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Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that
by jswinghammer 13y ago
Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist?
The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.
This probably not the space to get into all this but reading "The Creature From Jekyll Island" is a good start. That the major players in the banking industry got together in secret to write the Federal Reserve Act suggests who the system really benefits.
- yetanotherphd 13y agoYour theory lacks predictive power. There is huge debate about what inflation should be, and all you can say is "all the bad guys like inflation". The argument for inflation is very old, and goes back to Milton Friedman at least (who was no Keynesian).
- jswinghammer 13y agoFriedman was a Keynesian heretic. Instead of looking at aggregate demand he was looking at the total money supply. The basic problem is that he lacked an understand of the boom itself and focused entirely the bust's mechanics. The argument for inflation goes back much further than Friedman. Emperor Diocletian tried it and failed. Despots throughout history have attempted it as well and failed (eventually). Inflation "works" in the short term but eventually you pay the price for it in the form of a bust. I guess that the bad guys liking something isn't entirely sufficient but it should be fairly damning evidence.
- nazgulnarsil 13y agoThe argument goes back to ancient Rome at least, with the devaluing of the denarius.
- dwrtz 13y agoHigher inflation also means that it's cheaper for the U.S. government to borrow money. In fact, higher inflation is good for anyone who borrows money (people with mortgages, student loans, etc.) because they're effectively paying back less than they borrowed.
- jswinghammer 13y agoExcept that the risk is asymmetric in that the bank gets bailed out if you can't pay and you don't. They loaned out the phony money and you paid it back with your labor.
- eli_gottlieb 13y agoWhich is a problem of politics, not economics. There's a broad agreement that the bank bailouts should not have happened across most of the actual political spectrum. Only the vulgar neoliberals serving the interests of the capitalist class in government actually want to print money as bailout loans to banks, and yet Austrian "economists" and their Believers pretend that's the only alternative to a deflationary gold standard and total privatization of everything ever.
- jswinghammer 13y agoEvidence suggests that it they are correct but the part you are missing is that the whole point of the system is to bail out the large banks when their bets go bad. All in the name of the people. Whoever they ever are.
- eli_gottlieb 13y agoWhich system?
- nhebb 13y ago> Given that the entire point of the Federal Reserve is to promote inflation I can't tell if you're being sarcastic, but the Fed has three mandates [1], one of which is to stabilize prices: "maximum employment, stable prices, and moderate long-term interest rates." [1] http://www.law.cornell.edu/uscode/text/12/225a http://www.law.cornell.edu/uscode/text/12/225a
- jswinghammer 13y agoI am not. The real purpose is to inflate the monetary supply for the benefit of the large banks. On those supposed goals they have entirely failed anyway.
- jellicle 13y agoAnd even a minimal knowledge of history would suggest that the Federal Reserve works very hard to minimize inflation, even at the expense of high unemployment. Poster's statement is along the lines of "Given that the entire point of firefighters is to promote fires". It's nonsense.
- jswinghammer 13y agoSo much to learn, you still have. A most basic study of the Federal Reserve would lead you to the exact opposite conclusion. They try to keep interest rates as loan as possible until price inflation gets out of control. I spend a lot of time caring about this issue and all the hype about what the Federal Reserve cares about is just that-hype. They want to inflate the monetary supply all day every day and that's why they buy debt every month as part of QE-infinity. That it hasn't worked does not mean that they do not desire inflation but rather that they have no clue as to what they're doing.
- tokenizer 13y agoI'd recommend Peter Schiff or Max Kaiser for an interesting look into the Fed's QE policy minus Mainstream Media hype/ The problem with the FED, and every Keynesian economist is that they think the US will indefinitely be the world currency reserve, and that 5,000 years of gold based monetary policy is less stable than the post war economics that have given us rising inequality, lowering employment, indefinite QE, China calling for a de-Americanized world, and an interest rate ceiling of 1% (look it up, Bernanke said it!) that was the bottom rate of Greenspan. I just love when current economists tell me I'm naive, and that government debt isn't the same a debt debt... Or that there isn't a borrowing limit. The limit, is when other governments stop buying your currency. See China-Australia trading deal, China's ease on buying bonds, and look up an interesting theory on how Japan will soon stop buying US bonds, due to it's self-inflicted inflationary policy, which will force it do invest in it's own money supply soon.
- oakwhiz 13y agoI never thought of inflation in that way. That's rather interesting. I guess a simple way of describing this would be to say that if you are the sole printer of money, and existing money becomes worth less over time, then you can simply continue to print more money every year in order to cement yourself as the person with the most money.
- oakwhiz 13y agoTo elaborate... I suppose it's more about being the person with the most wealth, and you are actually causing a net motion of wealth away from everyone's pockets and toward yourself.
- tokenizer 13y ago> existing money becomes worth less over time, then you can simply continue to print more money Only, the act of printing more money. deepens the problem of your currency losing value. The US thinks it's impervious to inflation, but many including myself see it simply postponing the inflationary event, which will most likely coincide with a currency crisis.
- a5seo 13y ago"You are basically having your property taken out from under you without realizing it." If your definition of property is US fiat currency, then OK, but if you're concerned about it, you have options such as commodities, non-US currencies, and hard assets like real estate.
- lake99 13y ago> you have options such as commodities, non-US currencies, and hard assets like real estate. True, except that buying and selling of these is taxed. If the govt. had said, "buy and sell as much glass as you want, and you won't get taxed for its trade", I's switch to glass in a heartbeat.
- dreid3 13y agoI found this video to be quite helpful in explaining what I believe you are describing: https://www.youtube.com/watch?feature=player_embedded&v=iFDe5kUUyT0 https://www.youtube.com/watch?feature=player_embedded&v=iFDe...
- ra 13y ago"Given that the entire point of the Federal Reserve is to promote inflation" No, that's not what they do. Too much inflation is bad, but you need a little bit. So they seek to maintain a "healthy" amount of inflation. Typically around the world this is something like 2-3%. http://en.wikipedia.org/wiki/Inflation_targeting http://en.wikipedia.org/wiki/Inflation_targeting
- jswinghammer 13y agoReal monetary expansion is much greater than 2-3% on average. The price inflation they calculate might be 2-3% but look at college or healthcare costs. That new money finds a home somewhere and I'll tell you now that that's where it ends up these days.
- ra 13y agoI don't know about the cost of healthcare or college in the US, but those are affected by other non-inflationary factors. Eg: political changes, supply and demand, changes to the definition of the service. i.e. Imagine the difference in what treatments are covered by healthcare today as opposed to say 25 years ago. Don't forget the "new money" also finds a home through population increases and export of actual money (black and white market).
- dpatru 13y ago> they seek to maintain a "healthy" amount of inflation. An ounce of gold was $21 in 1920 and $1410 in 2010. http://www.wisegeek.com/what-is-the-historical-price-of-gold.htm http://www.wisegeek.com/what-is-the-historical-price-of-gold...
- BrandonMarc 13y agoExactly. Continuous inflation is frankly the only plan the government has to deal with the national debt. Borrow now, and in the future when your currency is weaker and less valuable, the amount borrowed will seem smaller (and in pragmatic terms will be by that point). Of course it's destructive to the average person / taxpayer, but who cares about them? Nobody does who's in charge, that's for sure.
- jowiar 13y agoI think you may have this flipped. Inflation is, more than anything else, a tax on cash (and last time I checked, your average person didn't have a whole lot of cash on hand). Practically speaking, it helps debtors at the expense of creditors by shrinking the value of liabilities on the books. The debt hysteria we see isn't because the elite don't care enough about inflation - it's because the costs of it fall more heavily on those who write big checks to political campaigns.
- jswinghammer 13y agoMost of the elites spend their money on buying more influence. They hold debt instead of cash if they hold anything at all outside of whatever they consider to be balanced portfolio.
- GeneralMayhem 13y agoExcept the average person sees the exact same benefit, ideally. It's the same platform William Jennings Bryan campaigned on way back in 1896 - expanding currency helps people who have debt. Inflation makes the past matter less. It erodes both the wealth of the super-rich and the debt of everyone else (the farmers who had to mortgage their farms in 1896; the normal family now who has a home mortgage as the norm). That's very attractive to a lot of people, not just those managing the national debt.
- jswinghammer 13y agoThe basic problem is that you're playing the devil's game when it comes to debt. You might think you are getting the upper hand but the house always wins. The banks always win in this scenario because they get bailed out when they lose and they collect your interest when you "win". It becomes difficult to see how this scenario helps the common man.
- snowwrestler 13y agoInflation is only theft if you insist on storing value in cash--a financial instrument that is not designed to hold value. A major reason to manage for low, consistent inflation is to train people to put their money into real assets.
- Houshalter 13y agoWhere do you think cash goes if not into someone else's hand? It's like a game of hot potato constantly tossing it around to someone else so they hurt from it losing value, and not you. But in the end everyone handles it for some amount of time and gets burned the same amount.
- snowwrestler 13y agoIn the U.S., the Fed creates and destroys dollars to manage the inflation rate.
- ok_craig 13y agoLook where that got us...
- jayfuerstenberg 13y agoI agree that people should get into real assets but this sounds a lot like it's okay to beat your kids in order to train them to run faster.
- snowwrestler 13y agoBeating a kid is obviously wrong, but parenting (and coaching and managing) does involve creating incentives to encourage desired behaviors, and discourage undesirable behaviors.
- jswinghammer 13y agoNo it isn't. It is theft if you are making wages at X price with the understanding that X bought you Y goods in return. If inflation drives up the costs for Y goods so you get Y-Z goods in return then suddenly you got less than you intended for your labor. In a free market prices generally fall. In the current market they rise at random rates across sectors. Currently we have people spending a lot of time figuring out how to pay for medical care and higher education because that's where the inflation has hit the hardest.
- eli_gottlieb 13y ago>The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. Property is theft. If we're going to be ideological, I'm throwing my Marxism into the ring, too!
- pjc50 13y agoNo, you are _not_ having your property taken away; you are suffering a loss in its market value. For most people, a reduction in the market value of their job or house makes more difference than the market value of their cash per se. Hence the need to keep an eye on the composition of inflation, as some parts may be going up and down more than others.
- betterunix 13y ago"The whole problem is that inflation is theft" That is like saying that if you run a lemonade stand and someone else opens a lemonade stand next to you, they stole from you. A reduction in the value of what you own is not theft by any stretch of the word. "It's historically been very popular as a means of taxing the public without them realizing that's what you're doing." Ah, but inflation is not truly a tax, because it is driven by market forces and not by the law. Actual taxes reduce the rate of inflation by increasing demand for money.
- jswinghammer 13y agoNo but if you reduce the quality of my lemons then yes you did do something akin to theft. That's what inflation does it. It debases the quality of money. Inflation can't continue in a free market forever because eventually a crash occurs because inflation kicks off a boom bust cycle. Taxes have nothing to do with inflation and don't change anything on their own. They may reduce the pool of capital and may force people to the credit markets but we need more information before saying such a connection exists.