Whoops, other way around.
The monetary multiplier increased over that period.
You need to read that essay and think for a second what it is saying (anyone whose read it will see what a fool you are making of yourself). Your assumption of its content from reading only the title is dreadfully apparent.
The problems you refer to would be different under a different set of circumstances. Free banking would allow for fractional reserve and they would simply be allowed to fail AND they would have RISK determine the amount of loans they made (their Fractional ratio). The premise you cannot accept is that GDP growth is limited by the amount of savings that is employed usefully in the capital investments stages. You think that depressing interest rates (false signals within term structure of savings; again, kid you need to read that essay) in no way affects all of these things, but then the fear your economists have the most is if they rise… “It won’t matter. No it won’t. It’s effects are negligable. WE CAN’T DO IT!” – Bernankers.
You are not as smart as the economists you cite (I can tell you have many of your own thoughts regarding these subjects) and those economist are wrong. Here is why graphs and stats mean nothing for long term economic anaylsis. Careful there aren’t graphs biased to prove specific points. It is just logic.
TBTF is a nasty consequence of the absence of regulated capital requirements. However, although AIG and Stearns were bailed out, dozens more banks have failed during the crisis. One can also look at the history of free banking and see how often crises were regardless.
I can see that, and I’m not sure how it disagrees with what I’m saying. The level of investment and savings deposits can change the monetary multiplier given the same amount of base money.
I never said that interest rates “in no way affect these things”. I said that their impact was limited in the particular case I’m talking about.
That is a very strong claim.
No, it is a PR scheme by the central bank and its operators. There are plenty of capital regulations. Banks skirt them so that they can make money.
My guess is that you not actually done this…there may have been more or less, but none of them were as systemic as they are today. But, nah, gold payment balances wouldn’t help ameliorate that pesky old problem.
Okay, let me say it this way. You refuse to admit that large credit expenditure happens to facilitate (what I would call illegitimate) demand into markets that have high preference for long term captial intensive investment projects (it can be a number of things). You cannot say that the effects of interest rate depression is negligible, but turn around and say that raising interest rates would do what the Bernanke articles first citation said…
Which was housing, which was wrong…Either interest rates are a crucial indicator or they are not. You cannot claim that interest rates are negligable, but then only allow for theoretical contention within the framework that they are not negligable.
You might as well be Krugman’s kid.
Where? There’s Basel III, but it was ratified in 2010.
Unemployment reached 14% during the Long Depression. If you don’t consider free banking crises systemic, I’m not sure what metric you’re using.
There’s a difference between credit to one sector of the economy (housing) and the economy as a whole. Interest rates may have had small effects on house prices, but maintaining some amount of credit growth is important to the rest of the economy.
If you’re asking me my opinion on what the Fed should have done, I believe that they deviated slightly from the Taylor rule, and should have followed it better- which would mean slightly raising interest rates. But I wouldn’t expect it to have made more than a few percent difference in the size of the bubble.
It’s a matter of finding the optimal level of interest rates. Overall, it depends on what you specifically mean by “raising interest rates”. Stopping credit growth completely to avert a bubble isn’t necessarily a good idea. This could mean creating a policy-induced recession to prevent a future recession down the road. There can be a trade off between slowing credit growth and increasing long run economic growth.
You’re also assuming that free banking and the Gold Standard were more effective at moderating the business cycle.Here is a discussion.
Right, Basel I and II don’t count…Not to mention that the nation states have their own laws and regulations on secuities (SOX is partly this).
Your cherry picking statistics making false correlations. This period saw an almost 30% increase in real wages and one of the longest sustained production increase in history.
Oh is it? You need to read these: (These are classics) Pretense of Knowledge & Knowledge and It’s function
I don’t recall suggesting that. But, again that monopoly over “credit” expansion is held with banks and Fed Res Notes. People cannot use legitimate capital to loan, only banks can do it with phantom money from the FED (AKA gov. debt).
The prudence of a statist.
It is called allowing the true level of savings (long term deposits) to determine the limit of credit expansion (interest rates). But, you knew that…
Basel I/II had capital requirements around 7% of assets. That’s nothing.
SOX is not a capital requirement. A capital adequacy requirement is a law requiring banks to hold a certain ratio of capital to assets as a “cushion” against risk.
I was addressing your claim of the absence of “systemic crises”.
So do you agree that the Fed should not maintain high interest rates at all times?
What are you suggesting? That credit growth was ever limited by the size of CDs? Or that credit growth should be limited to the size of CDs? Nothing that specific has occurred, in any free banking or fiat system.
100% reserve banking (or most other restrictions on credit ratios) implies government enforcement and reduces the flexibility of the financial system.
You really don’t get it. What is too high and what is too low? Can you know these things without telling me every single production input and output? Stop pretending like your high school like reasoning ability is going to justify Bernake’s wanton misrepresentation of what he does in his academic field.
Why won’t you read that essay on the term structure of savings? I do not agree with anything that you have said. And you have not once characterized my argument succinctly. You show no critical thinking in your analysis of the papers you have cited (or my statements for that matter) and seem desperate to jump to irrational conclusions by putting words in my mouth and then having a strawman conversation with yourself.
You need to read and respond to the thesis of:
Hayek - Choice in Currency (not a free banking strawman argument)
Bagus - Term Structure of Savings -You need to understand the purpose of the yield curve not just its function. (Also, how banks use it) Understanding the yield curve only as a function is why you think the Fed can just willy nilly decide rates and we can somehow correctly forsee the market conditions based on thse assumptions.
Hayek - The Use of Knoweldge in Society - Knowing the correct conditions for any given economic policy is impossible due to both qualitative and quantitative data collection.
To a degree. The reasons why the Fed follows the Taylor rule are different discussion; you may start a new thread on that if you like.
This is a rather long paper. I would appreciate any specific theses you would like to discuss.
The Fed does not make predictions. It makes forecasts, which can only be partially accurate. It has used these forecasts to affect interest rates, and in so doing so it has managed to reduce market volatility greatly compared to the gold standard era.
It depends on what you mean by “knowing”. We can sometimes make quite good guesses (within a standard deviation) about economic conditions.
Why must the Fed be maintaining or doing anything? What is you obsession with aggressive monopolies, central planners, parasites, and 2nd realm interactions?
There is no better bubble/risk-restrictor than the market. You only need to make sure that the property boundaries are clear and that agents only risk their own capital. True, fractional banking inevitably implodes without central banking and without monopolistic legal tender laws and bank licencing cartels. They are both parasitic as they muddle property boundaries (More than one owner of the same $1 of capital) and implicitly coerce huge swaths of economic agents into risks they’ve never agreed to take. THIS is how parasites suck wealth and capital out of the idiotic masses. When times are “good”, when credit expands, they and their friends make a killing exposing other people’s capital to risk. When the shit inevitably hits the fan, the sheep must open their wallets once again to bail out “the system” lest the ATM’s stop giving out cash tomorrow morning and their cash balances get wiped out from their computers.
What does TBTF even mean? Walmart is pretty big. Who’d give a rat’s ass if Walmart failed?
The whole language around “banking”, with its own terminology and jargon has been invented to pull wool over the sheeps’ eyes for centuries now. Every other business, every other domain of human interaction operates under “100% reserve”. You go to jail if you sell your car to two people at the same time, and keep convincing them that each of them is a 100% owner of the car that you just sold TWICE.
One can compare the duration of recessions during and after the gold standard period.
|
BUSINESS CYCLE |
DURATION IN MONTHS |
||||
|
Peak |
Trough |
Contraction |
Expansion |
Cycle |
|
|
Quarterly dates |
Peak |
Previous trough |
Trough from |
Peak from |
|
| Average, all cycles: 1854-2009 (33 cycles) 1854-1919 (16 cycles) 1919-1945 (6 cycles) 1945-2009 (11 cycles) |
16 22 18 11 |
42 27 35 59 |
56 48 53 73 |
55* 49** 53 66 |
|---|
The last column indicates that expansions have been longer after the end of free banking and the gold standard.
Fractional reserve banking and free banking have coexisted- the market did not eliminate the former. E.g., the Swedish Enskilda. 100% reserve systems would not likely be much more stable. It would, however, reduce flexibility and responsiveness of the financial system.
“Fractional” and “Free” “banking” are one and the same. I don’t care much for either. They are both frauds which would implode in a free (uncoerced) market.
With advances in market technology I see “banking” going the way of the dodo, too. Plenty of instruments and avenues (bonds, stocks, etfs, funds, you name it) for savers of capital to meet with the ones willing and ready to borrow it or invest it – WITHOUT confusing who owns what and when.
Pretty bold economic prediction you’re making!
I think deposits will stick around for as long as they hold less risk. No thanks to the FDIC- I don’t much like them. But yes, in the future we’ll all do financial transactions on our cellphones with no need for physical cash or tellers or ATMs.
Too long (; didn’t read)? That is offending from my point of view. You must realize that you are doing exactly what those weasely academic economists do. They have trained you well. “Cite our papers for your reasoning. If they challenge one of our foundational assumptions and ask you to acknowledge that point, say that their ‘papers are too long’. Then tell them you are ‘open to questions’.”
Uncertainty is diffused as far as possible under a condition where there are any number of alternate channels of credit and store/measures of value. Competition would weed out unsound practices. Hayke just says open the channels up so people can inflate and people can save, the idea being that, then there will be no “shortages” of money and there will be market-tested stores of value to contract in over time increments.
Central banks and the ability to create money (credit/debt, w/e) has no limits as the logic is presented as, “Private banks have ratios and regulations on their capital requirements this way they cannot create too much and cause problems. Central banks create money and give it directly to the private banks in order to continue their expansion of credit (a necessary condition of low interest rates).” This defeats the purpose of the signals involving savings and credit expansion. Those production cycles (pay cycles etc.) are thrown off of what is possible for them to accomplish. Plus, take a banking class, they never listen to those ratios, they simply leverage other assets (liabilities) since it is all insured by the government.
That kind of attitude, that you can fine tune the economy, thinking you can decide or “deviate” away the importance of one type of investment and another, is the problem. You aren’t smart enough to do those things. What is meant by “knowing” is the unintended consequences. I never see the “possible unintended consequences” section at the end of academic economists papers. Then, when the unprophesied result inevitably comes about get written about, “This is a rather long paper.” is the best the idiots can muster. You are not a sage. You need to “know” how much of what needs to go where at all times. You will not justify that kind of intrusion of privacy by the state will you? I won’t hold my breath…
In what way does this demonstrate that you concede/refute the purpose of the yield curve; for investors to have a gauge on the term structure (the “how much” & “for how long” aspect of captial investment) of savings. This means that certain investment activities vary in their time/production cycles in relation to their cost per cycle. The patterns (or habits) are thrown off of what people can do in their unique position (heterogeneous capital stock; aggregation leaves this out) and alters the structure in which everyone in the economy shapes their patterns.
BTW
The definition of “prediction”:
-
To state, tell about, or make known in advance, especially on the basis of special knowledge.
-
To foretell something; prophesy.
"Synonyms: predict, call, forecast, foretell, prognosticate"
Your petty semantics may have a causal relationship with your refusal to read a paper based on its length, as opposed to your refusal to read them based on the intellectual brutality that your perspective will have wrought upon it in them…
…
Of course, patterns, in most cases, will not deviate wildly (although some will), they will shape themselves differently under different circumstances. Interest rates are the primary price signals, as they involve time allocation in relation to capital) and will throw off the perception of utility of different chunks of time for investors and as a result they make different choices than they otherwise would have; summed in a word, “malinvestment.”
Yawn.
Honestly, why is muddling of property boundaries neccessary for MY saved capital to meet whomever demands it in the market? I can keep some in a cash deposit for my daily needs paying a storage fee for it, if the market demands, and I can hire advisors to lend (bonds) or invest (stocks) the rest in the economy. If I need more cash, I sell my bonds/stocks in the market. Why do I need “banking”, “fractional” or “free” or “central”? The whole “banking” is a scam. No one really needs it.
Deposits are not supposed to hold ANY risk. That’s why they are called deposits. I can store my gold anywhere. I don’t need a “bank”. Investments (bonds, stocks, etc.), on the other hand, do take/carry risk in order to make a return.
Perhaps – nothing wrong with electronically transferring ownership of my ounces of gold to someone else – but those weren’t the innovations and advancements I was referring to.
The history of free banking is not encouraging on this account- the business cycle was smoother after the introduction of discretionary monetary policy.
The central bank does not expand credit at the same, constant rate. Under countercyclical policy, it reduces credit growth during booms and increases it in recessions. A capital adequacy and reserve ratio are separate concepts. The latter was never enforced. The former, if enforced, could greatly reduce financial crises by requiring banks to put away funds to provide their own liquidity support during crises.
If you consider the Federal Reserve reading manufacturing and NIPA reports an invasion of personal privacy, then that does make sense.
Which is why the Fed increases interest rates during periods of high credit demand. Free banking had proven even worse at dampening the business cycle.
You don’t, personally, require it in your daily life, perhaps.
Business loans are another matter. But perhaps you’ve invented an alternative.
Among other reasons why it isn’t carried around to pay for groceries, gold is heavy and takes up space.
Cop out. Hayek isn’t looking for the same situation as you insist on referring to. You’re getting on my nerves, kid. You refuse to read those articles because, I think, you cannot handle their refutation of your 80 year old theory.
In those papers of Bernanke’s that you cited, where does he say anything like this? I understand that is old school Keynesian logic, but it hasn’t been followed for forty years.
But, it relies on people like you. Who refuse to read legitimate academic refutations of their control schemes. You have an overflated sense of importance. It won’t happen because bureaucrats won’t do things if they can bribe people through the political system.
Not true. Theoretically it is, but it has not been in practice. Greenspan fools you. You are not as clever of a rhetorician as he is.
Another cop out response. Man you are a pussy. you didn’t even respond to Mises builder parable…truly pathetic debate mode you’ve got. Why not respond to the definition of “prediction” and “forecast.” ha
I think, you should face it, you’ve destroyed your credibility.
If you can summarize the point made in those dozens of pages, I would like to discuss it.
It has been, in many countries (section 6.1).
The business cycle was worse under free banking. The business cycle was a significant problem at least to the degree that it is today. Please disprove this.
