if you look at the first 33 years of the fed you would say it was the worst institution in the history of america

11/25/2007 4:09:31 PM

I agree. That is why the fed was changed. If you look at the last 33 years you would say it was the best monetary years of American history, with fewer and less severe recessions AND the most stable price levels in human history.

11/25/2007 4:22:02 PM

Quote :

"AND the most stable price levels in human history."

Except of course for the double-digit inflationary 1970s.

The dollar has lost 88% of it's value since 1950. How can we believe that inflation is "under control" when the Fed banking system can keep creating money and debt out of thin air?

11/25/2007 10:41:26 PM

Economists and Central Bankers were ignorant back then. It is really that simple: they did not know what they were doing. As a result, they fucked up quite a lot. It was not until the late 1970s that Paul Volker finally implimented a true understanding of Central Banking and its role in the money supply. That is why I said 33 years, not 57.

Of course, knowing better how the monetary system operates we have still made a concious decision to encourage 1-2% annual inflation. As such, your dollar will continue losing value, get over it. Or, run for office: there is no real reason the central bank could not peg inflation to 0%. Hell, you could peg it to a negative number if you chose. But there are valid arguments in favor of a slow inflation, keep that in mind.

Quote :

"How can we believe that inflation is "under control" when the Fed banking system can keep creating money and debt out of thin air?"

Because, the "Fed banking system" does not create money and debt out of thin air. It does not today, it has not for 63 years. When the Federal Reserve issues debt or buys securities it is doing so with its own deposits from depositors. It only creates money from scratch when it runs out of deposits, which it has not done since WW2.

What you are thinking about is what some call "The Magic of Banking", which does create money substitutes through both debt and debit instruments (your debit card is as much money as the cash you carry around). But Banks will exist and continue monetary expansion regardless of what monetary system you have. Even if we were using gold coin for cash in today's world we would still have checkbooks, debit cards, and credit cards. As such, Banks would continue monetary expansion potentially to dangerous levels, threatenning any gold standard as bank deposits would exceed the quantity of gold coin circulating. The only way to eliminate credit expansion of the money supply is to make banks illegal (bring back the usury laws of the 12th century!). You would still need a central bank to regulate monetary expansion. The only difference is that instead of enforcing price stability the bank would be charged with maintaining a peg to gold, which often means sacrificing both monetary and price stability.

11/26/2007 1:15:28 AM

Quote :

"the "Fed banking system" does not create money and debt out of thin air"

Something is increasing the money supply. It isn't me, I think it's the gov't and banks.

-The gov't has the Treasury print U.S. Bonds to exchange for loans from the Federal Reserve.
-The Federal Reserve does not have the funds to cover a trillion dollars to lend the gov't.
-The Fed creates this money through book-keeping entries and writes a check to the gov't.
-The gov't spends this newly created money- paying employees etc.
-That money is deposited into regular banks.
-Those banks are allowed to create even more money through fractional reserve banking- which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem- currently at about 10%.

It's not a "money substitute"..it's new money that has been created..thus inflating the money supply..and thus lowering the spending value of the rest of our money. Inflation is a hidden gov't tax levied on the value of our money.

11/26/2007 10:28:55 AM

could it be the increase in productivity???

11/26/2007 10:37:57 AM

Earthdogg, while it is legal for the Federal Reserve to loan money directly to the Treasury department, they did it during WW2, they have not done it since. The government sells treasury bills on the open market to banks, corporations, individuals, and foreigners. The federal reserve makes short-term loans to various organizations, which are no value to the Treasury department since the government wants to borrow money long-term, and the Federal Reserve's rates are outrageous for anything but short term. Why borrow from the Federal Reserve at 4.75% overnight when you can borrow all you want from bond traders at 3.991% for 10 years?

Quote :

"Those banks are allowed to create even more money through fractional reserve banking- which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem"

But as I said, that money created it not real cash. Society cannot withdraw it all at once or they will see that only 10% of it was kept in the bank. If we want to use the money created by the bank it must be in the form of checkbooks and debit cards.

Quote :

"Inflation is a hidden gov't tax levied on the value of our money."

*IF* the government is spending by printing money, as so many governments in history have done. But, banks do not need any help from the government to inflate the money supply through checkbooks and debit cards. You can have inflation without any government spending and without increasing the supply of currency, thanks to the mere existance of fractional-reserve banks.

11/26/2007 10:59:04 AM

From Irvine, California:



Asking Price: $1,249,000

Purchase Price: $1,157,000

Purchase Date: 1/6/2005

Quote :

"The property was purchased in January 2005 for $1,157,000. The combined first and second mortgages totalled $1,156,730 leaving a downpayment of $270. Let’s just call it 100% financing. By April, they owners were able to find refinancing through Countrywide with a $999,999 first mortgage. This mortgage was an Option ARM with a 1% teaser rate. The minimum payment would be $3,216 per month. Also in April of 2005, they took out a simultaneous second mortgage for $215,000 pulling out their first $58,000. So look at their situation: They are living in a million dollar plus home in Turtle Ridge making payments less than those renting, and they “made” $58,000 in their first 4 months of ownership. Apparently, these owners liked how hard their house was working for them, so they opened a revolving line of credit (HELOC) in August 2005 for $293,000. Did they spend it all? I can’t be sure, but the following certainly suggests they did. In December of 2005, they extended their HELOC to $397,990. In June of 2006, they extended their HELOC to $485,000. In April of 2007, the well ran dry as they did their final HELOC of $491,000. I bet they were pissed when they couldn’t get more money. So by April 2007, they have a first mortgage (Option ARM with a 1% teaser rate) for $999,999, and a HELOC for $491,000. These owners pulled $333,000 in HELOC money to fuel consumer spending. Assuming they spent the entire HELOC (does anyone think they didn’t?), and assuming the negative amortization on the first mortgage has increased the loan balance, the total debt on the property exceeds $1,500,000. The asking price of $1,249,000 does not look like a rollback, but if the property actually sells at this price, the lender on the HELOC (Washington Mutual) will lose over $300,000. These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal — for them."

11/26/2007 10:59:34 PM

^ that's awesome. Guess that explains why WAMU stock sunk like an anchor the last few weeks

11/27/2007 9:16:41 AM