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Does The Fed Understand the Economy?

The Fed Tapers into a Recession

Here is a summary of what the Fed Presidents and Janet Yellen are thinking. Do you think they understand the economy? the weather?

http://smaulgld.com/fed-tapers-into-recession/



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Speaking of weather...

That the Fed is so obsessed with weather (see http://www.zerohedge.com/news/2014-04-16/103-mentions-weathe...) is really strange. If you think about it, having the gov't intervene in the weather (geoengineering, HAARP, etc., anyone?) gives them something to blame instead of their own failed central planning. I mean, how many times did you hear the words "polar vortex" in the MSM this past winter. How about the new naming of winter storms? Totally contrived to distract.

Controlling 'the' Economy is just like

Controlling 'the' Economy is just like trying to control 'the' weather. The attempt to control simply ends up being a molestation.

Agreed

Agreed. Note that I said "intervene" in weather as opposed to "control." This is an important distinction vis-a-vis geoengineering "debunker" types. Gov't is intervening in everything and I mean everything because, at the moment, it has unlimited fiat money to pay corporations and people to do so on its behalf. Much havoc and many unintended consequences should be expected until that ends. Many distractions as well...

Yeah, just pointing out

that the central planners all too often think they can control things like the weather and 'the' economy, when both are far too complicated to do so without effing it up.

No such 'a' thing as 'The' Economy

Imagine trying to predict and coerce the behavior (all the behaviors and events) of a Planet, Nation, State, County, City, District, Neighborhood, Street, House, or Individual from the edge of the Solar System or beyond.

'The' Economy is an Eco-System or system of Economies. Economics is 'management of a household' by definition. There is more than one Household (aka Economy) within 'The' Economy we so often hear about.

No one or group, even equipped with supercomputers, understands 'the' economy. This lecture posted the other day helps prove why. There are an infinite set of possibilities when dealing with just a few human beings. There is in reality an infinite number of infinite sets of possibilities.

Hayek showed this is why Democratic Socialists (and Central Planners of all sorts) quickly devolve into hard handed Fascists. They attempt to allocate and coerce resources that fit into their plans, yet these plans ALWAYS fail to deliver on time, within specs, or at the cost predicted because there are an INFINITE number of variables at play.

As their plans fail to meet their expectations, they fail to see it is their Central Planning behavior that is at fault. They instead see others failing to implement their plans as they intended. This then justifies creating more rules to narrow the possibilities of failure. However, this in reality simply exposes another set of possibilities often called unintended consequences.

The New York Fed ...

... is where the real power lies. They are the only part of the Federal Reserve System that actually carries out the open market operations (buying and selling bonds, inflating and deflating the money supply, etc.).

The rest of it is a bunch of useful idiots for the display shelf.

Wasn't Herman Caine A Fed President from Kansas City

and Timothy Geithner the president of the NY Fed?

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Caine was a director ...

... not the president. Directors have no power. It is just a grooming program to identify who they can trust and who will do whatever they want.

Caine doesn't seem all that smart, if you look at some of his one-on-one interviews. He somehow became connected into the system when he was at Pillsbury (probably) and he was involved in the buyout of Godfather Pizza. After that, he was invited into the Fed system.

This is why he was rolled out as the 9-9-9 guy. He didn't come up with that himself (IMO). It was a trial balloon to see how people would react to a new national sales tax, and it was the main reason he was in the race. Watch for it again (or something similar) in 2016.

Geithner was president of the New York Fed. This is the #1 power position within the Fed. Geithner's father was CIA at the Ford Foundation (CIA front), where he was the boss of Obama's mother (also CIA, as were both of her parents).

The president of the New York Fed has all the power in the system, and I suspect he issues orders based on what he's told to do by the two largest members of the NY Fed: JP Morgan Chase and Citibank (both Rockefeller banks).

IMO, the fundamental problem

IMO, the fundamental problem is one that affects both proponents and opponents of the Fed. Both give the Federal Reserve way too much power. Both think it has way too much influence. As a result, in a perverse way, the Federal Reserve does have some influence because everyone thinks that when it does something, there will be heavy consequences. But over time, once it shows that the Fed really has little power, the market tends to normalize.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

the fed has enormous power in three respects

1. it sets the price of money by setting interest rates
2. it can print money to buy government debt or just about anything else it wants -and it does it in the trillions!
3. it is unaudited.

A central bank that did nothing other than act as a bank of last resort wouldn't be that bad. It becomes all powerful when it engages in trying to direct the economy

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1) The Federal Reserve can

1)

The Federal Reserve can use the tools it has to modify short term interest rates. With QE, they can try and change the yield curve to lower long-term interest rates. This can have some effects like lowering the interest costs for businesses. Fundamentally, the federal reserve cannot make an investment a better investment. Investors acting as honest actors will not invest in something where they do not expect a return.

2) The banking system is what literally prints money. The nearly 60 trillion in credit is created by the private member banks, not the central bank. Government's own share of its debt has shrunk over the past 5-6 years IIRC. Besides, the US government doesn't need the Federal Reserve to buy up its debt...it is an incredibly desirable asset, as evidenced by constant demand for it.

3) The Federal Reserve is audited: http://www.federalreserve.gov/faqs/about_12784.htm

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

control over short term interest rates is what enables

Member banks to inflate so heavily.

You blamed it on the banking system. It has a name, You know...

The Federal Reserve System. Yellen is chairman of the Fed. Short for Federal Reserve System.

Yes the fed can make an investment a better investment, by changing the risk and enabling easy money to be levered up.

If the budget has no hope of ever balancing, why would our bonds be in demand?

Séamusín

SO the short-term funds rate

SO the short-term funds rate can moderately lower the cost of borrowing throughout the system, and for the banks, can give them much more liquidity by lowering the costs of being illiquid. But that doesn't make an investment a good investment. If the investment goes bust, the bank would still be liable for any created credit. Banks make investments based on the credit-worthiness of the customers.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

It takes alot longer for an investment to go bust

When the market is flooded with cheap credit. This is how structural imbalances are created.

The Austrians call it malinvestment. Its not just the investors who are responsible for it, but the consumer creating industry through consumption that the economy can't afford because its paid for by borrowed money, leveraged against equity that doesn't exist.

See housing bubble of 2007/8.

Séamusín

But the Federal Reserve plays

But the Federal Reserve plays little role in that. Remember, banks can create money out of thin air. The whole reserves-to-loan is a myth. As has been shown, the federal funds rate has very little effect on long-term interest rates. If it weren't for federal reserve actions, the short-term interest rate would head to zero.

The prime reason for the housing bust was because banks were giving out loans to customers who were not credit-worthy. That is not the fault of the Federal Reserve, that is the fault of market that was not properly corrected for fraud. The government didn't do it with regulations, and the market didn't too it was shareholders fell asleep at the wheel (as they frequently do).

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Why can banks create money out of thin air?

Why doesn't anyone run on the banks to get their gold back? What do you call the bill that the banks lend you? Why isn't gold allowed to be used as legal tender? Why are there no private mints? What system is Chase Bank, and Citi Bank, and JP Morgan and Goldman Sachs a part of?

You separate the 12 reserve banks, and the Fed Board from the rest of the banking system. Its all the same. One thing. The federal reserve system. Banks can lend irresponsibly because they have a lender of last resort. There are no deposits. There is no specie.

Séamusín

The difference is that when,

The difference is that when, since the great depression, has there been a run on the banks? You are right in that the Fed is the technical lender of last resort...though any bank counting on that will find its value destroyed and its property confiscated.

When has the Federal Reserve had to act as a lender of last resort for the banks?

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

No, it's called coming off the gold standard.

You can only come off the precious metal standard with a central bank.

As far as when was the last time a bank had to lean on the the fed printing press, hard to say. That's what Crazy uncle Ron's audit the fed bill was supposed to find out. I imagine it happens all the time.

Anyway, that's not where I was going. I am talking about the effects of wildly inflated equity on consumer credit and debt.

Lastly you blame the banks instead of the federal deserve? Who owns the federal deserve?

Séamusín

So in the era of free banking

So in the era of free banking in the 1800s, plenty of banks were not on a gold standard, and issues credit in the form of their own notes.

Finding out when the bank had to lean on the fed printing press, as you put it, isn't even necessary. We can look at the balance sheets of the banks and see that it isn't the case.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

I said gold standard, not a sound money system

Banks always issue credit in notes in a fractional reserve system, however in the era of free banking, a bank still needed to back the notes with some sort of collateral.

That's fine. Some banks will fail. When you say free banking by the way, I hope you are referring to the period between the second national bank and the civil war, correct?

For someone who speaks so intelligently on the topic, why do you come off like you have never studied Austrian business cycle theory?

Séamusín

Well, banks in the free

Well, banks in the free banking period backed their notes with their reputation. As do banks today...the difference being the legal obligations banks have to fulfill those backings. While in the era of free banking, it was very much caveat emptor, for better or worse.

I have studied Austrian business cycle theory. It is just that I don't agree with it. Austrian economics fundamentally does not understand the monetary system of today (where the government is not revenue constrained, and the money is not convertible and has a floating exchange rate). Moreover, the business cycles proposed in the ABCT are evident in economies with no central bank. Lastly, ABCT critically faults central banks for keeping interest rates low, thereby inducing mal-investment (without ever proving it, but I digress). Yet at the same time, they assure us that the market is completely rational, made up of rational actors. If those rational actors know that the central bank is artificially keeping interest rates low, would they not adjust their investments accordingly?

These are just some of the flaws in the theory. In any case, it is not the point of the discussion.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

You do not understand the relationship between

Paper and specie.

Read Murray Rothbard's the history of money and banking.

Séamusín

You don't understand that

You don't understand that none exists. Literally. Look at the price of gold or silver vs. inflation. There is no correlation that I can see. You can even look at it vs. base money (which obviously is not inflation), still no correlation.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

I am not even talking about market relationship.

I am talking about the historical one. Again, I offer Murray Rothbard's "History of money and banking".

Séamusín

So just because there is a

So just because there is a historical one, there is one now?

Fact of that matter is, is that in all historical types of currency (well, the vast majority), and even fiat currency, that currency was convertible on demand to something else, with a fixed exchange rate. The US dollar today is not convertible to anything, and trades with other currencies at a floating exchange rate. That is what makes it different. That is what Rothbard does not understand. Which is why his school was so panicked about hyperinflation.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Its backed by our military, Jack

Sorry to be the one to tell you.

Séamusín

That's some misinformation ...

... and disinformation there.

The central bank prints money, first by setting reserve requirements of the member banks, and second by its open market operations (buying and selling bonds or other assets to push "money" into or take it out of the system).

The Federal Reserve System is not audited in any meaningful way. The "audit" is fully controlled and limited by the Fed itself. The recent "audits" are the first in its history and unveiled massive transactions that were previously undisclosed to the public:

What was revealed in the audit was startling:

$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments.

http://beforeitsnews.com/economy/2012/09/first-audit-in-the-...

Rand Paul wants more complete audits because:

There are no audits of “transactions for or with a foreign central bank,” or of “deliberations, decisions, or actions on monetary policy matters,” or of “transactions made under the direction of the Federal Open Market Committee,” or of “communication among or between members of the Board.” Paul’s transparency act would remove these exemptions.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/16/h...

Finally, we have Janet Yellen just a few weeks ago where:

She made it clear that in no manner whatsoever would the Fed ever allow an in-depth government audit to “second guess” the sacred monetary policy conducted behind closed doors by the Fed’s Open Market Committee (FOMC).

http://americanfreepress.net/?p=15794

So much for the Fed's self-serving propaganda about them being audited.

I will leave aside the bit

I will leave aside the bit about the auditing. What you are referring to is fractional reserve banking, that regulatory reserve requirements (which are practically non-existent) and reserves is what impacts lending. It doesn't.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

see Lionel Hutz on the "truth" vs. the "truuuuth"

These points are all true in the same way saying "raising the debt ceiling doesn't add one penny to the gov't debt" is true.

Not sure what you are trying

Not sure what you are trying to say.

Think of it this way. Peter Schiff, Ron Paul, Rand Paul, Thomas Woods, etc. predicted that was a result of the FED, we'd have economic calamity, hyperinflation, major job loss, disaster...none of that has come to pass.

The proponents like Geitner and Berneke predicted that the FED actions would stimulate more lending, better bank balance sheets, and keep long-term interest rates lower. While long-term interest rates are a little bit lower, arguably not due to the FED, none of that has come to pass.

The important similarity between both theses is that the Federal Reserve has this tremendous real power. IT doesn't.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a