The Federal Reserve causes the business cycle and Ron Paul knows it

Quote from Martinghoul:

I don't wish to interfere in your discussion, but, with all due respect, you think it's wise to just ignore people who happen to disagree with you? I have always been taught that, as a trader, one should cherish the opportunity to talk to people with opposing views, but, then again, that's just me...
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ON IGNORE!
 
Link in my previous post doesn't seem to work the way I want. Here's an image:

2jan6dk.jpg
 
Quote from trefoil:
The low Fed Funds rate was only there between 2001 and 2004. After that Fed Funds was raised until that rate and long-term rates were almost the same: we had a flat yield curve.
That was because China was buying up a lot of the long-term stuff, and even bought some mortgage-backed stuff from Fannie & Freddie. That was way more important fuel for the bubble, because those low long-term rates were what kept the bubble going far longer than would otherwise have been the case.
This link is to a chart of the 13 week vs the 10 year Treasury from 2001 to the present: 13 week vs 10 year. Notice, if you move your mouse over some periods in 2006, the 13 week actually had a higher rate than the 10 year, meaning the curve was inverted during that time. The Fed was actually trying to bring the bubble under control in that period. But the fervent buying coming from China, Japan, India, and other Asian central banks nullified what the Fed was trying to do.
Notice no one on threads like this ever points that out; it would kill their whole conspiracy theory.
For one of these conspiracy buffs to suggest that Martinghoul, of all people, needs to bone up on economics has to be one of the most ridiculous things I've ever read on this site, and that's saying a lot. But the author of that statement's name says it all.
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I appreciate the sentiment, trefoil, but I think the "bone up on economics" comment wasn't addressed at me, but rather at 5yr.

In general, I think that the Fed (as well as other central banks) does need to accept some of the blame for the housing bubble. However, it's beyond silly to blame the Fed for all the world's ills. There's the fundamental demographic shifts, the deregulation of the financial sector and, last but not least, global imbalances that caused a massive mis-allocation of resources (which is what you're alluding to). These things don't have anything to do with the Fed. In fact, didn't Ron Paul himself place some, if not most of the blame, for the housing bubble on the GSEs, rather than the Fed?

I am, honestly, rather fed up with people trivializing this complex issue. It's beyond silly to claim that it's all the Fed's fault or Reagan's fault or Greenspan's fault or any such bollox. I suppose it's just a human trait, i.e. we're, on aggregate, inherently lazy, stupid and chock-full of attribution bias. That means we love simple explanations and don't like to think about things too hard. Also it means it's never one personally who's at fault, it's always some other guy who f*cked it all up. All this makes me very pessimistic about solutions going fwd, especially in America, but I think I said that already somewhere else.
 
Quote from Martinghoul:

I appreciate the sentiment, trefoil, but I think the "bone up on economics" comment wasn't addressed at me, but rather at 5yr.
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You're right, but then I myself have that other one on ignore because I got tired of having to wade through his nonsense on threads like this, which is how I made that mistake.
What he says is always the same thing and very predictable, but he seems to feel the need to post that same sentiment over and over and over and over.
Anyway, agree with the rest of what you said. Lots of things went into this mess.
 
shortie


Registered: Apr 2006
Posts: 4357


New Post 12-21-10 01:37 PM

Quote from Scataphagos:

...Putting you on IGNORE..



yeah, soon you will be talking to yourself

_____________________

you may have a point. the economic dribble on ET is quite pervasive.
a little inflation is good for you is the equivalent of a little heroin takes the edge off a rough day. it was really a rough day so let me have a little more. It was a great party today. let me have some more some because the elections are coming up. when the genie is out of the bottle we are hooked, there was strong price stability in the period after the civil war to 1913when there was no fed, there were periods of sharp upswings in prices and then sharp swings. of downward movements where the excesses of the up cycle were washed away. I recall that growth was higher in this period than in the 78 years following 1913. if someone could provide the data it would be most helpful. one thing is for certain the fed creates inflation as prices have risen sharply over the last 78 years. the fed and other government officials believe that they are smarter than markets and can repeal the business cycle. they can postpone the day of reckoning past the next election but then the day of reckoning comes exactly as it happening in Europe.
when the crash comes it is always greater because the gov't keeps the bubble going and getting larger until it is overwhelmed by market forces. then the bigger crash ensues because the bubble was larger than normal.

it would be appreciated if someone can provide statistical data on productivity growth and prices changes after the civil war.
 
This isn't exactly what you asked for, but here is the Real GDP per capita every 10 years. I used 1913 as the base point. As Trefoil so astutely pointed out, other factors affect GDP other than the Fed.


The data is from here: http://www.measuringworth.com/datasets/usgdp/result.php

I attached an excel page, because its easier to read. But here are the results:


Average 10yr Growth Rate Pre-Fed 16.73%

Average 10yr Growth Rate Post-Fed 24.06%
 
Here is the spreadsheet. This is Real GDP per capita so it takes into effect inflation.

Everything else being equal a growing economy will have inflation; a shrinking economy will have deflation.
 

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Quote from zdreg: when the genie is out of the bottle we are hooked, there was strong price stability in the period after the civil war to 1913when there was no fed, there were periods of sharp upswings in prices and then sharp swings. of downward movements where the excesses of the up cycle were washed away. [/B]
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Before the Fed there were the occasional panics but they too were caused by a manipulated interest rate environment. Fractional reserve lending lowered rates below their natural rates.

Two things were different back then, 1) the dollar was still tied to gold so there was no net inflation for the 150 years prior to the Fed 2) The fear of a bank run kept the excess lending to a less absurd level than it is now with the bank cartel Federal reserve system.
 
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