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On October 02 2008 12:22 Tianx wrote:Show nested quote +On October 02 2008 12:16 CaptainMurphy wrote:On October 02 2008 12:00 EmeraldSparks wrote:
The amount of stuff goes up and the amount of gold does not. I see having a stable currency as a good thing. If the money you have increases value without you investing it anywhere, the economy stagnates. That isn't stability but deflation, which is a bad thing. See: The Great Depression.
It's just price deflation. It doesn't necessarily have to be a bad thing. Price deflation is good, in fact. It means that everyone is getting richer.
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On October 02 2008 12:22 ahrara_ wrote:
Secondly, the gold standard encourages deflation, which discourages investment.
The only advantage of the gold standard is that it protects you from irresponsible inflationary policies. Fortunately, the fed in its decades of existence has never decided to arbitrarily print large quantities of money and probably never will.
It would discourage investment to the degree that it would discourage reckless investment, but less gold invested in a deflating economy would be worth more. The balance between investment and spending is defined by the availability of and demand for consumer goods. And of course the Fed has "printed" silly amounts of money. The oil shocks of the 70s, the '87 bubble, the tech bubble, the housing bubble - every time it was caused by too much cheap credit.
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On October 02 2008 12:57 CaptainMurphy wrote:Show nested quote +If the money you have increases value without you investing it anywhere, the economy stagnates. How can the economy be stagnating if the increase in purchasing power is a result of an increase in real assets? Doesn't that contradict the definition of stagnation? Show nested quote +That isn't stability but deflation, which is a bad thing.
See: The Great Depression. The causes of the great depression is still a debated topic, I'd be interested to see your reasoning as to why you think it was caused by the gold standard. Myself I subscribe more to the Austrian explanation. The Federal Reserve was created in 1913. Through the 1920s the Fed engaged in expansive monetary policy to help out Britain which was suffering from high unemployment. This led to an unsustainable credit-driven boom, as loose monetary policy tends to do, which led to the inevitable bust. Also, increase in money supply due to fractional reserve banking is what made bank runs possible.
There was one final straw as well - when things went bad, the bank reacted by tightening fiscal policy, but ruthlessly so. Banks, traders, everyone went under and a few rich men bought up the spoils for pennies on the pound, so to speak - basically how Rothschild got control of the Bank of England after Napoleon fell at Waterloo. Being a man with the biggest merchant fleet in Europe, he had fast access to information. He came to London knowing the result of the battle - that England had won, and he walked into the London exchange looking stern and silent. Though he said nothing, others took his silence to mean that things had gone badly in the war and that Britain was likely in for a protracted bout of extended war with the French. People dumped stocks like hotcakes and Rothschild had agents of his on the floor buying them all up at bargain prices. When the news finally came that Britain had won, Rothschild was instantly a very rich man. This is what happened in America - the biggest consolidation of financial institutions in history, bought up by the rich on the back of bad fiscal policy.
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Great article from Rothbard written in 1969 explaining how the Fed causes boom and bust cycles. Ludwig von Mises, an early developer of the Austrian theory of business cycles, used his theory to predict the Great Depression during the early 1920s, well before Keynesian nonsense set economic theory back decades.
http://mises.org/story/3127
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Not my full response, but AFAI can tell the ratio of currency to total money supply has been static, according to your own diagrams.
I'm not sure about the ratio, but the problem is that some 90+% was created as debt, essentially out of thin air.
The actual change in money supply is not nearly as drastic as the diagram suggests when you adjust for inflation. Since this inflation hasn't been very rapid, in the long run it's had little effect on real values.
It is a very drastic change in money supply, even with inflation accounted for.
Also, the expansionary effect of the spending multiplier is mitigated by two things:
1.) In the U.S., the multiplier is not actually the ideal sum, but something like 2x or 3x because people hold on to a large part of their loans as cash and
2.) Withdrawals from deposits have an equal and opposite effect on money supply.
I'm not quite following you on point 1, but in response to point 2, a withdrawl doesn't shrink the money supply at all, it just moves an amount of cash from the bank into the hands of the person who withdrew the money.
Therefore... what's the big deal then? Further, if you are going to criticize a system, you must provide an alternative. What is your alternative to fractional reserve banking, and how is it better than the present system?
The alternative to fractional reserve banking is to have two types of banks. One would be a 100% reserve bank in which the bank does not lend out its patrons money, and people would pay a fee to keep their money there. The other type would be a lending bank which pays interest to its investors and lends out their money, but these funds would not be immediately available for withdrawl; people would actually be lending their money to these banks. The problem with fractional reserve banking is that it tries to have it both ways.. it lends out the money of its investors, but at the same time tells them their money is still in the bank and available for withdrawl.. the same money is in two places at once, increasing the money supply. Only when the debt is repaid does the money supply shrink.
The fractional reserve system works because not everyone will be using their deposited cash at the same time, except in the case of a run which is prevented by the FDIC's deposit insurance. The same resources can be put to better use. What is bad about this?
What's bad about fractional reserve banking is that it increases the money supply which artificially lowers interest rates which encourages malinvestments that create boom-bust cycles. If the FDIC injects more money into the economy, it's ony going to increase inflation even more.
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On October 02 2008 16:16 ahrara_ wrote:Show nested quote +On October 02 2008 12:44 fight_or_flight wrote:edit: I read the OP, here are some comments. Last half of post contains the important comments on previous discussion. On October 01 2008 04:08 ahrara_ wrote:
WARNING
IF YOU MAKE A STUPID POST I WILL KILL YOU was this here before?
Banks and less reputable financial organizations began lending to the "sub-prime" market. These were people whose credit history meant they had a good chance of defaulting on their loan. One reason banks made these loans was because they figured that housing prices would keep rising forever. If these guys couldn't pay back their loan, we'll just repossess the house and sell it at a profit to someone who can!!!1111 (LOL HOW WRONG THEY WERE).
So long as investors kept buying mortgage backed securities, banks continued to make subprime loans. Essentially, they were speculating: gambling that because housing prices would keep rising, they would eventually make a killing. Unfortunately, speculation has the added effect of artificially inflating demand, raising prices. Thus the financial system created a self-fulfilling prophecy: By betting on increased housing prices, they made housing prices increase, creating the housing bubble.
I'm not going to argue that this is true, but it is not the reason why they began lending to subprime borrowers. The root cause of it all was that interest rates (from the fed) were too low for too long, causing an overabundance of easy money. All of that money had to go somewhere, so it was pumped into the housing market (because it was one of the last areas that could sustain increased debt.....in addition to the reasons ahara listed). You have this huge pile of money and you have to find people to borrow it. I'm very surprised that no one brought this up in this thread so far besides jgad (and no one addressed his comment on this). The problem is that when the economy began to improve, bernake didn't raise interest rates. Not to mention greenspan, who is much more responsible.
Essentially, the problem is one of liquidity, or liquid capital. ...............
To fix a liquidity problem, you have to create a market for the illiquid assets. ......................
How this will fix the problem should be obvious. By injecting liquidity into the system, banks will be again willing to lend, and credit will be looser. ..............
Again, correct but not necessarily the whole story. The liquidity problem is a symptom which causes many other real problems. The other more fundamental factor is confidence. If investors lose confidence, the fed could literally put trillions of dollars of liquidity in the market and things would still come crashing down (I think we are actually short like $5 trillion, so the $700 billion is not a "true" once-and-for-all fix). The correct action may actually injecting massive amounts of money, but one must look at the cause of the fundamental loss of confidence. If investors think that every bank is cooking its books and about to fail, and worse, have NO idea which bank will fail, they'll just pull their money out all together. This could be fixed partly by having more transparency of balance sheets. True, a number of banks would fail immediately because investors would know their true risk, but people would also be more likely to invest in the system. Bailouts could be given as necessary for some failures, but just a blanket bailout doesn't address the fundamental loss of confidence (because again, that $700 billion can't cover everything).
1.) The Bailout is not as expensive as $700 billion.
As I said earlier, while most of these securities are losing money as a whole, they still retain SOME value. Not everyone is going to default on their loans. The fed can either hold these mortgages until they mature or sell them off, if the market has recovered. They could end up earning back between $500 billion to nearly breaking even.
You're right, its not $700 billion. Its a hell of a lot more. The $700 billion is only the amount on the government's balance sheet. Doesn't count if its sold at a loss! For example, the government could buy $500 trillion at .5 on the dollar from company A, and sell it later that day at .1 on the dollar to company B, and have a balance sheet of zero again. The only limit is "cap" on national debt (which is always increased of course).
3.) Don't handicap the bailout.
All this talk about limiting executive pay, creating incentives to negotiate, etc. etc. are valuable policies (to an extent). Geez Congress, maybe you should've instituted them BEFORE THE FUCKING CRISIS YOU TARDS. The economic crisis is not happening soon, it is not happening next year, it is happening NOW and you shitholes need to something about it and not, as my esteemed congressman Pete Stark said this morning, "hold a month of hearings". No I'm not kidding, the fucktard actually said that. Then he blamed tax policies for the crisis. Palin is more fucking informed.
Second, it's important to keep in mind that the bailout is voluntary. If companies don't want to sell their mortgage backed securities because the government requires that they have to give up equity or their severance packages, then they won't sell them, handicapping the bailout.
4.) Not bailing out is much worse.
If it shouldn't be handicapped, why did paulson say that he would recommend a veto if the bill excluded bad foreign debt transferred to a US bank after september 20? If its so urgent, why does he threaten to veto over that? Weren't we supposed to crash a week ago? That didn't happen. Keep in mind exactly what this is. This is a huge power grab. One man, with the stroke of his pen, controls hundreds of billions of dollars. He can pick the winners and losers. He is a GOD. He probably has more power than the president. This is essentially the financial patriot act, where one man controls an infinite amount of money. No hearings, no questioning, no appeals, no limit. Now on to the other stuff. ====================================================================== On October 02 2008 06:33 ahrara_ wrote:
well I think some of the free-market fundamentalists like jgad have been putting up a really good fight and it bothers the shit out of me I don't know how to really defend the fed. but it bothers me when some dick jumps in screaming about how debt = money and that it's all the fed's fault without really udnerstanding or being able to explain why. I didn't jump in screaming anything, I just posted my blog link. On October 01 2008 16:59 ahrara_ wrote:
im not angry
the money creation stuff are not basic examples of anythign except an untrue idea. what fight is saying is that banks arbitrarily create money, essentially printing money or counterfeiting. this is true in fucking zimbabwe where inflation is something like 10 million % (no exaggeration) but not in the u.s. money supply goes up when banks are more willing to lend, but they will only do so until they meet their capital reserve or the banks that they are borrowing from meet their capital reserve. so money is not just randomly generated.
"money = debt" is a meaningless factually incorrect and stupid term
Have we agreed that banks create money yet? This is simply a fact. They can't do it "out of control" because that example I gave you before was a geometric sum, with a finite limit. More simply, it is known as the money multiplier. Banks multiply the money supply through the fractional reserve system....by, in my example, 10. http://en.wikipedia.org/wiki/Money_creation#Money_multiplierSo, what is all that multiplied money? its someone else's debt because it was created through loans. If everyone paid off their loans, all that money multiplying stuff would go away, so 90% of our money would disappear in that example. Lets look at this for a second. http://en.wikipedia.org/wiki/Money_supply#Fractional-reserve_banking#1 of the wikipedia section is currency. #2 is money created through loans. That money is someone else's debt, thats how it came into existence, and thats how it must increase. If more and more people aren't continually found to accept that new debt, the money supply can't increase anymore. Thats why mortgages bubbled, because housing was a reservoir of potential new debt. If you look at the picture below, you will see the relative amounts of this money plotted. Everything except the green represents debt that someone somewhere owes to someone else. Can americans keep absorbing exponentially increasing amounts of debt (which are required because interest is collected on that nonexistent money)? I don't think so. This is a fundamental problem, not something a bailout will solve permanently. Not my full response, but AFAI can tell the ratio of currency to total money supply has been static, according to your own diagrams. The actual change in money supply is not nearly as drastic as the diagram suggests when you adjust for inflation. Since this inflation hasn't been very rapid, in the long run it's had little effect on real values. Also, the expansionary effect of the spending multiplier is mitigated by two things: 1.) In the U.S., the multiplier is not actually the ideal sum, but something like 2x or 3x because people hold on to a large part of their loans as cash and 2.) Withdrawals from deposits have an equal and opposite effect on money supply. Therefore... what's the big deal then? Further, if you are going to criticize a system, you must provide an alternative. What is your alternative to fractional reserve banking, and how is it better than the present system? The fractional reserve system works because not everyone will be using their deposited cash at the same time, except in the case of a run which is prevented by the FDIC's deposit insurance. The same resources can be put to better use. What is bad about this? Inflation is only a problem in the short run. In the long run, prices and wages adjust accordingly.
I really don't know if the ratio of borrowed money vs currency is constant, but I don't think that is important. You're right, the actual money multiplier from banks is less than the reserve ratio. But there are other financial instruments which are more leveraged, and these account for the data thats shown in the picture.
The real problem is that since interest is collected on the money supply, new money must always be created to cover the principal. So essentially, if the money supply doesn't increase exponentially, we have a crash because people can't pay off their loans and go into foreclosure/bankruptcy.
The fundamental problem: if only $10 exists in the universe, and I give it to you with the condition that you pay me $11 back, somebody somewhere has to borrow that $1 (which a bank can create for them).
The problem is not so much inflation as it is no one being able to absorb debt. The people who are left holding the debt will all have to default because no one is out there creating new money for them.
The exponential curve can't increase forever because people can only borrow so much (remember, when it stops being exponential that means people are not paying their loans back).
A few interesting solutions where given at the end of that video in my blog. Since I pretty much agree with it and don't really have anything to add, you can just watch it yourself.
+ Show Spoiler +
I particularly like their system of the government creating all the money by initially spending it on government expenses, and allowing inflation to be a kind of tax.
Of course it is flawed because, how do you measure inflation? Not more flawed that the current system I'd say.
+ Show Spoiler +
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On October 02 2008 05:08 HonestTea wrote:
ahahaha it's sad to see people with so much time on their hands, so eager to post and jump in the conversation, but with an utter lack of reading comprehension and without any will to understand the basic framing of the debate.
Hi HonestTea! How are you? Sure are a lot of words in this thread!
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I think this thread is appropriate:
A new way to beat the economic slump!
Fannie Mae forgives loan for woman who shot herself+ Show Spoiler +
Fannie Mae said it will set aside the loan of a woman who shot herself as sheriff's deputies tried to evict her from her foreclosed home.
Addie Polk, 90, of Akron, Ohio, became a symbol of the nation's home mortgage crisis when she was hospitalized after shooting herself at least twice in the upper body Wednesday afternoon.
On Friday, Fannie Mae spokesman Brian Faith said the mortgage association had decided to halt action against Polk and sign the property "outright" to her.
"We're going to forgive whatever outstanding balance she had on the loan and give her the house," Faith said. "Given the circumstances, we think it's appropriate."
Residents of Akron have rallied behind Polk, who is being treated at Akron General Medical Center. She was listed in critical condition Friday afternoon, according to Akron City Council President Marco Sommerville.
U.S. Rep. Dennis Kucinich, D-Ohio, mentioned Polk on the House floor Friday during debate over the latest economic rescue proposal.
"This bill does nothing for the Addie Polks of the world," Kucinich said after telling her story. "This bill fails to address the fact that millions of homeowners are facing foreclosure, are facing the loss of their home. This bill will take care of Wall Street, and the market may go up for a few days, but democracy is going downhill."
Neighbor Robert Dillon, 62, used a ladder to enter a second-story bathroom window of Polk's home after he and the deputies heard loud noises inside, Dillon said.
"I was calling her name as I went in, and she wasn't responding," he said.
He found her lying on a bed, and he could see she was breathing. He also noticed a long-barreled handgun on the bed, but thought she just had it there for protection. He touched her on the shoulder.
"Then she kind of moved toward me a little and I saw that blood, and I said, 'Oh, no. Miss Polk musta done shot herself,' " Dillon said.
He hurried downstairs and let the deputies in. He said they told him they found Polk's car keys, pocketbook and life insurance policy laid out neatly where they could be found, suggesting that she intended to kill herself.
"There's a lot of people like Miss Polk right now. That's the sad thing about it," said Sommerville, who had met Polk before and rushed to the scene when contacted by police. "They might not be as old as her, some could be as old as her. This is just a major problem."
In 2004, Polk took out a 30-year, 6.375 percent mortgage for $45,620 with a Countrywide Home Loan office in Cuyahoga Falls, Ohio. The same day, she also took out an $11,380 line of credit.
Over the next couple of years, Polk missed payments on the 101-year-old home that she and her late husband purchased in 1970. In 2007, Fannie Mae assumed the mortgage and later filed for foreclosure.
Deputies had tried to serve Polk's eviction notice more than 30 times before Wednesday's incident, Sommerville said. She never came to the door, but the notes the deputies left would always disappear, so they knew she was inside and ambulatory, he said.
The city is creating programs to help people keep their homes, Sommerville said. "But what do you do when there's just so many people out there and the economy is in the shape that it's in?"
Many businesses and individuals have called since Wednesday offering to help Polk, Sommerville said.
"We're going to do an evaluation to see what's best for her," he said. "If she's strong enough and can go home, I think we should work with her to where she goes back home. If not, we need to find another place for her to live where she won't have to worry about this ever again."
For his part, Dillon hopes his neighbor of 38 years can return to her home.
"She loves that house," he said. "I hope they can get her back in. That would make me feel better because I don't know what they're going to put in there once she leaves."
He said the neighborhood is declining because so many people have lost their homes.
"There's a lot of vacant houses around here. ... Now I'm going to have a house on my left and a house on my right, vacant," he said. "That don't make me feel good, because we were good neighbors, we trusted each other, and we looked out for each other.
"This neighborhood is shot, to me, from what it used to be," he added.
"When I moved here, if it were like it is now, I would have never moved here. But it was a nice neighborhood. ...
"I'll just tough it out. I'm too old to start thinking about buying another house."
Sommerville said that by the time people call for help with an impending foreclosure, it's usually too late.
"I'm glad it's not too late for Miss Polk, because she could have taken her life," Sommerville said. "Miss Polk will probably end up on her feet. But I'm not sure if anybody else will."
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United States22883 Posts
On October 02 2008 11:45 HeadBangaa wrote:
Why are political science majors so angry? Is it the lackluster job opportunities of your field? What? Bush has actually put us into business, at least as much as most social science fields are atm.
So I finally finished my May 4th movement paper and another one on leadership ethics so I've only just now gotten to read this thread. Just a few thoughts while I'm digesting it all:
I think it's important to note the first step the Treasury dept. is taking to use the money.
http://bloomberg.com/apps/news?pid=20601103&refer=news&sid=aVVOrzOIBedo
Is there another way to effectively plan something of this magnitude? Probably not. Is it still disheartening to think they're basically hiring a ton of the people who just lost their jobs? Yep.
We know regulation played a part in creating incentives for this to happen and we also know it's extremely difficult for the Fed to be accurate or precise in its adjustment to meet different needs of different markets but I simply haven't seen a convincing case for hands off monetary policy instead. Markets are never close to ideal and even if the long run is truly guaranteed to correctly adjust itself (which it may not be), there's not a chance in hell that you can survive in a democracy with short term exploitation (and I'm not arguing against self-interest, just saying it's inevitable.) Yes. it ties directly to politics and neo-classicism doesn't provide a pragmatic solution. TBH, the internet is probably even exacerbating the problem, as less schooled people enter directly into markets and confidence is easily swayed. Even asymmetrical information will not be fixed.
It's accurate to say "x activity by the government caused y problem" but it's not exactly fair because it makes the implication that we would be problem free had government not enacted x. That's simply not true. The case of affordable housing loans doesn't prove my point that well because it was an exceptionally idiotic decision but I don't think we'd be crisis free regardless. Are you presupposing that the overinflated tech bubble was a bad thing and that without intervention from the very beginning, we'd be better off? I'm not sure that 1 is necessarily true and I don't think 2 is..
We now know classical Keynes models are outdated and arguably inaccurate to begin with but subscribing strictly to one school seems ridiculous to me, and I've been guilty of it in the past. I'm glad someone brought up econometrics because as it stands, Austrian, Chicago, Stockholm, etc. schools are all able to present seemingly sound rationalist perspectives to anyone not pre-committed and for a lot of people it comes down to whichever journal they most recently read. Ron Paul has done wonders for the Austrian school on english speaking forums, but I'm sure the popular tune is quite different on other forums of other languages. Are any of us quality judges to determine the merit of Cato or Brookings? Doubtful. I don't understand econometric theory very well and I've seen criticisms of its empiricism, but I'm still extremely curious to see what it'll yield.
This was not a vote I'd want to make because I haven't bought into either side.
EDIT: Is anyone here knowledgeable enough to sort through AER?
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Gold standard is a good monetary system IMO. It's stable, predictable, and won't make mistakes (unlike the fed).
Steady, predictable deflation isn't a problem. As long as it's caused by the creation of goods and not the reduction of the actual money supply, it just means that firms have to adjust and take into account future deflation (which should be easy since it's predictable). The market will adjust and investment will continue on just the same once it does.
The only problem with the gold standard is that it isn't very flexible. Regardless of whether you believe in the Austrian business cycle theory or not, I think that you have to admit that circumstances external to the economy in question will still cause downturns. Under the gold standard, there's not much anyone can do to deal with downturns, while under a competent central bank with fiat currency, there is. The question is how competent are we going to assume our national bankers are going to be.
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Funny to see people argue FOR deflation lol, really, deflation is one of the worst things that can happen to the economy. Economists actually considered it an almost purely theoretical myth until it occured in Japan in the nineties. Three obvious reasons why deflation is so bad for the economy:
- Any rational consumer will start postponing his consumption, expecting prices to go down even more, final result, the economy shrinks
- Loans become more expensive, investments go down, once again, the economy shrinks
- Wages have downward rigidity, it is almost impossible to lower wages in an even slightly unionized environment. This means that even when a wage block is in effect, wages will still be going up.
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stop telling me the gold standard will fix things when it's a fact we were ON the gold standard before the Great Depression.
UGH.
Gold standard is not a good thing. Deflation is not a good thing. You cannot just arbitrarily say "well companies account for it..." that's not the problem! It discourages investment and encourages hoarding etc etc I have covered this in at least 3 posts can I stop repeating myself.
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United States22883 Posts
So young and fresh, Mr. Gore.
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On October 06 2008 01:20 pfff wrote:
Funny to see people argue FOR deflation lol, really, deflation is one of the worst things that can happen to the economy. Economists actually considered it an almost purely theoretical myth until it occured in Japan in the nineties. Three obvious reasons why deflation is so bad for the economy:
- Any rational consumer will start postponing his consumption, expecting prices to go down even more, final result, the economy shrinks
- Loans become more expensive, investments go down, once again, the economy shrinks
- Wages have downward rigidity, it is almost impossible to lower wages in an even slightly unionized environment. This means that even when a wage block is in effect, wages will still be going up.
Benign deflation isn't bad at all (deflation caused by an increase in goods), however, harmful deflation is (deflation caused by decline in money supply).
Economists did not consider deflation a myth at all... In the late 1800s the United States experienced the "great deflation", a period of 20 years that included pretty much constant deflation. And real GDP per capita still grew by about 50% during that time.
To address your points:
Yes prices will go down, however, if banks know that steady deflation will occur, interest rates will also be lower. Interest rates include a premium based on inflation, a 5% interest rate while there is 2% inflation is a 3% real interest rate; banks have to attempt to guess at future inflation and charge this premium accordingly. If banks know that steady deflation will occur, interest rates go down, therefore returns on investment go down, and these lower returns counter the expectation of lower prices in the future.
Wait, you're saying two opposite things here. You're saying that people will invest and postpone consumption, shrinking the economy, and that people will invest less since it's more expensive, also shrinking the economy. Obviously, both can't be true.
And loans don't become more expensive, they just stay the same. The only difference is that the inflation premium charged on them goes down. The nominal interest rates fall, but the real rates stay the same. Though I guess you could say that the opportunity cost of loans goes up somewhat, but too much investment can be just as bad as too little,
The wage problem is real though. Getting rid of such powerful unions would help (I mean, we are talking about getting on a gold standard, we might as well include other impossibilities). However, I don't think it's that much of a problem simply because productivity is rising so much across sectors of the economy. If productivity can keep up with real wage increases due to deflation then everything is fine. If not, then it ups the competitiveness of industries a bit more, as they know that they have to reduce costs even more or die as an industry, or unions have to accept wage cuts, or something bad happens.
On October 06 2008 01:35 ahrara_ wrote:
stop telling me the gold standard will fix things when it's a fact we were ON the gold standard before the Great Depression.
Gold standard is not a good thing. Deflation is not a good thing. You cannot just arbitrarily say "well companies account for it..." that's not the problem! It discourages investment and encourages hoarding etc etc I have covered this in at least 3 posts can I stop repeating myself.
It would only really encourage hoarding if it got to the point that nominal interest rates were negative. Historically, the gold standard has mostly resulted in a pretty even rate of inflation, close to 0, slightly negative or positive depending on mining and growth. Under those circumstances, people would still rather earn a good return on their money and have the safety of bank guarantees than go the mattress-stuffing route.
Either way, one of our problems is that people are over-investing because of too high of inflation rates (which translates into too low of interest rates). If businesses had kept more cash on hand and invested less, we wouldn't be having this bubble problem at all. High inflation causes over-investment which causes bubbles which causes popping bubbles.
And the great contraction of the money supply during the great depression was much more a result of fractional banking, retarded government regulations (like no branch banking), and the subsequent collapse of the banking system. It had almost nothing to do with the gold standard.
BTW, a cato institute briefing on the gold standard. http://www.cato.org/pub_display.php?pub_id=9181
And I'm sure if you go to the mises institute you'll find a lot of writing on it.
And note that I'm not even a supporter of the gold standard. I like the federal reserve, I just wish that it's leaders weren't so incompetent so much of the time. If Volcker could come back it would probably do better, but it just needs to be more restrained in general. But I just recognize that the gold standard has a lot of things going for it and isn't prone to human mistakes. It lacks flexibility, but makes up for that in stability.
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United States22883 Posts
Don't forget Mr. Smoot
Who exactly are you trying to pin it on? Bernanke? I think he's unfortunately become more of a public figure head than he'd like and he's been trained to work behind closed doors, not in front of a podium.
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On October 01 2008 05:18 HnR)hT wrote:Show nested quote + Ideally, banks would only lend money to people they were sure could pay them back: people who had a clean criminal record, good credit, and a solid income.
Unfortunately, because of deregulation, this didn't always happen. Yes, because banks just love to lose money when mortages default. In fact, banks were *pressured* by the government to lend to mainly minorities who can't pay back their loans. Both parties supported this. The idea was to "help" blacks (and hispanics) catch up in home ownership with whites. Banks have been getting accused of racism for not lending enough to minorities, who were disproportionately liable to default even for the same income level. Banks aren't free of blame; they went along with this because of greed, and because they assumed the taxpayer would bail them out if something goes wrong. But it's not as simple as "lack of government regulation caused the crisis".
First of all thanks to the OP, very informative post and well written. This statement kind of bothered me though, you might be correct in saying that minorities might be more liable to default in the same income level, but they are also disproportionately more likely to receive higher interest rates on sub-prime loans than whites. In this study "Unfair Lending"the number was, I believe for blacks was 31% more likely to receive higher interest rate (fixed rate loans) taking into account the same risk factors and income level . Predatory lending is real and is a large problem, that is not to say individuals do not have a responsibility to look for loans they can afford and like you say banks are also to blame, but who do you think is more responsible, the drug dealer or the drug user.
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MyLostTemple
United States2921 Posts
the talk at 0:30 reminds me of the mccain/palin adds vs obama/biden
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MyLostTemple
United States2921 Posts
i'm at 0:53 and i need to stop this shit. i'll watch the rest tomorrow but i'm sick of these "fight club sound trackish" documentaries with hardly any diverse interviews and an assload of assertions.
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On October 05 2008 17:24 Jibba wrote:Show nested quote +On October 02 2008 11:45 HeadBangaa wrote:
Why are political science majors so angry? Is it the lackluster job opportunities of your field? What? Bush has actually put us into business, at least as much as most social science fields are atm.
What is the order of business that Bush has afforded your craft? Passionate teaching?
Serious question. My roommate just got his BA in poli sci, and he's saying that you can't do shit with it except teach, because getting in on campaigns is too competitive or something.
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EPT![[image loading]](http://upload.wikimedia.org/wikipedia/en/thumb/9/95/Components_of_the_United_States_money_supply2.svg/570px-Components_of_the_United_States_money_supply2.svg.png)
![[image loading]](http://edgeofthewest.files.wordpress.com/2008/06/goreperot.png?w=480)
