Posted tagged ‘Federal Reserve Monetary Policy’

Some Econ Homework

June 20, 2017

Jean-Baptiste Say And The “Law Of Markets“, by Richard Ebeling, at fff.org. Say’s ‘Law Of Markets’ states: “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”…..As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.”

You can’t consume what has not been produced. Production creates the ability to consume. The more you produce the more you can consume.

Say: “It is not the abundance of money but the abundance of other products in general that facilitates sales….Money performs no more than the role of a conduit in this double exchange. When the exchanges have been completed, it will be fount that one has paid for products with products….Should a tradesman say, ‘I don not want other commodities for my woolens, I want money,’ there could be little difficulty in convincing him, that his customers cannot pay him money, without having first procured it by the sale of some other  commodities of their own….”

Counterfeiting money creates an exchange of an actual produced good for dollars that are not backed by corresponding production. This is theft. Even if the counterfeiting is done ‘legally’ by The Federal Reserve, it is still an exchange of something for nothing (aka theft).

There are always imbalances with supply and demand in the market, but they are usually corrected rather quickly. Monetary intervention by the Fed creates imbalances that last much longer and are only corrected by stopping the monetary intervention or an eventual bursting of the bubble.

Federal Reserve monetary manipulation has been going on for about a decade. Does anyone know what is real and what is fake in our economy right now? All we can say is there are major imbalances in our economy that will eventually be liquidated, and it won’t be pretty.

“Priming The Pump” Won’t Create Real Wealth, by Frank Shostak, at mises.org. When a recession happens labor and capital become idle. ‘Experts’ think the way out of the recession is to increase demand for goods and services so these idle labor and capital will become employed once again. Ignoring how the over-supply of labor and capital happened in the first place can lead to the same Government and Fed policy solutions which created the problem in the first place. Idle resources are not the problem. Idle resources are the symptom of the problem. The problem is the initial intervention into the market using the policies of below market interest rates and injecting electronically printing counterfeit money into the economy.

Excerpt from the article: “Commentators are correct in believing that what prevents the expansion of the production and the utilization of idle resources is the lack of credit. There is, however, the need to emphasize that the credit that is lacking is the productive credit – the one that is fully backed by real wealth (real savings). The fact that this type of credit is scarce is the outcome of previous episodes of expansionary monetary mischief by the central bank, which resulted in the diversion of wealth from wealth producers to non – wealth producers.”

“What most commentators advocate is the expansion of credit out of “thin air,” via central bank…. direct monetary injections or via intervention in the money markets to maintain a lower target interest rate……This expansion of unbacked credit not only cannot revitalize the economy but, on the contrary, will set in motion a further weakening of the process of wealth generation.

Fed Officials Can’t See What’s Right In Front Of Them, Jonathan Newman, at mises.org. Fed officials can’t see the forest for the trees.

Here is an excerpt from the article:”Minnesota District Bank president, Neel Kashkari recently wrote…..the Fed faces a dilemma regarding asset bubbles and whether of not they should be met with raising interest. He summarizes in five points.”

-“It is really hard to spot bubbles with any confidence before they burst.”

-“The fed has limited policy tools to stop a bubble from growing, even if we thought we spotted one.”

-“The costs of making policy mistakes can be very high, so we must proceed with caution.”

-“What we can and must do is ensure that the financial system is strong enough to withstand the inevitable bursting of a bubble.”

-“Monetary policy should be used only as a last resort to address asset prices, because the costs of the economy of such policy response are potentially so large.”

“Then he admits that it is possible artificially low-interest rates increase the probability of asset bubbles forming: “Low rates…could make bubbles more likely to form in the first place.” He laments that there is no economic theory to back this up….”

It is hard to believe that with his myriad of  ‘credentialed ignorance’ he has never heard of the Austrian Business Cycle Theory.  Excerpt from the article:

“For Mises and Hayek, the policy mistake involves any creation of credit out of thin air…….If any central bank increases the money supply through the financial system, it means that borrowers have the privilege of being the first to bid up prices as the new money ripples through the economy.”

“It means that nominal incomes, employment, consumption, the prices of capital goods, and other asset prices will increase. It means that capital will be directed into new, longer, and riskier lines of production, beyond what would have happened at the prevailing levels of real saving. These lines of production will turn out to be unprofitable as the increasing scarcity of capital becomes apparent and the costs of production become prohibitively high. Incomes, employment, consumption, and stock prices plummet as laborers and capital owners seek productive and profitable employment. The bust is made up of all of the necessary corrections for the errors made during the boom. Additional artificial credit will only delay this process and make it more painful when the day comes.

Mr. Kashkari, you said: ” Monetary policy should be used only as a last resort to address asset prices, because the cost to the economy of such policy responses are potentially so large.” Mr. Kashkari, do you know that the Fed monetary policies “of last resort” have been in effect since before 2000? These policies caused the tech and housing bubbles. What have been the costs to the economy after 20 years of these policies? They are incalculable. The only way to stop this waste is to allow interest rates to be set by the market and stop the money printing. This will bring about a recession which will correct all the dislocations of resources, capital and labor that were brought about by these policies. All thought the losses will be high, they won’t come close to the losses that will be incur the longer these monetary policies are allowed to continue.

Related ArticleInterest Rates Set By The Market vs. Interest Rates Set By The Fed, at austrianaddict.com.

Related ArticleReal Savings = True Credit. Printed Savings = False Credit, at austrianaddict.com.

Related ArticleThomas Woods Explains The Austrian Business Cycle, at austrianaddict.com.

Related ArticleThe Fed has Proved The Lefts “Trickle down Straw Man” Doesn’t Work. at austrianaddict.com.

The Federal Reserve’s Money Laundering Scheme

March 3, 2016

 

 

John Maynard Keynes from “The Economic Consequences of the Peace”, 1919; “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side off destruction, and does it in a manner which not one man in a million is able to diagnose.”

The above quote says it is difficult to understand what happens when government prints money {debases the currency}. So difficult in fact that if you and I understand what happens, there are over 2 million people who don’t understand it. In this article titled Understanding The Federal Reserve’s Shell Game, at mises.org, Dan Sanchez does a great job explaining the abstract economic concept of what happens when The Fed electronically prints counterfeit money.

Here are some excerpts from the article.

The Federal Reserve is a key component of the American Transfer State. Under the guise of “macroeconomic management,” it redistributes vast amounts of wealth on an ongoing basis through inflation. The victims of these transfers are ordinary Americans. The beneficiaries are the government and its elite cronies.”

“The true wealth of society  —  what actually sustains human life and makes it more comfortable and delightful  —  is the stuff we buy with money; not money itself. It’s the food, clothing, housing, smartphones, mountain bikes, and other consumers’ goods. It’s also the farmland, factories, robots, raw materials, labor and other producers’ goods used to make those consumers’ goods.”

Creating new money does not create any additional stuff to go around.”

The new money reaches some people early and some people late. By the time the new money reaches the late receivers, bidding up their selling prices, it has already bid up the prices of the things they buy to an even greater extent. So the late receivers get poorer, while the early receivers get richer.”

And the earliest receivers always include the government and its partners, while the late receivers are usually workers and small business owners who don’t have such lofty connections. So these “commoners” are effectively taxed for the benefit of the government-connected elite. But, since the taxation was effected through inflation, the public doesn’t realize that.

Instead of obnoxiously demanding that the public hand over its wealth, the government just quietly siphons it away. This way it avoids public outrage and resistance, and so is able to maximize the loot. As Jean Baptiste Colbert (finance minister to King Louis XIV of France) put it, “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” With inflation, the geese hardly hiss, because they think they are simply molting, and are unaware they are even being plucked.”

Read the whole article it walks you through how the money laundering happens.

In the article it talks about a general inflation as the money leaks out into the whole economy. But as we saw in the housing boom and bust in the early 2000s, and as we now see in the current financial bubble, the printed money can be pushed into particular sectors of the economy. But the result is the same. The first receiveea benefit at the expense of the people farther down the food chain.

At some point people have to be made to understand that they are getting fleeced by the Federal Reserve’s monetary policy. We have to educate people one person at a time because as Keynes said, “…it’s done in a manner that not one in a million is able to diagnose.” Elite politicians, bureaucrats, and our educators won’t educate people because they benefit from the money printing. It has to come from the bottom up. Spread the word.

In another article titled The Long History of Government Meddling In The American Marketplace, at mises.org, Mike Holly shows that money printing isn’t a new thing, the Federal Reserve started counterfeiting money almost as soon as it came into existence in 1913.

Here are some articles to help understand Fed money printing.

Related ArticleA Tornado vs. The Fed: Which Is More Destructive, at austrianaddict.com.

Related Article Thomas Woods Explains The Austrian Business Cycle Theory, at austrianaddict.com.

Related ArticleFederal Reserve Policies Cause Booms And Busts, at austrianaddict.com.