Are you talking about the recovery period?
Keynesian Economics
- Thread starter lifegoesonbrah
- Start date
OH, yeah they set the overnight interbank lending rate. You are 100% correct.
It's more like comprehension FAIL. You might be getting the great Maynard Keynes messed up with the post-war Monetarists who INTERPRETED Keynes incorrectly. In a LIQUIDITY TRAP it is perfect to use direct gov't stimulus to stir an economy when CONSUMER SPENDING IS INADEQUATE. Like... the great depression. Like... the great recession. Not like... a regular recession. Get them facts straight, amigo.
You do realise what's going to happen if banks start loaning out ALL their reserves? They have much more than the current legal Reserve Requirement and if you're familiar with the money multiplier (I have come across those who foolishly believe there is only a consumption multiplier) inflation kicks in very fast. The economy is getting better, the problem I see is that MASSIVE corporate profits (if you don't believe me, look it up) aren't being directly translated to an increase in wages (as is usually, look up inflationary pressures largely brought on by Chinese workers demanding greater pay) which would be translated into greater purchasing power. One could argue that high unemployment has forced, by the laws of S and D, a depressed wage but when you look at the numbers there still should NOT be that much kept in company coffers. Make no mistake, we're pretty much out of the woods at this point, gentleman. One of the few things holding back massive loaning (remember, the Fed set rates near zero so if they loan they're pretty much making money from the LOANING and the HOLDING, because inflation creates a negative real interest rate on those bounds) is the debt crisis in europe. That banking problem can have a cascade affect on American banks. Do we want another Leman (Leham, whatever) Brothers? No, so it's best to let the market take care. Even without a lot of lending construction is making a rebound, as well as manufacturing (partly due to the erosion of competitiveness by an appreciated ren and increased wage pressures). I'd bet my right nut that the Fed won't keep the rate the same for the next two years as he's said he would do.
Keynes was a neo-classical economist at heart. The only way he bifurcated with his elders was that he believed the crisis (the Depression) to be too great to 'let the market handle it' and that no matter what the cost, how inefficient, it must be corrected so that HUMAN BEINGS no longer had to suffer.
Keynes also calls for lax monetary policy, whereas in the early staged an inexperienced Federal Reserve System actually did not do this. If you mean the New Deal the level of economy damage was abhorrent, no piddle-shit politically-stunted program was going to be enough. The actual standard people use is that gov't spending that followed World War II. I'm also pretty sure the General Theory was first published in 1936.
EDIT:
As for Austrians:
Gold Standard doesn't work because there's only 6 trillion dollars worth of gold in the world. The USA's GDP alone is like 14 trillion. The constriction on money would be too great, in layman's terms the cost of capital would simply become a barrier to entry and be an actual impediment to a 'free market'. Government spending is glorious, look up Mexico's Progessa. The mexican gov't now pays for education and healthcare (not ONLY pays for it, but also PAYS FOR YOU TO GO). As well, a healthy population leads to a more productive worker because they use less sick days and work harder when at work. Adding to that there less of a drag because of using less of their medical insurance.
Free Banking is 'okay' but during a crisis it can collapse easily without a lender of last resort, as the Englishman Bagehot coined, and it has a similar problem with the gold standard as it restricts capital.
You need to pay more attention because either someone is feeding you bad information or you really have an oddly coloured vision of the world. If you want a proper education, from the very ground up, send me a PM.
Oh. Really? The CPI is a Lasperyes(sp?) index, which means that it is a FIXED BAG OF GOODS. A Paasche index, which is what you are describing, is a changing bag of goods. At least in America. In all actuality the CPI OVER-ESTIMATES inflation because it DOES NOT take into account the substitution effect you are describing. If you're referring to another country's Consumer Price Index, I apologise for my tone.
To be fair. A lot of gold's massive increase is from uncertainty in the global market and lack of 'safe' investments. EU gov't bonds were considered RISK FREE, no risk NONE, NIL, as good as cash, but they weren't. And when this became common knowledge these people flocked to emerging markets, which continue to show strong growth, and gold. If you look at the drop in gold it comes around the same time the worries subsided a little. I think it was Nov'11? It should be easy to find on a 10 yr graph of gold prices.
Agreed. Krugman is pretty out there. But one issue that precipitated the housing crisis was actually the Japanese 'Lost Decade' where deflation pretty much butt ****ed the country. The Fed was /so/ afraid of going into a Japan-like deflationary spiral after the dot-com burst (there was slow growth, I believe the term 'jobless recovery' was termed then, and the Bush tax cuts, as well as direct money transfers) that they kept interest rates lower than they should have been. This in turn made buying houses cheap, even for sub-prime loans. You have this flipping, and that added significantly, but then the Fed /finally/ increases interest rates. Now, what happened to those sub-prime no or low doc (documentation, as in verifying if you actually have a job)? Well, they were usually ARMs, ARMs are tied to an index (ARMs, adjust fyi) and one of them is a 10yr treasury bond index. Treasury and Fed are butt buddies... Almost went into a tangent there lol. So when the rates went up those affected directly was the booming sub-prime market, these peopple (who were also often stripped of equity because of predatory lending brought on by too much de-regulation) who often could barely afford the payments already saw 'payment shock' when their mortgages went up hundreds in one month. They lost their houses, the supply in the market shot up and the whole idea of flipping houses... became history. (Well, you know what I mean. As a safe bet, or investment)
Yes on 1936
Government spending went way down after the war and that was the reason the economy improved. It stank during the war unless you were in the black market.
When you say the Fed didn't practice lax standards in the early stages do you mean early stages of the Great Depression? Up until mid 1920's they didn't do much.
The idea is to have competing currencies. Plus after people finding tungsten in gold there may be less than 6 trillion.
Saying the gold standard doesn't work because their isnt enough Gold isn't correct imo. That's the good thing about it. Gold is not perfect but it is harder to manipulate. It limits the governments power to inflate which is a good thing. You do not want a ton of the currency around. The monetary stability is taken away from government and put in the hands of the people through private enterprise. Gold does not fall prey to the political aspects of the powers that be. Easy credit is what causes the booms and busts.
i dont think we are out of the woods at all. Near bottom maybe but the recovery isn't going to make any big or sudden recovery. I think it will remain stagnant or crawl.
Companies are not spending because they are unsure of what the future may bring. In down times profits are used to retain employees and in research and development. No reason to increase production if you dont see people buying. And people are not buying.
Construction being up is partialy related to banks not getting rid of fore closures. Couldnt tell you to what extent though. Better to bulldoze them and write off the expense I guess.
Isn't the Obama admin selling off some of the govt backed housing with the understanding they would be rented?
There isn't enough gold at $1,700 an ounce to cover all the debt? Revalue the gold and there will be, its just that easy,
Gold worked for 10,000 years, so far the longest lasting fiat currency has gone for almost 40 years.
EDIT: You don't even have to revalue the gold, if the world went to a gold standard, the prices of everything would change to reflect that new money. Cars wouldn't cost $40,000, they would cost say, 10 ounces of gold.
In January 1999, the BLS began using a geometric mean formula in the CPI that reflects the fact that consumers shift their purchases toward products that have fallen in relative price.
http://www.bls.gov/cpi/cpiqa.htm
Like I said, they use substitution.
OGEvilgenius
Well-Known Member
There is silver and platinum as well.
I'd argue that economies are all about expectations and that ultimately a deflationary system could be devised which would ultimately be the most fair of all IMO. Old people would be the richest, and new production would benefit all in the form of reduced prices (even if your wages fell too it wouldn't be due to market manipulation and you wouldn't be losing purchasing power).
It would make growth far more sustainable in the long run IMO. I'd go further and suggest it would also wean out some of the more useless products we see these days as they would not be so easily sustainable in the cheap cash and grab heists some companies end up executing (really that's what a lot of production aounts to these days and it's not sustainable).
OGEvilgenius
Well-Known Member
In response to the Depression the Fed tightened monetary supply, is what he is talking about. They claim they didn't know what would happen if they did so, but I don't really believe them.
Silver and platinum are way too useful to really ever be money any more, besides silver will essentially be extinct from the earth's crust by 2048 according to the USGS. Gold is for the most part a fairly useless metal. about 1% of all the gold ever mined is used for anything other than jewelry or money. Its a fairly useless metal, but rare, divisible, fungible and very difficult to mine, that is why it makes such a great money. Silver on the other hand is used in more things than any other metal known to man, our way of life is simply impossible without silver. almost all electrical and electronic devices would be useless w/o silver. Silver is the most conductive metal, electrically and temperature wise, it is also the most reflective metal. These special properties make it ultra useful. They have used more silver than has been mined for over 25 years now. Most of the big hordes (USA used to have 5 billion ounces) have been depleted and the USA even disassembled the cyclotrons in Kentucky that enriched uranium for the giant coils made of silver, 300 tons worth and sold it in the mid to late 90's.
[Bolded] Yea. No. There is simply not enough gold. The cost to acquire ANY excess gold would be too high for an entrepreneur. Additionally, something that gold does not often supply and when it does it is not consistent, is steady and low inflation. Which promotes consumer spending due to the erosion of purchasing power threw time (something that cannot occur if there's no inflation). If you throw that pensioner B.S. at will wipe your face with my tussie and point you to the COLA. (A.K.A. the CPI growth added to yearly pension obligations). Easy Credit is what causes booms and busts? Have you heard of the Great Moderation? And what about things that can't be controlled, war? The gold standard and war do not mix, and as the greenbacks showed having an ad hoc fiat system in place only for war can be disastrous (unlike the common belief that the gold standard led to horrible cycles of the late 1800s which were actually caused by government-bond reserves held by private and state banks and their in-elasticity.)
Deflation doesn't work because spending means you give up making money by simply holding it. This ruins consumption and consumption is 60-70% of our GDP. It would ruin us.
Well then good sire, you proved one very foremost economist wrong and that would be Mankíw, quite impressive. A little aggrevating since the edition I had read was post-1999 and should have caught this change, but it was only two years which would explain the mistake. Hats off to you! I could be pedantic and argue that the CPI-W has to do with wages and that the CPI-U is for specifically urban consumers but urbanites make up a big-ass chunk of our population so I'll not go that route xP.