Audit the Fed? What would that accomplish?

[Tippit]

And how would Scrooge stay in business?

Remember, he's paying 2% interest on every dollar in his Money Bin. But since it's just sitting there in the bin, it's earning zero him nothing. Every year, he loses 2% of his money (and no longer has 100% reserves, unless he pours money in from his own pocket).

Under a one-hundred percent reserve system, banks could only loan their own paid-in-capital, and they would have to charge people fees to store their money, much like a warehouse similar to public storage does. They could also issue certificates of deposit whereby it is clear to the customer that their principal is gone momentarily, and at-risk. A demand-deposit system should not be dependent on a logical impossibility, that is, paying every depositor should they all wish to have their money at the same time. Fractional Reserve banking is inflationary, and inherently unstable and should be abolished. We would be far better off paying to have our money stored than to have bankers making bad or corrupt loans which lead to malinvestment and economic depression.

 

[Tippit]

That's where you went wrong. Scrooge isn't paying a penny to anybody. Remember, the idea here is to create a society where sitting on money is an investment strategy.

No, the idea is to create an equitable society where money represents a store of value, not something to be debased to fund wild investment schemes and real estate or stock market speculation that lead to economic crises. People will invest sound money for the same reason that people invest unsound money above the "risk-free rate", because business returns are typically greater than the productivity norm.

 

[Tippit]

In a properly designed unrealistic gold-bug-topia, you don't get inflation, because the money supply can't keep up with the magical increases in production.

It doesn't have to keep up, the money is revalued against the more goods and services it can purchase. Everyone benefits from lower prices, and as long as wages are allowed to fall along with other prices there are no adverse effects.

Of course, the idea that the magical increases in production are generally produced by investment, which vanishes almost completely during times of sustained deflation, is foreign to these unrealistic gold-bug-topiae. Isn't it nice to be able to handwave away basic facts about the universe?

That's ridiculous. If that were true, then in the current system people would only invest in the risk-free rate for nominal returns. But they don't, they invest in equities, corporate debt, real estate, and other risky investments. Sound money just makes capital naturally scarce, as opposed to available for whatever pie-in-the-sky investments bankers and politicians want to cook up for us next.

 

[drkitten]

It doesn't have to keep up, the money is revalued against the more goods and services it can purchase.

Yes. That's called "deflation."

\ Everyone benefits from lower prices, and as long as wages are allowed to fall along with other prices there are no adverse effects.

Aside from the crippling adverse effects of the deflation itself, you mean?

Sound money just makes capital naturally scarce, as opposed to available for whatever pie-in-the-sky investments bankers and politicians want to cook up for us next.

Do you even read what you write? Because the rest of the forum certainly does.

"Sound money just makes capital [and therefore capital investment] naturally scarce.... as opposed to available for ... investments."

That's basically what I said earlier. Deflation destroys investment, which is necessary for productivity growth. So your gold-bug-topia will be a stagnant economy at best. In fact, it will be worse than a stagnant economy, because people won't even "invest" in replacement capital (to offset depreciation and wear-and-tear).

But aside from the fact that you're handwaving away "basic facts about the universe,"....

 

[The Central Scrutinizer]

No, the idea is to create an equitable society where money represents a store of value, not something to be debased to fund wild investment schemes and real estate or stock market speculation that lead to economic crises. People will invest sound money for the same reason that people invest unsound money above the "risk-free rate", because business returns are typically greater than the productivity norm.

I agree. Life was much better in 1681.

 

[drkitten]

I agree. Life was much better in 1681.

"But if I finish my chores, and you finish thine, then tonight we're going to party like it's 1699."

 

[Tippit]

Yes. That's called "deflation."



Aside from the crippling adverse effects of the deflation itself, you mean?

Deflation which mirrors the productivity norm isn't crippling at all. The historic periods of unprecedented economic growth coupled with price deflation prove this. The only time deflation is crippling, is after the deflationary shock caused by the collapse of an economy which was inflated to begin with. But that's like blaming the effect for the cause.

Do you even read what you write? Because the rest of the forum certainly does.

"Sound money just makes capital [and therefore capital investment] naturally scarce.... as opposed to available for ... investments."

Capital investment requires capital. You have to save to invest. Our economic problems today stem from the misallocation of capital, not the scarcity of capital. The system as it is today loots the purchasing power of the depositor, and the currency holder so as to fund the consumption of the financial elite and the beneficiaries of the system. This hardly represents "capital investment".

The status quo that you shill for isn't about more "capital investment", it's about the transfer of wealth. Forcing demand depositors and currency holders to pay for bad and risky "investments" is the cause of the problem, not the solution. If you want to invest, first you must save (or, in your case, steal).

That's basically what I said earlier. Deflation destroys investment, which is necessary for productivity growth. So your gold-bug-topia will be a stagnant economy at best. In fact, it will be worse than a stagnant economy, because people won't even "invest" in replacement capital (to offset depreciation and wear-and-tear).

But aside from the fact that you're handwaving away "basic facts about the universe,"....

Not only doesn't deflation "destroy investment", but the presumption that we don't have enough investment already is faulty. The problem is too much malinvestment, useless speculation, and risky/bad investments due to monetary inflation and fraud. The people who should be making investments are the people who have already proven they can produce what people want in the marketplace, ie: savers.

 

[Dunstan]

Deflation which mirrors the productivity norm isn't crippling at all.

What does it mean to "mirror the productivity norm?"

The problem (or one of them, anyway) with deflation is that it puts a floor on real interest rates.

r = i - e

where r is the real rate of interest (the true rate of return on investment), i is the nominal interest rate (the percentage in dollar terms), and e is expected inflation.

The nominal rate of interest can't go below zero, since people can just earn a zero nominal return by sticking their cash (or gold, precious gold!!!!) under their mattresses.

In a deflationary environment, e is negative. That means that with, say 5% deflation, the real rate of interest cannot go below 5%. It may be impossible to reach what would otherwise be the market-clearing price of capital. In the real world, that means that other profitable investment projects go unfunded, because would-be lenders can make a better return in their mattresses than by lending to someone who can "only" pay them a 4% return.

 

[drkitten]

What does it mean to "mirror the productivity norm?"

The same thing that any other phrase Tippit uses means. It means that Tippit knows less about economics than your average goldfish cracker.

The problem (or one of them, anyway) with deflation is that it puts a floor on real interest rates.

r = i - e

where r is the real rate of interest (the true rate of return on investment), i is the nominal interest rate (the percentage in dollar terms), and e is expected inflation.

The nominal rate of interest can't go below zero, since people can just earn a zero nominal return by sticking their cash (or gold, precious gold!!!!) under their mattresses.

In a deflationary environment, e is negative. That means that with, say 5% deflation, the real rate of interest cannot go below 5%. It may be impossible to reach what would otherwise be the market-clearing price of capital. In the real world, that means that other profitable investment projects go unfunded, because would-be lenders can make a better return in their mattresses than by lending to someone who can "only" pay them a 4% return.

And, further, that risk premia across the board must increase. If you can make 5% putting your money in a cookie jar, what kind of phenomenal ROI would you expect for an investment with a 10% chance of total loss?

No one will make non-risky investments because they typically don't pay enough to cover the real rate of interest. No one will make risky investments because they don't pay enough to pay a reasonable risk premium over the real rate of interest.

Unsurprisingly, Tippit got something else wrong....

 

[Michael Redman]

The interesting thing to me, with little knowledge of economics, is that Tippit's arguments seem to lead to the conclusion that our society should be completely destitute, rather than the most awash in wealth that humanity has ever seen, even during the recent economic troubles.

So, Tippit, why is it that there is so much wealth in our society despite the system that should be destroying it all, and what would the world look like instead today if we had been doing things all along as you suggest they should have been?

 

[The Central Scrutinizer]

The interesting thing to me, with little knowledge of economics, is that Tippit's arguments seem to lead to the conclusion that our society should be completely destitute, rather than the most awash in wealth that humanity has ever seen, even during the recent economic troubles.

It's jealousy and class envy. The "Anti-Fed" crowd are people whose life just didn't turn out the way they thought it should have. Gosh darn it, they worked hard, but the trailer roof keeps leaking and their 10 year Chevy just got repossessed. They turn on the TV, and they see those counterfeit-money-printing Jews in their $2000 Armani suits and their $100,000 BMW's and it makes their blood boil. And to think the gubmit, the same gubmit who wants to take their guns, is bailing these Jew bastards out!

So, Tippit, why is it that there is so much wealth in our society despite the system that should be destroying it all, and what would the world look like instead today if we had been doing things all along as you suggest they should have been?

 

[Emperor_Gestahl]

They turn on the TV, and they see those counterfeit-money-printing Jews in their $2000 Armani suits and their $100,000 BMW's and it makes their blood boil. And to think the gubmit, the same gubmit who wants to take their guns, is bailing these Jew bastards out!

Not only does this strike me as a broad-spectrum ad-hom, from what I can tell the assertion that people in $2000 suits driving BMWs are "Jews" originates from you personally.

I don't agree with Tippit overall, I think our serious modern problems arose more recently than the Federal Reserve Act (The blowing of the housing/equity bubble and the ongoing refusal to allow fair value for associated assets/derivatives). More likely than conspiracy is that the Fed has simply failed its mission to avoid outside influence. The government encouraged the private sector to lend to deadbeats, then subsequently hand off the hot-potato as any businessman would, dragging us into an enormous bubble. The apathy of the Fed mid-til-peak bubble amounts to passive collaboration with the political and private entitites that created it.. In my opinion.

That said, I'm disappointed at the level of race-baiting going on from people I believe to be otherwise intelligent. If Tippit's assertions aren't worth addressing for you then don't address them at all. If someone can link a post where Tippit is spouting racism please do so, otherwise your argument tactics seem more like a scientologist's than a skeptic's..

There's probably no theory in all of modern philosophy that hasn't at some point been advocated by a racist.. or sexist.. or homophobe.. That shouldn't automatically link said idea to said philosophy. Noone should have to remind adults of that, but like I said I'm disappointed.

 

[Dunstan]

Your concern is noted.

 

[The_Animus]

I only finished through page 2, and I'll read the rest but I felt the need to comment on the dynamics of the discussion.

@Tippit: I commend you for your continued patience and attemps to have a legitimate discussion.

@The Central Scrutinizer, WildCat, and a couple others: Do you ever post anything that is remotely relevant or in any way furthers legitimate discussion? I'm appalled that you consider yourself skeptics. You don't address points that are made, you don't make any points, provide any information, or evidence. You make utterly pointless remarks, use hyperbole, sarcasm, ad hominem, and pretty much anything that isn't legitimate and mature discussion. You make repeated comments that anyone who is anti-FED is a jew hater. It's disgusting, it's ridiculous, and it's downright retarded and I see you making posts like this all the time.

You even make comments such as

What's funny is that Tippit keeps posting this nonsense, and gets nothing but ridicule in return. I think he doesn't realize this is a skeptics site and he has not, and will not, convince anyone that our money is counterfeit. You'd think eventually he'd figure it out.

Ridicule is not a tool of a skeptic. It does not help determine what is right and wrong. It is not a promoter of good or legitimate discussion.

I wish this forum was moderated more strictly.

As to the topic of this thread I found the link Tippit provided at http://www.salon.com/news/bank_refo...eature/2010/04/01/secret_fed_bailout_open2010 to be informative. The article claims that the FED created and spent tens of billions of dollars without the concent or knowledge of congress and that it only revealed what it did 2 years later because it was finally required to release documents/information about it. Currency becomes worth less the more there is. As a result printing and spending massive amounts of money without anyone knowing about it sounds a lot like counterfitting. In both cases it is not government sanctioned printing of money, and in both cases this printing of money devalues everyone elses money (which is why counterfitting is illegal in the first place). While I won't claim to know exactly how the FED works it seems that there are genuine concerns surrounding it.

 

[Tippit]

What does it mean to "mirror the productivity norm?"

Productivity Norm

The problem (or one of them, anyway) with deflation is that it puts a floor on real interest rates.

r = i - e

where r is the real rate of interest (the true rate of return on investment), i is the nominal interest rate (the percentage in dollar terms), and e is expected inflation.

The nominal rate of interest can't go below zero, since people can just earn a zero nominal return by sticking their cash (or gold, precious gold!!!!) under their mattresses.

In a deflationary environment, e is negative. That means that with, say 5% deflation, the real rate of interest cannot go below 5%. It may be impossible to reach what would otherwise be the market-clearing price of capital. In the real world, that means that other profitable investment projects go unfunded, because would-be lenders can make a better return in their mattresses than by lending to someone who can "only" pay them a 4% return.

This isn't problematic at all, it's a feature. Remember, the problem isn't a lack of capital. The problem is an abundance of fiat capital which has been poorly invested and taken real resources away from otherwise vastly more productive endeavours. Bad investments don't exist in a vaccum, they consume time, money and scarce natural resources to the exclusion of good investments. There may be a virtually endless supply of money, but there is a limited amount of productive people with the resources necessary to produce. Scarce capital as opposed to artificially cheap capital forces creditors to distinguish between bad and good investments. Those who make good investments are rewarded with profits, and those who don't should not receive even more capital to misallocate upon their failure, which is exactly what has happened, and is happening.

We need to make capital naturally scarce, as opposed to having a central bank subsidize artificially low interest rates. More importantly, we need to better invest existing capital, and who is more qualified than the saver, who has already demonstrated the ability to allocate capital profitably?

Using your own example, you can have nominally profitable investments that don't beat the rate of inflation, and these are no better than investments under a sound money scheme which do not even beat the productivity norm. These types of investments should simply not be funded at all, and it was these investments that caused the economic crisis. At the root of it all is the Federal Reserve, without which the monetary inflation simply wouldn't have existed to make them.

 

[stilicho]

The problem is an abundance of fiat capital which has been poorly invested and taken real resources away from otherwise vastly more productive endeavours. Bad investments don't exist in a vaccum, they consume time, money and scarce natural resources to the exclusion of good investments.

Like digging for gold:

http://www.internationalskeptics.com/forums/showpost.php?p=5322495&postcount=28

"[The] cost associated with digging [gold] out of the ground is a feature..."

 

[CriticalFunker]

I only finished through page 2, and I'll read the rest but I felt the need to comment on the dynamics of the discussion.

@Tippit: I commend you for your continued patience and attemps to have a legitimate discussion.

@The Central Scrutinizer, WildCat, and a couple others: Do you ever post anything that is remotely relevant or in any way furthers legitimate discussion? I'm appalled that you consider yourself skeptics. You don't address points that are made, you don't make any points, provide any information, or evidence. You make utterly pointless remarks, use hyperbole, sarcasm, ad hominem, and pretty much anything that isn't legitimate and mature discussion. You make repeated comments that anyone who is anti-FED is a jew hater. It's disgusting, it's ridiculous, and it's downright retarded and I see you making posts like this all the time.

You even make comments such as Ridicule is not a tool of a skeptic. It does not help determine what is right and wrong. It is not a promoter of good or legitimate discussion.

I wish this forum was moderated more strictly.

As to the topic of this thread I found the link Tippit provided at http://www.salon.com/news/bank_refo...eature/2010/04/01/secret_fed_bailout_open2010 to be informative. The article claims that the FED created and spent tens of billions of dollars without the concent or knowledge of congress and that it only revealed what it did 2 years later because it was finally required to release documents/information about it. Currency becomes worth less the more there is. As a result printing and spending massive amounts of money without anyone knowing about it sounds a lot like counterfitting. In both cases it is not government sanctioned printing of money, and in both cases this printing of money devalues everyone elses money (which is why counterfitting is illegal in the first place). While I won't claim to know exactly how the FED works it seems that there are genuine concerns surrounding it.

I have to cosign on this. This juvenile taunting over disagreeing viewpoints is pretty pathetic. It's kind of revealing how certain posters act like children on this forum. You've believed your own hype and surrounded yourself with a proper echo clique chamber who engages in the same immature tactics that are used to deflect any serious discussion into this topic. Who cares how many degrees you have if you are a raging condescending *******? It has to be a serious hinderance in the world if you can't have a rational discussion without namecalling someone or insulting their intelligence. That to me seems pretty insecure about yourself as a person and quite a damaging character flaw.

In turn most of the forum is afraid to challenge alot of the uncalled for responses. This is unacceptable because it doesn't follow the forum rules. I've seen many people banned for less. I even see Moderators engaging in this behaviour as well. No wonder most people refrain from commenting. We have alot of bitter insecure members who can't communicate with a opposing view, without insults or derogatory comments. We shouldn't have cheerleaders either cheering this on.

The abuse I've seen just on this topic alone is astounding. Some people need to enroll in etiquette lessons in forum discussion 101. I think insulting someone because you disagree with them doesn't make you win the argument. You just end up look like a blowhard *******. This really does need to be addressed and I thank the people who have commented on this.


How pathetic to gang up on someone with a opposing view. Doesn't sound like skepticism to me.

 

[The Central Scrutinizer]

@The Central Scrutinizer...Do you ever post anything that is remotely relevant or in any way furthers legitimate discussion?

No

I'm appalled that you consider yourself skeptics. You don't address points that are made, you don't make any points, provide any information, or evidence.

Of course I do. When someone seriously considers US currency to be counterfeit, I laugh at them. What other reaction could possibly be more appropriate?

You make utterly pointless remarks, use hyperbole, sarcasm, ad hominem, and pretty much anything that isn't legitimate and mature discussion. You make repeated comments that anyone who is anti-FED is a jew hater.

I consider this a compliment.

It's disgusting, it's ridiculous, and it's downright retarded and I see you making posts like this all the time.

Isn't the use of the word "retarded" supposed to be not politically correct?

Ridicule is not a tool of a skeptic.

Of course it is. Perhaps you are not a skeptic?

It does not help determine what is right and wrong. It is not a promoter of good or legitimate discussion.

Again, when one seriously considers US currency to be counterfeit, they are not interested in "legitimate discussion".

I wish this forum was moderated more strictly.

I don't.

The article claims that the FED created and spent tens of billions of dollars without the concent or knowledge of congress and that it only revealed what it did 2 years later because it was finally required to release documents/information about it.

I'm sure you already know this, but the Fed doesn't need the "concent (sic) or knowledge of congress" in going about its daily business.

Currency becomes worth less the more there is. As a result printing and spending massive amounts of money without anyone knowing about it sounds a lot like counterfitting. In both cases it is not government sanctioned printing of money, and in both cases this printing of money devalues everyone elses money (which is why counterfitting is illegal in the first place).

You realize that the Fed doesn't print money, right? So it's hard to imagine that the Treasury printed all this money without sanctioning it.

Oh, and FYI: "counterfitting" is something a carpenter does when he remodels a kitchen.

While I won't claim to know exactly how the FED works it seems that there are genuine concerns surrounding it.

Great! What are those concerns?

 

[Emperor_Gestahl]

Could the Fed's absolute failure to prevent, slow down, or warn about a huge speculative housing bubble until after it blew sky-high be considered a genuine concern? If the organization is failing at such a core duty, before we investigate do we really need to first establish if this is due to incompetence, simple corruption, or jews/aliens/whatever?

*GASP*, I'm on topic! Even Tippit hasn't pulled that off so far! If only accusations of racism were accompanied by evidence of racism this thread would still be 1 page long.

So.. I put forth that the Fed should be at least audited, to determine why, after dropping the ball, it stood there and watched it slowly roll out of bounds before taking action of any kind.

The "no one could have forseen this" excuse is pretty thin, the banks clearly knew how crappy(fraudulent) all those mortgages were since they made quite a business out of offloading them. If the FRB, all insiders of said banks, didn't inform Mr. Bernanke of the widespread fraud in residential mortgages then perhaps the organization is due for some serious restructuring. If they did inform him but he chose the "see no evil speak no evil" approach anyway.. Political influence seems likely, and again we should rethink the role and structure of the Fed.

 

[The Central Scrutinizer]

Could the Fed's absolute failure to prevent, slow down, or warn about a huge speculative housing bubble until after it blew sky-high be considered a genuine concern?

Is that their job? Even assuming it is (it's not), how do you imagine they could have prevented it?

If the organization is failing at such a core duty, before we investigate do we really need to first establish if this is due to incompetence, simple corruption, or jews/aliens/whatever?

First we have to establish that it is/was a "core duty".

So.. I put forth that the Fed should be at least audited...

By whom? Also, are you suggesting that they aren't audited now?

...to determine why, after dropping the ball, it stood there and watched it slowly roll out of bounds before taking action of any kind.

I stood and did nothing too. Should I be audited?

The "no one could have forseen this" excuse is pretty thin, the banks clearly knew how crappy(fraudulent) all those mortgages were since they made quite a business out of offloading them. If the FRB, all insiders of said banks, didn't inform Mr. Bernanke of the widespread fraud in residential mortgages then perhaps the organization is due for some serious restructuring. If they did inform him but he chose the "see no evil speak no evil" approach anyway.. Political influence seems likely, and again we should rethink the role and structure of the Fed.

Are you sure no one foresaw this? I'd suggest quite a few people did. They were largely ignored.