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Like maybe don't put a Soviet-style central committee in charge of the money supply? It's depressing to me that modern economies like the US and Europe can be

by Rumford 11y ago

Like maybe don't put a Soviet-style central committee in charge of the money supply? It's depressing to me that modern economies like the US and Europe can be so shot through with central planning, and then when they produce bad results everyone pretends it's the fault of some freewheeling laizzes-faire policy that never existed.

licnep 11y ago
Actually, central banks in both the US and Europe have very little control over the money supply. The money created by central banks only accounts for about 3% of the monetary base, the remaining 97% of money that circulates in the economy is created by private banks, lending money out of thin air. Therefore money supply is actually dictated by how confident private banks are to lend to the public. A central bank can try to incentivize lending by lowering interest rates, but in the end it's private banks who choose whether to lend or not (in Europe it didn't work so well..). It's still a pretty fucked up system either way. I think more people should work on the issue of money supply, it's probably the single most important problem in any economy.
- shawkinaw 11y ago
  Do you have a link that explains this lending mechanism? I saw it referred to in a previous HN discussion a while back, and would like to know more about it, since it sounds ludicrous.
  - licnep 11y ago
    There is a group called Positive Money that has a youtube channel with some videos about it. I don't remember which ones are the best, but this is a playlist from them which gave an high level overview in simple terms: https://www.youtube.com/playlist?list=PLyl80QTKi0gPBcb32paMvXxcq7UUeJskV https://www.youtube.com/playlist?list=PLyl80QTKi0gPBcb32paMv... They have more in-depth talks on their channel, if I find some better links I'll give them to you. I can't say this theory is 100% correct, though it does explain things like the housing bubble, the failure of the ECB policy, and eurozone deflation despite the ultra low interest rates. So far, out of everything I've read and watched, I think their model is the one that better explains the current system of money creation, but if you have any alternative links with I'm always open to reading different things on this topic.
  - toomuchtodo 11y ago
    https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
- jqm 11y ago
  Banks (in the US) can't just lend out however much "fake" money they chose depending on how confident they are. There is a reserve ratio that must be met. That is the percent of deposits that must be kept on hand and can't be lent out. This rate is dictated by the Federal Reserve (the central bank) in the US. Adjusting this rate allows more or less lending and thus influences inflation. So in short... central banks have a lot more control over the money supply than they themselves simply creating money out thin air.
alextgordon 11y ago
What mechanism are you talking about? The eurozone had low interest rates and no QE -- pretty much the epitome of "hands off".
crdoconnor 11y ago
>Like maybe don't put a Soviet-style central committee in charge of the money supply? The US didn't have this at the end of the 19th century and they suffered through multiple bouts of mass unemployment and deflation as a result. That's why the Federal Reserve was created. Central planning can be done well or badly. It can't not be done at all.
- Rumford 11y ago
  The latter half of the 19th century up to WW1 was the USA's longest sustained period of high growth and high economic mobility. No central bank. Moderate deflation was the norm. According to the likes of Paul Krugman Americans should have been eating dirt and living in caves by 1913, but the exact opposite happened. Growth that the Keynesian technocrats have yet to match. Except even then, government intervention in money fixed a certain price ratio of gold and silver. When that ratio no longer reflected the real market prices, chaos predictably appeared in the banking system. Go back over the history of the late 19th century panics and you'll notice one metal was fleeing the country and causing a lot of controversy. That's a government price control at work, not unfettered capitalism. The Federal Reserve Act was the wrong solution. And yet even with the Fed, there's the stubborn little fact of the crash of 1920 -- bigger than that of 1929 -- and the rapid recovery that followed. The Fed, Congress and the Presidency did basically nothing and it was over in 18 months. So judging from the objective facts laying before us, it looks like the central planners perform best when they avoid central planning.
  - bsder 11y ago
    > According to the likes of Paul Krugman Americans should have been eating dirt and living in caves by 1913, but the exact opposite happened. Growth that the Keynesian technocrats have yet to match. And my grandfather walked picket lines and got shot at. Robber barons were at the peak of their power. Children were exploited as laborers. Let's also quote Anthony Trollope, a Victorian Londoner who was no stranger to pollution: “Pittsburgh without exception is the blackest place which I ever saw, the site is picturesque, even the filth and wondrous blackness are picturesque.... I was never more in love with smoke and dirt than when I stood and watched the darkness of night close in upon the floating soot which hovered over the city.” And that was in the 1860's! It only got worse from there until the 1940's. Your rosy assessment of the country prior to the 1920's has no basis in historical fact.
jbooth 11y ago
The words 'soviet style' in this comment are an insult to anyone who's ever read a history book.
- Rumford 11y ago
  The existence of central planning anywhere in Western financial systems is even more insulting. After watching the examples of our good neighbors to the East you'd think we would have learned our lesson by now.
  - deleted 11y ago
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  - omginternets 11y ago
    >After watching the examples of our good neighbors to the East you'd think we would have learned our lesson by now Sorry, as it's 2015, we were looking at the Nordic countries.
omginternets 11y ago
>laizzes-faire It's laissez-faire

by Rumford 11y ago

licnep 11y ago

Actually, central banks in both the US and Europe have very little control over the money supply. The money created by central banks only accounts for about 3% of the monetary base, the remaining 97% of money that circulates in the economy is created by private banks, lending money out of thin air. Therefore money supply is actually dictated by how confident private banks are to lend to the public. A central bank can try to incentivize lending by lowering interest rates, but in the end it's private banks who choose whether to lend or not (in Europe it didn't work so well..). It's still a pretty fucked up system either way. I think more people should work on the issue of money supply, it's probably the single most important problem in any economy.

shawkinaw 11y ago
Do you have a link that explains this lending mechanism? I saw it referred to in a previous HN discussion a while back, and would like to know more about it, since it sounds ludicrous.
- licnep 11y ago
  There is a group called Positive Money that has a youtube channel with some videos about it. I don't remember which ones are the best, but this is a playlist from them which gave an high level overview in simple terms: https://www.youtube.com/playlist?list=PLyl80QTKi0gPBcb32paMvXxcq7UUeJskV https://www.youtube.com/playlist?list=PLyl80QTKi0gPBcb32paMv... They have more in-depth talks on their channel, if I find some better links I'll give them to you. I can't say this theory is 100% correct, though it does explain things like the housing bubble, the failure of the ECB policy, and eurozone deflation despite the ultra low interest rates. So far, out of everything I've read and watched, I think their model is the one that better explains the current system of money creation, but if you have any alternative links with I'm always open to reading different things on this topic.
- toomuchtodo 11y ago
  https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
jqm 11y ago
Banks (in the US) can't just lend out however much "fake" money they chose depending on how confident they are. There is a reserve ratio that must be met. That is the percent of deposits that must be kept on hand and can't be lent out. This rate is dictated by the Federal Reserve (the central bank) in the US. Adjusting this rate allows more or less lending and thus influences inflation. So in short... central banks have a lot more control over the money supply than they themselves simply creating money out thin air.

alextgordon 11y ago

What mechanism are you talking about? The eurozone had low interest rates and no QE -- pretty much the epitome of "hands off".

crdoconnor 11y ago

>Like maybe don't put a Soviet-style central committee in charge of the money supply? The US didn't have this at the end of the 19th century and they suffered through multiple bouts of mass unemployment and deflation as a result. That's why the Federal Reserve was created. Central planning can be done well or badly. It can't not be done at all.

Rumford 11y ago
The latter half of the 19th century up to WW1 was the USA's longest sustained period of high growth and high economic mobility. No central bank. Moderate deflation was the norm. According to the likes of Paul Krugman Americans should have been eating dirt and living in caves by 1913, but the exact opposite happened. Growth that the Keynesian technocrats have yet to match. Except even then, government intervention in money fixed a certain price ratio of gold and silver. When that ratio no longer reflected the real market prices, chaos predictably appeared in the banking system. Go back over the history of the late 19th century panics and you'll notice one metal was fleeing the country and causing a lot of controversy. That's a government price control at work, not unfettered capitalism. The Federal Reserve Act was the wrong solution. And yet even with the Fed, there's the stubborn little fact of the crash of 1920 -- bigger than that of 1929 -- and the rapid recovery that followed. The Fed, Congress and the Presidency did basically nothing and it was over in 18 months. So judging from the objective facts laying before us, it looks like the central planners perform best when they avoid central planning.
- bsder 11y ago
  > According to the likes of Paul Krugman Americans should have been eating dirt and living in caves by 1913, but the exact opposite happened. Growth that the Keynesian technocrats have yet to match. And my grandfather walked picket lines and got shot at. Robber barons were at the peak of their power. Children were exploited as laborers. Let's also quote Anthony Trollope, a Victorian Londoner who was no stranger to pollution: “Pittsburgh without exception is the blackest place which I ever saw, the site is picturesque, even the filth and wondrous blackness are picturesque.... I was never more in love with smoke and dirt than when I stood and watched the darkness of night close in upon the floating soot which hovered over the city.” And that was in the 1860's! It only got worse from there until the 1940's. Your rosy assessment of the country prior to the 1920's has no basis in historical fact.

jbooth 11y ago

The words 'soviet style' in this comment are an insult to anyone who's ever read a history book.

Rumford 11y ago
The existence of central planning anywhere in Western financial systems is even more insulting. After watching the examples of our good neighbors to the East you'd think we would have learned our lesson by now.
- deleted 11y ago
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- deleted 11y ago
  [deleted]
- omginternets 11y ago
  >After watching the examples of our good neighbors to the East you'd think we would have learned our lesson by now Sorry, as it's 2015, we were looking at the Nordic countries.

omginternets 11y ago

>laizzes-faire It's laissez-faire