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One of those viral auto-read videos, this one explains Quantitative Easing.
Would love to hear where anyone disagrees.
I think any normal joe-blow could listen to this video and understand a lot more of this situation they might at first think is too complicated.
I disagree with... Well pretty much all of this shit video. This is worse than a Wild Cobra post.
Clearly made by and designed for people with no understanding macroeconomics.
actally: spot on. Anything specific, professor?Quote:
Originally Posted by scott
PS: werent you also the guy who missed the entire point of my thread on Greek Prime Minister and Carbon Taxes?Quote:
Originally Posted by scott
Tell me where they were wrong about what QE2 really is fundamentally and who runs the fed and where the treasuries are bought from.Quote:
Originally Posted by scott
Well... where to start? This is usually a series of about four to five 75 minute lectures, and that's at the introductory level. I'm going to simplify things considerably. Please note I'm just explaining the economics, not endorsing or criticizing Quantitative Easing.
So what is Quantitative Easing, fundamentally? It's the purposeful and deliberate increase of the money supply. Why increase the money supply? There are a number of reasons, but from the most basic fundamental approach an increase in the money supply will lead to an decrease in the value of money (or an increase in the overall price level), all else equal (see: Quantity Theory of Money). There are a number of cases where "all else equal" does not apply, so an increase in money supply would not affect an increase in the price level.
In this specific case, the Fed is concerned with deflation and a stagnant economy. More specifically, unemployment. There is an observed and theoretically justifiable short run trade off between unemployment and inflation (see: Phillips Curve, Samuelson/Solow, Fisher) where the two are inversely related to one another. In the short run, we can decrease the unemployment rate with the trade off of higher inflation.
Several economists, Friedman most notably, eventually recognized (quite vocally and critically) that because of Monetary Neutrality/the Classical Dichotomy (in the long run, nominal variables do not effect real variables) the tradeoff between unemployment and inflation was only a short-run phenomenon. Even as economists have moved beyond the simplicity of the Phillips Curve, most still recognize the short-run trade off exists, but in the long-run employment will gravitate towards its Natural Rate (Friedman/Phelps).
The idea is that QE could provide a "jump start" to the economy and that the short-run tradeoff could generate a positive economic impact so as aggregate demand would result in a lower long run natural rate of unemployment.
Second question: Who runs the Fed? Obviously Ben Bernanke. The trashing of his credentials and the supposition that a plumber is better qualified is ridiculous and barely deserves acknowledgment. Regardless of his successes or failures, the man is a brilliant and accomplished economist with a focus on monetary policy. He's also a deflation hawk, which explains why he believes in QE. He also served on the Fed's Board of Governors prior to becoming chairman. The idea that he has "no policy experience" is laughable.
The video lost most of it's credibility with me during the deflation discussion and the discussion on where treasuries are bought from.
On deflation: The video's premise is that the stuff consumer buy is more expensive than it was a year ago, so there must not be deflation. And if there were, wouldn't that be a good thing, because it would mean people would be able to buy more stuff (hint, the answer is no - because more unemployed people doesn't mean more purchasing power). Again, see Quantity Theory of Money.
On where the treasuries come from: The video makes a point that the treasuries are not bought from the treasury. That's because buying them from the treasury wouldn't have the desired effect of increase money supply. The Fed increases or decreases the money supply through Open Market Operations - the purchasing or selling of treasuries. When it wants to decrease money supply, it sells treasuries - which institutions pays for with money. Money taken out of circulation. To increase money supply, it buys treasuries which it pays for with money. Money put into circulation. If the Fed bought treasuries from the Treasury, then it would be money that is out of circulation going to another place where they are out of circulation and the government would owe money to itself. In other words, it would accomplish nothing (until the Fed sold the treasuries, in which case it would decrease the money supply, exactly the opposite of what they are trying to do).
The "Fed didn't buy them from the Treasury" is the "well no shit" part of that video that eliminates any shred of credibility the directors might have had.
Cool. I actually grasped most of what you said. You should post more often about these matters.Quote:
Originally Posted by scott
I heard it on the radio earlier did not listen to it again and did not mean to tout the whole "a plumber could do ben's job" part". Naturally.
I wasn't aware of the latter part of your response about the desired effect. However, are you saying that by buying the treasuries through an intermediary such as GS, there is assuredly no auto-gain by GS? Or is it understood that they are to benefit from such a transaction because we are america and thats the way it is?
Also if you're so high on Ben Bernanke, and aware of his past work and exploits...wasn't he a hardcore student of the great depression and used to write papers about how increasing the money supply and delaying a true recovery is the wrong way to go about crisis? I've read before he was more of an Austrian economist than a Keynesian. Why did he change once he was top of the Fed?
One last question, faced with the current financial problems, and with interest rates as close to Zero as they are....Scott, what other option or tool or action can the Fed possibly take besides increasing the money supply?
Thanks, your response was great.
Of course Goldman Sachs, or whoever owns the treasuries or whoever acts as a broken stands to gain. No one works for free, right?
I'm not particularly high on Bernanke (though I've used his textbook in the past) and what he has done with the Fed since becoming chairman, but I don't think there is any doubting his credentials. (Another factual inaccuracy of the video, that Obama "reappointed" Bernanke. The Chairman is a lifetime appointment, not subject to being "fired" by a new president - the Fed is designed to be sheltered from political pressure, whether that is reality or not). He was a big student of the Great Depression and actually his belief was that a primary cause was the Fed's reduction of the money supply. Historically he was in the Friedman camp of Monetary Policy, but lately has been acting suspiciously Keynesian.
Another interesting thing to note about Ben is what you can take away from this statement he made earlier this decade: "people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation." This is a true statement. But it was also the German governments way of dealing with the Treaty of Versailles, and that didn't work out so well.
On your last question: the Fed is fairly limited on its scope and what it can do. For the most part, increasing, decreasing, or keeping constant the money supply is all it really does (unless you count the regulatory arm of the Fed, which is another topic). There are a lot of reasons to do any of those things - but it doesn't have a tool kit. We used to always talk about the raising or lowering of the Fed Funds rate. The Fed doesn't actually "set" the rate, it adjusts money supply so that the resulting equilibrium rate is at or near the target (if you look at a histogram of the Fed Funds rate, you'll see if fluctuates a few basis points around the target rate).
So... what can the Fed do to help the economy? Well if I knew that I'd be a very in-demand person!
Scott, you have touched on maybe 3 issues from the vid. And none of the biggies.
- You fail to address unreflected rising consumer prices, you point elsewhere.
- You fail to address the affect of QE (inflation), you point elsewhere.
- You fail to address the conflict of interest w/Bernie and GS.
- You fail to address Bernie's record with the Fed.
- You fail to address GS as THE major backer for the Obama campaign, and Obama's decision to keep Bernanke.
Keep in mind that many of the "best" economists (read: the same ones who defrauded us all and wrecked our country in the process) would cite the same sources/theories to justify economic policy over the last decade...all while our country wound up in the shitter. You selling the same fraud?
Essentially what you are doing is stating (or worse, waving towards) what you have been taught, not applying what you have been told to the facts at hand, and concluding that the film is full of flaws without showing your work.
I understand they dont teach these things in college/graduate schools, but if you have a solid foundation in the area (as you lead on) you should be able to do a little better than this.
this is enough to destroy an entire country, enough to cause a global recession even. Just ask why the Chinese are condemning our economic policies as we speak.Quote:
For the most part, increasing, decreasing, or keeping constant the money supply is all it really does
that is also enough to make mountains of money for former cohorts/current conspirators on Wall St, with a little inside info. Ever wonder why GS continues to make money hand over fist when everyone else is lossing their ass?
Excellent post scott.
I think any normal joe-blow could listen to this video and understand a lot more of this situation they might at first think is too complicated.
It is an excellent post though.:toast
Uhhh... okay. I'll look forward to your next exciting copy and paste from your blogroll.Quote:
Originally Posted by Parker2112
Jesus Christ, I stop being active on this board for a few years and THIS is what we've been left with?
please go on to explain fractional reserve lending, the constitutional authority under which the federal reserve dictates currency supply, the circumstances of the federal reserve act's passage, the implication behind the term "government sachs," the manipulation of the CIP, the manipulation of the stated unemployment rate, and the reasons why the US Treasury can issue US Bonds with only the FF&C of the US, whereas that is not enough to back our currency at current.
dude, you came charging in calling the vid shit. be prepared to back up YOUR shit. New and improved ST, I guess. Welcome back :toastQuote:
Originally Posted by scott
Just out of curiosity Parker, where did you recieve your solid foundation in this area?Quote:
Originally Posted by Parker2112
Post-doctoral self-study.Quote:
Originally Posted by SnakeBoy
I've only been interested in the Fed since I began to follow Ron Paul last year.
:depressedQuote:
Originally Posted by scott
I blame you.Quote:
Originally Posted by scott
j/k :lol
Plain folks just call that studyin'.Quote:
Originally Posted by Parker2112
(Also, sigworthy)
Bump.