Economics is like any discipline, there are things that we learn from studying the use of limited resources.
This nice essay is about the Federal Reserve, the quasi non governmental Central Bank.
Andrew Jackson fought against the Central Bank Concept–and he beat the British at New Orleans. Old Hickory had good instincts about the effect of a central bank–how it would be the unaccountable, unelectable entity that could decided the winners and losers.
Quantitative easement is stealing. Period.
Inflation is a thief sponsored by government. There is a great phrase that needs to be used more often–debauching the currency.
http://www.americanthinker.com/blog/2014/03/the_most_powerful_woman_in_the_world_.html
Unfortunately true, which brings us full circle to what I just said about “enabling” and how it leads to greater consequences down the road.
Gho5t, you are spot on but the news gets even worse. All of the factors that lead to the collapse in 2008 are STILL in play today. We are still issuing subprime loans, we are still dealing in derivatives and the list goes on. Because the fed started the QE efforts in 2008, the stock markets stayed artificially high making it more profitable for those “bailed out” institutions to re-invest TARP money back in the market rather than dispose of the “toxic assets”. As a result, those ‘assets’ are still in play as well. We have learned NOTHING.
So the prediction is that at some point the fed will run out of money for QE and the artificial floor of the market will free-fall and all those regular guys like you and me will get hammered any and it will be far worse and far more prolonged than if the natural equilibrium was allowed back in ’08. Brace yourself, cuz its a’comin’.
My point is that sitting idly by is actually better than quantitative easing, minimum wage increases, and price fixing. If the market were left alone prices would fall and people could get jobs and afford food. Artificially maintaining an inflation rate rather than allowing deflation is directly causative of the hunger. In the great depression the government plowed fields of grain down, slaughtered millions of pigs, and let fruit rot on the trees rather than allow prices to go down. They raised minimum wage which forced business to fire even more employees. They cared more about the image of a strong economy than about the reality of people starving. All their talk about “the little guy” is a fog job.
Even if you insist that something be done, managed deflation and reduction of minimum wage would allow more people to get work and to save the money the need to get out from under the banks. Without government interference prices of consumables would fall to affordable levels because it’s better to take a 50% loss than a total one. I don’t support laissez fair because I’m heartless. I support it because It actually benefits more people.
The federal government interfered in market economics during the great depression too. That’s why it took so long to correct. The government actually destroyed food to keep prices high despite people being unable to afford feeding their families. Allowing the deflation of the dollar to continue would’ve made food and other necessities more affordable rather than less. The following article goes into more detail and cites appropriate sources. ( http://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-0508-25.pdf )
Punishing CPOs of bailed out banks would be a step in the right direction, but no punishment would be equal to allowing a failing business to fail so that businesses run competently can succeed. As it stands, even if the head CPOs were replaced the corporations would still not suffer the consequence of the bad practices, and would still be able to use the tax dollars they received to buy out their struggling, smaller competition that did not receive such favor.
As far as the “innocent victims” I’ll admit that it’s sad they believed the bad advice they got from self-described experts, but anyone who believes that an investment can only ever appreciate and wages can only ever increase is a fool. In an effort to protect those that bought overpriced houses with loans they could barely afford (and more importantly the banks that held those loans) the system punished the fiscally responsible individuals that recognized the fact that homes aren’t a guaranteed investment. There is no reason to assume a used home should cost more than it did new just 5 years earlier. Prices are still too high for homes thanks to the continued meddling. As a result the people that are truly being punished are those that adopted a responsible watch and save attitude.
If you don’t think that 1 to 2% inflation is significant, consider the fact that the average savings account yields 0.06%. Anyone who can’t afford to take risks with their savings, or to lock their savings in long-term investments (which are still risky) Is losing money. If you assume a 1% inflation rate then an initial deposit of 1000 will have lost more than 5 dollars after only a year. You must remember these numbers work the same way as compound interest so the losses increase exponentially the longer you save.
Besides, you missed the point of the chart’s history. The average inflation rate is 3.52% with a standard deviation of 2.54% meaning a careful planner would expect anything from 0.98% to 6.07% to be likely 95% of the time. Most investment planners advise you to assume at least 3% inflation for long term planning which is the sort of planning you should be doing if you’re buying a home. This is all high school math. As satisfying as it is to blame others for our problems and point to corruption in high places, at the end of the day we’re responsible for ourselves. If people don’t realize that the banks and realtors that are trying to sell them a house are in it for their own bottom line and not theirs, than that’s their mistake. Why should I continue to suffer bad fiscal policy on a national scale just because the video of people getting evicted on Christmas makes people feel bad while the people that didn’t buy a house at the worst possible time still can’t afford one thanks to crony capitalist price fixing.
In the long run. I agree with you. And I damn sure don’t agree with the current fiscal policy. However, that is no excuse for sitting idly by while a large portion of the population starves.
The link you provide indicates inflation at a little over 1%, which is essentially zero since most measures of inflation overstate reality. I might agree with your prescriptions if the guilty were the only ones to suffer. That is rarely the case (Barney Frank is in comfortable retirement and Andrew Cuomo is governor of NY. Their housing policies did the most to create the problem.) If the operation of the market actually punished the guilty, I might agree with you. OTOH, the 1930’s showed that failures of the banking system take a very long time to correct and a lot of people suffer in the mean time. You want to avoid enabling bad behavior, punish the top executives of banking institution that need to be bailed out. A ban from the industry for a term would do the trick. Throwing out the politicians who facilitated the mess is trickier. Your prescription only punishes millions of innocent victims of these people.
How can it be healthy (or honest) for an economy or for citizens when one hand of their government continually issues debt (IOUs) to cover continual deficits and continually “sells” the IOUs to the other hand of the same government, and that hand sticks the IOUs in its pocket and thereby (magically) turns debts into assets? And the public face of the government announces, “See? The books balance. All’s well”.
And a favored investment banking house collects transaction fees.
Is this the science of new economics?
The proper term for taking measures to ensure a person or group does not suffer consequences for their actions is enabling. Historically this practice merely ensures the enabled behavior leads to even greater consequences down the road. I’m not sure where you get the idea that inflation is nonexistent or that money supplies were ever dwindling. A reduced economic velocity is the appropriate response to economic turmoil as it reduces the damage and acts as a braking mechanism on the actions that led to the turmoil.
Quantitative Easing increased the monetary supply in an effort to undermine the natural reduction in economic velocity that should have drawn attention to the flaws in banking practices that may have led to a depression. The only reason for doing so was to protect the individuals responsible. It is also important to note that Quantitative Easing is not temporary. It is ongoing, and there is not, and never has been a plan to reduce the artificially inflated monetary supply.
Inflation is not just an economic reality, but an explicit goal of the system. 2009 saw the first deflation of US currency since the 1950’s. QE1 was initiated in Dec of 08 for the purpose of curtailing that and returning to the target zone of 2% inflation. Inflation is bad for savers and good for people in debt. Savers see a reduction in the value of money they have saved while debtors see a reduction in the value of money they have to pay back. This encourages the pervasive culture of deficit spending and risky investment that led to the banking problems in the first place.
Conversely, the ever vilified deflation increases the benefits of saving and the punitive effects of deficit spending. If deflation were allowed to occur, Economic velocity would increase after prices fell to equilibrium. Also, for occasions where credit is still necessary, interest rates could be lower if they did not have to account for the loss of value in dollar-denominated debt over time. Inflation is a form of welfare for the fiscally irresponsible. It steals value from those that have the virtue of patience and self-restraint and gives it to those who demand possession before production.
Economic velocity is a symptom of policy. Directly managing it only serves to prevent policy from being accurately judged.
Source for inflation data.
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
Right. Thanks for your great insight.
Quantitative easing was a mechanism to temporarily replace the shrinking supply and slowing circulation of money caused by widespread banking collapses. IT PREVENTED THE GREAT DEPRESSION II. PERIOD. It is pretty stupid to rail about non-existent inflation.