Obama Hires Paul Volcker

[bali_survivor]

Quote from Sandybestdog:

It’s not about slowing or speeding up the economy, those are just code words. The Fed lowers interest rates during slow downs because the lower rates encourage more borrowing. Lending is what creates new money (increase in the money supply). This creates inflation, which props up prices. This gives the illusion that the economy has recovered. When inflation starts increasing at a rapid pace, they start to raise the interest rates to curtail lending, thereby slowing the growth of the money supply.



Anybody who bought the carry trade has been wiped out in the past year. The Yen and dollar are at multi year highs. The appreciation in the borrowed currency has more than wiped out the gains from the interest differential. If I had a bunch of cash sitting around, I would start buying carry trade pairs at these levels on very low leverage. I think the risk reward ration is very good right now with the combined value of the daily interest.

Japanese housewives make no difference in the financial world. I’m sure their volume is miniscule compared to what banks, governments, and corporations exchange everday.

Sorry, I think your better do some investigations before making statements and "assuming" that the Japanese hosuewives have little impact and that banks, governments and coprorations exchange.

In addition your line of thinking is similar to what the Fed is using but ain't working in todays environment.

M.

 

[Sandybestdog]

Quote from Landis82:

We have a fundamental difference in philosophies regarding monetary policy and I disagree with most of what you have said on this thread, so it really isn't worth my time expressing my points any further.

By the way, in 1971 it was President Nixon ( and not Paul Volcker ) who announced the end of the gold standard system of monetary policy.

While Volcker was in fact an "under-secretary" for Monetary Affairs, he was NOT the Treasury Secretary at the time. That was John Connally.

It sounds as though you would like to abolish the Federal Reserve. But you have not offered any suggestions as to where and how CAPITAL would be created/formed to grow the Economy.

Given that American's have a savings rate of almost ZERO, there is no way that you would be able to facilitate CAPITAL formation to grow the Economy via the United States populace.

That's why we have the Federal Reserve.

Yes we do have a fundamental difference. I think our money should be backed up by something. You think a secretive banking organization should control the money supply, so it can benfit the rich.

I know Nixon took us off the gold standard. He is to blame, but Volker had a signinficant role in it. I read this on Wikipedia

From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the U.S. decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the U.S. decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system.

Look I’m not an economist, but it seems pretty simple. You have X amount of gold/silver in reserves. You issue Z amount of currency against it. If you want to increase the money supply, you need to buy more gold. The Treasury and Congress should be able to handle it. JFK attempted to do this through an executive order and 6 months later he was killed. If a bank wants to lend money, then they have to have it on deposit. They shouldn’t be able to just create new money. When they don’t have enough on deposit, they need to borrow it from other banks who then have too much.

Let me ask you this, I’m no history expert, but how many recessions were there in the 1800’s? How many recessions and boom and bust cycles have we had since 1913? Why can’t we just have a stable money supply and be done with the malinvestment? Did you ever stop to think that maybe the rich created the Fed so they could create these cycles that they profit from? JP Morgan was one of the proponents of the Fed, now 100 years later they are still screwing everybody

We have a zero savings rate because it costs so much to live here due to the coninual inflation. Wages never keep up with inflation. I know you’ll just say Americans spend too much on their big screen tv’s and cars, but really, how much can you save on $10 an hour. Deflation in good for the little guy. Everything they buy is then cheaper. You don’t like deflation because your stock portfolio crashes. You probably bought the Dow at 14k and need the Fed to pump up the money supply so you can get your money back.

How long do you think someone would last if they decided to start a competing currency against the dollar? It’s pretty simple, you could buy products with dollars, or a new competing currency which might actually be backed by something. It could be done very easily, much they same way like Visa or Paypal is accepted everywhere. The government would shut them down as a scam. But really what’s more of a scam? A currency backed by something, or one that can be printed out of thin air.

Again why are you so adamant about defending an institution that steals from the poor to give to the rich?

 

[Renegen]

Quote from Landis82:

If you want to know how credit default swaps came into being, along with power and energy contracts that trade electronically without any SEC or CFTC regulation, ( ie. WTI in Dubai and London, Enron manipulating the power grid in California, etc. ) simply look up the "Commodity Futures Modernization Act of 2000" on Wikipedia in which a whole host of Republican house and senate members introduced it into legislation. [/B]

And if you were to look into history you would see that Greenspan and Rubin especially (who was chairman of Citi at the time I think) pushed the hardest for breaking down the Glass-Stegall act and allow the superbanks to exist. Everyone in Washington pushed for deregulation. This is a bipartisan problem, it's the business party screwing all americans.

As someone said, how come Citi receives $300 billions at the drop of a hat and GM has to jump through hoops? That's because the banking industry above all others is closest to Washington, GM has a bit more work to do.

As for monetary policy that bali mentioned, while I never read something similar, it looks good. In today's world a country rarely has control of their money supply. We already know how little influence a central bank has to begin with to force local banks to lend. A Japan with 0% for a decade has left its mark on world financial markets.

And sandy, you had a LOT of recessions in the 1800. Much more than now. Personally I don't believe in the whole gold argument thing, and that's because the world money supply depends on the world gold supply, see a problem? Some years like the 1850s with the California gold rush had a tremendous increase in economic prosperity by the increase in money supply, some decades were slow as no gold was mined. That's like putting your economic well being in the hand of nature.

Also look up the recessions of 1833, 1855, 1873 (called the long depression). All these were much worse than what we've had in the last 50 years and they happened every 20 years. Some people who both saw the 1870 and 1930 depressions said the 1870 was WORSE.
I guess as long as you have money and banks, the money supply will be manipulated.

 

[Sandybestdog]

Quote from bali_survivor:

Sorry, I think your better do some investigations before making statements and "assuming" that the Japanese hosuewives have little impact and that banks, governments and coprorations exchange.

In addition your line of thinking is similar to what the Fed is using but ain't working in todays environment.

M.

OK it seems I was wrong about the amount of volume they do. The NY Times said they do about 9 billions a day, about 20% of the volume during those hours. But I still don’t see how they can have that much of an impact. If they’re doing it through fx brokers, they are just bucket shops. They don’t even buy or sell currency’s. They just take the other side of your trade and charge a spread. When their books have too much of one currency, that is when they finally go out to the market and balance their books.

I’m not sure what you mean by saying my thinking is similar to the Fed’s. I have spent this whole thread bashing the Fed. Their solution is to print money to bail out the economy, I favor a strong currency that doesn’t create these situations in the first place.

 

[Renegen]

The biggest problem with the gold standard is that it's prone to deflation, hard to explain in a few words why. Take a look at an inflation deflation chart of the past 200 years, it should be available online. You'll see the excessive volatility in inflation, that's not good for business. Also anytime you have deflation it fucks up the financial system as banks simply cannot handle deflation.

Also, the worker was much more exploited in the 1800s than today(although it's getting worse). The history of the United States is complicated, I know because I keep trying :eek:. There are no simple correlations. The welfare of the worker was very poor throughout much of the 19th century. It was in the late 19th, early 20th century that worker hours were capped at 12 hours, or 8 hours. It was through regulation during those times that child labor really ended.
Read about immigration to the United States between the 1870s and 1930s. Almost 1 million immigrants every single year of fresh cheap labor to exploit. Read about the Gilded age in the 1870s, the gay 90s of the 1890s.

This period was so unequal, that the rich openly displayed their wealth and opulence. It makes me think a bit of early 1990s Russia where it was popular for oligarchs to openly show the wealth they plundered. These periods are typical of excess inequalities.
Did you know that if you paid $100 you could avoid the draft of the Civil War? Only the poor died in that war. So on and so forth.

And you wouldn't believe it, but it was thanks to the great depression that the workweek was shortened to 5 days. Unemployed people marched for their rights. Everyone was more conscious about poverty and society's problems. Read Reminiscence of a Stock Operator, he worked 6 days a week! Everyone did. As much as the people in this site hate socialists, the greatest progress for the state of the average worker was done in the 1930s, and again in the 1960s. It's been dismantled ever since the 1980s.

 

[Landis82]

Quote from zdreg:

#3 is not true. it may be conventional wisdom and common sense but it doesn't make it correct. monetarist economists will explain that a steady SMALL growth in the money supply is the way to promote price stability and long term growth in the economy. when central banks do otherwise it creates instability and does not allow business to properly prepare for the future.

I think that I was pretty clear in stating that the point that I made about the money supply needing to increase was in regards to a recession. Not a period of "normal" sustained economic growth.

Why would anyone NOT wish to INCREASE the money supply during our current economic contraction in which deflationary forces are running rampant?

Why would such action be deemed the "correct" action, as you claim?

 

[Sandybestdog]

Quote from Renegen:

And sandy, you had a LOT of recessions in the 1800. Much more than now. Personally I don't believe in the whole gold argument thing, and that's because the world money supply depends on the world gold supply, see a problem? Some years like the 1850s with the California gold rush had a tremendous increase in economic prosperity by the increase in money supply, some decades were slow as no gold was mined. That's like putting your economic well being in the hand of nature.

Also look up the recessions of 1833, 1855, 1873 (called the long depression). All these were much worse than what we've had in the last 50 years and they happened every 20 years. Some people who both saw the 1870 and 1930 depressions said the 1870 was WORSE.
I guess as long as you have money and banks, the money supply will be manipulated.

Then what do you propose we do? From what I read most of the recessions in the 1800’s were caused by the British trying to mess with us. You don’t believe in the gold standard, but you say banks manipulate the money supply. Why would we continually need to find gold? Why does the money supply always need to increase? It’s simple, issue currency against the gold. When you can’t get more gold you don’t issue more currency. Why is this such a rediculous notion?

 

[zdreg]

Quote from Landis82:

I think that I was pretty clear in stating that the point that I made about the money supply needing to increase was in regards to a recession. Not a period of "normal" sustained economic growth.

Why would anyone not wish to INCREASE the money supply during our current economic contraction in which deflationary forces are running rampant?

Why would such action be deemed the "correct" action, as you claim?

i wrote that the money supply should be grown by a steady SMALL amount regardless of where you are in the economic cycle.
it is difficult to read someone else's writing when one is constantly in the "get real" mode.

 

[Sandybestdog]

Quote from Landis82:

Why would anyone NOT wish to INCREASE the money supply during our current economic contraction in which deflationary forces are running rampant?

Because maybe we're not the ones getting the new money. On top of that, the value of the money we already have is being eroded because of the increase in the money supply.

 

[Renegen]

Quote from Sandybestdog:

Then what do you propose we do? From what I read most of the recessions in the 1800’s were caused by the British trying to mess with us. You don’t believe in the gold standard, but you say banks manipulate the money supply. Why would we continually need to find gold? Why does the money supply always need to increase? It’s simple, issue currency against the gold. When you can’t get more gold you don’t issue more currency. Why is this such a rediculous notion?

Because the banking system demands growth. Gold might lower leverage and uncontrolled increases in money supply, but it doesn't take care of the growth problem.


Say you have 1 bank with $100 of gold and $1000 of loans to steel companies. It was about this ratio, the ratio was never 1 to 1 as some believe).

Ok, so where will the first bank earn interest on its loans? To earn interest on its loans, the money supply must increase or the bank must cannibalize from other banks.

Here is option 1. Say a 2nd bank out there has found a newly chunk of gold valued at $100. Or maybe a miner sold them $100 worth of gold and they gave him $100 of paper.

Now that bank can issue $1000 worth of new loans to create a brand new railroad. The railroad will use some of its capital(loans) to purchase steel for its railroad. Bam! The steel company gets paid, therefore it can payback bank #1. Therefore bank 1 can earn their profit and reissue a new loan to someone else.

This process goes on forever as long as new money supply goes in the economy and business conditions are good.


Here is the second option :
Bank 1 issues $1000 worth of loans to a new steel company.

money situation is tight, steel company is getting desperate as no one is buying up their steel. So they lower prices. They manage to sell all their steel and repay their bank.
But now its competitors are screwed, because they're fighting over the same money supply. A price war ensues with everyone unloading their assets to repay their bankers. The last one in this game of musical chairs must go bankrupt as he cannot sell to anyone, no one has money!

As Steel Company N goes bankrupt, the bank holding its loans sees its capital disappear, it's losing its gold! remember the 10 to 1 leverage? The bank only needs to lose $100 from Steel Company N to be in big trouble. When that bank loses all it's gold, it must call in all $900 of its loans. This takes out a lot of demand out of the market as more companies are forced to close as they cannot pay their bank. This reduction in money supply causes even more price wars, even more bankruptcies, and a vicious cycle ensues where deflation is rampant and everyone is going bankrupt.


So basically in a gold economy, you need 2 things to make a new loan :

1.the math must make sense for the entrepreneur. He borrows at 5% but because of good business conditions he expects a higher return on capital.
2. There must be physical gold in the economy to serve as capital.


In a paper economy, you only need the first condition to make a new loan. When you ask for a new loan, the bank borrows from the central bank and it's settled. There is theoretically infinite amount of money supply, it's the business condition that decides if loans are made or not. Of course central banks today also have more power and have ways to force liquidity in the system like buying up treasuries.

The banking system can only go forward as long as there is a continual increase in the amount of loans = money supply. Is this possible open to manipulation? Yeah, who ever said we live in a perfect world?

Ahem, hopefully I won't spend all day here as I have stuff to do. I might not be very active in responding.