1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/15185/will-there-be-qe3-qe4-qe5/

Will There Be QE3, QE4, QE5…?

December 31, 2010 by

QE2 is a direct response to deficit spending, which obliges the government to issue more bonds. With QE2, the Fed supports the state by buying these bonds. The Fed thereby actively helps the government in its Keynesian policies, which disrupt recovery. FULL ARTICLE by Philipp Bagus

{ 53 comments }

Deefburger December 31, 2010 at 10:42 am

How about “Blood Letting II”? Or “BS2″?

Or “Dying Dollar II”, or “Intra-Venous Pump II”

QE2 as “Qualitative Erasure 2″?

SIID2 – “Stick it in Deeper 2″ This one sounds more like the porn flick it is!

El Tonno December 31, 2010 at 11:01 am

“considering new money is created in a computer, we can call it ‘Money Creation I and II.’ ”

That would “database update I and II”. Very neutral if you ask me….

Swemson December 31, 2010 at 10:49 am

Rather than re-naming “Quantitative Easing” with any of the terms suggested by the author (“Quantitative Straining,” “Quantitative Destruction II,” “Crisis Prolongation III,” “Currency Debasement I,” “Consumer Impoverishment,” or “Money Printing I and II,” I contend that the most accurate term to use that everyone including the general public would be able to understand, is “Currency Devaluation”, as that is precisely what these destructive policies do in the end analysis.

They make our money worth less.

To add insult to injury, as soon as they can no longer hide the true nature of what they’re doing, and the failure of their actions to achieve their stated goals becomes apparent to even the least knowledgeable among us, they’ll simply blame the “failure” of their policies on capitalism & the free market… Or maybe they’ll just blame it on Bush, their tried and true scapegoat for all of the problems that they themselves create.

The challenge here is to find a way to explain it to the general public, in terms that they can understand. The people who subscribe to websites like “Mises Daily” already get it.

fs

GoldBacon December 31, 2010 at 10:56 am

It’s more likely that the Fed will just start referring to these interventions as routine open market operations, which won’t merit a public mention at all.

greg December 31, 2010 at 12:30 pm

I wish it was easy to predict market movements with the flow of the money supply. You can’t.

The current run in the stock market is not caused by the inflow of funds from QE2. Basically you have the Fed in the market buying Treasuries which in theory should raise the value of the bonds and decrease the interest rates. But the opposite is happening. That is because investors are seeing better gains in the US stock markets because of increasing earnings that have been realized long before QE2 was announced. What you are seeing is fund managers selling bonds and moving to stocks causing bond values to fall and the other investors in bond left holding the bag.

The funny thing about QE2 is that when it was announced, the markets went up. If the Fed announces that they no longer need the funds, the market will go up more as it takes the signal from the Fed that the economy is recovering. I believe the Fed knows this and will make the move to stop QE2 this spring.

QE1 and QE2 has nothing to do with the recovery, but like everything in politics, it all about timing and I am sure they will take credit for it.

Hurley December 31, 2010 at 1:11 pm

…you ain’t seen nuthin’ yet.

Bernake will soon be directly buying state & local municipal bonds … to ‘bail out’ states like California.

Troy Doering December 31, 2010 at 2:09 pm

Ben Bernake is like watching a monkey with a box of matches.

Sione January 1, 2011 at 3:35 pm

And surrounded by buckets full of high-test gasoline.

Mike Borcherding December 31, 2010 at 4:47 pm

I agree that this is a crazy policy but I’m not sure that it is all that inflationary, at least in the short run. As I understand it the Fed is increasing this “pool” of money in the system, so there is more money to lend out by the banks thereby lowering the interest rates. But if the reason for less lending is a lack of qualified borrowers or a decreased desire to borrow then this money will just sit there and not get out into circulation thus in the short run not be inflationary. Robert Prechtor from Elliot Wave says we are going into a major deflation because of this winding down of the credit/debt financial system. Expanding the money supply in this country has been majorly done through the credit, lending banking system. The amount of credit/debt continues to decline because of many factors offsetting low interest rates, therefore leading us into deflation.
What do you think of this line of thought?

Patrick Barron January 1, 2011 at 1:38 pm

As long as the money stayed in the banks’ accounts at the Fed as “excess reserves” they are not inflationary. But this is changing. Just this week the Wall Street Journal reported that the banks were increasing lending, which they can do in vast amounts with their trillion dollars of excess reserves. This process will gather speed and off we go on another bubble that will create more malinvestment. But this malinvestment will not reveal itself immediately. In the short term unemployment will decrease, and the Fed and the government will take credit for it. But, as Mises tirelessly explained, prolonging the bubble merely makes the inevitable crash much worse.

Michael Pollaro January 3, 2011 at 8:50 am

Banks have been hard at work creating money, pyramiding up their excess reserves for about a year now, by buying existing securities. A cashed up banking system doesn’t need willing borrowers to create money, only willing banks, because their is a heck of a lot of securities out their to buy. I addressed this issue here, calculating a possible triple in the money supply from here…

http://blogs.forbes.com/michaelpollaro/2010/12/20/monetary-watch-december-2010-the-money-supply-a-triple-from-here/

Craig December 31, 2010 at 7:08 pm

What do you think of this line of thought?

Well, it’s true that in the “short run”, QE2 is probably not going to cause a general price rise. It is inflationary, though, by definition — increasing the money supply is inflation. Nonetheless, no one seems to care until its effects are felt.

Price drops are what any sensible person would want right now. Until prices and wages are allowed to fall, we are likely to remain stuck in this stagnant cycle. Keynesians teach us to be frightened of “deflation” but the flip side of price decreases is an increase in the purchasing power of money.

One more point to consider: why is the Fed replacing Treasurys with cash? Treasury Bonds are perfectly acceptable bank reserves, so there must be some reason that Bernanke wants more dollars out there and it isn’t just to sit in his vault, um, disk drives.

To sum up, though, you are correct that in the short run, prices may not rise much. But, with apologies to Keynesians everywhere, in the long run, we are all poorer.

Country Thinker December 31, 2010 at 7:22 pm

I’ve been arguing since QE2 was announced – and others have since expressed the same opinion – that QE2 is motivated by fears about the housing market falling further. Recent declines in housing prices show the fear may be real. The tip-off was when the Fed switched from the PC Deflator to the CPI as its measure of inflation, and the CPI puts about double the weight on housing as the PD Deflator. According to Professor Alan Meltzer, inflation is in the Fed’s target range when looking at the older measure.

With inflationary pressures from China and elsewhere, and regulatory inflation in energy and other commodities, it’s possible we may see high inflation in some areas (e.g., food), but contnued deflation in others (e.g., housing).

Sione January 1, 2011 at 3:43 pm

Country Thinker

You write, “With inflationary pressures from China and elsewhere, and regulatory inflation in energy and other commodities, it’s possible we may see high inflation in some areas (e.g., food), but contnued deflation in others (e.g., housing).”

The term “inflation” refers to inflation of the money supply. What QE2 actually does is increase the money supply. Therefore QE2 is inflationary. Although “Regulatory inflation in energy and other commodities” achieves price rises, it is not inflation.

When you refer to “inflation” and “deflation” here you are using the terms improperly. The terms you should be using are “price increase” and “price decline”.

Sione

F. Beard December 31, 2010 at 7:25 pm

If the victims of the government backed counterfeiting cartel had been bailed out, the problem would have been fixed at the source.

But the only solution the Austrians countenance is ruthless liquidation whether it is just or not.

Meanwhile I see LewRockwell and other sites are having fund raising problems. Do the Austrians think they will be spared by a shrinking economy? Why should they be spared when they think it is a good thing?

Dagnytg January 1, 2011 at 6:36 am

F. Beard

Would you care to give some examples of just liquidation and unjust liquidation?

I counter that there is no value to be attached to liquidation. It is what it is…nothing more.

Remember, liquidation does not imply loss (money doesn’t just disappear…it changes hands) and thus the liquidation process frees up capital to be reinvested in thriving and new viable industries. The sooner this process is started and completed the sooner new growth (i.e. jobs) can begin. I’m not sure I would call that “ruthless”.

Just an observation…Happy New Year:)

F. Beard January 1, 2011 at 6:53 am

Would you care to give some examples of just liquidation and unjust liquidation? Dagnytg

One could argue that ALL liquidation (except for the FR banks themselves) resulting from debt to the government backed counterfeiting cartel is unjust. Austrians are quick to point out the damage to savers that FRL (fractional reserve lending) causes but ignore that it also drives people into debt. Thus they ignore justice when it comes to borrowers.

Happy New Year to you too.

Patrick Barron January 1, 2011 at 1:43 pm

How is it unjust to require borrowers to pay back their loans? I agree that many people were swept up in the housing bubble, but they all expected to reap gains from their ever-increasing (without limit) home values, and lived beyond their means. There is no way that they can be bailed out without imposing unjust cost on non-participants.

F. Beard January 1, 2011 at 2:02 pm

How is it unjust to require borrowers to pay back their loans? Patrick Barron

Loans from a government backed counterfeiting cartel? People were compelled into borrowing by negative real interest rates in housing. To not borrow from the counterfeiters was to risk being priced out of the market forever by those who did.

I agree that many people were swept up in the housing bubble, but they all expected to reap gains from their ever-increasing (without limit) home values, and lived beyond their means.

When saving is punished, is it any wonder that folks are driven into speculation?

There is no way that they can be bailed out without imposing unjust cost on non-participants. Patrick Barron

False. Everyone could be bailed out in nominal terms including the banks in the following manner:

1) Set reserve requirements to 100% to put the banks out of the counterfeiting business and to preclude an inflationary spiral.

2) Distribute a sufficient and equal amount of new, debt and interest free full legal tender fiat, United States Notes, to every US adult citizen, borrowers and savers alike.

3) After the debt is cleared then implement genuine reform in money creation including separate government and private money supplies.

Patrick Barron January 1, 2011 at 2:39 pm

Recommendation number one is that recommended by Dr. George Reisman. But your recommendation number two would result in complete monetary destruction. I just ordered a book from this website titled “When Money Died”. It is a history of the great German inflation of 1923. Monetary destruction does in fact wipe out debt. But it also wipes out all savings and the ability to engage in indirect exchange. In other words, it destroys civilization itself. Although we here engage in much controversy, many Austrian economists trace the rise of National Socialism to this horrific episode in Germany. So, be careful what you wish for.

Dagnytg January 2, 2011 at 4:56 am

F.Beard,

1) Set reserve requirements to 100% to put the banks out of the counterfeiting business and to preclude an inflationary spiral.

Wouldn’t this also cause liquidation? This essentially would destroy the modern banking business model overnight. (Not a problem for me but it increases the liquidation process you consider unjust.)

2) Distribute a sufficient and equal amount of new, debt and interest free full legal tender fiat, United States Notes, to every US adult citizen, borrowers and savers alike.

The main purpose of liquidation is to remove capital from malinvestment and reset asset values to reflect their true market value. If I bail everyone out, there is no incentive to move capital from poorly run businesses or investment ideas. This will impede capital for sound investment. Asset values will remain inflated. Nothing will change. No progress will be made. How will this make anything better or fair?

Savers like myself will once again be at the mercy of high asset values and devaluation of our savings (by way of your new fiat currency). Under your system, inflation will reign. You will still be forcing people to speculate.

In your scenario, (as history shows) once word got out about the new fiat currency you would see a massive move by the holders of dollars (i.e. the world) into other currencies or precious metals. The economic turmoil that would ensue would make the Austrian liquidation process look simple, humane and a welcome alternative.

In the end, the liquidation process will be revisited (it’s unavoidable) only much harsher and inevitably wiping out any remaining savers (like myself) in the process. #2 sounds very familiar to what is going on today… only worse.

Peter Carson December 31, 2010 at 9:07 pm

While on one hand I agree with the thesis of Mr. Philipp Bagus in the main, however, and with all respect to this learned man, I must disagree with his choice of terms – which by coincidence happens to be one of the main points raised in his argument to be precisely accurate and careful to avoid confusing readers with jargon and semantics.

The word I take issue with, and to which I disagree – is possibly an oversight by Mr. Bagus to employ the word : “MONEY”, which I believe he may have intended to more accurately have used the term : “CURRENCY”.

Albeit a seemingly small issue at first blush, I am presently disposed to separate the abyss between defining each of these two terms as follows : CURRENCY is always representative of fiat paper which can be easily manipulated either by printing pressses or computerized enteries of greater numbers of digits left of the decimal point, whereas MONEY (as in HARD MONEY), has always been limited and finite pending production of various comodities per metals such as Gold, Silver, Iron, Copper, Nickel et al, Oil, Coal, gases, and or various Food sources, fertilizers etc etc.Ergo : the cost to produce either a $1 bill or a $1,000 bill is virtually the same – approx 4 cents – without any inherent connection between market value / utility / convertability into goods or services – whereas the cost to produce every commodity is a radical balancing act betweeen a multitude of various functions : research, exploration, planning, capitalization of equipment, mobilazation of manpower, market forces, Acts of God and warfare – with Mother Nature holding trump cards on the sidelines which no printing press or computer can suppress/ evade/ negotiate/ forestall.

Peter Carson
cansteel1978@yahoo.ca

F. Beard January 1, 2011 at 6:26 am

…whereas MONEY (as in HARD MONEY), has always been limited and finite pending production of various comodities per metals such as Gold, Silver, Iron, Copper, Nickel et al, Oil, Coal, gases, and or various Food sources, fertilizers etc etc Peter Carson

Commodity money if used as a commodity is not money and vice versa.

Now imagine a sensible money, common stock:

1) Common stock as money requires no borrowing or lending. Assets and labor would simply be bought with new stock issue. Thus no PMs, usury, or fractional reserves are required. This is a huge benefit since PMs, usury (see Deuteronomy 23:19-20) and fractional reserves are all suspect.
2) All price inflation is born by the owners of the corporation since every receiver of the new common stock money is by definition a part owner of the corporation. This is an important moral consideration.
3) Without fractional reserves or even lending, then deflation is not a serious threat.
4) Since all money holders are part owners of the corporation then they could vote on how much new money is issued and for what purposes. Thus price inflation is under the control of only those affected by it.
5) The assets of a corporation are typically performing assets though PMs could easily be accommodated too.
6) Common stock as money shares wealth at the same times as it consolidates it for purposes of economies of scale. Labor problems should be non-existent since the workers would be paid in common stock and thus be part owners. The number of those with a stake in capitalism would increase. The need and desire for socialism should decrease.

Move on Austrians! You are stuck in the past worshiping shiny, scarce metals.

BioTube January 1, 2011 at 9:39 am

Look up the Mississippi Bubble – your idea’s been tried and found wanting.

F. Beard January 1, 2011 at 12:33 pm

Look up the Mississippi Bubble – BioTube

Thanks. I will.

your idea’s been tried and found wanting. BioTube

My idea is total liberty in private money creation which would allow the use of PMs, of course, (primitive as they are) but also common stock and other forms such as Mike Rozeff’s “Wal-Mart” money.

Meanwhile, the Austrians are busy trying to win government privilege for PMs by abolishing the capital gains tax on them while allowing it to remain on common stock. Also, Gary North has recently advocated that taxes be collected in PMs which would also be a huge government privilege for PMs. Shall people be forced to buy PMs to pay their taxes?

Government privileges amount to fascism, don’t you know?

We can escape fractional reserve lending, usury, and the need for PMs as money (a huge waste)
with a true free market in private money creation.

F. Beard January 1, 2011 at 12:44 pm

re: Misissippi Bubble

Law’s pioneering note-issuing bank was successful until the French government was forced to admit that the number of paper notes being issued by the Banque Royale were not equal to the amount of metal coinage it held.[3] from http://en.wikipedia.org/wiki/Mississippi_Company

Assuming this is what you are referring to, it has very little to do with what I am advocating since:

1) The Banque Royale (Royal Bank) practiced fractional reserves.
2) The Banque Royale (Royal Bank) was a government monopoly.

But in any case, I would trust a true free market in private money creation to settle the issue.
Would you?

John P. Cunnane January 1, 2011 at 1:24 pm

I think you lack an understanding of Austrian Economics. Austrians want something behind money that can’t be created out of thin air by the government thereby eliminating dilution, redistribution and ultimately the financing of statism. Your proposal has its merits, as an Austrian I say, print all the common stock money you like, as long as the government doesn’t back it, it’s fine. I think the problem with your system is it lacks simplicity and transparency so many merchants may decline to accept it and workers will reject it as an acceptable means of pay.

I find it hard to believe anyone that has read Human Action would feel comfortable making the accusations you make about Austrian Economics.

F. Beard January 1, 2011 at 1:45 pm

Austrians want something behind money that can’t be created out of thin air by the government thereby eliminating dilution, redistribution and ultimately the financing of statism. John P. Cunnane

Government is force. Its money needs no other backing. Pure fiat is thus ideal for government money. However, government money should only be legal tender for government debts (taxes and fees), not private ones. Conversely, private monies or money forms such as gold, silver, common stock, etc. should be completely unacceptable for government debts. The free market should determine exchange rates between government money and private monies.

as an Austrian I say, print all the common stock money you like, as long as the government doesn’t back it, it’s fine. John P. Cunnane

Nor should the government back any other private money form, I would add.

I think the problem with your system is it lacks simplicity and transparency so many merchants may decline to accept it and workers will reject it as an acceptable means of pay. John P. Cunnane

I would reject money from any corporation which lacked transparency. Free market competition would compel corporations to be transparent.

I find it hard to believe anyone that has read Human Action would feel comfortable making the accusations you make about Austrian Economics. John P. Cunnane

I have not read Human Action. I bought the book but never finished it. However, I have read Murray N. Rothbard and various other Austrian authors including North, and Hernando de Soto. It saddens me that they can’t seem to get past usury and PMs. Perhaps my advantage is that I take the Old Testament command against usury between fellow countrymen seriously. Notice that usury from gentiles is allowed by Deuteronomy 23:19-20 so it is no surprise that the Jewish lights among the Austrians have no problem with usury. Fine for them but I reckon that Christians should do better.

Don Duncan January 5, 2011 at 12:53 pm

“usury” is a word that was created to destroy interest. As long as no force or fraud is involved, any interest rate is fair. Interest rates reflect time preference and thereby create a more efficient use of money. This benefits everyone. The bible did not justify its prejudice against interest just as it does not explain many contradictory ideas. We are expected to accept and believe without question “on authority”; the same as we are expected to accept and believe in government. “Faith and Force” will destroy us.

Dave M January 1, 2011 at 12:28 pm

Do to the US dollar being used world wide as a reserve currency a large portion of it circulates outside the US. That is the main reason we don’t see as much internal inflation as there should be, the inflationary damage is being spread world wide especialy in places like China.

Bernanke is becoming the Gideon Gono of the world.

Patrick Barron January 1, 2011 at 1:46 pm

True, but this will not last. Once governments believe that the dollar will never recover and/or there is some alternative, expect these foreign-held dollars to come flying home, creating price havoc.

F. Beard January 1, 2011 at 3:07 pm

So, be careful what you wish for. Patrick Barron

I wish for justice followed by true liberty in private money creation. Both justice and liberty are important Biblical themes. The greater danger is to neglect them, imo. Furthermore, the Biblical remedy for theft is from 2-7 fold restitution.

As for “monetary destruction”, a 100% reserve requirement would be massively DEFLATIONARY since almost all of our money supply is debt-money created from thin-air. Thus, a massive bailout of the population is REQUIRED if we go to a 100% reserve requirement unless we desire to have no money supply except coins.

Sione January 1, 2011 at 3:48 pm

F Beard

You write, “I wish for justice followed by true liberty in private money creation.”

Justice according to whom?

Sione

F. Beard January 1, 2011 at 4:26 pm

Justice according to whom? Sione

Justice according to the God of the Bible. Fractional reserve lending cheats both borrowers and savers. They can both be bailed out in nominal and real terms relative to the villains, the fractional reserve banks.

He has told you, O man, what is good;
And what does the LORD require of you
but to do justice,
to love kindness,
And to walk humbly with your God?
Micah 6:8

Sione January 2, 2011 at 3:07 pm

F Beard

That isn’t justice. It’s mumbo jumbo- primitivism and superstition. What you support isn’t just in the slightest, let alone moral. It doesn’t make economic sense either. What you have demonstrated here is that you have a blind belief in a fictious mythology from which your entire system of thought is derived- including your “economics”.

While it is correct that fractional reserve banking destroys the purchasing power of money, cheating savers and reducing the value of loan principle (which is beneficial for many borrowers in case you hadn’t noticed), the funny money ideas you’ve repeated on several threads are no more logical, or just, than fractional reserve banking or unbacked fiat currency. In some ways they are as bad and in some ways much worse. This is not news, as the irrationalities and practical shortcomings inherent within your “economics” have been described to you on several occasions on previous threads by several contributors already. Restating the same mumbo-jumbo and insistences over and over is worthless. Avoid doing it.

If you look at the name of the site you’ll see the name Ludwig Von Mises (look at the top of the page). The site is named for Von Mises, as is the institute that hosts this site. It is not the “F Beard Blind Belief Institute for the Promotion of Odd Notions just because it Suits Some to Believe in Funny Business.” Take note, you certainly are no L Von Mises, no Rockwell, no Polleit, no Shostak, no Reisman, no Rothbard, no Murphy or Riggenbach or Choderov or Barwerk or Nock or Spooner etc. – not a serious student of economics at all really. Take note that the purpose of the site is the study and interpretation of matters economic employing the knowledge gained from Von Mises, his predecessors, colleagues, associates and students.

As it happens, Von Mises wrote a great deal about what economics is, how it is studied and how economies behave. He considered justice at some length. The material is available free of charge right here on this site! Free. All you have to do is down load it and study it. It is noted that you have not yet done this. Make a start.

Sione

F. Beard January 2, 2011 at 9:04 pm

That isn’t justice. It’s mumbo jumbo- primitivism and superstition. Sione

Ever wonder why the Jews have been so successful? Look no further than the Old Testament.

Take note, you certainly are no L Von Mises, no Rockwell, no Polleit, no Shostak, no Reisman, no Rothbard, no Murphy or Riggenbach or Choderov or Barwerk or Nock or Spooner etc. – not a serious student of economics at all really. Sione

Nor am I a silly goldbug either. Talk about primitive!

Sione January 3, 2011 at 1:22 am

F Beard

You write, “Ever wonder why the Jews have been so successful? Look no further than the Old Testament.”

Here is your racist mumbo jumbo again. This is beneath contempt. As previously stated, your entire system of thought is based on a fictitious mythology. It is clearly collectivist and malevolent.

You write, “Nor am I a silly goldbug either.”

You are merely silly.

Again, your position has already been well demolished. Give it up and get sane. Anyway, it’s time for you to avail yourself of the real knowledge of economics available free of charge on the VMI site. Instead of promoting el weirdo funny-money scams and stroking your over-wrought ego, shut the fuck up, quieten down some and do some learning for a change. Try reading Human Action, for example (although, to be fair, given the evidence you’ve presented it is likely you lack the intellectual capacity to understand it). If you simply must continue to promote mad rorts and the like, go start up a web site for the “F Beard Blind Belief Institute for the Promotion of Odd Notions just because it Suits Some to Believe in Funny Business” where you can debase yourself in quackery all you want.

Sione

J Cuttance January 3, 2011 at 3:12 am

you beauty, keep up the good fight mate

I’d join in but I prefer to subcontract the arguing to the more articulate than me.

F. Beard January 3, 2011 at 4:57 am

Again, your position has already been well demolished. Give it up and get sane. Sione

None of you have refuted me. It is the goldbug position that is being demolished and here is one of the wrecking balls:

“What guarantees that the mining rate of gold shall be equal to the optimum growth rate in the money supply?”

Gary North, since he is a believer, might attribute that to Providence. But to what would you attribute it to?

Or you might say, as Rothbard did, that any size money supply is optimum since prices will adjust. In that case, then where shall the interest to pay loans come from? If you say, “from lender spending” then I ask you as a libertarian “Must we all work for those who happen to own and lend gold?”

But hey, I am a libertarian. Let’s let a true free market in private money creation settle these issues. If you object to that, then you are a tyrant. And no “We shouldn’t have government anyway; it is immoral” since we do have government whether you like it or not and must deal with that fact. The question then is “Shall gold and silver (or any other private money form) be granted special privilege from the government?” I say no.

If you simply must continue to promote mad rorts and the like, go start up a web site for the “F Beard Blind Belief Institute for the Promotion of Odd Notions just because it Suits Some to Believe in Funny Business” where you can debase yourself in quackery all you want. Sione

No. Besides, “Iron sharpens iron, so one man sharpens another.” Proverbs 27:17

My thanks to those here who have sharpened me.

F. Beard January 3, 2011 at 11:44 am

It is clearly collectivist and malevolent. Sione

And you are clearly clueless as to my system of thought. It is libertarian. But here is my agenda for all to see:

1) Bailout the entire US population from under the current crooked money system (government backed counterfeiting in exchange for indebtedness).

2) Implement genuine reform in money creation including separate government and private money supplies. Government money shall be pure fiat (since government is force) but only legal tender for government debts (taxes and fees) not private ones. Private monies and private money forms shall not be acceptable for government debts.

Some of you folks are so concerned about the socialists that you fail to realize that you are (unintentional, I hope) fascists.

F. Beard January 2, 2011 at 7:01 am

Wouldn’t this [a 100% reserve requirement] also cause liquidation? This essentially would destroy the modern banking business model overnight. (Not a problem for me but it increases the liquidation process you consider unjust.) Dagnytg

That would depend on the size of the distribution. If large enough, then all debt-money would be replaced with genuine legal tender. The money supply would not shrink in that case.

The main purpose of liquidation is to remove capital from malinvestment and reset asset values to reflect their true market value. Dagnytg

What is “true market value” with an accordion like money supply?

Savers like myself will once again be at the mercy of high asset values and devaluation of our savings (by way of your new fiat currency).

Savers would receive an equal distribution too. You Austrians invariably miss this point. Your indoctrination, I suppose. You find it impossible to believe that both savers and borrowers can be bailed out at the same time. You’ve swallowed FR banker propaganda.

Under your system, inflation will reign. You will still be forcing people to speculate.

With a 100% reserve requirement, only a one-time spurt of inflation is plausible depending on the size of the bailout. Deflation would be a problem if the distribution was too small.

In your scenario, (as history shows) once word got out about the new fiat currency you would see a massive move by the holders of dollars (i.e. the world) into other currencies or precious metals. Dagnytg

People will do what people will do. Sensible people will recognize a sensible money policy and act accordingly.

The economic turmoil that would ensue would make the Austrian liquidation process look simple, humane and a welcome alternative. Dagnytg

Since it is not just, then how can it be humane?

In the end, the liquidation process will be revisited (it’s unavoidable) only much harsher and inevitably wiping out any remaining savers (like myself) in the process. Dagnytg

You Austrians justify a shrinking money supply (including velocity) because you have no remedy for it.

#2 sounds very familiar to what is going on today… only worse. Dagnytg

If just restitution followed by liberty sounds bad to you then you have a problem. But sit on your hands if you wish. The socialists have solutions that do not involve painful austerity nor do they involve much liberty either.

Dagnytg January 2, 2011 at 5:10 pm

F. Beard,

I admire the fact that you are trying to find a non-painful solution to a painful situation.

I agree what has happened to borrowers (I have friends and family that have been affected) and others (though I have no debt, I’ve lost 70% of my previous salary) are worthy of sympathy. I feel great anger at my gov. for creating a situation that has mislead so many.

But…

I fail to see how the liquidation process is any different then a painful hangover from overdrinking or extreme exhaustion from over-exercise. In both examples, I have exceeded the limits of what my body can handle. Even though I can extend my limits eventually my body requires stasis. The process of regaining stasis may be painful and irritating but no one thinks of it as “ruthless” or “unjust”.

And though it would be nice not to have to experience a hangover or exhaustion (i.e. liquidation) the process actually makes me healthier (and hopefully smarter). It is necessary for my continued existence. (If I go on drinking, I will eventually die from alcohol poisoning or liver failure…)

The economy is no different. To deny the liquidation process is to deny nature.

On another note:

Earlier I said… The main purpose of liquidation is to remove capital from malinvestment and reset asset values to reflect their true market value.

I knew when I wrote that sentence that there was a risk that you or others would focus on the semantics of ‘true market value’ and ignore the inference of my statement. I understand that mkt value is a moving target but…

You still have not answered to what incentive (outside of liquidation) is there to move capital out of malinvestment (i.e. G.M., AIG etc.) and into sound investment (i.e. current profitable businesses, new technologies, new business models etc.)?

F. Beard January 2, 2011 at 9:14 pm

I fail to see how the liquidation process is any different then a painful hangover from overdrinking or extreme exhaustion from over-exercise. Dagny

Really? What if the whole city reservoir was spiked with alcohol? Ponder the moral implications of a “government backed fractional reserve banking cartel using the government enforced monopoly money supply”, I suggest.

You still have not answered to what incentive (outside of liquidation) is there to move capital out of malinvestment (i.e. G.M., AIG etc.) and into sound investment (i.e. current profitable businesses, new technologies, new business models etc.)? Dagny

Who knows which (if any) are genuine malinvestments? Shrink the money supply enough (including velocity) and every business but the most basic will be shown to be “malinvestment”. And in any case, I only advocate bailing out the entire US population, not businesses or banks.

Don Duncan January 5, 2011 at 1:26 pm

Businesses are run by and used by “…the entire US population…”. We are all in this together. The banking elite (cartel) will eventually make all, even themselves, poorer. “Malinvestment” is decided by the free market. The free market cannot exist while gov intervenes. The problem of economic justice or any other kind is partially solved by removing government from the equation.

Sione January 4, 2011 at 1:35 pm

F Beard

“None of you have refuted me.”

Liar! Your ideas have been demolished already. While it is well understood that you have made a considerable intellectual investment in your perverse variety of monetary crankism and that your method of thought is to rely upon arbitrary blind belief, you need to understand that neither approach validates the nonsense you preach.

You have admitted that you have not done your homework when it comes to essential basic readings in economics. This next question confirms a complete pig-ignorance:

“What guarantees that the mining rate of gold shall be equal to the optimum growth rate in the money supply?”

Had you bothered to undertake sufficient study of economics you’d have discovered Von Mises (among others) addressed exactly this non-problem. He discusses whether there is an optimum amount of money (or not), whether the amount of money in an economy is fundamental or merely an abitrary and what effect the quantity may have. He takes pains to establish with great clarity whether this quantity should rise or fall, why and how, what effects that may have and why and whether there is an optimum rate of change. Further he discusses the conceit of those who consider that such “optimums” can be calculated and manipulated and achieved. Looks like you should take the advice you’ve already been given; shut the fuck up and do your homework, fool.

As far as your complete inability to understand what Rothbard is getting at, again you need to engage in learning the basics. It would certainly help if you learnt to crawl before you try to walk and walk before you try to run and jump.

You ask, “Must we all work for those who happen to own and lend gold?”

You seem to revel in the desperate generation of non-issues.

In order to survive one must produce or embody value to other people. For most that requires working productively and trading what one is able to produce in order to survive and thrive. As it happens, the attributes of gold mean it is a good and convenient entity to use to store value for the purposes of accumulating wealth and for trading. Assuming most people work to perform service or produce value for others and that most people trade with others, gold is going to be owned by nearly every participant in the economy. There is no problem.

“Iron sharpens iron” etc.

We’ve already been through this. Basing your entire system of thought upon a fictitious mythology is not a valid approach to economics. It is irrational and leads to falsehood. Indeed, such an approach is immoral. Your on-going crusade is immoral.

Again, this site is for the study and interpretation of matters economic employing the knowledge gained from Von Mises, his predecessors, colleagues, associates and students. It is not the place for F Beard’s continual vomiting forth of superstition, irrationality, lies, nonsense, idiocy and general falsehood. Your objections and “solutions” amount to little more than a half-arsed rearrangement of basic economic fallacies and errors- long since been addressed and dismissed by the likes of L Von Mises, among others. All you have been achieving is to demonstrate that you are ignorant of the basics when it comes to the topic of economics.

The VMI is not the appropriate forum for the regurgitation of your self-delusional silliness. Go now and undertake the basic study of that which you should have already accomplished before now.

Sione

F. Beard January 4, 2011 at 5:32 pm

Had you bothered to undertake sufficient study of economics you’d have discovered Von Mises (among others) addressed exactly this non-problem. He discusses whether there is an optimum amount of money (or not), whether the amount of money in an economy is fundamental or merely an abitrary and what effect the quantity may have. He takes pains to establish with great clarity whether this quantity should rise or fall, why and how, what effects that may have and why and whether there is an optimum rate of change. Further he discusses the conceit of those who consider that such “optimums” can be calculated and manipulated and achieved. Sione

And with all that brilliance, he still worshiped a shiny metal? Perhaps he should have taken this to heart from the Torah since he was Jewish:

‘They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19

Not to mention Deuteronomy 23:19-20 (Note that the Hebrews could charge interest to Gentiles.)

Go now and undertake the basic study of that which you should have already accomplished before now. Sione

Actually I find it much more profitable to read the Book that Mises didn’t take seriously enough apparently, the Torah.

But in any case, what I seek to prevent is the enshrinement of gold or any other private money form as legal tender for government debts.

F. Beard January 4, 2011 at 6:33 pm

While it is well understood that you have made a considerable intellectual investment in your perverse variety of monetary crankism Sione

Why thank you! But it only seems perverse to you since I refuse to worship a shiny metal. Rather I esteem liberty. And from my perspective, the cranks are you not me.

and that your method of thought is to rely upon arbitrary blind belief, Sione

Did not Mises himself reject economic history and mathematics in favor of deductive reasoning?

you need to understand that neither approach validates the nonsense you preach. Sione

As for arbitrary blind belief, I find the Bible to be superb wrt economics and money. And while you may not believe, many prominent Austrians do. They cannot dismiss the Bible as you do and if you are of the truth then ultimately you will not be able to either, I would bet.

Don Duncan January 5, 2011 at 1:43 pm

“iron sharpens iron”. True. But reason cannot enlighten faith. Faith is based on sub conscious, emotionally enforced, non critical beliefs. These beliefs are taken as axioms, not to be reviewed. As such, they are inappropriate for the intellectual investigations on this site.

Sione January 5, 2011 at 1:57 pm

F Beard

Your thinking is completely irrational.

Regarding Von Mises you write, “And with all that brilliance, he still worshiped a shiny metal?”

Worship = an act of religious devotion usually directed to one or more deities.

Worshipping, that’s what you do. You are a blind faith worshipper of a man-made fictitious mythology, a superstition. Interesting that the worst thing you accuse someone else of doing is that which is central to your behaviour- worshipping. Attempting to bring Von Mises down to your level might make you feel better about yourself, but your argument remains invalid as it is both dishonest and irrational. Von Mises’ system of economic thought remains vastly superior to your trivial crankism. A simple comparison of his work with your “contributions” here is evidence which immediately demonstrates that point. Again, what you are engaged in is a half-arsed repackaging some basic economic fallacies and falsehoods, rolling them up into your system of superstition and pretending that somehow the resulting mess is important economic insight.

Von Mises discussed the use of gold as specie not because he worshipped it, as your dishonest smearing is intended to suggest, but because its physical attributes suit its employment for that particular purpose. Additionally he was well aware that gold had been employed for the purpose through history. Again, that is due to its physical attributes suiting its use in that way (as a store of value).

Had you bothered to read what Von Mises wrote, instead of making up lies about him, you’d have discovered what he actually wrote, what he thought, what observations he made and what his reasoning was. Of course, as you have already admitted, you have not done that. Not a whit of, say, “Human Action” have you read and understood. None. Nada. Nothing. Zilch. Yet that fact doesn’t stop you from making up random lies whenever it suits your purpose. That is immoral and degenerate.

What is particularly perverse about you is that you make arbitrary nonsense up about subjects in which you are almost completely ignorant- economics being but one example.

Sione

F. Beard January 5, 2011 at 2:23 pm

What is particularly perverse about you is that you make arbitrary nonsense up about subjects in which you are almost completely ignorant- economics being but one example. Sione

I don’t insist you agree with me. I just insist on true liberty in private money creation. Indeed, it would be great fun to see fractional reserves, PMs, and usury revealed as obsolete by a true free market in private money creation.

As for Mises, it’s true I have not read much by him. And I probably won’t since I would rather read Moses, a believing Jew, than Mises an agnostic one. I assume the much more readable Rothbard covers much the same ground anyway and I have read him.

As for history, let’s allow a true free market in private money creation and we might make it. Let’s not just try to repeat history with what is probably an obsolete and oppressive (Crime of 1873 ring a bell?) money form. Has it occurred to you that gold as money was rejected for good reasons?

But to libertarians I ask: Is gold necessary for liberty or is liberty needed for liberty?

J. Murray January 5, 2011 at 2:58 pm

Gold wasn’t rejected by the market, it was rejected by governments because it failed to facilitate monetary printing. Without the ability to print new money, governments have to fully tax or borrow all expenditures directly out of the economy instead of stealth taxing it away via inflation. This creates a giant limit on how much a government can fund itself because taxing would create politically unpopular tax rates and borrowing would create politically unpopular high interest rates. People usually don’t notice inflation unless it’s a runaway situation.

The only “good reason” was that governments can’t run a welfare/warfare state when limited by gold money. And that’s a terrible reason in my book.

F. Beard January 5, 2011 at 3:45 pm

Without the ability to print new money, governments have to fully tax or borrow all expenditures directly out of the economy instead of stealth taxing it away via inflation. This creates a giant limit on how much a government can fund itself because taxing would create politically unpopular tax rates and borrowing would create politically unpopular high interest rates. People usually don’t notice inflation unless it’s a runaway situation.

I have remarked here before how that stealth taxation could be avoided: separate money supplies for the government and private sector with free market exchange rates between them, no income tax and no capital gains tax. If the government overspent then the exchange rates for its money would fall. Hence it would need to explicitly raise taxes to maintain purchasing power for its money. If it didn’t then taxes would become EASIER to pay because of a cheaper government money supply.

And as for the welfare state, has it ever occurred to you that the fascism in our system, the government backed counterfeiting cartel, is the cause of the overwhelming majority of it?

If the choice comes down to the current system or a government imposed or favored gold standard, then better the devil we know. The cure for a fascist money system is not more fascism. Neither is socialism but at least socialism cares for the victims somewhat.

F. Beard January 5, 2011 at 2:44 pm

Von Mises discussed the use of gold as specie not because he worshipped it, as your dishonest smearing is intended to suggest, but because its physical attributes suit its employment for that particular purpose. Additionally he was well aware that gold had been employed for the purpose through history. Again, that is due to its physical attributes suiting its use in that way (as a store of value). Sione

Most, if not all, of gold’s attributes are obsolete wrt money and have been since 1602 when the common stock company was invented.

Wrt Mises and the other Austrians, I just find it odd that they conflate liberty with a shiny, scarce metal. It’s true that in some cases people have freely chosen gold as money but it is also true in other cases that it was forced on them by government under the influence of private interests. The Colonies before the American Revolution are an example.

Comments on this entry are closed.

Previous post:

Next post: