Somewhat bearish, but a very good explanation of what we’re facing:
[quote]BostonBarrister wrote:
Somewhat bearish, but a very good explanation of what we’re facing:
[/quote]
Thanks for all the posts! Good reads, one and all!
[quote]BostonBarrister wrote:
Somewhat bearish, but a very good explanation of what we’re facing:
[/quote]
Gee…who would of thought economists couldn’t predict the future? I thought they all had nice little mathematical models that tell them everything they need to know to eliminate uncertainty.
My favorite part:
"The uncertainties are so huge because of the complexity and the novelty of this situation that it really is impossible, it’s simply impossible to say what’s going to happen. I have my own guess that we’re going to have a pretty deep recession and it’s going to be a long process of recovery in the financial system and in the American economy. But that is a guess and I might well turn out to be wrong. "
He seems to be implying under normal circumstances planners know what actions to take (isn’t that the function of entrepreneurship and why entrepreneurs demand profit for a successful venture) but now because of these “novel” situations they don’t. I call shenanigans.
They just need to let the correction happen. All malinvestment requires a correction to free up capital for other investors. By attempting to protect bad investors they are just setting the market up for bigger failure.
Tyler Cowen on the Fed plan:
[i]Giving the Fed more (less?) regulatory power
Tyler Cowen
A few points on the new plan ( http://news.google.com/news?hl=en&ned=us&q=paulson+plan ):
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The Fed is smarter than other regulators, the Fed can pay higher salaries, and the Fed has more independence.
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Ceteris paribus, the Fed usually can do a better job than other potential regulators. If someone is going to oversee hedge funds and other non-bank financial institutions, why not the Fed?
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An independent central bank is, all things considered, a good idea for reasons of monetary policy.
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The Fed, as regulator of financial markets, has an incentive to keep economic growth high and this also militates in favor of the Fed as regulator. A new prudential regulatory agency for capital markets would not be responsible for the overall macroeconomy and would not necessarily have that same pro-growth incentive.
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A regulator must, one way or another, be accountable to Congress and the President. The more that the Fed is accountable to the other branches of government on regulatory issues, the more it is accountable to them period. That would be true even if monetary policy and regulatory decisions were not converging in practice, as they have been in recent months.
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In essence we are on the verge of “spending” some of the Fed’s monetary policy independence in return for superior regulation. That choice makes me nervous. Indeed, arguably we have already made that “expenditure.”
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The new plan, oddly enough, takes away the Fed’s power to oversee banks on a daily basis ( http://www.washingtonpost.com/wp-dyn/content/article/2008/03/31/AR2008033102356.html ).
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One important question is what kind of relationship would develop between the Fed and a new, unified office of prudential regulation. See #7. Even if there is consolidation of all the loose regulatory spokes (should credit unions really get a separate regulator?) into an oversight agency, we should somehow keep the Fed’s special access to bank balance sheets. I’m not sure how the Paulson plan fares on that score.
Note also that the Fed is deliberately non-transparent. Is that, when all is said and done, one reason why we are looking to it to enforce more transparency in other institutions?[/i]
[quote]BostonBarrister wrote:
- The Fed is smarter than other regulators…[/quote]
This truth needs to be qualified. I won’t even bother to read the rest of this drivel.
If the Fed was so smart they would be able to figure out they are the root cause every bubble. Malinvestment is a given with artificial signals…why does this organization think otherwise?
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
- The Fed is smarter than other regulators…
This truth needs to be qualified. I won’t even bother to read the rest of this drivel.
If the Fed was so smart they would be able to figure out they are the root cause every bubble. Malinvestment is a given with artificial signals…why does this organization think otherwise?[/quote]
Why does the catholic church believe in god?
Because, as unlikely as it is, its existence depends on believing it.
The real point is of course that no one is smart enough to plan an economy or any part of it.
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
- The Fed is smarter than other regulators…
This truth needs to be qualified. I won’t even bother to read the rest of this drivel.
If the Fed was so smart they would be able to figure out they are the root cause every bubble. Malinvestment is a given with artificial signals…why does this organization think otherwise?[/quote]
The premise of the post is that there is a regulator - read the whole thing.
[quote]BostonBarrister wrote:
The premise of the post is that there is a regulator…[/quote]
Even with THAT premise…where is it necessarily true that the Fed is smarter than any other regulator? He offers no evidence.
The fed is no better than any other entrepreneur acting in the market place making guesses about the disposition consumers – with the exception that when they make bad decisions they don’t go out of business.
[quote]
BostonBarrister wrote:
The premise of the post is that there is a regulator…
LIFTICVSMAXIMVS wrote:
Even with THAT premise…where is it necessarily true that the Fed is smarter than any other regulator? He offers no evidence.
The fed is no better than any other entrepreneur acting in the market place making guesses about the disposition consumers – with the exception that when they make bad decisions they don’t go out of business.[/quote]
I would assume he’s making a conclusion based on the credentials necessary to be employed there.
[quote]BostonBarrister wrote:
I would assume he’s making a conclusion based on the credentials necessary to be employed there. [/quote]
We could program a computer to randomly pick interests rates based on the current mathematical models that would have the same effect as any economic regulator. Its called gambling and being “smarter” is only a requirement in that one knows how to BS people into buying the given rhetoric.
Maybe that’s what he meant…?
[quote]LIFTICVSMAXIMVS wrote:
BostonBarrister wrote:
The premise of the post is that there is a regulator…
Even with THAT premise…where is it necessarily true that the Fed is smarter than any other regulator? He offers no evidence.
The fed is no better than any other entrepreneur acting in the market place making guesses about the disposition consumers – with the exception that when they make bad decisions they don’t go out of business.[/quote]
Hegemonic powers that have passed their peak turn against entrepeneurship. They want to preserve the status quo. They fail to realize that such action simply accelerates the process.
Instead of deregulating, lowering taxes, and restoring a sound money system, they do the opposite.
A mixed economy must evolve into some sort of fascism, just as surely as 2 + 2 = 4.
[quote]LIFTICVSMAXIMVS wrote:
We could program a computer to randomly pick interests rates based on the current mathematical models that would have the same effect as any economic regulator. Its called gambling and being “smarter” is only a requirement in that one knows how to BS people into buying the given rhetoric.[/quote]
I remember reading that Milton Friedman was in favor of something like that. I don’t exactly know the details, but essentially, inflation and interest rates would be better kept in check by a computer system, and not by people.
Because people suck.
[quote]skaz05 wrote:
LIFTICVSMAXIMVS wrote:
We could program a computer to randomly pick interests rates based on the current mathematical models that would have the same effect as any economic regulator. Its called gambling and being “smarter” is only a requirement in that one knows how to BS people into buying the given rhetoric.
I remember reading that Milton Friedman was in favor of something like that. I don’t exactly know the details, but essentially, inflation and interest rates would be better kept in check by a computer system, and not by people.
Because people suck. [/quote]
Or we can allow banks to decide what interest rates to set based on their own reserves – i.e., how people choose to save or spend their money. Banks that choose correctly will do well those that don’t will fail. My own personal opinion is that many banks would be forced to become more conservative and we would not see as much volatility in the markets and prices would stabilize.
However, our grand planners only have a linear mindset when it comes to prosperity: Growth is good. What they fail to recognize is that prosperity cannot be measured outside of individual valuations.
Ron Paul (to Bernanke): Does the Federal reserve contribute to the business cycle.
Bernanke: Yes, it has…
Ron Paul: Does excessive credit and artifically low interest rates cause malinvestment.
Benanke: We could make mistakes…
[quote]Headhunter wrote:
…
A mixed economy must evolve into some sort of fascism, just as surely as 2 + 2 = 4.
[/quote]
You have said this countless times but have not provided a proof statement.
In your mind it seems fascism is the result of every action.
We know that pure capitalism doesn’t work and we know pure socialism doesn’t work. What else is there?
[quote]skaz05 wrote:
LIFTICVSMAXIMVS wrote:
We could program a computer to randomly pick interests rates based on the current mathematical models that would have the same effect as any economic regulator. Its called gambling and being “smarter” is only a requirement in that one knows how to BS people into buying the given rhetoric.
I remember reading that Milton Friedman was in favor of something like that. I don’t exactly know the details, but essentially, inflation and interest rates would be better kept in check by a computer system, and not by people.
Because people suck. [/quote]
It would probably work better than the system we have.
[quote]Zap Branigan wrote:
We know that pure capitalism doesn’t work…[/quote]
How do we know this?
What does it mean when we say something “works”?
It is my understanding that capitalism is just a notion that the means of production are privately owned. It seems that the idea of pure capitalism worked for primitive man quite well – though they never would have labeled it as such. We can call it pure capitalism in that we know there were no third parties (the State) directing property to some idealized use.
Only an entity such as government could ever be in a position to say pure capitalism doesn’t work; and only because it doesn’t suit some idealized plan – not because there is any empirical evidence. When we say pure capitalism doesn’t work what we really mean to say is sometimes people make choices that have unintended consequences and we must protect them from their own freedom.
I just got Alan Greenspan’s new book. Despite his participation in the Fed scheme, he appears to be fully aware of the problems caused by a central bank and all but explicitly concedes that we need to return to the gold standard and free markets. He’s definitely of the Austrian school. Basically congress enables the Fed and vice versa. They’re dependent on each others’ favors.
[quote]Zap Branigan wrote:
Headhunter wrote:
…
A mixed economy must evolve into some sort of fascism, just as surely as 2 + 2 = 4.
You have said this countless times but have not provided a proof statement.
In your mind it seems fascism is the result of every action.
We know that pure capitalism doesn’t work and we know pure socialism doesn’t work. What else is there?[/quote]
Governments don’t like capitalism because it is a dynamic system, changing and growing. People in positions that lose out demand regulation and protection from the markets. They want a mixed economy. But, like a drug, the regulations have an effect, and the market reacts. Look at the big banks: they make NINJA loans because they know the Fed will not allow them to fail.
So, every regulation and intervention has repercussions and those (of course) have to be regulated. You eventually have a huge bureaucracy to ‘manage’ the economy.
Eventually, the government comes to see free markets as a pain in the ass. Constituents are always demanding that they ‘do something’ (food stamps, welfare, make-work programs, on and on). Therefore, after a major crisis, such as a crash or burst of a bubble, the government simply takes over: price controls, wage controls, constant supervision of business —> Fascism.
Don’t confuse capitalism with free markets. Capitalism is just the control of capital. (In communism, the capitalists are the government and the markets are not free.) The question becomes, at what degree of regulation do the markets stop being free?