Ron Paul vs. Paul Krugman on Bloomberg TV

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mustang19 replied on Sat, May 5 2012 2:39 PM

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Whoops, other way around.

The monetary multiplier increased over that period.

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Aristophanes replied on Sat, May 5 2012 2:41 PM

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Maturity mismatching, yield curves, and the term structure of savings are not going to cease being problems if you raise interest rates and take out the central bank.

You need to read that essay and think for a second what it is saying (anyone whose read it will see what a fool you are making of yourself).  Your assumption of its content from reading only the title is dreadfully apparent.

Uncertainty is increased if an entrepreneur takes a short-term loan to finance a long-term project as there is the possibility that it will not be renewed, or renewal will come at a higher rate.

...

Time preference and uncertainty aversion are both a priori categories of action. The ERE excludes, by definition, uncertainty from occurring—all future events are perfectly anticipated, leading to no preference between distinct savings’ maturities. While economists are quick to point out that money as a medium of exchange would fail to prevail in equilibrium, they have generally neglected the associated conclusion that all maturities will be equally supplied and demanded for—entrepreneurs will be unable to differentiate or prefer one temporal dimension for another.

In the real world with uncertainty and time preference, there is a tendency towards a rising yield curve. Even if borrowers and lenders expect no changes in economic data to occur, the possibility of unforeseen change alone is sufficient to cause uncertainty. There consequently arises a demand for liquidity sooner rather than later.

The problems you refer to would be different under a different set of circumstances.  Free banking would allow for fractional reserve and they would simply be allowed to fail AND they would have RISK determine the amount of loans they made (their Fractional ratio).  The premise you cannot accept is that GDP growth is limited by the amount of savings that is employed usefully in the capital investments stages.  You think that depressing interest rates (false signals within term structure of savings; again, kid you need to read that essay) in no way affects all of these things, but then the fear your economists have the most is if they rise... "It won't matter.  No it won't.  It's effects are negligable.  WE CAN'T DO IT!"  --  Bernankers.

You are not as smart as the economists you cite (I can tell you have many of your own thoughts regarding these subjects) and those economist are wrong.  Here is why graphs and stats mean nothing for long term economic anaylsis.  Careful there aren't graphs biased to prove specific points.  It is just logic.

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mustang19 replied on Sat, May 5 2012 2:48 PM

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You need to read that essay and think for a second what it is saying.  The problems you refer to would be different under a different set of circumstances.  Free banking would allow for fractional reserve and they would simply be allowed to fail AND they would have RISK determine the amount of loans they made (their Fractional ratio).

TBTF is a nasty consequence of the absence of regulated capital requirements. However, although AIG and Stearns were bailed out, dozens more banks have failed during the crisis. One can also look at the history of free banking and see how often crises were regardless.

The premise you cannot accept is that GDP growth is limited by the amount of savings that is employed usefully in the capital investments stages. 

I can see that, and I'm not sure how it disagrees with what I'm saying. The level of investment and savings deposits can change the monetary multiplier given the same amount of base money.

You think that depressing interest rates (false signals within term structure of savings; again, kid you need to read that essay) in no way affects all of these things, but then the fear your economists have the most is if they rise...

I never said that interest rates "in no way affect these things". I said that their impact was limited in the particular case I'm talking about.

Here is why graphs and stats mean nothing for long term economic anaylsis.

That is a very strong claim.

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Aristophanes replied on Sat, May 5 2012 2:57 PM

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TBTF is a nasty consequence of the absence of regulated capital requirements.

No, it is a PR scheme by the central bank and its operators.  There are plenty of capital regulations.  Banks skirt them so that they can make money.

One can also look at the history of free banking and see how often crises were regardless.

My guess is that you not actually done this...there may have been more or less, but none of them were as systemic as they are today.  But, nah, gold payment balances wouldn't help ameliorate that pesky old problem.

I can see that, and I'm not sure how it disagrees with what I'm saying. The level of investment and savings deposits can change the monetary multiplier given the same amount of base money.

Okay, let me say it this way.  You refuse to admit that large credit expenditure happens to facilitate (what I would call illegitimate) demand into markets that have high preference for long term captial intensive investment projects (it can be a number of things).  You cannot say that the effects of interest rate depression is negligible, but turn around and say that raising interest rates would do what the Bernanke articles first citation said...

I said that their impact was limited in the particular case I'm talking about.

Which was housing, which was wrong...Either interest rates are a crucial indicator or they are not.  You cannot claim that interest rates are negligable, but then only allow for theoretical contention within the framework that they are not negligable.

You might as well be Krugman's kid.

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mustang19 replied on Sat, May 5 2012 3:24 PM

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No, it is a PR scheme by the central bank and its operators.  There are plenty of capital regulations.  Banks skirt them so that they can make money.

Where? There's Basel III, but it was ratified in 2010.

My guess is that you not actually done this...there may have been more or less, but none of them were as systemic as they are today.  But, nah, gold payment balances wouldn't help ameliorate that pesky old problem.

 Unemployment reached 14% during the Long Depression. If you don't consider free banking crises systemic, I'm not sure what metric you're using.

Okay, let me say it this way.  You refuse to admit that large credit expenditure happens to facilitate (what I would call illegitimate) demand into markets that have high preference for long term captial intensive investment projects (it can be a number of things).  You cannot say that the effects of interest rate depression is negligible, but turn around and say that raising interest rates would do what the Bernanke articles first citation said...

There's a difference between credit to one sector of the economy (housing) and the economy as a whole. Interest rates may have had small effects on house prices, but maintaining some amount of credit growth is important to the rest of the economy.

If you're asking me my opinion on what the Fed should have done, I believe that they deviated slightly from the Taylor rule, and should have followed it better- which would mean slightly raising interest rates. But I wouldn't expect it to have made more than a few percent difference in the size of the bubble.

Which was housing, which was wrong...Either interest rates are a crucial indicator or they are not.  You cannot claim that interest rates are negligable, but then only allow for theoretical contention within the framework that they are not negligable.

It's a matter of finding the optimal level of interest rates. Overall, it depends on what you specifically mean by "raising interest rates". Stopping credit growth completely to avert a bubble isn't necessarily a good idea. This could mean creating a policy-induced recession to prevent a future recession down the road. There can be a trade off between slowing credit growth and increasing long run economic growth.

You're also assuming that free banking and the Gold Standard were more effective at moderating the business cycle.Here is a discussion.

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Aristophanes replied on Sat, May 5 2012 4:06 PM

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Where? There's Basel III, but it was ratified in 2010.

Right, Basel I and II don't count...Not to mention that the nation states have their own laws and regulations on secuities (SOX is partly this).

Unemployment reached 14% during the Long Depression. If you don't consider free banking crises systemic, I'm not sure what metric you're using.

Your cherry picking statistics making false correlations.  This period saw an almost 30% increase in real wages and one of the longest sustained production increase in history.

It's a matter of finding the optimal level of interest rates.

Oh is it?  You need to read these: (These are classics) Pretense of Knowledge & Knowledge and It's function

Stopping credit growth completely to avert a bubble isn't necessarily a good idea.

I don't recall suggesting that.  But, again that monopoly over "credit" expansion is held with banks and Fed Res Notes.  People cannot use legitimate capital to loan, only banks can do it with phantom money from the FED (AKA gov. debt).

This could mean creating a policy-induced recession to prevent a future recession down the road.

The prudence of a statist.

There can be a trade off between slowing credit growth and increasing long run economic growth.

It is called allowing the true level of savings (long term deposits) to determine the limit of credit expansion (interest rates).  But, you knew that...

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mustang19 replied on Sat, May 5 2012 4:20 PM

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Right, Basel I and II don't count...Not to mention that the nation states have their own laws and regulations on secuities (SOX is partly this).

Basel I/II had capital requirements around 7% of assets. That's nothing.

SOX is not a capital requirement. A capital adequacy requirement is a law requiring banks to hold a certain ratio of capital to assets as a "cushion" against risk.

Your cherry picking statistics making false correlations.  This period saw an almost 30% increase in real wages and one of the longest sustained production increase in history.

I was addressing your claim of the absence of "systemic crises".

This could mean creating a policy-induced recession to prevent a future recession down the road.

The prudence of a statist.

So do you agree that the Fed should not maintain high interest rates at all times?

It is called allowing the true level of savings (long term deposits) to determine the limit of credit expansion.

What are you suggesting? That credit growth was ever limited by the size of CDs? Or that credit growth should be limited to the size of CDs? Nothing that specific has occurred, in any free banking or fiat system.

100% reserve banking (or most other restrictions on credit ratios) implies government enforcement and reduces the flexibility of the financial system.

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Aristophanes replied on Sat, May 5 2012 4:42 PM

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So do you agree that the Fed should not maintain high interest rates at all times?

You really don't get it.  What is too high and what is too low?  Can you know these things without telling me every single production input and output?  Stop pretending like your high school like reasoning ability is going to justify Bernake's wanton misrepresentation of what he does in his academic field.

What are you suggesting? That credit growth was ever limited by the size of CDs? Or that credit growth should be limited to the size of CDs? Nothing that specific has occurred, in any free banking or fiat system.

100% reserve banking (or most other restrictions on credit ratios) implies government enforcement and reduces the flexibility of the financial system.

Why won't you read that essay on the term structure of savings?  I do not agree with anything that you have said.  And you have not once characterized my argument succinctly.  You show no critical thinking in your analysis of the papers you have cited (or my statements for that matter) and seem desperate to jump to irrational conclusions by putting words in my mouth and then having a strawman conversation with yourself.

You need to read and respond to the thesis of:

Hayek - Choice in Currency (not a free banking strawman argument)

Bagus - Term Structure of Savings -You need to understand the purpose of the yield curve not just its function. (Also, how banks use it)  Understanding the yield curve only as a function is why you think the Fed can just willy nilly decide rates and we can somehow correctly forsee the market conditions based on thse assumptions.

Hayek - The Use of Knoweldge in Society - Knowing the correct conditions for any given economic policy is impossible due to both qualitative and quantitative data collection.

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mustang19 replied on Sat, May 5 2012 4:50 PM

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You really don't get it.  What is too high and what is too low?  Can you know these things without telling me every single production input and output?

To a degree. The reasons why the Fed follows the Taylor rule are different discussion; you may start a new thread on that if you like.

Hayek - Choice in Currency (not a free banking strawman argument)

This is a rather long paper. I would appreciate any specific theses you would like to discuss.

Bagus - Term Structure of Savings -You need to understand the purpose of the yield curve not just its function. (Also, how banks use it)  Understanding the yield curve only as a function is why you think the Fed can just willy nilly decide rates and we can somehow correctly forsee the market conditions based on thse assumptions.

The Fed does not make predictions. It makes forecasts, which can only be partially accurate. It has used these forecasts to affect interest rates, and in so doing so it has managed to reduce market volatility greatly compared to the gold standard era.

Knowing the correct conditions for any given economic policy is impossible due to both qualitative and quantitave data collection.

It depends on what you mean by "knowing". We can sometimes make quite good guesses (within a standard deviation) about economic conditions.

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z1235 replied on Sat, May 5 2012 5:12 PM

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mustang19:

So do you agree that the Fed should not maintain high interest rates at all times?

Why must the Fed be maintaining or doing anything? What is you obsession with aggressive monopolies, central planners, parasites, and 2nd realm interactions? 

100% reserve banking (or most other restrictions on credit ratios) implies government enforcement and reduces the flexibility of the financial system.

There is no better bubble/risk-restrictor than the market. You only need to make sure that the property boundaries are clear and that agents only risk their own capital. True, fractional banking inevitably implodes without central banking and without monopolistic legal tender laws and bank licencing cartels. They are both parasitic as they muddle property boundaries (More than one owner of the same $1 of capital) and implicitly coerce huge swaths of economic agents into risks they've never agreed to take. THIS is how parasites suck wealth and capital out of the idiotic masses. When times are "good", when credit expands, they and their friends make a killing exposing other people's capital to risk. When the shit inevitably hits the fan, the sheep must open their wallets once again to bail out "the system" lest the ATM's stop giving out cash tomorrow morning and their cash balances get wiped out from their computers. 

What does TBTF even mean? Walmart is pretty big. Who'd give a rat's ass if Walmart failed? 

The whole language around "banking", with its own terminology and jargon has been invented to pull wool over the sheeps' eyes for centuries now. Every other business, every other domain of human interaction operates under "100% reserve". You go to jail if you sell your car to two people at the same time, and keep convincing them that each of them is a 100% owner of the car that you just sold TWICE. 

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mustang19 replied on Sat, May 5 2012 5:24 PM

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Why must the Fed be maintaining or doing anything? What is you obsession with aggressive monopolies, central planners, parasites, and 2nd realm interactions?

There is no better bubble/risk-restrictor than the market. You only need to make sure that the property boundaries are clear and that agents only risk their own capital.

http://www.nber.org/cycles.html

One can compare the duration of recessions during and after the gold standard period.

The last column indicates that expansions have been longer after the end of free banking and the gold standard.

True, fractional banking inevitably implodes without central banking and without monopolistic legal tender laws and bank licencing cartels.

Fractional reserve banking and free banking have coexisted- the market did not eliminate the former. E.g., the Swedish Enskilda. 100% reserve systems would not likely be much more stable. It would, however, reduce flexibility and responsiveness of the financial system.

Commercial banks are an important part of the economy's infrastructure.
A drastic change like 100% reserve banking would affect
even borrowers who currently do not appear to be dependent on banks
for liquidity. For example, almost all corporations issuing commercial
paper to raise short-term cash obtain backup lines of credit from banks.
The line of credit gives the corporations an emergency source of funds
to circumvent a potential liquidity crisis that could prevent them from
rolling over their commercial paper. If the replacement intermediaries
did not take on fixed claims, such as lines of credit, the workings and
liquidity of the commercial paper market could be changed profoundly.
Firms that issue substantial quantities of commercial paper would be
subject to runs (liquidity crises) when they tried to roll it over. Similarly,
existing money market funds themselves use banks as sources of
liquidity: their assets often include large quantities of bank certificates
of deposit (CDs).
Offering binding lines of credit that are not fully collateralized by the
liquidation value of assets is one way of providing the transformation
service "through the back door" since, from the customer's perspective,
holding illiquid assets but having access to a binding line of credit
is functionally equivalent to holding liquid assets like demand deposits.
Just like banks, providerso f this transformations ervice are subject to
runs: the holders of lines of credit may draw down their lines in anticipation
if they believe others will do the same.

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z1235 replied on Sat, May 5 2012 5:34 PM

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"Fractional" and "Free" "banking" are one and the same. I don't care much for either. They are both frauds which would implode in a free (uncoerced) market.

With advances in market technology I see "banking" going the way of the dodo, too. Plenty of instruments and avenues (bonds, stocks, etfs, funds, you name it) for savers of capital to meet with the ones willing and ready to borrow it or invest it -- WITHOUT confusing who owns what and when. 

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mustang19 replied on Sat, May 5 2012 5:39 PM

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"Fractional" and "Free" "banking" are one and the same. I don't care much for either. They are both frauds which would implode in a free (uncoerced) market.

Pretty bold economic prediction you're making!

I think deposits will stick around for as long as they hold less risk. No thanks to the FDIC- I don't much like them. But yes, in the future we'll all do financial transactions on our cellphones with no need for physical cash or tellers or ATMs.

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Aristophanes replied on Sat, May 5 2012 5:49 PM

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This is a rather long paper. I would appreciate any specific theses you would like to discuss.

Too long (; didn't read)?  That is offending from my point of view.  You must realize that you are doing exactly what those weasely academic economists do.  They have trained you well.  "Cite our papers for your reasoning.  If they challenge one of our foundational assumptions and ask you to acknowledge that point, say that their 'papers are too long'.  Then tell them you are 'open to questions'."

Uncertainty is diffused as far as possible under a condition where there are any number of alternate channels of credit and store/measures of value.  Competition would weed out unsound practices.  Hayke just says open the channels up so people can inflate and people can save, the idea being that, then there will be no "shortages" of money and there will be market-tested stores of value to contract in over time increments.

Central banks and the ability to create money (credit/debt, w/e) has no limits as the logic is presented as, "Private banks have ratios and regulations on their capital requirements this way they cannot create too much and cause problems.  Central banks create money and give it directly to the private banks in order to continue their expansion of credit (a necessary condition of low interest rates)."  This defeats the purpose of the signals involving savings and credit expansion.  Those production cycles (pay cycles etc.) are thrown off of what is possible for them to accomplish.  Plus, take a banking class, they never listen to those ratios, they simply leverage other assets (liabilities) since it is all insured by the government.

It depends on what you mean by "knowing". We can sometimes make quite good guesses (within a standard deviation) about economic conditions.

That kind of attitude, that you can fine tune the economy, thinking you can decide or "deviate" away the importance of one type of investment and another, is the problem.  You aren't smart enough to do those things.  What is meant by "knowing" is the unintended consequences.  I never see the "possible unintended consequences" section at the end of academic economists papers.  Then, when the unprophesied result inevitably comes about get written about, "This is a rather long paper." is the best the idiots can muster.  You are not a sage.  You need to "know" how much of what needs to go where at all times.  You will not justify that kind of intrusion of privacy by the state will you?  I won't hold my breath...

The Fed does not make predictions. It makes forecasts, which can only be partially accurate. It has used these forecasts to affect interest rates, and in so doing so it has managed to reduce market volatility greatly compared to the gold standard era.

In what way does this demonstrate that you concede/refute the purpose of the yield curve; for investors to have a gauge on the term structure (the "how much" & "for how long" aspect of captial investment) of savings.  This means that certain investment activities vary in their time/production cycles in relation to their cost per cycle.  The patterns (or habits) are thrown off of what people can do in their unique position (heterogeneous capital stock; aggregation leaves this out) and alters the structure in which everyone in the economy shapes their patterns.

BTW

The Fed does not make predictions. It makes forecasts

The definition of "prediction":

Of course, patterns, in most cases, will not deviate wildly (although some will), they will shape themselves differently under different circumstances.  Interest rates are the primary price signals, as they involve time allocation in relation to capital) and will throw off the perception of utility of different chunks of time for investors and as a result they make different choices than they otherwise would have; summed in a word, "malinvestment."

The single best analogy for the Austrian business-cycle theory comes from Mises himself, and I will take some creative liberties with his original exposition for our purposes. Imagine a master builder. He has at his disposal the labor of many workers, as well as a collection of bricks, shingles, panes of glass, and so on. Mises then asks us to suppose that the subordinate in charge of counting the available supply of bricks inflates the number by 10 percent. Thus the master builder draws up the blueprint for the house, erroneously thinking he has more bricks to work with than he really does. Because of this error, he embarks on a building plan that is unsustainable; there are not enough bricks to finish the house as it is designed on the blueprint.

Now obviously, the sooner the builder learns of the mistake, the better. If he finds out immediately after the excavators have dug the hole for the foundation, the waste will consist merely of the extra labor and gasoline needed to use the earth movers to put back some of the dirt and make the hole smaller.

But suppose the builder doesn't find out until after he has already laid the foundation and erected the frame of the whole house. Now of course the waste is much worse. Given the materials at his disposal—and we assume that he can't go onto the market and buy more—the builder must now make some very tough choices. He probably will decide to leave the foundation as is, even though it is bigger than he would have designed it, had he known the true number of bricks from the beginning. He will have to redo the blueprints, naturally, and scale down the size of the house, though keeping the same size foundation. Some of the lumber already used might be salvageable, though some will have to be torn down and discarded. And of course, the finished house will be inferior in quality to the house the builder would have designed originally, had he known the true amount of his various supplies.

Now consider the scenario where the subordinates realize their mistake, but the master builder has not yet discovered it. They decide to deceive him as long as possible, by using tarps to cover up gaping holes in the stockpile of remaining bricks. "After all," they convince themselves, "look at how happy everyone on the site is, coming to work in the morning and building this fine house! Imagine how furious the master would be, if he learned that we don't have as many bricks as the blueprint calls for! Why, whole teams of the construction crew might be thrown out of work if that happened! He's got three guys alone working on the paneling for the third-floor balcony, but there might not even be a third floor in the revised plan. So let's just keep the good times going as long as possible, lest we end up with a bunch of guys standing around with nothing to do."

In Mises's story, it is clear that the builder's error is not overinvestment, but malinvestment, of resources. It isn't a question of how many bricks should be used on the house as a whole. Rather, the mistake is that the builder allocated too many bricks to the first floor. With each subsequent brick that his men put in place, following the original (and flawed) blueprint, the options for salvaging the project become narrower and narrower. In the worst-case scenario, the builder would only learn of the inflated brick count the moment he had laid the last brick—at this point, no subterfuge by his subordinates could deny the fact that they were physically out of bricks. And at that horrible point, the builder would have to survey the remaining materials littering the yard, hoping to be able to at least seal the unfinished house to keep the rain out. Whatever the outcome, the builder would have sorely preferred learning of the brick shortage much earlier.

Yawn.

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z1235 replied on Sat, May 5 2012 5:54 PM

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mustang19:

Pretty bold economic prediction you're making!

Honestly, why is muddling of property boundaries neccessary for MY saved capital to meet whomever demands it in the market? I can keep some in a cash deposit for my daily needs paying a storage fee for it, if the market demands, and I can hire advisors to lend (bonds) or invest (stocks) the rest in the economy. If I need more cash, I sell my bonds/stocks in the market. Why do I need "banking", "fractional" or "free" or "central"? The whole "banking" is a scam. No one really needs it.

I think deposits will stick around for as long as they hold less risk.

Deposits are not supposed to hold ANY risk. That's why they are called deposits. I can store my gold anywhere. I don't need a "bank". Investments (bonds, stocks, etc.), on the other hand, do take/carry risk in order to make a return.

But yes, in the future we'll all do financial transactions on our cellphones with no need for physical cash or tellers or ATMs.

Perhaps -- nothing wrong with electronically transferring ownership of my ounces of gold to someone else -- but those weren't the innovations and advancements I was referring to. 

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mustang19 replied on Sat, May 5 2012 6:02 PM

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Uncertainty is diffused as far as possible under a condition where there are any number of alternate channels of credit and store/measures of value.  Competition would weed out unsound practices.  Hayke just says open the channels up so people can inflate and people can save, the idea being that, then there will be no "shortages" of money and there will be market-tested stores of value to contract in over time increments.

The history of free banking is not encouraging on this account- the business cycle was smoother after the introduction of discretionary monetary policy.

Central banks and the ability to create money (credit/debt, w/e) has no limits as the logic is presented as, "Private banks have ratios and regulations on their capital requirements this way they cannot create too much and couse problems.  Central banks create money and give it directly to the private banks in order to continue their expansion of credit (a necessary condition of low interest rates)."  This defeats the purpose of the signals involving savings and credit expansion.  Plus, take a banking class, they never listen to those ratios, they simply leverage other assets (liabilities) since it is all insured by the government.

The central bank does not expand credit at the same, constant rate. Under countercyclical policy, it reduces credit growth during booms and increases it in recessions. A capital adequacy and reserve ratio are separate concepts. The latter was never enforced. The former, if enforced, could greatly reduce financial crises by requiring banks to put away funds to provide their own liquidity support during crises.

That kind of attitude, that you can fine tune the economy, thinking you can decide or "deviate" away the importance of one type of investment and another, is the problem.  You aren't smart enough to do those things.  What is meant by "knowing" is the unintended consequences.  I never see the "possible unintended consequences" section at the end of academic economists papers.  Then, when the unprophesied result inevitably comes about get written about, "This is a rather long paper." is the best the idiots can muster.  You are not a sage.  You need to "know" how much of what needs to go where at all times.  You will not justify that kind of intrusion of privacy by the state will you?  I won't hold my breath...

If you consider the Federal Reserve reading manufacturing and NIPA reports an invasion of personal privacy, then that does make sense.

Of course, patterns, in most cases, will not deviate wildly (although some will), they will shape themselves differently under different circumstances.  Interest rates are the primary prices signals, as they involve time allocation in relation to captial) and will throw off the perception of different chunks of time for investors and as a result they make different choices than they otherwise would have; summed in a word, "malinvestment."

Which is why the Fed increases interest rates during periods of high credit demand. Free banking had proven even worse at dampening the business cycle.

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mustang19 replied on Sat, May 5 2012 6:05 PM

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Honestly, why is muddling of property boundaries neccessary for MY saved capital to meet whomever demands it in the market? I can keep some in a cash deposit for my daily needs paying a storage fee for it, if the market demands, and I can hire advisors to lend (bonds) or invest (stocks) the rest in the economy. If I need more cash, I sell my bonds/stocks in the market. Why do I need "banking", "fractional" or "free" or "central"? The whole "banking" is a scam. No one really needs it.

You don't, personally, require it in your daily life, perhaps.

Business loans are another matter. But perhaps you've invented an alternative.

Deposits are not supposed to hold ANY risk. That's why they are called deposits. I can store my gold anywhere. I don't need a "bank". Investments (bonds, stocks, etc.), on the other hand, do take/carry risk in order to make a return.

Among other reasons why it isn't carried around to pay for groceries, gold is heavy and takes up space.

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Aristophanes replied on Sat, May 5 2012 6:21 PM

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Uncertainty is diffused as far as possible under a condition where there are any number of alternate channels of credit and store/measures of value.  Competition would weed out unsound practices.  Hayke just says open the channels up so people can inflate and people can save, the idea being that, then there will be no "shortages" of money and there will be market-tested stores of value to contract in over time increments.

The history of free banking is not encouraging on this account- the business cycle was smoother after the introduction of discretionary monetary policy.

Cop out.  Hayek isn't looking for the same situation as you insist on referring to.  You're getting on my nerves, kid.  You refuse to read those articles because, I think, you cannot handle their refutation of your 80 year old theory.

The central bank does not expand credit at the same, constant rate. Under countercyclical policy, it reduces credit growth during booms and increases it in recessions.

In those papers of Bernanke's that you cited, where does he say anything like this?  I understand that is old school Keynesian logic, but it hasn't been followed for forty years.

A capital adequacy and reserve ratio are separate concepts. The latter was never enforced. The former, if enforced, could greatly reduce financial crises by requiring banks to put away funds to provide their own liquidity support during crises.

But, it relies on people like you.  Who refuse  to read legitimate academic refutations of their control schemes.  You have an overflated sense of importance.  It won't happen because bureaucrats won't do things if they can bribe people through the political system.

Which is why the Fed increases interest rates during periods of high credit demand.

Not true.  Theoretically it is, but it has not been in practice.  Greenspan fools you.  You are not as clever of a rhetorician as he is.

If you consider the Federal Reserve reading manufacturing and NIPA reports an invasion of personal privacy, then that does make sense.

Another cop out response.  Man you are a pussy.  you didn't even respond to Mises builder parable...truly pathetic debate mode you've got.  Why not respond to the definition of "prediction" and "forecast." ha

I think, you should face it, you've destroyed your credibility.

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mustang19 replied on Sat, May 5 2012 6:25 PM

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Cop out.  Hayek isn't looking for the same situation as you insist on referring to.  You're getting on my nerves, kid.  You refuse to read those articles because, I think, you cannot handle their refutation of your 80 year old theory.

If you can summarize the point made in those dozens of pages, I would like to discuss it.

In those papers of Bernanke's that you cited, where does he say anything like this?  I understand that is old school Keynesian logic, but it hasn't been followed for forty years.

It has been, in many countries (section 6.1).

I think, you shouyld face it, you've destroyed your credibility.

The business cycle was worse under free banking. The business cycle was a significant problem at least to the degree that it is today. Please disprove this.

Fourth, there is reasonably clear evidence that 19th and 20th Century business cycles are different and that a plausible explanation for this result is the introduction of counter-cyclical policies in all of the countries in our sample.

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Aristophanes replied on Sat, May 5 2012 6:43 PM

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It has been, in many countries (section 6.1).

I'm not going to read.  It's too long.  Please speak at me.

I think, you shouyld face it, you've destroyed your credibility.

The business cycle was worse under free banking. The business cycle was a significant problem at least to the degree that it is today. Please disprove this.

The Fed does not make predictions. It makes forecasts

You can't explain that?!?!

Dude.  you have no credibility.  You do not even acknowledge your huge pitfalls in logic and desperate(and inaccurate) rhetorical claims.

Fourth, there is reasonably clear evidence that 19th and 20th Century business cycles are different and that a plausible explanation for this result is the introduction of counter-cyclical policies in all of the countries in our sample.

That quote proved it, too!

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mustang19 replied on Sat, May 5 2012 6:46 PM

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That quote proved it, too!

From that post, I take it that you're no longer interested in contesting the observation that free banking produced worse economic outcomes than central banking.

See you later, Aristophanes.

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Aristophanes replied on Sat, May 5 2012 8:14 PM

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EDIT:  You know, you cannot expect us to read you papers as you provide them for evidence, but refuse to read ours.  It really is as simple as that.  You are here to troll us.

You have no idea what you are talking about.  All your claims are rhetorical devices.  You show no understanding of the concepts yourself, you are taking quotes from papers and appling no thought whatsoever to things (reapeating ad nauseum that "free banking" is worse than central banking to a group of people that do not only oppose central banking on econonmic justice grounds, but also on a "legitimacy of power" grounds) and when you do try to counter a point that is made...

"The fed doesn't make predictions.  They make forecasts..."

...you cannot even get it right...Tell me about economics when you won't read the papers and cannot think through simple rhetorical contradictions.

My first criticism was in  the first Bernanke paper that you posted.  And every other academic criticism I have leveled has been met with omission and poorly thought out rhetoric.

Here's an example:

A capital adequacy and reserve ratio are separate concepts. The latter was never enforced. The former, if enforced, could greatly reduce financial crises by requiring banks to put away funds to provide their own liquidity support during crises.

You argue for regulation (saying lack of it was bad) but then say, "well, the regulations weren't followed."  That doesn't negate their existence and codification...Regulations are counterproductive.  Risk is the only unbiased regulation.

And when you say the 18th century is worse than central banking century, you provide no criteria for this assertion.  There are far more variables in those kinds of quasi experiments than you can even explain to me.  You also must not be familiar with the plethora (Rothbard, Schumpeter, Grey, and Friedman all come to mind) of literature than points to the late 1800's as being the best generation of economic growth the US had.

When you get out of high school and grow the balls to read 'long papers' then post.

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mustang19 replied on Sat, May 5 2012 8:36 PM

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My first criticism was in  the first Bernanke paper that you posted.  And every other academic criticism I have leveled has been met with omission and poorly thought out rhetoric.

The VOX paper (I have presented no papers written by Bernanke) suggested that a percentage point increase in interest rates raised house prices 2%. If you agree, I have never been in disagreement with you on that point. I was emphasizing how much more important fractional reserve banking was to credit expansion than minor changes in interest rates.

You argue for regulation (saying lack of it was bad) but then say, "well, the regulations weren't followed."

Basel II was enforced. Basel III is expected to be. I have not stated otherwise.

That doesn't negate their existence and codification...Regulations are counterproductive.  Risk is the only unbiased regulation.

It's difficult to see how increased bank capitalization will worsen balance sheets during a recession.

The argument that deposit insurance eliminates bank runs has validity,
though it is questioned by the proponents of ‘free banking’ (see the final
section of this chapter). An important side effect of a system of complete
(i.e. 100 per cent) insurance of deposit is that it creates a moral hazard
problem. (You should recall this point from unit 24 Principles of
banking and finance.) Under full insurance, depositors lack incentives
to monitor a bank’s activities, because they will suffer no losses if the bank
fails. With depositors not monitoring the bank, its managers will have
an incentive to take greater risks than they would otherwise have done
(hence bank behaviour is distorted by the complete deposit insurance).
Two possible solutions are co-insurance (where deposits are less than 100
per cent insured) or requiring riskier banks to pay higher deposit insurance
premiums (see unit 24 Principles of banking and finance for details).

This provides support for regulation based on reserve ratios and capital
adequacy. An important manner in which excess asset risk can be regulated
is by linking banks’ shareholder capital to the risk held by the bank in its
assets. Central banks and other regulatory agencies have typically utilised
two measures of capital adequacy, namely the gearing ratio and the risk–
assets ratio.
The gearing ratio is based on bank deposits relative to bank capital. It is an
indicator of how much of the deposit base is covered if a given proportion
of the bank’s borrowers default.
Let the balance sheet be described as:
A = D + E
where A is total assets, D is deposits and E is equity. The gearing ratio, g =
D / E , hence D = g E , and:
A = g E + E
A = E (g + 1)
If μ is the rate of default on assets, and max μA = E, then:
max μA = A / (1 + g)
max μ = 1 / (1 + g)
If μA of assets is lost due to default, it can be absorbed by bank capital (E)
and deposits are covered. In other words, the maximum default rate which
can be absorbed without affecting deposits is equal to 1 divided by (1 +
gearing ratio).

The point of capital adequacy requirements is to increase the financial system's ability to absorb losses and reduce the need for government guarantees to restore system functioning. Banks are required to hold a certain ratio of liquid capital to total assets to reduce the gearing ratio. It does not require any new spending, as the banks hold their own capital reserves to replenish losses. By doing this, they reduce risk throughout the financial system. If increasing the frequency and severity of financial crises is your goal, then perhaps you should oppose it.

You also must not be familiar with the plethora (Rothbard, Schumpeter, Grey, and Friedman all come to mind) of literature than points to the late 1800's as being the best generation of economic growth the US had.

That was in spite of, not because of, the worsened business cycle under free banking. Wildcat banking was a notable problem under this system.

Edit: The point of the paper covering the 19th century business cycle was changes in cyclicality of credit over the period. It's possible to compare the credit cycle before and after the introduction of central banking. After this occured, credit movements became more countercyclical, dampening the business cycle. This displays the difference between private and government management of credit.

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Aristophanes replied on Sat, May 5 2012 9:18 PM

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Isn't this...,

Basel I/II had capital requirements around 7% of assets. That's nothing.

...this,

You argue for regulation (saying lack of it was bad) but then say, "well, the regulations weren't followed."

Basel II was enforced. Basel III is expected to be. I have not stated otherwise.

...?

and this is such a load of BS.  I said,

You argue for regulation (saying lack of it was bad) but then say, "well, the regulations weren't followed."

Basel II was enforced. Basel III is expected to be. I have not stated otherwise. I have not stated otherwise.

But if I remember you said,

Under countercyclical policy, it reduces credit growth during booms and increases it in recessions.

which reinforces my point that

I understand that is old school Keynesian logic, but it hasn't been followed for forty years.

and you also said this highly specious statement of

If you're asking me my opinion on what the Fed should have done, I believe that they deviated slightly from the Taylor rule, and should have followed it better- which would mean slightly raising interest rates. But I wouldn't expect it to have made more than a few percent difference in the size of the bubble.

So, this

I have not stated otherwise.

Is not true.

I'll refer you to this...

met with omission and poorly thought out rhetoric.

and this

The Fed does not make predictions. It makes forecasts

The definition of "prediction":

1.  To state, tell about, or make known in advance, especially on the basis of special knowledge.

 

2.  To foretell something; prophesy.

 

"Synonyms: predict, call, forecast, foretell, prognosticate"

 

Your petty semantics may have a causal relationship with your refusal to read a paper based on its length, as opposed to your refusal to read them based on the intellectual brutality that your perspective will have wrought upon it in them...