6 ms·

> When the government floods the economy with cheap money printed out of thin air, it distorts market indicators, making many unprofitable projects appear profi

by atmosx 9y ago

> When the government floods the economy with cheap money printed out of thin air, it distorts market indicators, making many unprofitable projects appear profitable. Oh, is that a new one? It's the first time I read someone stating that when VCs get high on drugs and spend their money on stupid ideas, it's because of something the government did.

pixl97 9y ago
>Oh, is that a new one? Not at all. We dealt with a similar collusion between the government and private banking industry in the housing collapse of 2008. Cheap money along with bad policy is problematic no matter where it occurs because the cheap money ends up in the stock market/speculation market eventually.
- VHRanger 9y ago
  There's very little serious literature that points to "cheap money" as a source cause of 2008. Neither does banks taking risks because they are "too big to fail". The main cause you get by reading the research on 2008 is that bank managers were incentivized by their shareholders to take excessive risks. This is because 1) shareholders are pretty shortsighted and 2) managers suffer comparatively little personal consequences by crashing a bank (clearly they don't go to jail; they still get the massive bonuses in the years where they pumped returns with excessive risks, etc.)
  - pixl97 9y ago
    >bank managers were incentivized by their shareholders to take excessive risks. Which is no different than supplying money to a market below cost. Any market failure that leads excessive lending will lead to asset inflation and reinvestment of that money in speculation.
padobson 9y ago
It's not new at all. It's actually fairly easy to demonstrate. I recommend Murray Rothbard's America's Great Depression[0] from 1963. The quick hit is this: A. US Monetary policy provides large banks with extremely cheap capital B. Large banks competing with each other in the free market must make use of that capital C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). D. Those bad investments fail, and mass margin calls lead to an economy-wide de-leveraging that destroys economic growth for months or years. Systemic financial crises can't happen without cheap, printed money. It's also reasonable to question whether giant companies could exist at all without US monetary policy. Companies of that size are almost completely dependent on the financial industry, which is completely dependent on the Fed's cheap currency. [0][PDF]https://mises.org/files/americas-great-depressionpdf-0/download?token=rwW4UjXa https://mises.org/files/americas-great-depressionpdf-0/downl... Edit: added PDF label
- Retric 9y ago
  You like many people are confusing money with resources. If I make 100 trillion dollars from thin air you can't actually build 10x the number of houses. What's really happening is an allocation of resources. Banks can only back specific kinds of investments which approximate zero sum as you keep pumping ever more resources in ex: Real Estate. yes, everyone wants shelter. So, we can all get a 100,000 sf house! Well, no. However, you can increase the money supply without simply handing banks all that money just increase reserve requirements as your pumping money into the economy.
- VHRanger 9y ago
  I'm sorry, but Murray Rothbard is not taken seriously by the profession at this point. He has no economic model to speak of (he never modelized anything in a testable mathematical framework), and none of his claim were ever supported by econometric evidence. His "analysis" harks back to economics of the 1800s, similar to Marx, where you would try to understand the economy by intuition, using nothing more than the english language. It turns out if you don't rigorously test your ideas you can use the english language to make a case for all sorts of loopy theories.
- frgtpsswrdlame 9y ago
  Please step out of your bubble and try reading some analysis from people who call themselves economists before they call themselves libertarians or austrians(aka not mises.org). The other commenter is right, Rothbard is not taken seriously and anyhow citing economics thats over 50 years old isn't exactly good practice. Austrian economics is the climate science denialism of economics, there's a reason "we are all Keynesians now."
  - padobson 9y ago
    It's fine to call me and Rothbard and other proponents of Austrian economics kooks, if that does it for you. But where's your counter example? What book should I read to become enlightened? If I was curious enough to read Rothbard's book from 1963, don't you think I'd at least consider your recommendation? If you can find me a Keynesian who can explain a systemic financial crisis without ringing their hands and shouting "Capitalism is reckless and greed causes financial crises!" than I'll consider their ideas. But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. I'm not going to simply side with the Keynesians because they have the dominant view. I'm not built that way. I need a better explanation than hand wringing and worship of Piketty.

by atmosx 9y ago

pixl97 9y ago

>Oh, is that a new one? Not at all. We dealt with a similar collusion between the government and private banking industry in the housing collapse of 2008. Cheap money along with bad policy is problematic no matter where it occurs because the cheap money ends up in the stock market/speculation market eventually.

VHRanger 9y ago
There's very little serious literature that points to "cheap money" as a source cause of 2008. Neither does banks taking risks because they are "too big to fail". The main cause you get by reading the research on 2008 is that bank managers were incentivized by their shareholders to take excessive risks. This is because 1) shareholders are pretty shortsighted and 2) managers suffer comparatively little personal consequences by crashing a bank (clearly they don't go to jail; they still get the massive bonuses in the years where they pumped returns with excessive risks, etc.)
- pixl97 9y ago
  >bank managers were incentivized by their shareholders to take excessive risks. Which is no different than supplying money to a market below cost. Any market failure that leads excessive lending will lead to asset inflation and reinvestment of that money in speculation.

padobson 9y ago

It's not new at all. It's actually fairly easy to demonstrate. I recommend Murray Rothbard's America's Great Depression[0] from 1963. The quick hit is this: A. US Monetary policy provides large banks with extremely cheap capital B. Large banks competing with each other in the free market must make use of that capital C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). D. Those bad investments fail, and mass margin calls lead to an economy-wide de-leveraging that destroys economic growth for months or years. Systemic financial crises can't happen without cheap, printed money. It's also reasonable to question whether giant companies could exist at all without US monetary policy. Companies of that size are almost completely dependent on the financial industry, which is completely dependent on the Fed's cheap currency. [0][PDF]https://mises.org/files/americas-great-depressionpdf-0/download?token=rwW4UjXa https://mises.org/files/americas-great-depressionpdf-0/downl... Edit: added PDF label

Retric 9y ago
You like many people are confusing money with resources. If I make 100 trillion dollars from thin air you can't actually build 10x the number of houses. What's really happening is an allocation of resources. Banks can only back specific kinds of investments which approximate zero sum as you keep pumping ever more resources in ex: Real Estate. yes, everyone wants shelter. So, we can all get a 100,000 sf house! Well, no. However, you can increase the money supply without simply handing banks all that money just increase reserve requirements as your pumping money into the economy.
VHRanger 9y ago
I'm sorry, but Murray Rothbard is not taken seriously by the profession at this point. He has no economic model to speak of (he never modelized anything in a testable mathematical framework), and none of his claim were ever supported by econometric evidence. His "analysis" harks back to economics of the 1800s, similar to Marx, where you would try to understand the economy by intuition, using nothing more than the english language. It turns out if you don't rigorously test your ideas you can use the english language to make a case for all sorts of loopy theories.
frgtpsswrdlame 9y ago
Please step out of your bubble and try reading some analysis from people who call themselves economists before they call themselves libertarians or austrians(aka not mises.org). The other commenter is right, Rothbard is not taken seriously and anyhow citing economics thats over 50 years old isn't exactly good practice. Austrian economics is the climate science denialism of economics, there's a reason "we are all Keynesians now."
- padobson 9y ago
  It's fine to call me and Rothbard and other proponents of Austrian economics kooks, if that does it for you. But where's your counter example? What book should I read to become enlightened? If I was curious enough to read Rothbard's book from 1963, don't you think I'd at least consider your recommendation? If you can find me a Keynesian who can explain a systemic financial crisis without ringing their hands and shouting "Capitalism is reckless and greed causes financial crises!" than I'll consider their ideas. But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed. I'm not going to simply side with the Keynesians because they have the dominant view. I'm not built that way. I need a better explanation than hand wringing and worship of Piketty.