalue it, they must physically take it from you. The Continental alleviated the effects of the British tyranny only temporarily. This becomes evident when you consider the inevitability of the subsequent Revolutionary war. No amount of gold or paper could have forstalled this.



I agree that the theft of the peoples' gold had nothing to do with economic reform and everything to do with making a massive profit from the resale of that gold.

I'm glad we agree that FDR was a criminal. :D

[Galteeth]

There is a counter argument here. First, Hoover did enact policies, such as the Smoot Hartley Act, that did worsen the depression. Secondly, it is arguable that expansion of the money supply under the Federal Reserve in the 20's is what lead to the speculative bubble whose implosion caused the depression. It is difficult to say what would have happened had things been different; economics is a complex thing, and I think all sides tend to oversimplify.
As far as Bernacke's actions, it is still an open question whether he "saved the country" or re-inflated a bubble that is destined to pop eventually. It is possible that dealing with profound consequences of a meltdown is better sooner rather then later, if the system you are trying to prop up is ultimately unsustainable.

[Tippit]

There is a counter argument here. First, Hoover did enact policies, such as the Smoot Hartley Act, that did worsen the depression. Secondly, it is arguable that expansion of the money supply under the Federal Reserve in the 20's is what lead to the speculative bubble whose implosion caused the depression. It is difficult to say what would have happened had things been different; economics is a complex thing, and I think all sides tend to oversimplify.
As far as Bernacke's actions, it is still an open question whether he "saved the country" or re-inflated a bubble that is destined to pop eventually. It is possible that dealing with profound consequences of a meltdown is better sooner rather then later, if the system you are trying to prop up is ultimately unsustainable.

I agree that Hoover and Smoot Hawley bore some responsibility for the Depression. I think the important thing to understand about what Bernanke did, is that he arbitrarily enriched a few by stealing from the many. He created (and is still creating) massive asset inflation in assets that were supposed to have crashed, bailing out the unscrupulous and the criminal parasites in Washington, and on Wall Street. He has also used the supposed pillars of our "capitalist" economy, the stock and bond markets, as vehicles for asset-inflationary wealth redistribution, as this flood of money he's created has wound up there, or been largely exported. Why so many ignorant people defend this institutional fraud is beyond me, perhaps it has something to do with the fact that many of us are stock and bond holders. Human beings are ok with theivery, apparently as long as they get their cut.

[Galteeth]

"America's Great Depression" by Murray Rothbard is an interesting take on why government intervention was to blame for the depression.

http://en.wikipedia.org/wiki/America's_Great_Depression

[psionl0]

By the proper definition, if you create any money, you will get monetary inflation, which results in a transfer of wealth from everyone else, to you. Whether this is offset by productivity or not, possibly resulting in price inflation, is irrelevant. (???) If you counterfeit some money for yourself and spend it, thereby extracting scarce goods and services from the economy without contributing anything in return, it hardly matters if society somehow manages to produce more. It may make your theft virtually unnoticable, but it doesn't change the fact that you're a thief.The true measure of a nation's wealth is the goods and services it has (less its liabilities). If a nation has "x" widgets and "$x" the logic suggests that in order to get "x+y" widgets it will need "$x+$y" for prices to remain the same. If the money doesn't expand then investors will hang on to their "valuable" money rather than invest in widgets that are declining in price. It is untenable that production should be stymied simply because of a lack of money.

Someone who creates money and keeps the resulting profits for himself might not be directly productive but he still made extra production possible. If the creation of money was left entirely to the government then the entire population stands to benefit from the extra production (depending on the nature of the pork barreling). This in itself is not necessarily a tax (theft) unless the government creates too much money and causes inflation.

The real danger is unbridled borrowing from overseas sources. That simply mortgages a nation's future for a bigger party today.

BTW I don't recall calling FDR a thief. The theft of gold was the action of a lot of people and probably wasn't FDR's idea originally.

[Tippit]

The true measure of a nation's wealth is the goods and services it has (less its liabilities). If a nation has "x" widgets and "$x" the logic suggests that in order to get "x+y" widgets it will need "$x+$y" for prices to remain the same. If the money doesn't expand then investors will hang on to their "valuable" money rather than invest in widgets that are declining in price. It is untenable that production should be stymied simply because of a lack of money.



But there is no evidence, short of bank propaganda, that stable prices in an economic environment of changing productivity is desirable. It is the stability of nominal spending (http://www.terry.uga.edu/~selgin/deflation.html), not the general price level that is important for macroeconomic stability. Of course, this doesn't explain why we have persistent *positive* rates of consumer price inflation, this measured by a doctored CPI, and massive asset inflation. This resolves itself in a never-ending series of bubbles bursting, which result in inequitable and arbitrary transfers of wealth. This of course is not measured by the CPI, it's measured by the economic suffering of millions.

As far as your claim that production will be "stymied" by sound money, you are making a few bad assumptions. Number one, is the assumption that easy credit necessarily will result in something productive. We have the housing bubble which proved otherwise, in dramatic fashion. Just because someone has an idea, doesn't mean it's a good idea, and it shouldn't entitle them to easy credit at society's risk, and expense. It should be up to savers, not bankers under a fractional reserve system, or politicians with a printing press, or politicians beholden to bankers with a printing press to decide which ideas qualify and which do not. Number two, you're assuming that investment and consumer spending would somehow grind to a halt, in a deflationary spiral. If this is this case, can you explain why positive rates of inflation haven't resulted in an inflationary spiral? Of course, it doesn't, and we have the period 1875-1900 which proves that mild deflation doesn't result in a deflationary spiral.



Someone who creates money and keeps the resulting profits for himself might not be directly productive but he still made extra production possible.



If a group of counterfeiters (institutional, or otherwise) consumes what I would have consumed had they not taken my purchasing power in the first place, why should I care about extra production that I am deprived of consuming? If they use the money to buy up rent-producing assets, I am further arbitrarily deprived of a share in the economy. The three billion people who live below poverty in a wealth-condensed world would probably agree with me.



If the creation of money was left entirely to the government then the entire population stands to benefit from the extra production (depending on the nature of the pork barreling). This in itself is not necessarily a tax (theft) unless the government creates too much money and causes inflation.



That's like saying "if the government does something I deem useful with my income tax money, it isn't necessarily a tax". As I said before, it's always a tax, regardless of the price level, and there is a fine line between theft and taxation. Every dollar in purchasing power the government, or bankers gain is a dollar lost by everyone else (collectively). Do you agree that if we have productivity gains, and prices don't budge, it represents an opportunity cost for those who didn't get any of the new money?



The real danger is unbridled borrowing from overseas sources. That simply mortgages a nation's future for a bigger party today.



I agree that the debt is a huge problem, and I think the "austerity" plans are a giant scam. It's not that I don't think the government shouldn't drastically cut back spending to a constitutional level, I do. It's that I think all of the unnamed private US bondholders who receive massive interest payments on the backs of US taxpayers should be cut off (selective default), before we ration government services. I'm aware of the dire consequences that would result, but it would be less dire than the "hangover" which we're setting ourselves up for.



BTW I don't recall calling FDR a thief. The theft of gold was the action of a lot of people and probably wasn't FDR's idea originally.

It's hard for me to accept that in the context of FDR issuing Executive Order 6102 (http://en.wikipedia.org/wiki/Executive_Order_6102), that he was not a thief, the culprit in the largest gold heist in world history.

[Eddie Dane]

Quit bickering.

Any currency, metal or commodity that can be traded for alcohol or sex, obviously has value.

Sheesh.

[timhau]

Gold's numerous properties have made it suitable as money for thousands of years. These properties also make gold useful for many things, but, as history dictates, it is most suitable as money.

What properties are those?

[psionl0]

Quit bickering.Who's bickering? We are putting our own points of view across while respecting each other's views. Unlike many posters, we have not resorted to name calling or insults.

Obviously, with something complicated like the economy, it will be difficult to arrive at any uncontroverted truths but it is still interesting to explore this topic.

[elbe]

What properties are those?

It can be useful in electronics, but I hardly see how that translates to a useful currency.

[Galteeth]

Gold has historically been a good store of value because 1. It's relatively rare 2. It doesn't corrode 3. It has a relatively low melting point, hence it can be divided into smaller parts of lesser value 4. Since the days of Archimedes, it's quantity has been easy to measure.

[Sceptic-PK]

Gold has historically been a good store of value

Is it any better at storing value than anything else though?

http://nowscape.com/images/Map_Graph_Gold_price.gif

[timhau]

What a great hedge against inflation it has been.

[lomiller]

What a great hedge against inflation it has been.

Well, I suppose it’s a great hedge against the inflation in the price of other assets you could have bought...

[drkitten]

Well, I suppose it’s a great hedge against the inflation in the price of other assets you could have bought...

It's also a great hedge against the sooper sekrit majik inflation that appears only in the fever-dreams of Tippit and other goldbugs. You know, the kind that has no actual economic impact whatsoever but allows you to get indignant about how counterfeiters are stealing your valuable paper clips unless you line your wallet with aluminum foil?

[stilicho]

Of course, it doesn't, and we have the period 1875-1900 which proves that mild deflation doesn't result in a deflationary spiral.

This is the core of every argument against the Federal Reserve (and other nationalised central banks). Everything was better, it seems, in the nineteenth century.

What is your theory about what happened in the world to erode the apparent superiority of nineteenth-century culture, technology, ideals, and business practices?

[lomiller]

This is the core of every argument against the Federal Reserve (and other nationalised central banks). Everything was better, it seems, in the nineteenth century.

What is your theory about what happened in the world to erode the apparent superiority of nineteenth-century culture, technology, ideals, and business practices?

It's not just that. The period he refers to contains the long depression. Prior to 1930 this was the period people referred to as the great depression. The only saving grace of this period is that you could get 160 acres of free land and become a farmer.

[Galteeth]

Is it any better at storing value than anything else though?

http://nowscape.com/images/Map_Graph_Gold_price.gif

In a historic sense, yes. As countries and currencies came and went, as commodities and goods go from rare to worthless (I'm talking thousands of years), gold has remained a means of storing value.

[psionl0]

Gold has historically been a good store of value because 1. It's relatively rare 2. It doesn't corrode 3. It has a relatively low melting point, hence it can be divided into smaller parts of lesser value 4. Since the days of Archimedes, it's quantity has been easy to measure.You forgot to mention 5. It is soft and malleable.

This means that gold coins wear out quickly and are readily amenable to "shaving" and "clipping" (not to mention that gold coins often became "debased" to increase their supply).

It is this problem that lead to the rise of the goldsmiths and paper money.

If you wish to buy gold bullion and bury it in your backyard then you will have a sound investment - provided that thieves don't discover your burial site.

[Sceptic-PK]

In a historic sense, yes. As countries and currencies came and went, as commodities and goods go from rare to worthless (I'm talking thousands of years), gold has remained a means of storing value.

So what happened in Spain? And how can you claim that gold remained a store of value when it's quite obvious that the value of gold has fluctuated wildly during any period that is actually relevant (excluding currency pegging years of course)? If I bought plenty of gold in ~1865 in the US, how long would I have had to have lived to see my wealth adequately stored?

[Galteeth]

So what happened in Spain? And how can you claim that gold remained a store of value when it's quite obvious that the value of gold has fluctuated wildly during any period that is actually relevant (excluding currency pegging years of course)? If I bought plenty of gold in ~1865 in the US, how long would I have had to have lived to see my wealth adequately stored?

I am not claiming it is a perfect store of value or that it's value doesn't fluctuate. I am comparing it to other means of storing value throughout time. Spices, furs, currencies have all come and gone as valued items. Gold was valuable 4000 years ago. It is still valuable today.

Let's go with your 1865 available. What else could you have used to store value at the time that would still be valuable today? Greenbacks?

[CDFingers]

The Fallen Serpent opined:

>Modern currency is not backed by "jack squat" it is backed by the economy it represents.

I agree here. I think currencies are just agreements among the users that this pile of paper is worth a 1917 Remington m91. And this larger pile here is worth a Panshin bayonet.

We make these agreements so we don't have to schlep a wagon load of rice into the beauty salon to pay for our mother's Tuesday makeover.

I also agree that gold is just a commodity.

CDFingers

[stilicho]

It's not just that. The period he refers to contains the long depression. Prior to 1930 this was the period people referred to as the great depression. The only saving grace of this period is that you could get 160 acres of free land and become a farmer.

Either that or he's somehow related to JP Morgan. Not that I'm entirely opposed to allowing every financial institution to belong to a single individual but it was certainly getting that way. Along with those financial institutions came a considerable amount of assets in the way of mortgages and foreclosed properties.

I wonder if any of these antediluvians have read any social or economic histories of the time period they're so fond of. Do they know, for example, that the USA was what we'd call today a Third World/Emerging Market economy? Do they understand that accounting was in such a primitive state that most railroads did not depreciate rolling stock or track? Have they ever seen a set of 19th-Century corporate financial statements? Do they know that the USA was a (or even the) primary destination for foreign investment capital?

All I ever hear from them is that everyone was running around with gold coins jingling in their pockets and hearts filled with hope and wonder. That is, until they dropped dead from cholera or diptheria at the ripe old age of 35.

[CDFingers]

Those with the gold make the rules.

On another front, in an interconnected global economy, we're all going to have to sacrifice.

http://www.oftwominds.com/blogjan11/why-financial-doom01-11.html

CDFingers

[drkitten]

On another front, in an interconnected global economy, we're all going to have to sacrifice.

http://www.oftwominds.com/blogjan11/why-financial-doom01-11.html


Well, for a supposedly learned analysis, the author of this gibberish doesn't know squat about economics. So, :notm

From the cited page:


1. When money is dear and difficult to borrow, then productivity and capital accumulation are encouraged, speculation, malinvestment and debt-based consumption are discouraged.

Nope. Capital accumulation isn't encouraged, because people can't buy capital to accumulate.


2. When money is "free" (zero-interest rate policy) and liquidity is unlimited, then the opposite conditions hold: speculation in risk assets, malinvestment and debt-based consumption are all encouraged, and productivity and capital accumulation are heavily discouraged.

Again, no. When money is cheap, then productivity and capital accumulation is encouraged, because simply holding on to dollars will result in inflation losses.

Basically, if I have $100 in cash, and am expecting 10% inflation from a free money policy, I'm going to be looking to park my cash somewhere useful (i.e. "capital investment" or "productivity investment" that makes me a real return, because otherwise I lose money. If I have $100 in cash and I'm expecting 10% deflation, then I might as well keep the cash in a mayonnaise jar instead of taking the risk on investment.

Which is why the government lowers interest rates in order to stimulate investment.


3. When debts exceed the value of the underlying assets, the only way out of the Tyranny of Debt is to write off the debt on both the borrower and lender's balance sheets, wiping out their capital via liquidation and bankruptcy.

Totally wrong, as any farmer can tell you. You can also get out of the tyranny of debt by using the underlying assets to produce stuff. $10,000 worth of land, plus $5000 worth of seeds, can result in a crop that I can sell for $25,000.

[QUTOE]
4. The "extend and pretend" policy pursued by all major nations is simply transferring the impaired debt from private hands to the taxpayers (public debt), crippling the economy with higher taxes and higher debt service.[/QUOTE]

:notm

The government creates debt as a way of increasing the money supply, which in turn stimulates the economy by encouraging investment (in an inflationary environment).



5. The Central State's "extend and pretend" policy requires heavy borrowing every year to prop up the status quo, pushing the Central State (or equivalent, i.e. the Eurozone) into an inescapable double-bind: either continue increasing public debt and cripple the economy with high taxes and high public-debt servicing costs, or let the financial status quo of "profits are private, losses are public" implode.

:notm

So, of the five "basics" on which he bases his so-called theories, none of them are actually correct.

[BeAChooser]

I think if the dollar went back to the Gold standard, the world economy would collapse.

In the context of the Great Depression, you might find this interesting.

Perhaps it's just coincidence … but …

Japan experienced rapid deflation during the early stages of the Great Depression and that reduced both the severity and duration of their downturn. This deflation was in large part a result of the monetary flexibility they gained from going off the gold standard in 1931. Deflation helped stimulate their economy by making their goods more competitive in world markets.

In the US, both Hoover and FDR first tried massive government stimulus to combat the recession turned depression that started in 1929. Both failed. Finally, in 1933, FDR took America off the gold standard and sure enough, our economy almost immediately began to improve.

Likewise, the United Kingdom only recovered from the Great Depression after it too went off the gold standard. As noted in Wikipedia's article on the Great Depression in the UK (http://en.wikipedia.org/wiki/Great_Depression_in_the_United_Kingdom ), Great Britain had not recovered from WWI when the Great Depression hit. It's economic output was still below what it had been in 1918. And it spent much of the 1920s in recession. So it's economy didn't have nearly as far to fall in the Great Depression as the US, making what might be perceived as recovery easier. But as the depression deepened, the party in power (Labour) appointed a committee to look at what should be done. In July 1931, that committee came back urging public sector cuts in wages, and large cuts in public spending. The government rejected that advice. The ensuing chaos and indecision only made matters worse. This led to the collapse of the Labour government and the formation of a new, Labour AND Conservative government. On September 10, 1931, this new government instituted deep cuts in public spending and wages (some 10%) but then raised taxes, essentially canceling out the effect. The economic slide continued. It wasn't until September 21, when the government abandoned the gold standard and the pound was devalued by about 30%, that the economy began to improve. So again, the recovery wasn't due to a stimulus, but to going off the gold standard.

And the same is true regarding Sweden. It wasn't Keynesian deficit spending that ended the depression, but monetarist measures (again currency devaluation and export growth). In 1931, it abandoned the gold standard and THAT is when Sweden began to recover from the depression. Here's a CATO report that gives a better picture of Sweden:

http://www.cato.org/pubs/pas/pa-160.html


The standard history of Swedish politics holds that the Social Democrats took power during the depression of the 1930s and ended mass unemployment with their Keynesian fiscal policies. That interpretation of events has been influential in keeping the Social Democrats in power, but it is misleading.

In fact, thanks to a large devaluation after the abandonment of the gold standard in 1931, the depression in Sweden was relatively mild, and recovery--led by an export boom--began before the Social Democrats came to power. According to the late Swedish economist Erik Lundberg, the depreciation of the krona in September 1931 was the necessary condition for economic recovery. … snip … That view is supported by most Swedish economic historians.


Or look at the opposite case.

As pointed out here,

http://en.wikipedia.org/wiki/Great_Depression_in_the_Netherlands

the Netherland's refusal to drop the gold standard "plays a central role" in the length of their depression. As it states:


This subjected the Dutch economy to fierce foreign competition, forcing Dutch firms to strongly cut their costs in order to survive this situation. In the process wages and employment were cut, and the depression deepened. While the economic situation gradually improved in most industrialised countries around 1933-1934, the Great Depression was still getting worse in the Netherlands.

… snip …

When France finally decided to accept devaluation in 1936 the Netherlands had no choice but to follow. While the Netherlands had been so reluctant to drop the Gold Standard, it quickly brought an economic boost after years of decline. In 1936 the Dutch stock market started climbing again, trade slowly recovered and unemployment stopped growing [1].

Here's a summary of what happened in many countries by an author you will recognize …

http://www.econbrowser.com/archives/2005/12/the_gold_standa.html


Ben Bernanke and Harold James, in a paper called "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison" published in 1991 … snip … noted that 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth.


Pretty convincing, don't you think? So you might be right about the effect going on the gold standard would have for the world economy. :D

[Tippit]

Nope. Capital accumulation isn't encouraged, because people can't buy capital to accumulate.



They can, of course, it's just that the cost of capital would reflect reality, as opposed to the illusion of subsidized low interest rates.



Again, no. When money is cheap, then productivity and capital accumulation is encouraged, because simply holding on to dollars will result in inflation losses.



You just contradicted yourself. Inflation fears discourage the accumulation of capital, they encourage the accumulation of assets as capital is being destroyed.



Basically, if I have $100 in cash, and am expecting 10% inflation from a free money policy, I'm going to be looking to park my cash somewhere useful (i.e. "capital investment" or "productivity investment" that makes me a real return, because otherwise I lose money. If I have $100 in cash and I'm expecting 10% deflation, then I might as well keep the cash in a mayonnaise jar instead of taking the risk on investment.



Except the consequence of "free money" is inflation, and if not of the general price level, then of asset prices. If you're forced to chase asset bubbles around in order that you don't lose your hard-earned purchasing power, that makes you a speculator, not an investor. Of course, the people who actually need a home during all of this become the victims in what is essentially a game of musical chairs.



Which is why the government lowers interest rates in order to stimulate investment.



The government lowers interest rates because the government is run by Wall Street bankers, and low interest rates and cheap money are a transfer of wealth. The government exists to loot the many, and serve the few.



Totally wrong, as any farmer can tell you. You can also get out of the tyranny of debt by using the underlying assets to produce stuff. $10,000 worth of land, plus $5000 worth of seeds, can result in a crop that I can sell for $25,000.



Hypothetical examples aren't proof of anything.

$10,000 Widget factory plus $5000 worth of widget-making-machinery, can result in widgets that I can sell for $25,000. Really?



The government creates debt as a way of increasing the money supply, which in turn stimulates the economy by encouraging investment (in an inflationary environment).



If inflation is good, and it's the government's (Fed's) job to create inflation, then it has failed miserably. Of course the only failure here is in the definition of inflation to capture what is occuring. It has of course, succeeded in lining the pockets of the well connected politicians and bankers.



So, of the five "basics" on which he bases his so-called theories, none of them are actually correct.

It's a mystery that you manage to believe your own ********. If the correctness of your theories, which are the theories of the status quo, are to be based on their fruits, then they are spoiled and rotten.

[drkitten]

You just contradicted yourself. Inflation fears discourage the accumulation of capital, they encourage the accumulation of assets as capital is being destroyed.

In Tippit-world, assets aren't a type of capital. This explains a lot about Tippit-world.

As usual, not a single syllable of Tippit's post reflects reality.

It takes real work to make individual syllables of a post wrong. Normally, you need at least an entire word or morpheme to convey enough meaning to be wrong. But somehow, Tippit manages it.

[Tippit]

In Tippit-world, assets aren't a type of capital. This explains a lot about Tippit-world.



When you talk about capital in the context of inflation, it's assumed that you're talking about financial capital, which of course, is destroyed by inflation.



As usual, not a single syllable of Tippit's post reflects reality.

It takes real work to make individual syllables of a post wrong. Normally, you need at least an entire word or morpheme to convey enough meaning to be wrong. But somehow, Tippit manages it.

You are certainly capable of generating a lot of hot air, and accusations of wrongness. This is expected when you don't have anything substantial to say about the specific issues raised.

It's also worth mentioning that most of the assets that are inflated by the Fed are financial assets, ie: stocks and bonds. These assets aren't factors in production - real capital, they just represent claims on the real economy. Thus the Fed is stealing everyone's purchasing power so as to inflate financial assets, and thus benefit the holders of these assets arbitrarily and unfairly, at the direct expense of everyone else, while conferring no real benefit to the economy at large.