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>The Fed has stabilized markets very well for the last eight years It's very hard to really know this. We can't experiment, and we are a really long way off fr

>The Fed has stabilized markets very well for the last eight years It's very hard to really know this. We can't experiment, and we are a really long way off from accurately simulating the real world mathematically. The most academically accepted hardcover on the Great Depression (A Monetary History...) stated the Fed was most responsible for it. The thing about the Fed is that money represents real goods and services. That's real product of labor that does something useful for someone else. The Fed, at face value, tells us it can pull some levers and create an alchemy where it produces more real value in the economy. That is called magic, or economics, and it doesn't really work. Their actual role is to serve as a nanny state subsidy institution for the big banking empires. There is the Keynesian argument that the Fed needs to mamage aggregate demand, but there's no way to test if that's really true. Personally, I'd much rather take a money supply controlled by a k-percent rule, get rid of the Fed, and make all those "smartest guys in the room" working in finance go do something useful instead.

nhaehnle 9y ago
> It's very hard to really know this. We can't experiment, and we are a really long way off from accurately simulating the real world mathematically. Agreed. > The Fed, at face value, tells us it can pull some levers and create an alchemy where it produces more real value in the economy. Strawman. Nobody relevant actually claims that. What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson. > There is the Keynesian argument that the Fed needs to mamage aggregate demand That's monetarism, not Keynesianism -- the main message of Keynes is for the government to manage aggregate demand via its fiscal policy and budget. Though I grant you that for whatever reason, there's substantial overlap when it comes to what individuals believe. > Personally, I'd much rather take a money supply controlled by a k-percent rule, get rid of the Fed, and make all those "smartest guys in the room" working in finance go do something useful instead. The funny part about statements like this is that the money supply that matters for the real economy is managed by commercial banks anyway. And you do need an institution that acts as a firewall to prevent temporary liquidity issues from turning into full insolvencies via self-fulfilling prophecy (aka bank runs). That institution happens to be the Fed in the US. You can argue about the more political, monetary policy side of things, but having that firewall is really, really critical. Totally agree on the "doing something useful instead" part, though :)
- rsync 9y ago
  "What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson." I don't know that they have learned that lesson .. My understanding is that the failure of institutional lending in response to QE is still considered "a mystery" by mainstream economists, etc. I personally think that banks are in the same position Apple is in with their x00 Billion dollars hoarded overseas ... they are terrified that the system could come flying apart at any moment and are therefore sitting on cash or reserve assets to protect against this.
  - gozur88 9y ago
    >My understanding is that the failure of institutional lending in response to QE is still considered "a mystery" by mainstream economists, etc. As the Austrian school economists pointed out during the crisis, you can print money, but you can't print borrowers - the banks need qualified borrowers to lend to, and in the middle of a financial crisis there aren't as many. Of course the fed can't allow cascading bank failures, but once the banking system is out of danger pouring in more money won't do much.
- wallace_f 9y ago
  There is a lot here to discuss and only so much time and space. >That's monetarism, not Keynesianism -- the main message of Keynes is for the government to manage aggregate demand via its fiscal policy and budget. Though I grant you that for whatever reason, there's substantial overlap when it comes to what individuals believe. You are right to say that Keynesians and Keynes himself emphasized fiscal policy, but afaik the traditional monetarist view is actually not to engage in discretionary monetary policy at all. Managing AD was Keynes' whole big deal in his General Theory. Before him the groupthink in academic economics was all circled around labor supply and labor price being out of equillibrium with the market. Then Friedman came along to establish monerarism. He wanted monetary policy along the lines of a k percent rule, and not to try to manage AD (discretionary MP). So no, it's not monerarist, it is in dact Keynesian. >And you do need an institution that acts as a firewall to prevent temporary liquidity issues from turning into full insolvencies via self-fulfilling prophecy (aka bank runs). Economists take this as gospel, but I have never seen evidence of this. I have seen evidence it is not true. I'm with Friedman, fractional reserve banking doesn't create value, just inflation and risk. >Strawman. Nobody relevant actually claims that. What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson. We really disagree here. I even think your comment is strangely tautological, don't you think? You said there is no one who thinks the Fed is trying a game of pulling on some levers and creating more value in the economy, but then you went on to describe the Keynesian argument for how the Fed pulls some levers to magically create value (by stimulating AD). The argument for QE and fiscal policy is the same Keynesian one: by creating easy money, they basically create more AD, which puts to work unemployed, unused resources. So Keynesians argue, those unused resources are now put to work. But what work are they doing? Is it useful work? Are banks just going to hoard cash, and why flood so much easy money into the banks, anyways? I think it's really more simple than that. The Fed is just Wall St's nice insurance policy, and economists are just clever priests who justify the actions of the ruling plutocratic class.
neilwilson 9y ago
"The thing about the Fed is that money represents real goods and services. " It doesn't and never has. There has never been a one to one match between money and stuff. Money is really the emodiment of a human promise, and promises don't always get fulfilled. The one promise that does, is if you don't pony up the correct currency to pay your taxes you go to jail. And that is what drives a currency at root.
- 0x445442 9y ago
  "There has never been a one to one match between money and stuff." Depends on how you define money. In the case of hard assets like gold there is a one to one match because gold represents energy already spent.
  - cirgue 9y ago
    People want gold not because it took energy to mine, but because other people also want gold. Gold is like any other currency system, except that the process that controls supply is basically stochastic (and there is a small industrial demand for the commodity itself, but this is negligible).
  - smaddox 9y ago
    If you define money as hard assets, you don't understand money. I suggest reading "Debt: the 5000 first years".
- wallace_f 9y ago
  No, sorry. In every econ textbook exists the academic definition of money: store of value, unit of measure, medium of exchange. What is it an exchange of? What is it storing? What is it measuring? In other words, we use it to help us with exchanging, storing, and measuring real value. This way you don't have to exchange some lines of code for a cow, or store all your wealth in cheese. Maybe you are thinking that I am saying something about money not being a fiat currency, which wasn't the point here.

nhaehnle 9y ago

> It's very hard to really know this. We can't experiment, and we are a really long way off from accurately simulating the real world mathematically. Agreed. > The Fed, at face value, tells us it can pull some levers and create an alchemy where it produces more real value in the economy. Strawman. Nobody relevant actually claims that. What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson. > There is the Keynesian argument that the Fed needs to mamage aggregate demand That's monetarism, not Keynesianism -- the main message of Keynes is for the government to manage aggregate demand via its fiscal policy and budget. Though I grant you that for whatever reason, there's substantial overlap when it comes to what individuals believe. > Personally, I'd much rather take a money supply controlled by a k-percent rule, get rid of the Fed, and make all those "smartest guys in the room" working in finance go do something useful instead. The funny part about statements like this is that the money supply that matters for the real economy is managed by commercial banks anyway. And you do need an institution that acts as a firewall to prevent temporary liquidity issues from turning into full insolvencies via self-fulfilling prophecy (aka bank runs). That institution happens to be the Fed in the US. You can argue about the more political, monetary policy side of things, but having that firewall is really, really critical. Totally agree on the "doing something useful instead" part, though :)

rsync 9y ago
"What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson." I don't know that they have learned that lesson .. My understanding is that the failure of institutional lending in response to QE is still considered "a mystery" by mainstream economists, etc. I personally think that banks are in the same position Apple is in with their x00 Billion dollars hoarded overseas ... they are terrified that the system could come flying apart at any moment and are therefore sitting on cash or reserve assets to protect against this.
- gozur88 9y ago
  >My understanding is that the failure of institutional lending in response to QE is still considered "a mystery" by mainstream economists, etc. As the Austrian school economists pointed out during the crisis, you can print money, but you can't print borrowers - the banks need qualified borrowers to lend to, and in the middle of a financial crisis there aren't as many. Of course the fed can't allow cascading bank failures, but once the banking system is out of danger pouring in more money won't do much.
wallace_f 9y ago
There is a lot here to discuss and only so much time and space. >That's monetarism, not Keynesianism -- the main message of Keynes is for the government to manage aggregate demand via its fiscal policy and budget. Though I grant you that for whatever reason, there's substantial overlap when it comes to what individuals believe. You are right to say that Keynesians and Keynes himself emphasized fiscal policy, but afaik the traditional monetarist view is actually not to engage in discretionary monetary policy at all. Managing AD was Keynes' whole big deal in his General Theory. Before him the groupthink in academic economics was all circled around labor supply and labor price being out of equillibrium with the market. Then Friedman came along to establish monerarism. He wanted monetary policy along the lines of a k percent rule, and not to try to manage AD (discretionary MP). So no, it's not monerarist, it is in dact Keynesian. >And you do need an institution that acts as a firewall to prevent temporary liquidity issues from turning into full insolvencies via self-fulfilling prophecy (aka bank runs). Economists take this as gospel, but I have never seen evidence of this. I have seen evidence it is not true. I'm with Friedman, fractional reserve banking doesn't create value, just inflation and risk. >Strawman. Nobody relevant actually claims that. What many claimed was that QE would increase lending in the real economy, which would obviously boost the economy (because more real economy lending = more spending = more demand = more economic activity). That hasn't really happened, and I hope economists learned the lesson. We really disagree here. I even think your comment is strangely tautological, don't you think? You said there is no one who thinks the Fed is trying a game of pulling on some levers and creating more value in the economy, but then you went on to describe the Keynesian argument for how the Fed pulls some levers to magically create value (by stimulating AD). The argument for QE and fiscal policy is the same Keynesian one: by creating easy money, they basically create more AD, which puts to work unemployed, unused resources. So Keynesians argue, those unused resources are now put to work. But what work are they doing? Is it useful work? Are banks just going to hoard cash, and why flood so much easy money into the banks, anyways? I think it's really more simple than that. The Fed is just Wall St's nice insurance policy, and economists are just clever priests who justify the actions of the ruling plutocratic class.

neilwilson 9y ago

"The thing about the Fed is that money represents real goods and services. " It doesn't and never has. There has never been a one to one match between money and stuff. Money is really the emodiment of a human promise, and promises don't always get fulfilled. The one promise that does, is if you don't pony up the correct currency to pay your taxes you go to jail. And that is what drives a currency at root.

0x445442 9y ago
"There has never been a one to one match between money and stuff." Depends on how you define money. In the case of hard assets like gold there is a one to one match because gold represents energy already spent.
- cirgue 9y ago
  People want gold not because it took energy to mine, but because other people also want gold. Gold is like any other currency system, except that the process that controls supply is basically stochastic (and there is a small industrial demand for the commodity itself, but this is negligible).
- smaddox 9y ago
  If you define money as hard assets, you don't understand money. I suggest reading "Debt: the 5000 first years".
wallace_f 9y ago
No, sorry. In every econ textbook exists the academic definition of money: store of value, unit of measure, medium of exchange. What is it an exchange of? What is it storing? What is it measuring? In other words, we use it to help us with exchanging, storing, and measuring real value. This way you don't have to exchange some lines of code for a cow, or store all your wealth in cheese. Maybe you are thinking that I am saying something about money not being a fiat currency, which wasn't the point here.