Liberal Economist are right!

[2centsworth]

Though I remain a social conservative, I can no longer support gold standard thinking about the economy. All the deficit alarmist couldn't be more wrong and they continue to be wrong. What ever happened to the Hyperinflation that all the monetary easing was supposed to create? Why does Japan, with twice the debt load, struggle with deflation rather than inflation? Plus, all these people who talk about the US being Greece don't have a clue about what a sovereign currency is. The US is able to pay its debts with a currency it creates, unlike Greece or Weimar Germany. And stop telling me that the increase in the money supply is inflationary when we've had historic increases in the money supply the past several years and all we have to show for it is lower interest rates.

The elitist deficit hawks want to control the game of production, and thus continue to widen the gap between them and the rest of us. Unfortunately, good decent conservatives people are confusing deficit hawk mentality with personal responsibility and the value of hardwork.

My recommendation as part of the debt negotiation:

1. slash payroll taxes for all those under $400k as part of any debt negotiation. Remember, Conservative believe cutting taxes increases long-term revenue, so why wouldn't cutting payroll taxes increase long-term payroll tax revenue?

2. Make huge investments in higher education to states that freeze tuition and fees for public institutions.

3. Start to transition to a Medicare Voucher system, because when the economy eventually Heats-up, which would be inflationary, the money supply created by Medicare would add fuel to the inflationary fire.

[boutons_deux]

estimate today is that US inflation will hover around 2% for next couple of years.

yes, the assholes screaming 4 years ago about Barry's stimulus spending causing hyper-inflation were wrong, as usual.

And Repugs screaming about Barry's runaway spending are LYING, fed spending is DOWN under Barry.

[Winehole23]

not sure if serious

[ElNono]

It's the near zero interest rate that keeps the money printing non-inflationary... the famed 'liquidity trap'... IS-LM guys should rejoice, as they appear to be right...

That said, nothing lasts forever. As the economy recovers and private demand picks up, interest rates will start moving up and at that point increases in the money supply will be inflationary.

[2centsworth]

It doesn't last forever, so when the economy begins to overheat we should then reduce the money supply by raising taxes.

[boutons_deux]

"reduce the money supply by raising taxes."

no, the money supply is reduced by Fed/Treasury buying back bonds, taking money out of circulation. Iran and similar will keep their counterfitting machines running full blast.

All Bernanke has to do tame inflation is do what Volcker did.

[Winehole23]

raise taxes in the teeth of rising prices? hard to picture winning an election that way or keeping the seat, having voted that way.

[ElNono]

It doesn't last forever, so when the economy begins to overheat we should then reduce the money supply by raising taxes.

Well, there's many ways to skin a cat... that would be one way. What I think would happen is, when interest rates pick up again, Monetarism becomes relevant again, and we can go back to pre-2008 management of the money supply using interest rates.

At some point though, you'll have to deal with the deficit. Japan hasn't had to because they're still depressed and thus their rates still hover at zero, but on a non-depressed economy, you can't keep pumping money without inflationary pressure.

[2centsworth]

I'm data and fact driven, so occasionally I change my mind.

[ElNono]

Futurology is certainly an exercise in futility. Doesn't mean it shouldn't be explored, but parameters change all the time. Keeping an open mind isn't bad at all.

[Clipper Nation]

Your argument is based on fundamental misunderstandings of how the Fed works, tbh... the problem with interest rates is that they're manipulated by the Fed to fix the price of money, instead of letting the reality of the market dictate it.... by doing this, the Fed floods the market with cheap money, creating false prosperity that leads to malinvestments and harsh market corrections down the road.... low interest rates aren't a result of inflation, it encourages runaway inflation by making capital's availability depend on fiat money instead of savings and actual wealth.... and of course, the act of printing this fiat money without tangible wealth to back it up is by definition inflation...

It's interesting that you bring up Japan.... in the '90s, their central bank started slashing the interest rates all the way down to zero and their economy remained stagnant.... central banks cannot create lasting prosperity out of thin air no matter how much liberal economists would like to pretend they can.... we need a gold standard and the end of centralized banking to stabilize the economy and put an end to the boom-and-bust cycles of malinvestment and correction.....

[2centsworth]

At some point though, you'll have to deal with the deficit. Japan hasn't had to because they're still depressed and thus their rates still hover at zero, but on a non-depressed economy, you can't keep pumping money without inflationary pressure.

We sure have pumped a tremendous amount of money in to the system, but the key is economic activity. Increased economic activity is inflationary. We are far away from that. Hence, at this point the deficit doesn't matter, especially when our National Assets are at $92trillion vs $16trillion debt

[2centsworth]

Your argument is based on fundamental misunderstandings of how the Fed works, tbh... the problem with interest rates is that they're manipulated by the Fed to fix the price of money, instead of letting the reality of the market dictate it.... by doing this, the Fed floods the market with cheap money, creating false prosperity that leads to malinvestments and harsh market corrections down the road.... low interest rates aren't a result of inflation, it encourages runaway inflation by making capital's availability depend on fiat money instead of savings and actual wealth.... and of course, the act of printing this fiat money without tangible wealth to back it up is by definition inflation..

so when we have run away inflation 100 years from now you will be right. People such as yourself have been predicting hyperinflation for the past 3 years. Please make a prediction and stick to it.


It's interesting that you bring up Japan.... in the '90s, their central bank started slashing the interest rates all the way down to zero and their economy remained stagnant.... central banks cannot create lasting prosperity out of thin air no matter how much liberal economists would like to pretend they can.... we need a gold standard and the end of centralized banking to stabilize the economy and put an end to the boom-and-bust cycles of malinvestment and correction....

You do realize boom and bust cycles were more prevalent and deeper during the gold standard days?

[ElNono]

We sure have pumped a tremendous amount of money in to the system, but the key is economic activity. Increased economic activity is inflationary. We are far away from that. Hence, at this point the deficit doesn't matter, especially when our National Assets are at $92trillion vs $16trillion debt

That's correct. I know the Kruger gets a bad rep sometimes around here, but technically speaking, he explains IS-LM and why this happens fairly clearly here:
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

Now, the economy picking up steam is the actual reason this is being done, so we will move into an inflationary stage sooner or later. That's the actual goal. So we need to make sure that our debt ratio to GDP is manageable, because we'll need to eventually reign in that inflation. That we're not there yet doesn't mean it's a carte-blanche to not have any restraints right now.

[mavs>spurs]

"reduce the money supply by raising taxes."

no, the money supply is reduced by Fed/Treasury buying back bonds, taking money out of circulation. Iran and similar will keep their counterfitting machines running full blast.



Wrong, buy backs expand the money supply, they are taking bonds out of the market and giving out cash in exchange

[2centsworth]

That's correct. I know the Kruger gets a bad rep sometimes around here, but technically speaking, he explains IS-LM and why this happens fairly clearly here:
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

Now, the economy picking up steam is the actual reason this is being done, so we will move into an inflationary stage sooner or later. That's the actual goal. So we need to make sure that our debt ratio to GDP is manageable, because we'll need to eventually reign in that inflation. That we're not there yet doesn't mean it's a carte-blanche to not have any restraints right now.

I agree that growth is the actual goal, so crippling budget cuts or tax increases don't make sense at this point. In addition, an unmanageable debt level has to be quantified. We are at a about a 6 to 1 asset to debt level now and treasuries are still considered a safe haven, no matter how much people complain. Fitch will probably downgrade our Debt and watch people run and buy more treasuries hahaha.

[2centsworth]

Wrong, buy backs expand the money supply, they are taking bonds out of the market and giving out cash in exchange

gets even better when we create and buy our own bonds hahaha.

[Clipper Nation]

so when we have run away inflation 100 years from now you will be right. People such as yourself have been predicting hyperinflation for the past 3 years. Please make a prediction and stick to it.
It's not easy to predict exactly when the tipping point for hyperinflation will finally be reached, but it's very easy to spot the behaviors that put us at risk of eventual hyperinflation: fiat money-printing and central bank price-fixing.... the fact that we haven't reached hyperinflation yet makes the need for a change in our monetary policy even more urgent, because we actually have time to get back on the right path and avert this disaster in advance....


You do realize boom and bust cycles were more prevalent and deeper during the gold standard days?
Market corrections will never stop happening altogether, but the influence of central banking and government interference in the business cycle only makes the inevitable busts more shocking and crippling.... in an economy dictated by reality instead of political expedience, people wouldn't be so easily lulled into a false sense of security during boom times, and more inclined to prepare for corrections....

Gold also restrains the boom and the bust in a boom and bust cycle by limiting the money supply, and therefore, restricts the amount of artificial credit that can be created... without some limit on the money supply, artificial credit has a way of growing unsustainably during boom times and then disappearing overnight during the bust, causing a crippling blow to the economy....

By the way, the reason why the Fed was even established was in order to eliminate boom and bust cycles, yet they continue to happen regardless of any quantitative easing or interest rate slashing by the Fed.... seems to me that central banking has failed to bring about the economic stability they were expected to create....

[ElNono]

There's actually a much more simpler and effective predictor of hyperinflation: high levels of inflation. You just don't get to an inflationary spiral without going through a ramp up stage.

[2centsworth]

There's actually a much more simpler and effective predictor of hyperinflation: high levels of inflation. You just don't get to an inflationary spiral without going through a ramp up stage.

at least you've pin pointed that tax policy should revolve around controlling inflation. I would suggest inflation is tame and will remain so for the next several years because of our weak economy. Hence, stimulus through tax cuts and investments in education is what we need today, not cut cost for the fear of hyper-inflation 100 years from now. Growing this economy where everyone can partake will do wonders to tax receipts in the future.

[2centsworth]

It's not easy to predict exactly when the tipping point for hyperinflation will finally be reached, but it's very easy to spot the behaviors that put us at risk of eventual hyperinflation: fiat money-printing and central bank price-fixing.... the fact that we haven't reached hyperinflation yet makes the need for a change in our monetary policy even more urgent, because we actually have time to get back on the right path and avert this disaster in advance....

If you're proposing cuts to teachers, police, and social welfare programs you have got to be more precised than just saying one day, because we've had massive monetary expansion and you've been wrong.



Market corrections will never stop happening altogether, but the influence of central banking and government interference in the business cycle only makes the inevitable busts more shocking and crippling.... in an economy dictated by reality instead of political expedience, people wouldn't be so easily lulled into a false sense of security during boom times, and more inclined to prepare for corrections.... more shocking than the depression of 1873 or 1920 or the Great Depression?



Gold also restrains the boom and the bust in a boom and bust cycle by limiting the money supply, and therefore, restricts the amount of artificial credit that can be created... without some limit on the money supply, artificial credit has a way of growing unsustainably during boom times and then disappearing overnight during the bust, causing a crippling blow to the economy....

By the way, the reason why the Fed was even established was in order to eliminate boom and bust cycles, yet they continue to happen regardless of any quantitative easing or interest rate slashing by the Fed.... seems to me that central banking has failed to bring about the economic stability they were expected to create....

The Gold Standard was a cushion during the Great Depression? Makes no sense.

[boutons_deux]

"stimulus through tax cuts"

any proof that tax cuts stimulate the economy? I bet most people will use extra money to pay down their mortgage, car loan, credit card debt. iow, the tax cuts go directly to the financial sector/lenders, not to consumer spending.

[2centsworth]

"stimulus through tax cuts"

any proof that tax cuts stimulate the economy? I bet most people will use extra money to pay down their mortgage, car loan, credit card debt. iow, the tax cuts go directly to the financial sector/lenders, not to consumer spending.

Spenders will spend. Savers will save, which creates money at the banks.

Those in financial distress will payoff debts, yes, but relieving that distress will lead to that person buying more now and in the future.

Though I'm more liberal in my economic thinking than I've ever been, I still believe in the people having the freedom to spend as they choose. I just think the government should spend too on items like higher education, with the one caveat of tuition and fee freezes on recipients of government assistance.

[Clipper Nation]

The Gold Standard was a cushion during the Great Depression? Makes no sense.
Well, no, because the government had already begun undermining the gold standard in order to help pay for WWI... in 1917, the Federal Reserve Act was modified to allow war bonds, backed by government debt, to serve as backing assets for Federal Reserve notes... once the Fed was allowed to back dollars with government debt without worrying about backing every dollar with 40% gold, they could issue more money at a faster pace, thereby weakening the strength of the dollar and sounding the first death knells of the gold standard... by 1920, the purchasing power of one dollar had been cut in half from what it was in 1914...

Aside from that, after WWI, the Fed slashed interest rates, creating a massively-unsustainable housing bubble... in the early '20s, the Fed also started allowing people to "buy" stocks and bonds (while in reality borrowing 90% of the money)... the stock market crash was really a market correction for all the false prosperity brought on by debt-backed dollars and interest rate price-fixing....

[Clipper Nation]

"stimulus through tax cuts"

any proof that tax cuts stimulate the economy?

Warren G. Harding's tax cuts ended the 1920 recession, brought down unemployment, and inspired growth in manufacturing...

Hoover's massive tax hikes in 1932 didn't do shit to fix the Great Depression, and neither did the constant shuffling between stimulus and austerity... governments around the world are repeating these mistakes now with pretty much the same results...

[DUNCANownsKOBE]

Warren G. Harding's tax cuts ended the 1920 recession, brought down unemployment, and inspired growth in manufacturing...

Hoover's massive tax hikes in 1932 didn't do shit to fix the Great Depression, and neither did the constant shuffling between stimulus and austerity... governments around the world are repeating these mistakes now with pretty much the same results...

Sup Nono?

[ElNono]

:lol

[Winehole23]

more shocking than the depression of 1873this one tends to get left out. before the Great Depression, this was the big one.

[boutons_deux]

Warren G. Harding's tax cuts ended the 1920 recession, brought down unemployment, and inspired growth in manufacturing...

Hoover's massive tax hikes in 1932 didn't do shit to fix the Great Depression, and neither did the constant shuffling between stimulus and austerity... governments around the world are repeating these mistakes now with pretty much the same results...

:lol

[2centsworth]

http://youtu.be/7gAnBbeO4YA

[Warlord23]

Let me try and explain the main problem with the hyperinflation predictions that ClipperNation subscribes to.

First, we need to understand the nature of the money supply. There is difference between the "monetary base" (MB) and the "broad money" (M4) supply.
MB consists of currency notes, coins and deposits held at the Fed by the banks. This is directly caused by the Federal Reserve.
M4 is broader and includes demand deposits, savings accounts, money market accounts, CDs, commercial paper, T-Bills, etc. This cannot be controlled by the Fed.

Thanks to the fractional reserve banking system, the majority of broad money created in an economy is not by the central bank, but by the commercial banks. Every time a bank makes a loan, it creates a computer entry in the borrower's account and thereby creates new broad money. In other words, commercial banks apply a "multiplier effect" on the monetary base.

In normal times (and especially during a boom), more bank loans are made and the broad money supply grows fast as the Fed increases the monetary base. When the party comes to an end, the Fed tries to print more to restart economic activity. However, if the commercial banks don't make loans at a healthy clip, the multiplier effect doesn't fully kick in. This is what we have seen since the 2008 recession. The Fed has run the printing press non-stop, but bank lending hasn't increased to their expectation because banks would rather take this excess liquidity and buy safe government bonds than make loans to small businesses and individuals.

This graph below shows what has happened to M4 (broad money) in the last few years:
http://static.cdn-seekingalpha.com/uploads/2012/6/9/saupload_USA_1.jpg

To sum it up, the monetary base has increased (notes, coins, banks' Fed deposits) but broad money (money in your or my account, which determines prices and inflatin) has not increased. Hyperinflation is not very likely in such a scenario.

[Warlord23]

Just in case some of the purists consider M3 to be the more appropriate measure of broad money than M4 (M3 = M4 minus T-Bills and Commercial Paper), here is the graph of M3 over time and compared to the price of gold:

http://goldsilverworlds.com/wp-content/uploads/2012/07/M3_money_supply_vs_gold_price_1970-2012.gif

[Wild Cobra]

This graph below shows what has happened to M4 (broad money) in the last few years:
http://static.cdn-seekingalpha.com/uploads/2012/6/9/saupload_USA_1.jpg

Well, correlation does not always equal causation, but isn't it funny how the trend changed soon after the democrats took congress in 2006...

[boutons_deux]

the trend changed soon after the democrats took congress in 2006...

Well, correlation does not always equal causation

housing bubble was popping, recession starting

[Warlord23]

Well, correlation does not always equal causation, but isn't it funny how the trend changed soon after the democrats took congress in 2006...

This has nothing to do with Congress, you idiot. Monetary policy is the Federal Reserve's domain. The point I'm trying to make is that money printing by the Fed in the absence of a growing economy and credit demand will have little impact on the broad money supply.

[Wild Cobra]

This has nothing to do with Congress, you idiot. Monetary policy is the Federal Reserve's domain. The point I'm trying to make is that money printing by the Fed in the absence of a growing economy and credit demand will have little impact on the broad money supply.
Probably, but other things did occur, like changes to stock market rules. The flow of money dramatically increased, then it looks like a few years later.... Pop...

[ElNono]

:lmao

[Warlord23]

Probably, but other things did occur, like changes to stock market rules. The flow of money dramatically increased, then it looks like a few years later.... Pop...

I'm ... speechless.