If we are to judge any institution by its record, then it should be obvious that the Federal Reserve Banking System has been a dismal failure! by Republicae
(libertarian)
Sunday, October 26, 2008
If one is to judge the efficacy of an institution by the policies it promotes, the decisions it makes and the results of its actions then the Federal Reserve Bank System has been one of the most dismal failures in history. Aside from the side-effects of an absolute fiat monetary system, such as the drastic depreciation of the purchasing power of the currency; the FED has not preformed well in the prevention of instability in the economy, just the opposite, it has created a long list of boom and bust cycles since the Federal Reserve Act was passed in 1913.
Just look at its record: 3 Depressions in the 20th Century; the first was in 1920-1921, the next was 1929-1933 and the next was 1937-1938. There were sharp Recessions: 1923-1924, 1948-1949, 1953-1954, 1957-1958, 1973-1975, and 1981-1982. 1987. Then there were 7 mild Recessions: 1926-1927, 1960-1961, 1969-1970, 1980, 1990-1991, 1999 and then 2001 brought on by the events of 9/11 and of course the latest FED fiasco that we are now witnessing. That is not the best record in the world for the Federal Reserve System and Keynesian Economics.
The long-term monetary policy promoted by the FED, this government and other countries, is ruinous. It is based on a game that relies solely upon the illusion of value, the deception of debt wealth. It is, simply a catastrophe that is literally unfolding before our very eyes. Any dependence by any society upon such an inconspicuous system of gradual monetary depreciation is, to say the very least, unwise, shortsighted and poses a very real danger to the future well being of the People.
Of course, such an inflationist fiat monetary system allows the government to expand everything politicians can dream up without resorting to a drastic increase of taxes on the People, this helps the government avoid such nasty and potentially dangerous acts of over-taxation; nevertheless, inflation is, perhaps the most insidious means of tax ever devised. It not only drains a great deal of productive wealth from the country, but it promotes government expansion, poor decision making and misguided polices.
The loss of productive wealth is probably the most damning result of fiat money; it impedes progressive commerce in ways that few understand. It is so damaging to the ability to judge the time value of our money that businesses, particularly those involved with long-term capital investments cannot accurately rely upon the future value of their money. Thus the true cost of capital always evades commerce, encouraging malinvestments and bad decisions; it is a sloppy system of money. Since there is never a clear signal upon which businesses can draw upon, especially when it comes to the manipulation of interest rates by the FED, it is an unreliable indicator of time preferences which, under a free-market system, coupled with sound money, would give such indicators and allow for far better decision making with both monetary and business movements.
Based upon the monetary and credit polices of the FED, commerce should have experienced a steady growth due to the injection of money and credit into circulation however, this does not appear to be the case. Now, based of FED figures, monetary growth and credit there has been an increase close to a factor of 90% between the periods of 1950 and 2008, yet we do not see a comparable rate of economic growth, the truth is that we see just the opposite, a declining growth rate and a drastic decrease in the purchase power of the dollar. In fact, judging other indicators, such as the amount of debt it now takes to generate even a dollar's worth of economic growth our country is on a precipice from which there can be no retreat, at least as long as this monetary system continues to drain away all viability from the economic system.
Without doubt, there are those apologists for the currency fiat monetary system and the economy that has been built upon it who sing the praises of its elasticity, its flexibility when just the opposite is true. What they actually heap their praise on is government intervention through the implementation of the Federal Reserve Bank. It is not, nor can it be a long-term solution, such systems always fails in the end. They shout that in order for the economy to keep going, for it to grow there must be a constant and consistent supply of money injected into circulation. While that is perfectly true for a fiat monetary system, it does not hold true for a sound monetary system. It is not the number of dollars floating around in the economy that matters, but the effective purchasing power of each dollar that assist in the productive creation of commerce and, in turn, wealth. With fiat money, central banking intervention and manipulation always depreciates the purchase value of money to the point that the only impetus for economic growth is the injection of even more money and credit into the system. This is, of course, a precarious road to travel upon.
Eventually, of course, this great inverted pyramid of debt that they have helped create can no longer be balanced. The debt and inflation become impossible to maintain to the point that the FED will be increasingly unable to create more debt to create more money to effect its balancing act. Thus far, the only thing keeping the entire system afloat is the fact that up until now they have been able to continue the process, but as you and I will soon see, that will no longer be possible. It is becoming evident that as the debt looms larger and larger, it will siphon all profitability from the economy because the economy can simply not service that galactic degree of debt.
There is currently an effort by the FED, the Treasury and this government of a great postponement; one that will barely slow the crisis, for it is systemic not only in its nature but the flaws within the system are inherent. There is a very real dual deterioration taking place at the moment, one involves a deflationary trend in banking, credit and business, the other is a massive inflationary trend taking place as the FED injects truly unbelievable amounts of credit liquidity and money into the system. There are other even more ominous threats to our economic survival on the horizon, of which there will be few options left the FED in its ability to divert disaster. Soon, there will be massive defaults, on such a scale that this country has yet to see in its history.
It has assisted in creating a vast black hole of debt one that has been steadily sucking the life from this country and its people. The only thing, and I mean the only thing that is keeping the entire system hobbling at the moment is the ability of the FED to keep the "printing-press" running at full speed. The problem of course is that the debt is multiplying faster than the FED can print itself out of the hole. The FED is constantly attempting to push that event horizon out in time, creating a lag-time between now and the "Reckoning".
It is, of course, becoming more and more difficult for the FED to keep the spread from narrowing. As we know, the people of this country are woefully unaware of just what is taking place and because there is a delay between the actions of the FED and the reactions within the economy this allows problems to go unnoticed until they are upon us.
Eventually, the entire system becomes unmanageable, stress-cracks simply become too common and too deep to contain with the normal actions taken by the FED, as we are seeing. At this point, the decision-making process is much more akin to a stab in the dark than anything resembling sound monetary and economic policy.
We are seeing signals of a monetary system that is heading for the bone yard. The expansion of bank credit an money, thus more debt, all sponsored by a central bank which has proven itself incompetent since its inception in 1913, will begin to demand far more than the economy will be able to produce. As I have stated, time and again, this fiat monetary system and the economy it supports will end in a massive insolvency. Instead of taking appropriate actions to combat this, the FED is doing exactly the same thing that brought about every boom and bust cycle our country has seen since the 1920s. It is lowering interest rates, pumping mind-boggling amounts of fiat currency into the system and thus they are simply distorting an already inflated economic and monetary distortion by their actions. All of this leads to a very unsustainable level of debt and that debt will begin to demand even more service the larger it becomes. The central banks of the world now find themselves in the classic Catch 22, a circular equation with no solution.
We are at the point that the FED, the Treasury, the Government will no longer be able to mitigate the cascade of problems with any real effectiveness. The problems are now much larger than the institutions which seek to control them. In fact, the problems are now larger than the government which seeks to maintain its power and control, it will also be a victim of its own creation.
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Man, you're really going out there on a pretty shaky limb. There may even be a bee's nest out on that limb, and you're going to be stung pretty badly.
These are about the most ambiguous numbers I can think of, and to blame all these downturns in REAL GDP numbers on the Federal Reserve System is like blaming your child's poor performance on math tests to the meals you've been feeding him over the years. The link is not that clear AT ALL.
If you have a point to make, using GDP numbers (which were originally GNP numbers, then were changed in the 80's) and then using REAL GDP numbers (which means you are adjusting them for inflation ~ you should be more respectful of my article on the dangers of the CPI) is never going to give you a connection to the Fed.
You have thousands of influences going on in the economy. How can you possibly think that you can lay the blame for REAL GDP drops on the Fed?
I must commend you on your brevity, however. Congratulations. I actually read through the whole article a couple of times.
The only problem is that when you shorten up your articles, you still have to make a REAL connection, not just point to problems and say that the FED caused them.
That's like saying that there was a brownout in NY over the weekend, and the FED caused it! Ha! Ha!
I think you're getting a little carried away in your eagerness to condemn what you don't like.
The problem with a fiat economy is fiat money and the management that must be introduced into the monetary system which, by the way, has a very direct effect on the general economy as a whole. While there are a myriad of influences within an economy it all centers within the monetary policy and management of the Federal Reserve Banking system and its ancillary dependencies.
There is a very definitive effect from the nature and the means in which a fiat monetary system operates on the economic welfare of the members of a society. It is impossible to separate those effects. Because of the nature of fiat money it always pas a lower rate of return than does real asset money because there is a diminishing function within fiat money since it is always, by its nature, a double liability. Due to the nature of the economy that is built around a fiat monetary system, its effectiveness is diminished due to the face that the increase in the money stock will always reduce the purchase value of the monetary unit, this always presents itself as degraded economic output.
It is easy, very easy to see the effects of such a diminished monetary mechanism in our own economy. It is evident that it now takes many more fiat dollars [currency & credit] for every dollar of economic output; instead of dollar injected for dollar return, it now takes near double-digit fiat dollars injected into the economy to provide for a return of one dollar. That is the typical indicator that there is a systemic problem within the monetary mechanism itself as it is no longer capable of stimulating or even maintaining economic growth. It is impossible not to relate the degradation of the monetary unit with the degradation of economic output; the two go hand in hand.
The very nature of a fiat monetary system always suffers a deterioration the longer the system is employed; thus the later generations experience the diminished utility of the monetary unit as it degrades the general economy. Every instance of a long-term fiat monetary system always repeats the same pattern of economy degradation. It is impossible for it not to suffer such a fate because the monetary exchange potency is depreciated over time due to the abuses such a system makes possible.
The Federal Reserve System employs the only principles available to it under the restriction of a fiat monetary system. It, as we have seen, always inflates the money supply, and in turn the monetary always depreciates over time. There is absolutely no way to separate the monetary depreciation with economic depreciation. It is impossible not to recognize that when a society is subjected to a monetary debasement over a long period of time; one in which the purchase value of each unit has effectively been depreciated over 95% within a 100 year period, that there will not be an equally reflective economic degradation over that period. Not only is it common-sense to understand that when you deprive a society and its economy of over 95% of its purchasing power over decades that there is a definite negative effect on the economic machinery as a whole, but there are several other factors that relate to such a monetary depreciation; it changes the entire complexion of economic productivity and the psychology behind economic movement.
In a fiat or debt-economy, it must be fed liquidity into that economy to attempt to stimulate growth, it is just that simple. Of course, such liquidity booms will always turn into a bust. During such bust business earnings will always suffer from the debt crisis that ensues and asset values cannot be maintained. Thus economic growth in a fiat economy, under a fiat monetary system must always have liquidity injected into it to maintain a level of growth, but it cannot be sustained. The reaction of the FED, in cases like the one we are experiencing is excessive liquidity injection to correct the problems it began in the first place; the balancing act is for the FED not to create a hyperinflationary event by pushing the string harder than it normally would to correct those troughs its policies initially created. The problems associated with such liquidity and credit problems are that there is naturally a loss of confidence and the injection of more liquidity in the system cannot combat such losses. Until the FED/government can realistically and rationally come up with a system that would allow for the absorption of excess liquidity then there is always a danger looming that it will only make the problems worse and spread the effect that a lack of confidence brings to the overall economy.
To ignore the correlation between fiat money and economic output is, perhaps, one of the more absurd propositions. With the increase of abuses to the monetary system we have seen an increase/advance in the degradation time-line of monetary functionality and economic viability. It is also impossible to ignore, or at least it should be, the correlation between the fiat fractional reserve system and the generation of recurring economic recessions which, by the way, are impossible to avoid under a fiat monetary system. The most fundamental negative effect born within the Federal Reserve and the fiat monetary system is the loss of purchase value within the currency itself. Of course, the FED seems to always take credit when economic booms occur, but when the bust occur blame is dispersed out away from the FED and its monetary management policies. So, in a very real sense, the FED creates the problems, and then attempts to solve the problems it created and then bask in the praise when it is successful in solving the very problems that their monetary policies helped create in the first place.
Now, I can easily go into the various downfalls, pitfalls and errors within the FED and the entire system if you like. I can show you, in detail, the long list of errors that the FED has created through a myriad of monetary policy decisions that caused and continue to cause very difficult problems, most of which are simply layered upon other previous problems created the FED as it must deal with the restrictions and degradations within the fiat monetary system and the economy it creates.
You're really rambling this time. Nothing you said shows any connection between changes in REAL GDP and the Federal Reserve. It's all ASSERTION.
Not only that, but without using "REAL" terms (which I used to tell my Econ instructors were about as "unreal" as you can get ~ because they are merely mathematical contrivances; there's nothing "real" about that) you would see that in ACTUAL terms, GDP has gone up EVERY SINGLE YEAR!
Just because you don't like something doesn't mean that it's the cause of EVERY single ache and ailment you experience. I suppose when the Sun doesn't shine, the Fed's got some devious connection to it! Ha! Ha!
You might want to draw your readers' attention to Murray Rothbard's America's Great Depression. However, real figures are only given for the years 1929-1932. Still, the first chapter gives an overview of the Austrian economics Positive Theory of the Cycle, which I believe is what you are largely alluding to in your article. Rothbard's central thesis is stated on p. 29, when he states that, because the Federal Reserve System has absolute power over the nation's money, the federal government bears the complete responsibility for any inflation. Rothbard continues by saying that banks cannot inflate of their own accord, and that any expansion of credit can only occur with the support and acquiescence of the federal government and its Federal Reserve authorities. Therefore, the federal government must bare sole guilt for credit expansion and any consequent depression."
With that said, I don't know how an end can be put to the continuing boom-bust cycle that appears to be caused when the Fed pumps infationary credit into the banking system. I don't believe many in power would subscribe to Rep. Paul's desire to put an end to the Fed. The only other suggestion that I have seen put forward recently was in an Op-Ed titled "Living with Bailout Regrets: A Path for Moving Forward" in the Washington Times. In this editorial piece, Congresswoman Bachmann states that Congress must restructure the Federal Reserve. She states, "I'm working on legislation that would scale back the unrestricted powers of the Federal Reserve Board. Due to a Depression-era law, the Fed is empowered to become the lender of last resort so long as five of the Board's governors consent to the decision. There is absolutely no Congressional oversight of this virtually unmitigated power, and not one check or balance via the president or Treasury. All it takes is the approval of five unelected people who agree on what constitutes 'unusual and exigent circumstances' in the marketplace and taxpayers - and their pocketbooks - are on the hook again." If Rep. Bachmann does potentially lose her seat, I don't how many other members of the HFSC would be willing to take on the Fed.
Hmmm…so, by implication you don’t see any connection between economic growth and the monetary policy of the FED and yet, you state that the expansion of fiat money and credit is necessary to maintain economic growth and prevent stagnation. Interesting, very interesting I must say Master C. Of course, since you don’t see fiat money as having an inherent flaw you would naturally not be able to conceive that it would have a negative effect on the economy and productivity of the country over a long period of monetary depreciation. Again, interesting concepts of mental compartmentalization on your part, I must say.
Concerning the old GNP, GDI and GDP let’s take a look at them. First, as you know since the 80s, the GDP has contained within it an upward bias in its calculation methods...basically, it can realistically be considered worthless information. Similar to the manner in which unemployment figures are arrived at now, if you used the methods that were employed prior to the 1950s, current unemployment would be closer to 12% to 14% instead of the 6%to 7% or so as reported by the Department of Labor. So, with such skewed numbers, such flawed methods of calculations you are telling me that you are confident that there is no connections between the policies of the Federal Reserve and the gradual and steady degradation of economic output as it relates to dollar/credit injections verses actual output.
If these numbers are as skewed, as they appear to be, then such reports can and do have a major impact on the entire economic and financial systems. It is also important to understand that since even the FED appears to rely upon such distorted numbers to base its monetary policy there is a direct effect on such monetary decisions its makes as well. If we apply these GDP estimations therefore, there will be a direct influence on the numerator within the productivity ratio, this will therefore, not provide an adequate and valid information in the decision making process. Of course, when GDP numbers are skewed even bloated there is no real means to determine appropriate policy.
Just look at BEA reports, while they state that 90% of all revisions from preliminary estimates on GDP and final revisions of GDP are between +3.1% down to a -2.6% in recent years with the average growth rate begin somewhere around 3.5% actually means that GDP estimates are statistically meaningless especially considering the upward bias. There have also been reports of pressure applied on the BEA by certain involved parties, i.e. high government officials, to report even higher figures in their reports. Who can we trust?
Take a look at income growth; the disparity between actual IRS numbers and those of the BEA GDI figures is beyond realism. If you look at the reports you will see that the NIPA is nothing more than a ledger on which one side GDP entries are made and on the other GDI entries. Normally, you would expect the figures on each side of the ledger to reflect each other, but they don’t. There is and has been for several years a substantial discrepancy between the two numbers. How do you explain that fact?
You would think that since these types of wide analyses do not provide a reliable picture that the FED and the government would look to perhaps a better indicator of the effects of policy on economic direction and growth, but they don’t. There is a very good indicator available and that is the IRS. Tax returns, while they are subject to abuse of a misreporting percentage, are a very reliable source for economic information, not only on the individual level, but also on the corporate level. It gives a very good picture of what is really happening within the general economy and while the BEA does consider IRS data it has yet to come to reconciliation between its own numbers and those of the IRS.
Now, lets consider the immense rise in the budget deficit; its been reported that the 2009 is estimated to be around $700 Trillion, that is a rise within 6 years of nearly $326 Billion. Of course, these are not including off-budget costs, which increase the estimates of the 2003 budget deficit to nearly $4Trillion. So, using GAAP, we can imagine that the upcoming budget deficit will be astounding, to say the least. The GAO reported that even if the IRS seized all wages and salaries each and every year, presumably with a 100% tax rate, that there would still be an unmanageable budget deficit, not to mention the national debt or the future unfunded obligations. I suppose you don’t see any problems with that do you or how such issues may be extremely tied to the fiat monetary system and FED/government policy?
So, we have a government that is basically “cooking the books” and yet we have other agencies such as the FED using all those data reports to formulate monetary policy which has a direct effect on the economy, yet you don’t see a connection.
If you remember back in the 70s there was a push to make the government use an accrual accounting basis; it didn’t get far unfortunately because under such a system the reporting of actual numbers, especially what was once off-budget items, would have caused a massive political disaster for the Congress and the President. There was a push to use proper GAAP for Social Security, but during the Reagan Administration that was dumped because, once again, it would not be politically advantageous to either party.
Now, if you remember back in the 80s, Congress in all its wisdom allowed the Social Security Trust Fund to be plundered. From that time all monies were converted into special Treasury securities, what makes them special is that they are non-marketable, can’t sell them anywhere to anyone. Here again, we have the makings of a fiat IOU system; can it be any wonder why so many politicians favor the influx of illegal aliens into this country or amnesty legislation? After all, a massive influx of laborers who could help pay for the Social Security Scam would be an effective cover for the real state of the Trust Fund. Now, I understand you can’t see any connections in all of this, but there is not only connections, but also an incredible degree of influence on the general economy.
Speaking of the SSI Trust Fund, the Office of Management and Budget released this little tid-bit of information about the Trust Fund in 1999:
“These trust fund balances are available to finance future benefit payments and other trust fund expenditures--but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”
My what a web we allow our politicians to weave and they weave such webs in everything they touch. So, in your mind all of these things must be compartmentalized, non-effective on the general economy; sort a like the FED’s monetary policy, at least it appears that is what you are saying. I am of the opinion that everything is effecting and influential, but that all these factors are initially influenced by the nature of the fiat monetary system and the decisions the FED must make to maintain its ruse of government accounting tricks.
Speaking of accounting tricks, you can go back through the Presidencies to see that there were intentional distortions for political means. If you are old enough to remember the Kennedy Administration added a nifty little trick to unemployment numbers with the addition of what they then called “discouraged workers”, this effectively reduced the actual unemployment numbers to a more palatable figure. It is well known that LBJ regularly sent GNP numbers back to the Commerce Department over and over again until the numbers met with his approval.
If you remember Nixon was always at odds with the Bureau of Labor Statistics about the unemployment rates to lower the seasonably adjusted rates, once again to appear far more palatable to the public and commerce. Basically the Bush Administration revived the same methods in 2004 to conceal the reality of such potentially damaging data from the public eye.
The Carter Administration was almost scandalized when it was discovered that it was intentionally misreporting inflation figures.
For a real eye-opener, lets look at the Reagan Administration; it’s a thousand wonders that Reagan is still considered a Fiscal Conservative when his Administration was anything but fiscally responsible. I’m sure you remember the 87 “crash”, the FED, with the help of some directly manipulated numbers used those numbers to intervene with a massive injection of liquidity into the markets; it bottomed out the dollar by the end of 87, containing the panic but causing other problems, some of which we are still contending with today.
Reagan’s successor, Bush Sr. and his Administration sought to reduce CPI inflation figures, not through economic or monetary policy but through accounting methods such as the so-called “outside-system GDP”.
Since you are a “liberal” you may have read former Labor Secretary Robert Reich’s memoirs, if not then I recommend it for nothing more than seeing just how economic data was manipulated and then reported. Clinton’s Administration pretty much redefined everything from unemployment reporting methods, to GDP to CPI.
Of course, the Little Baby Bush has not only continued with the Clinton methodologies, but his Administration has continued transforming the way the data is collected, analyzed and reported.
Now, you have made two comments on this article, each of which made no real rebuttal nor did either really make a point about anything of substance. Why do you bother if you have nothing substantial to say? Once more you are simply a broken record offering no information or rebuttal to the article of the comments.
For one, the relationship between money and growth isn't in POWERING the growth, as you seem to imply, but is in ASSISTING and ALLOWING the growth. It's like you saying that putting gasoline in your car makes it go. Wrong. It ALLOWS the car to go when you drive it. You can put all the gasoline you want into an old rattletrap (no offense meant if you see similarities between an old car and some old buffaloes who write on this website ~ even though Walt wouldn't allow my article comparing a doddering old thinker to an old car and a lawn gnome) but it AIN'T GONNA GO NOWHERE!
Any skewing of numbers is going to be MAGNIFIED by converting them to "real" values. If you accept them as "real" numbers, the actual ones are the same ones from which the real ones were derived. I'm just saying that the ACTUAL numbers show an increase EVERY YEAR.
Income growth is derived from these numbers as well. The whole GDP punchline is full of derivations, additions and subtractions. Yet, I'm saying that you can't blame the OUTPUT numbers on the money changes when there are hundreds ~ really countless ~ numbers of things contributing an influence on the GDP numbers.
I love Robert Reich. I used to read from his book "The Next American Frontier" in my classes. He is still very cantankerous, but he's a pragmatist, too. Some of his REAL, DEEPLY HELD beliefs are beyond his political ability to implement. My REAL favorite is JK Galbraith, who used to bugger WF Buckley on "Firing Line" on a regular basis ~ although I have said when asked on different occasions that the one person I would (have) liked most to meet in my life would have been Buckley because he was so erudite, civil, brilliantly accomplished, and a talented wordsmith.
I am aware of many of the gimmicks and trickery that have been used to streamline and stabilize economic data. When Reagan cut back on the size of "gov'ment" (as he called it), he reduced the Bureau of Labor Statistics by 20% and went to automatic reporting for most indexes. Covers his tracks ~ and all succeeding politicians ~ as cleverly as Chingachgook who became the Last of the Mohicans!
It once again appears that you misapply monetary mechanics under a fiat monetary system. Under a normal commodity specie monetary system your would be correct, the money allows for exchange and thereby fuels growth however, that is not the case under a fiat monetary system that relies upon the constant expansion of the money supply and ancillary credit liquidity for economic growth to occur. We would not otherwise witness business cycle after business cycle, boom and bust. We would, if the economy were not dependent upon monetary increase and credit liquidity through the instrumentality of debt creation, see a far more stable, steady rate of growth.
You stated: “With a FIAT CURRENCY, however, the total amount of money isn't a problem; as the economy expands, you just create more of it. What this does is provide the LIQUIDITY and AVAILABILITY that are necessary to accommodate a growing economy.”
Strange, but we are witnessing just the opposite in the economy today and the mechanism that the FED is using is “REINFLATE” the economy. How is that done, if economic expansion does not rely upon the expansion of fiat money and fiat credit liquidity injections as you seem to imply then the FED is taking the wrong action since it is not the injection of such fiat money that runs the economy, but the economy that runs the need for further fiat monetary creation. At least that is what you appear to be saying, well, this time around. You see, just the opposite is true in a fiat economy, since the entire economy is debt/credit driven it must depend upon a steady increase of fiat money and credit liquidity in order to function. Without such injections this economy would fall completely. The FED has spent decades doing exactly the same thing it is doing now…feeding the economy with the only thing it can run on: new Fiat Money and Debt/Credit. This is a totally dependent economy; it is addicted to a type of money that requires it to have injections to maintain a sense of normalcy and balance. We have seen a constant roller coaster going around and around and around, up and down, up and down. Far from being a self-perpetuating economy it has a co-dependency that is incredibly unstable and potentially dangerous.
The actual numbers of GDP do not show an increase of economic growth every year, they can’t show that because there is no real way to measure all the intricacies of the effects of fiat monetary degradation upon the economy using the commonly accepted methods employed by this government, the FED and the vast majority of “approved economist” who tow the party line.
Income growth, as measured in the official GDP and GDI numbers does not show up adequately otherwise there would not be the disparity between the BEA GDI and IRS numbers associated with wages and salaries. The spread between the two agencies figures, on average, run with a 6% to 7% difference. Interest income spreads between the two measurements usually runs far worse with nearly a 15% spread difference and Dividend Income usually runs with at least a 5% difference between the two sources of data. Now, there is no way that you can look at those numbers and state that the real GDP is anywhere close to being healthy, much less prosperous. What we are seeing are illusions, primarily illusions of a type of debt-wealth created by a fiat economy.
The heart of this type of economy is the fiat money and the monetary policy that is required to manage it, if it were not then we wouldn’t even have a FED because the economy would self-regulate itself as would the money. What you have is a managed monetary system that manages the economic system and I might add does a piss poor job of it all. The FED has created a long-term liquidity trap and everyone has followed blindly into it…this current fiasco will eventually make the Tulip Mania look like a carnival ride. But then again, if you have a herd mentality, as most Americans do, then you will be pleased as punch to follow anyone down the prim rose path until you get stuck with its thorns. Another problem is that we don’t seem to realize that the actual Lunatics are running the Asylum in Washington…all you have to do is look at the Congressional Record for the last 50 years to see that bare and unbelievable truth. I suggest you start making your escape now and stop listening to the crazies running the place.
Absolutely, Rothbard, of course, is correct there is no economic expansion without FED infusions of fiat money/credit. This does not just happen, under a fiat monetary system there must be an impetus for economic advancement otherwise the entire system stalls in its tracks. The problem, of course, is that the FED and those wonderful text-book economists cannot judge human action with any degree of certainty, nor can they discern economic timing with a degree of accuracy that will allow them to make timely decisions that can counteract their previous decisions in a way to avoid the booms and bust cycles.
As any Austrian Economist or student can tell you the actions of the FED are predictable because they have a very limited tool box to work with, as such it is relatively easy to see the cycles developing and thus ride those cycles for a profit. I have profited handsomely over the last 40 years doing just that. When you know what you are looking for, when you know that these cycles are heavily influenced by FED actions then it becomes an easy to wait for the signals to enter and exit certain markets.
Two years ago on the Capital Hill Blue Forum I made the following statements:“The Recession in 2007 will be brought about not only by a general housing bust, but in particular, by the sub- prime sector of the mortgage market. The sub-prime sector is one of the riskiest types of mortgages and it also happens to have had explosive expansion in the last few years. This has been a huge boom for the mortgage/housing industry and caused the loosening of credit standards, which in turn fed the housing boom. Indeed, so many lenders have been so reckless with lending qualifications that this low- quality paper makes up about $2.5 Trillion in the market today.
Add to that the fact that there was such a feeding frenzy in housing that millions of people, with no experience whatsoever, got into the Real Estate Investment boom. Most of those people, especially those within the last year to year and a half, thought that they would be able to flip those homes with ease, but it has proven more difficult then they thought and now they hold mortgaged properties which are eating into their disposable income, causing, in many cases, deepening financial stress.
On top of all that, in 2005 alone almost a third of all new mortgages were interest only; over 40% of all first-time homebuyers (another high-risk group) got 100% LTV mortgages (no money down). Now, add the Option-ARMS which carry a potential for negative amortization and the fact that 10% of all homeowners have zero equity left in their homes and it's a recipe for a very hard landing.
We are already seeing the beginning of the problems in the Sub-Prime market, with Sub-Prime Lenders facing financial difficulties. That is the sector to watch. When you see that sector slide toward failure then the rest of the housing market will follow, then the effects will be felt throughout the economy.The problem is multiplied and can easily become systemic as the consequences of a down-turn in housing combined with a general recession could lead to a bust in the (MBS) Mortgage Backed Securities market which could easily trigger some severe losses in the GSEs: FannieMae/FreddieMac (which are already on shaky ground).” Republicae 2006
Thus, judging the boom cycle was coming to an end I exited certain market positions and shorted others, such as Fannie/Freddie and made out like a bandit. So, if such movements can be readily judged based on Austrian Economics, then it begs the question how could anyone not see just how manipulated this monetary and economic system really is?
Sure there are variables, Austrian Economics predicts just that, not only that but that since human action is so unpredictable that the normal dependence on either Keynesian, Neo-Classical and the myriad of other economic schools of thought that depend solely upon modeling, cannot adequately portray economic movement based on those models, perhaps that is one reason we see the commonly used economic models so far off base so many times. There is simply no way to adequately contain market forces even with the FED ‘s manipulation or, for that matter government intervention. As tight as they really wish to control the market the market will eventually counteract they intervention with dislocation because of the distortion their decisions make within the market.
I have to admit that you're really drifting away from me with your comments. I don't see what you're trying to say at all. First, you made a long list of instances when the REAL GDP numbers slackened during different periods in our history, and when I told you that there is no connection between the two ~ without including "countless" other influences ~ you have now backed off to where you're saying we can't trust the numbers anyway.
If you look at ANY listing of the actual GDP numbers since "time immemorial", you'll see that EVERY SINGLE YEAR the GDP increases. If you use REAL numbers ~ which are just mathematically manipulated by inflation numbers ~ you DO see regressive periods. Does this prove a connection between money and GDP ~ NOT AT ALL!
You seem to be admirably adept at tearing down the numbers that you used to make your case, but you haven't even given us a glimpse of how you tie the GDP together with the Fed.
Your assertion that money LEADS economic activity shows a very inept grasp of monetary policy. You're inserting YOUR OWN assumptions about what you THINK is happening when of course that isn't the situation at all. Money expands with an expanding economy, and that ASSISTS growth.
Better try again. I think you've been drinking the wrong tea the last couple of days.
Obviously you misunderstood, I am sorry if I caused you any confusion. I contend that when you begin with a flawed system of measure the results will always be flawed. When the basis of the economy is centered on a monetary system that is itself flawed then there will naturally be ancillary issues involved. It is obvious, judging from the disparity between GDP, GDI numbers, as measured by government that there is a wide enough spread between those numbers used and the data that the IRS provides the BEA. Even when the BEA publishes its reports it cannot reconcile the differences between the two sources of information. This should be cause for concern since monetary and economic policies are, in part, taken from the measurements provided by both GDP and GDI. In other words, it appears that they arrive at their decision-making process by using very unreliable information.
I was not tearing down GDP numbers and then using those numbers to prove my case, once more the misunderstanding is on your part. What I have said is that the amount of money/credit injected into the economy has a diminishing return in productive growth. Dollar for dollar, it now takes many more dollars injected into circulation to achieve each dollar return; this is always a common sign that there is a major foundational issue with the fiat monetary system. It is impossible to ignore that for every dollar of economic growth it now takes close to double digits of dollars injected.
Now for some simple definitions of GDP the most simplified version is GDP=Money Supply x Velocity. Obviously, by using the older constricted definition then you should be able to see that there is indeed a connection between Money and GDP. Another way of expressing it is GDP=C+I+G+(Ex-IM), is it not? The only difference between the two is in methodical determination, one using the amount of money in circulation plus all deposits in both checking and savings accounts multiplied by velocity. That is basically the simplest method of determining Gross National Product. Obviously, there is a connection between the money supply and GDP. I realize that you can go further with GDP=C+I+GS+X-M, going down the line to find consumption, investment, etc. The most basic foundational or nominal GDP measurements however, are found in the version of GDP=Money Supply x Velocity.
Now, according to you there is no connection however, it appears that there is indeed a very fundamental connection between the money supply and GDP. But that is, beside the point, the point is that there is a definite connection between economic growth and the fiat money/credit supply under a fiat monetary system.
Now, several years ago I attended a conference in Vienna concerning monetary policy and its effects on economic growth, it was very interesting and it appears that the consensus there stands in opposition to your positions entirely. The conclusions were pretty straightforward and so were the concerns; the main point being that changes in the supply of money can and does have a lasting effect on numerous economic variables.
It appears rather obvious that you seem to advocate the monetary doctrine of “superneutrality of money since you don’t see that a change in money growth affects the general economy but is basically created to accommodate economic growth. However, it is just a bit more complicated than that now isn’t it? In fact, the money supply does affect numerous areas within the general economy, such as the real rate of interest, output growth and the accumulation of capital. Thus, an increase in the growth of the money supply, as we know, will lead to a higher inflation ratio, which in turn reduces the rate of return on money, and it also tends to shift the holding of fiat money into other more reliable real assets. It is definitely a mistake to assume that there is no general anticipation of higher inflation when the money supply is drastically increased as it has been recently; this anticipation tends to curtail certain future, even short-term financial decisions, not only in individuals, but also in businesses.
So, apparently, the money supply does have both direct and indirect effects on economic growth. The relationships to be found between the money supply and economic growth, whether measured by GDP or not, is, or should be, beyond debate.
I see we're really getting to the bottom of this article ~ actually! ~ although we're not getting to the bottom of your wayward diversion.
You seem to be moving farther and farther from the world of reality in your responses and more and more toward the world of supposition and speculation.
For you to assert that MS x V = GDP is about as preposterous an idea that I've ever heard. This must be one of those novelty formulas that your Austrian buddies made up. It's about as nebulous a concept as trying to figure out how many gifts Santa Claus can deliver on Christmas Eve. THERE IS NO SANTA CLAUS!
The most blatant mistake in your formula is the notion that there is a VELOCITY of money. There is no way to measure this, and certainly no data to support it. The velocity of money is an IMPUTED VALUE; that means that they derive it from other sources. In fact, in your so-called formula, it is only found as a solution to dividing GDP by MS. It is found by DEFINITION, and your definition is about as questionable as the reason that Bob Barr was selected to run for President.
A great portion of the money supply resides in SAVINGS and INVESTMENT accounts, neither of which appear in GDP numbers. With your "formula" you are abandoning the sector of the economy that is LARGER than the PRODUCT MARKETS.
And, just to make another point ~ quickly, but with devastating accuracy ~ when you refer to the "REAL RATE OF INTEREST", it's like following up your Santa Claus calculation with one that includes how reindeer fly. THEY DON'T!
When I went to graduate school (MA-Economics at Western Michigan University), the very first assignment I got in the very first class I took was to FIND THE REAL RATE OF INTEREST IN THE ECONOMY for the next day's class. Well, as we scoured the library for hour upon hour, the elusive REAL RATE OF INTEREST was NOWHERE to be found!
There are hundreds of interest rates ~ for credit cards, for car loans, for home mortgages on the ONE SIDE, and just as many on the SAVINGS side with CDs and jumbo accounts, and what not. But there is NO real rate of interest.
This is another one of those IMPUTED values that are merely derived from other data. It does not REALLY exist, anymore than Santa and his reindeer, but it is used as a teaching device. It is referred to as AN EXAMPLE not as a CONCLUSION.
I think you need to sharpen up your understanding of the interaction of money in the economy. You've been reading too much Rothbard, et. al. He's a dope who never could quite fall in line with reality.
If you want to DREAM about monetary relationships, at least you should make them PLAUSIBLE!
Maybe you should take a course from the Idiots Guide to an MBA apparently because the nominal GDP equation is GDP=Money Supply + Velocity. I cannot believe that you don’t know even the most elemental equations. If you don’t know them then how on earth do you even say you understand anything else, even about your version of economics or monetary mechanics? You certainly didn’t get your money’s worth in your college education that is evident for all to see. Obviously, your opinion is only as good as your information and it appears that your information is severely lacking. I personally wouldn’t brag about having a Master’s if I were you since it is certainly not shining through at the moment. Perhaps a good read for you would be Milton Friedman’s and Anna J. Schwartz’s, A Monetary History of the United States. Perhaps Measurement in Economics by Marcel Bouman is more your speed. Not that I am a fan of any of them and they are definitely not Austrian Economists, but they too strangely employ Money x Velocity = Nominal GDP.
Of course, I could name numerous Neo-Classical, Keynesian Economists who would be familiar with the equation to find Nominal GDP, if you would like for me to name them off for you. I find it so strange that you are not familiar with the equation for nominal GDP. Another statement of Nominal GDP is P*Y, ever heard of that Master C?
Are you so very blinded that you cannot see past your own nose?
Since either P*Y is an expression in the same way that GDP=M*V [Money Supply x Velocity] and money is the transmit of all transactions circulating throughout the economy. So, the total circulation of all money within a given economy over a particular period is expressed as M*V, thus, in turn, the expression of total circulation of money in the economy has to equal the nominal GDP since all such transactions carried out with the money supply within the economy, thus the total transaction volume will always be closely related to GDP in “real” terms as [Y+E]. So the basic equation is expressed as M*Y=M*V.
Thank you, but I think I will stick to those within the Austrian Economic School; you have proven to me that you certainly don't have a clue about what is going on in the realm of economics. Speaking of Austrian Economics, the lead economist for the Bank for International Settlements, I am sure you have heard of that particular bank, is William White...an Austrian Economist that is, thankfully, steering the BIS away from the Keynesian/Neo-Classical Mumbo-Jumbo that you are spouting out.
I am frankly flabergasted at your apparent willful ignorance.Thus, anything you say from this point on should be viewed as extremely suspect since your opinions are based undoubtedly on incomplete or distorted information.
I have never heard some much gagging and guffawing since grandad was choking on a chicken bone! Although, I read nothing in your remarks to make me feel anything but sympathy for you as time marches by.
I want you to tell me ONE place where I can find the VELOCITY of money determined on its own. You talk about it like it's a REAL number, yet it has no INDEPENDENT origin. As I said, it's an IMPUTED calculation, and it's ONLY purpose is as a TEACHING tool not as a number used in any GDP determination. It's an UNKNOWN quantity used in an algebraic equation. Tell me HOW velocity is determined, and WHAT (for Heaven's sake) does it MEAN? Does it mean that you and I spend money at the same rate? Ha! Ha! Does it mean that you and Bill Gates spend money at the same rate? What, pray tell, do YOU think it means?
I'll bet you think that when they put "r" in an equation to represent an interest rate, you think there REALLY IS an "r" somewhere. If so, what is it? What INTEREST RATE should we use? Even the differences between interest rates to SAVE and interest rates to BORROW are vastly different, let alone the variations in types of accounts, locations, time of year, etc, etc, etc.
I suppose you believe there's a REAL RATE OF INTEREST, too. Ha! Ha! How about that Bridge to Nowhere ~ you think you might want to buy a piece of THAT too?
You're really running all over the reservation, my antiquated old adversary. And, once you take up with the owls and the looney birds, it's just a short step into the darkness of night.
How utterly predictable you are; once again you retreat to yet another venue. Your statement: “ For you to assert that MS x V=GDP is about as preposterous an idea that I’ve ever heard” was proven to be a commonly used formula, primarily by your own school of economic thought. Yes, it is a simply formula to find the nominal GDP, but it was not made-up by Austrian Economists. Of course, since you are unable to reconcile your mistakes you must take a different course to detract attention away from your erroneous statements.
Now, have I said that the velocity of money can be determined on its own? These numbers, these equations stemming from the Quantitative Theory of Money are basically conceptualizations, as you should know with some proven more than others. I have never talked about it or any other equations as though they were real; my point is that Keynesian/Neo-Kenesians/Neo-Classical Economist tend to depend on such equations without taking other factors into consideration. Since I can be thrown into the Austrian School of Economic Thought why would I place such dependence on those equations which I find faulty? My point has been to show that there is an inherent problem with such dependencies though they are relied upon by government, the FED and numerous economists. You’ve been baited so many times during this commentary that you are not even aware of it are you?
As for it merely being a tool for teaching, well I find that strange because a couple of years ago there was an article in The Economist Magazine which argued the position that the FED should once again pay much more attention to the monetary aggregates in their monetary policy regarding GDP as related to the Velocity of Money. If I recall, the examples they provided used the very same formulas that I have noted to determine the basis of their argument showing velocity and velocity growth measurements of M1, M2, M3, where V=PY/M, PY being the nominal GDP. Perhaps that you might want to write The Economist Magazine so you can become a contributor and straighten them out too!
Now, in answer to your diversionary question on the Velocity of Money, how many definitions would you like? Would you like the Income Velocity of Money as was once charted by the Federal Reserve [GNP/M1 and GNP/M2]? Now, according to the FED themselves, they now use a formula derived from the old formula, i.e. V=GDP/M. But, as you know there are no independent numbers that can adequately constitute a direct measurement of either monetary velocity or its circulation.
You can look at the “Representational Theory of Measurement “ if you like from the works of Suppes, or those of Krantz and Tversky if you want to try to find a procedure defined enough to bridge an empirical structure with a numeric structure. However, as Finkelstein said: “measurement is an empirical process, the result of observation and not, for example, of a thought experiment” There again, you can, as I stated in my comment above return to Boumans to see the various developments of theory and formulae. As Boumans points out, the history of economics is saturated with all types of mathematical formulae, different types of models, sectional models and all manner of devices and instruments designed to attempt to place a definitive number on what are really un-measurable entities within the economic framework. As you said: UNKNOWN. Which, by the way more closely resembles the stance taken by Austrian Economics and the thought that Human Action is a major factor in the realm of market economics.
Years ago, the St. Louis FED issued an interesting little paper on the changes in wealth and the velocity of money, the interactions between the two. The assumptions within the paper stated that while there was an accepted and long-standing view that the quantity of money in circulation and aggregate income were closely related, as shown in the income velocity of money to determine the effects of monetary growth on income over extended periods that, but to their surprise this system, based upon their accepted assumptions, did not behave in ways their formulae anticipated even though for years those same formulae worked quite well in such determinations. What went wrong? Why was there a change from a working formulae to one that no longer provided the same type of results as before?
Of course, if you look at the various charts, published by the Federal Reserve, on the Velocity of Money from various periods in history for the last 100 years, then you will readily see that they depend, based on their writings and white papers, various formulae to determine the Velocity of Money in relationship to GDP (Nominal). Since I have my doubts that officially release numbers regarding the money stock and thus the actual rates of inflation are correct and therefore are skewed for public consumption then I would also consider the use of such formulae to be flawed in their final assumptions.
Therefore, I do not hold the opinion that either the GDP or the Velocity of Money, in all its variables are either conclusive or definitive in either their assumptions or conclusions.
As I have stated, I am not a supporter of your version of monetary economics, therefore I do not put much credence in the various formulae of such economics. Once more you have missed the entire point that I have sought to make. It is your economic models that depend upon such formulae the most, why would I think one way or the other whether an “r” in an equation is or is not real. You have been fighting against yourself.
Obviously, there are many different types of rates, depending on risks for their movements. As such, you can distill those rates into a single rate as the Prevailing Interest Rate. It all depends on various factors doesn’t it? There are also problems with real-time estimation in such formulae, as you have stated. Therefore, in consideration of these variables, there are real challenges in conducting not only regular business practices, but in conducting monetary policy. Essentially, policy makers in the FED make their decisions without the benefit of reliable data. So, is the monetary policy of the FED an actual science, or an art? I tend to think of their policy making decisions as an art, one that has a flawed substrate and therefore flawed conclusions and directions.
So, as I have attempted to make the point before, they are only as useful as the information available and if that information is based upon either faulty data then you will always have a problem with the results.
So, it appears that once more you are making my argument for me and indeed, you are beginning to sound much more like an Austrian than a Keynesian….amazing isn’t it, how just a little bait will draw you out.
So, what was your point in all this? You certainly haven’t made a case for your own positions or for the fact that the FED has always been a worthless institution.
I estimate that within the next two years, you will be a full-fledged Austrian Economic adherent. A reality is about to set in that will cause a great many changes in the views of a great many people.
You're just running around in circles. That's ALL jibberish! Even the use of m1 and m2 and m3 shows how out of touch you are. The Fed doesn't even release that information any longer.
Don't try to preach for ME and tell me that I should think this or that. You sound like Walt! When you guys get your panties in a tangle, you start building your own straw dogs, then burn them down like they were REAL. That doesn't take knowledge or persuasion, just a FLAMETHROWER!
There IS NO INDEPENDENT DETERMINATION of the VELOCITY of MONEY! It is an IMPUTED value. Can I scream it at you any louder? And, I want you to stop everything else and just tell me WHAT YOU THINK THE VELOCITY OF MONEY MEANS!
Do you think that means how fast you and I spend our money? Do you think it's how fast General Motors or Best Buy spends its money? On what? On payroll? On purchases? On inventory buildups or new store openings? And, do you really think that there is some UNIFORM, ONE NUMBER "velocity" for money? If you do, you probably believe in fairies, too. Peter Pan would love you.
How is all the money in the STOCK MARKET accounted for in your MONEY SUPPLY numbers? Is that M1, M2, or M3? What about the money in retirement accounts, investment funds, and the import-export bank? Don't you see how useless and distorted numbers like the "money supply" and "velocity" are? NO ONE knows how large the money supply is any longer because it's composed of so many types of money. Anything LIQUID can serve as money. And, with derivatives and MBS (mortgage backed securities), insurance policies that you can borrow against, even commodity swaps and REITS, you've got such a complex system of money that NO ONE can add it all up at any one time. Even if you GOT a number, it would be something DIFFERENT by the time you got it!
And, don't think that just because you can't add something up that it doesn't have value or doesn't work because there are hundreds of examples. We can't add up LOVE, and LOYALTY, and the WEATHER, and people's AGES, and how much KNOWLEDGE we have in the world, and on and on and on. Yet THOSE THINGS EXIST AND ARE VERY IMPORTANT IN RUNNING THE WORLD.
Money ASSISTS and ALLOWS the economy to grow. This whole VELOCITY crap and REAL RATE OF INTEREST fantasy is so out in NUMBERLAND somewhere that you've lost contact with people and production. You think that NUMBERS explain things. They DON'T. Numbers disguise things and manipulate things and misrepresent things. Your remarks are perfect examples of that. Without ONE SINGLE SOURCE for an INDEPENDENT DETERMINATION OF VELOCITY, you tried to sell me ~ and anyone else who cared to read what you were saying ~ that there was a meaningful connection between how FAST money circulates and the OUTPUT of a nation as large as the US.
Man, you've got delusions bigger than the size of the BANKING BAILOUT!
I don't see any reason for us to go over this any longer. You are clearly just a STUBBORN, OBSTINATE, MISINFORMED MAN who can't see past your own biases. You're determined to BLAME THE FED for Hurricane Katrina, sunspots, and anything else someone will listen to and that's that.
I only took the time to try to help you understand where you were making mistakes and you just turned your back without taking the time to listen or learn anything. So keep ranting to the WALL that you're right if you want, and maybe the WALL will one day believe you.
Ah, again…I never said that the FED presently publishes M1, M2 and M3…if you remember in March of 2006 there was a big hubbub about the fact that the FED had dropped the reporting of M3. Again it was evident that the FED no longer wanted to reveal aggregate supply growth in 2000. I am not sure when you will stop reading things into my comments that are not there, I suppose it will come about as soon as you stop making juvenile comments with all the chatterbox HA, HA, Cuckoo, Cuckoo…I believe those are some of your favorites.
I am not sure why you are so upset, I have not attempted to preach to you, are you really that self-conscious? Here again, a perfect example of your attempts at detraction away from issues, you do that quite a bit, perhaps it is just the insecurity that appears in all of your articles and comments, thus your need to impose Bold Caps within your highly disjointed articles.
Once more, I never said there was an independent determination of the velocity of money…tell me where I said that…here again, you are simply playing your feeble mental game by diverting attention away from the issues. You are, in essence, screaming at yourself….I have read your comments and seen they always have a tendency to lack both substance and direction, as is evident in this comment. As I said, I don’t particularly place a belief in the velocity of money because there is no adequate means of determining the stock under this fiat monetary monopoly system.
So it appears that it is you who hold a belief in fairies, particularly those who hover around in the Federal Reserve.
Because I may state something within a comment on a particular subject, such as the Velocity of Money or the various equations and theories, does not necessarily mean that I am either supporting them or defending them. In the vast number of cases when I comment with such things it only is in the context of my natural distrust of such contrivances of economists, particularly those who adhere to the old and worn out theories of Keynes.
The velocity of money equation represents the heart of the quantity theory of money and I am not an adherent of that popular theory, so I am not sure why you are seeking to convince me of its uselessness along with various other theories, I am already ahead of you there. However, according to popular thinking, the idea of velocity is relatively straightforward. So over any interval of time, such as a year, a given amount of money can be used again and again to finance people's purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services. In other words, for your benefit, it is the rate at which money is exchanged from one transaction to another. Or, if you prefer: It is the number of times that money balances turn over within the economy during a particular period of time. You can, if you like, divide the national output of goods and services by the total money stock. Now, because I know a particular formulae or theory and happen to mention it in a comment does not mean that I adhere to those formulae/theories as a part of my economic tenets, as you seem to have assumed so many times and expressed such assumptions.
Once more you are making my argument for me….In fact, I am surprised that you agree with me when you say that these formulae are basically useless and distorted by the flawed information that is used to retrieve such measurements. So, what are you saying? Are you indeed transforming yourself into an Austrian Economist? It appear so, because you are making my points almost word for word. I don’t believe that you can know the entire money supply, they are only estimates, but that the FED and various government agencies base their monetary policy on such numbers, distorted as they are and the result of basing such policies on such distorted information they arrive at the wrong conclusions and thus they are prone to make mistakes that they can not adequately predict the consequences on the general economy.
As I have said, they are basing their decisions on guesstimates and as with all guesstimates the results can be very destructive.
Here again, you are absolutely right when you say you cannot add up the variables of human action, my point exactly. You sound like Mises in making that type of comment. There is simply no way to completely understand or make allowances for the trillions of decisions made by humans each and every second of the day, therefore there are massive amounts of unknowns within the market.
“Money ASSISTS and ALLOWS the economy to grow.” In that statement, you seem to backtrack from one of your earlier statements where you made it clear that you believed that as the economy grew the money could be increased to meet the growing economy. I on the other hand stated what you state now, that it is, under a fiat monetary system, the injection of money that allows this fiat economy to grow. So, which is it, what do you believe, or do you know?
I think if you look at you will find that I never tried to sell you anything close to a single source for an independent determination of velocity…not sure just where you dreamed that one up in your mind. Besides, for me to even believe such things would mean that I would have to completely ignore my background, long background in Austrian Economics…so, where are you getting that from? I have never said that anywhere, all I have said is that the Keyensian/Neo-Classicals and some others advocate and defend such monetary theory. Have you ever read any of Mises’ books or any other Austrian Economist works….if you had then you would know that I definitely don’t think that numbers explain anything much at all. Just the opposite, I think that the government/FED uses those numbers primarily to support and benefit their own agenda.
I don’t blame the FED, I wish to see the FED held responsible…unlike you who seem to think that the FED is the end all and be all.
Here again, it appears that you are the one ranting and raving, without, I might add, saying much at all. Your comments and articles are full of froth. The thing that gets me is that you don’t seem to realize just how much your anger shows in your words…not a rational response in any case.
I agree with you completely Republicae! But it's very simple to explain to Master C the deficiency of the FED! IT WAS CREATED BY BANKERS. How does a bill like the Federal Reserves Act of 1913 benefit the American People? HOW DOES A BANK that's goes against the US Constitution, help this Country. Let’s look at who started this bill? 1st Rothschild, JP Morgan, John D Rockefeller, Paul Walberg, Nelson Aldrich all Scum of the Earth, Rothschild in England with France we all know what happened their. The panic of 1907 by JP Morgan which lead to the FED Act of 1913. Fiat Currency which has no intrinsic value what so ever, and is the root problem of Inflation. Master C is the type who would also make you believe that one most file an income tax! I bet he’ll even start that it’s our American duty to do so. I mean we all need to pay for these services that our government provides, right? Well I just have one question for that. How did we pay for everything before 1913? For 1776-1913 their was no Income tax or SS tax. The whole point is Republicae is correct on the Federal Reserves failing! Master C maybe you should read 1984? That might gave you a new prospective on our Government and it’s Monetary ultimate goal
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