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Our monetary system is insane

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I'd be curious for whoever said it earlier to expand on their biflation theory.

 

Buying currencies of China or Russia really doesn't seem like a great idea to me given there is no rule of law in those places.  Owning tangible things in the face of a leveraged world seems to be a solid protective measure.  Debt is fixed so the only way to get 'out' of debt is to pay it back, default on it, or grow your way out of it.  Inflation is how this is accomplished and inflation is only available to fiat currencies.  I don't really expect global world order to change nor the US status as reserve currency (because if it starts to change, we will go to war over it and we have the most weapons).  Maintaining reserve currency status is the only thing that keeps this house of cards standing.

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Just now, happyfunball said:

The Fed rescued the economy from another great depression after the 2008 crisis, and people are still railing against it. 

Mainly because rescuing the economy in this country means keeping the rich rich.

Trickle down, y'all!

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2 hours ago, David Dennison said:

Mainly because rescuing the economy in this country means keeping the rich rich.

Trickle down, y'all!

0 bound interest rates were great for consumers and hurt savers (e.g. Rich) You can argue that it resulted in a stock market boom but hard to assign fully the Fed for stock market performance.

Edited by happyfunball

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President Trump’s frustration with the Federal Reserve’s (minuscule) interest rate increases that he blames for the downturn in the stock market has reportedly led him to inquire if he has the authority to remove Fed Chairman Jerome Powell. Chairman Powell has stated that he would not comply with a presidential request for his resignation, meaning President Trump would have to fire Powell if Trump was serious about removing him.

The law creating the Federal Reserve gives the president power to remove members of the Federal Reserve Board — including the chairman — “for cause.” The law is silent on what does, and does not, constitute a justifiable cause for removal. So, President Trump may be able to fire Powell for not tailoring monetary policy to the president’s liking.

By firing Powell, President Trump would once and for all dispel the myth that the Federal Reserve is free from political interference. All modern presidents have tried to influence the Federal Reserve’s policies. Is Trump’s threatening to fire Powell worse than President Lyndon Johnson shoving a Fed chairman against a wall after the Federal Reserve increased interest rates? Or worse than President Carter “promoting” an uncooperative Fed chairman to Treasury secretary?

Yet, until President Trump began attacking the Fed on Twitter, the only individuals expressing concerns about political interference with the Federal Reserve in recent years were those claiming the Audit the Fed bill politicizes monetary policy. The truth is that the audit bill, which was recently reintroduced in the House of Representatives by Rep. Thomas Massie (R-KY) and will soon be reintroduced in the Senate by Sen. Rand Paul (R-KY), does not in any way expand Congress’ authority over the Fed. The bill simply authorizes the General Accountability Office to perform a full audit of the Fed’s conduct of monetary policy, including the Fed’s dealings with Wall Street and foreign central banks and governments.

Many Audit he Fed supporters have no desire to give Congress or the president authority over any aspect of monetary policy, including the ability to set interest rates. Interest rates are the price of money. Like all prices, interest rates should be set by the market, not by central planners. It is amazing that even many economists who generally support free markets and oppose central planning support allowing a government-created central bank to influence something as fundamental as the price of money.

Those who claim that auditing the Fed will jeopardize the economy are implicitly saying that the current system is flawed. After all, how stable can a system be if it is threatened by transparency?

Auditing the Fed is supported by nearly 75 percent of Americans. In Congress, the bill has been supported not just by conservatives and libertarians, but by progressives in Congress like Dennis Kucinich, Bernie Sanders, and Peter DeFazio. President Trump championed auditing the Federal Reserve during his 2016 campaign. But, despite his recent criticism of the Fed, he has not promoted the legislation since his election.

As the US economy falls into another Federal Reserve-caused economic downturn, support for auditing the Fed will grow among Americans of all political ideologies. Congress and the president can and must come together to tear down the wall of secrecy around the central bank. Auditing the Fed is the first step in changing the monetary policy that has created a debt-and-bubble-based economy; facilitated the rise of the welfare-warfare state; and burdened Americans with a hidden, constantly increasing, and regressive inflation tax.

http://www.ronpaulinstitute.org/archives/featured-articles/2019/january/21/fire-the-fed/

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...
Conclusion:
So, the Fed isn't buying and has in fact rolled off a massive quantity of mid duration US debt, foreigners aren't buying, banks aren't buying, insurers aren't buying, American's aren't buying savings bonds, state nor local governments are buying, and there is little to no spread to compensate any leveraged "investors" to buy mid to longer duration US debt. Yet the Treasury tells us that "other investors" (suddenly became hyper-interested just as QE ended) and have come up with over $3 trillion in cash since 2015 to buy low yielding US debt like never before?!? And this massive shift in buying into Treasury's has inexplicably had little to no negative impact on other asset classes (stocks, real estate, commodities)???

Is there any party (aside from central banks or central bank conduits) that could come up with such gargantuan quantities of dollars to yield so little and do it essentially without leverage??? Tell me again, who buys US Treasury's...and particularly who buys mid and longer duration US debt (responsible for setting the 30yr mortgage rate)??? Otherwise, this may sadly be the smoking gun of an active, accelerating, and perhaps unraveling Ponzi scheme?

https://econimica.blogspot.com/2019/02/treasury-bulletinnobody-buys-us.html

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Federal Reserve Bank of San Francisco President Mary Daly suggested that the central bank could decide to use its balance sheet as a routine part of how it guides the economy, not just as a last-ditch measure to deploy in emergencies.

“An important question is, should those always be in the toolkit?” Daly said of post-crisis bond-buying programs, popularly called quantitative easing, or QE. “Should you always have those at your ready, or should you think about, those are only tools you use when you really hit the zero lower bound and you have no other things you can do?”

Daly, who was speaking with reporters in San Francisco on Friday, said the question is part of the discussion as the Fed rethinks its monetary policy framework and procedures this year ...

https://www.bloomberg.com/news/articles/2019-02-08/balance-sheet-could-be-in-fed-s-regular-toolkit-daly-suggests

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2 hours ago, Llano Estacado said:

43193822740e423f318c10fd82380e49.png

World wide Abenomics here we come.

I was literally clicking on this link about to post a picture of Kramer as well.  But the one where he's eating the old hot dog at the historic movie theater, with the quote, "What are you talking about?  It's a perfect sane monetary system.  How can you be so fiscally irresponsible?"  

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On 1/16/2019 at 11:31 AM, happyfunball said:

The Fed rescued the economy from another great depression after the 2008 crisis, and people are still railing against it. 

My only complaint is that General Motors killed off the Hummer brand in America...
It would have been far wiser to keep Hummer, build more cross-over vehicles/ off-road vehicles; end the Buick brand...

Meanwhile, in today's economy, those old enough (& poor enough) to remember the "Pro-Wings" brand, will feel this:

Quote
Payless ShoeSource closing all 2,100 U.S. stores, starting liquidation sales Sunday. Payless ShoeSource confirmed Friday that it will close its 2,100 stores in the U.S. and Puerto Rico and start liquidation sales Sunday. The company is also shuttering its e-commerce operations.15 hours ago

 

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Harvard’s recent two-day conference, “Money as a Democratic Medium,” challenged its participants to re-examine the history of money in America, and to redefine its future. The event was jointly sponsored by the Harvard Program on the Study of Capitalism, the Murphy Institute at Tulane University, the Harvard Law Forum and Harvard Law School, bringing a diverse group of lawyers, economists, academics and scholars to the HLS campus.
...
Gerald Epstein, of the University of Massachusetts—Amherst, said that the rise of finance coincided with that of inequality, creating a system that favors some citizens over others. “Underlying all of this is a process by which wealth generates political power, to further this wealth and equality.” The country, he said, is now run by a “bankers’ club” that includes elected officials who get campaign contributions from banks, central banks that make decisions on whom to bail out, and regulatory authorities and lawyers “who do the bidding of these elites to try and rewrite rules.” ...

More:  https://today.law.harvard.edu/money-as-a-democratic-medium/

Some absurd stuff in there, but what really hit me as I read this was the fact that the conference happened at all and who was participating. Just based upon the folks mentioned, it seems to have been a mix of the Davos/G20 crowd with folks one or two degrees removed from it.

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In our post-citizens united world, spending money is literally free speech. And corporations for some reason also have as much right to free speech as individuals? Yeah, we're properly fucked until CU is overturned

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Not a crypto guy, but isn’t that one of the selling points.

Blockchain currency = money = easily transferable, uniform, durable, supply driven, etc

Paper or even electronic currency is slowly becoming a means to exchange sovereign states debt.

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On 1/9/2019 at 8:44 AM, Fudge Nuggets said:

People have been saying that since the US got off the gold standard.

latest?cb=20130603002924

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On 1/16/2019 at 2:24 PM, happyfunball said:

0 bound interest rates were great for consumers and hurt savers (e.g. Rich) You can argue that it resulted in a stock market boom but hard to assign fully the Fed for stock market performance.

0 bound rates were an absolute and total boon for the rich (e.g., people that held assets) along with consumers that totally leveraged themselves.  0 bound rates were terrible for non levered savers.

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0 bound rates were an absolute and total boon for the rich (e.g., people that held assets) along with consumers that totally leveraged themselves.  0 bound rates were terrible for non levered savers.


Wut?!

Maybe people who weren’t levered going into the crisis who were then able obtain credit as the economy recovered

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... it is wholly legitimate, and entirely prudent, to question the infallibility of the Federal Reserve in calibrating the money supply to the needs of the economy. No other government institution had more influence over the creation of money and credit in the lead-up to the devastating 2008 global meltdown. And the Fed's response to the meltdown may have exacerbated the damage by lowering the incentive for banks to fund private-sector growth.

What began as an emergency decision in the wake of the financial crisis to pay interest to commercial banks on excess reserves has become the Fed's main mechanism for conducting monetary policy. To raise interest rates, the Fed increases the rate it pays banks to keep their $1.5 trillion in excess reserves -- eight times what is required—parked in accounts at Federal Reserve district banks. Rewarding banks for holding excess reserves in sterile depository accounts at the Fed rather than making loans to the public does not help create business or spur job creation.

Meanwhile, for all the talk of a "rules-based" system for international trade, there are no rules when it comes to ensuring a level monetary playing field. The classical gold standard established an international benchmark for currency values, consistent with free-trade principles. Today's arrangements permit governments to manipulate their currencies to gain an export advantage.

No wonder advocates of pro-growth economic policies feel compelled to question the vaunted status of central bankers, even as currency speculators track their every utterance. Stable money is a prerequisite for genuine economic growth and shared prosperity. The increasing financialization of gross domestic product is unhealthy because the growing size and profitability of the finance sector come at the expense of the rest of the economy and increase income inequality. When the value of money is fixed, as under a gold standard, economic growth reflects higher levels of productive output.

Fed Gov. Lael Brainard, who was appointed by President Obama, told Bloomberg Television last week that new Trump administration nominees will be expected to put forward "fact-based, intellectually coherent arguments that are based on evidence, that are consistent over time" if they would participate meaningfully in the Fed's deliberations.

She's certainly right that the Fed should act based on the best studies and evidence. It could start with the 2011 paper "Reform of the International Monetary and Financial System," published by the Bank of England, which analyzed the performance of the gold standard (1870-1913) and the Bretton Woods gold-exchange system (1948-72) relative to current monetary practices. The report concludes that today's system has performed poorly relative to prior monetary regimes, "with the key failure being the system's inability to maintain financial stability and minimise the incidence of disruptive sudden changes in global capital flows." Trade and investment flows are distorted as the world's major central banks engage in subtle exchange-rate competition.
...

More:  https://www.wsj.com/articles/the-case-for-monetary-regime-change-11555873621

(non-paywall copy here):  http://gata.org/node/19015

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On 1/16/2019 at 11:13 AM, bernorange said:

Above article reminded me of The Narrow Bank (TNB) story.

I missed it earlier, but back in March the Fed proposed a rule change to neuter the Narrow Bank:

Quote

The Federal Reserve Board on Wednesday invited public comment on whether it should propose amendments to its Regulation D (Reserve Requirements of Depository Institutions) to lower the rate of interest paid on excess balances ("IOER") maintained at Reserve Banks by eligible institutions that hold a very large proportion of their assets in the form of balances at Reserve Banks.

...

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190306a.htm

Does our monetary system depend upon an illusion?

Quote

...  I want to make two points. First, I say sometimes that banking is a public-private partnership, and that banks are not pure private companies competing in the free market. This Fed notice is a particularly clear illustration of that: The Fed just gets to decide who gets to compete in the banking business, and how that competition will work, and what their business models can be, by virtue of its control of access to reserve accounts. I don’t mean that one decision (allowing narrow banks, or not allowing them) would be pro-competitive and free-market-y while the opposite decision wouldn’t be; I mean that, either way, the central fact of that competition is about access to government money accounts. There is no modern banking that is independent of the sovereign’s power to control money, 6  and the question is just who the sovereign shares that power with.

Second, I say sometimes that banking rests on an illusion, in which banks transform risky assets (loans, securities trading) into risk-free liabilities (deposits, repo): People give money to banks expecting the money to be absolutely safe, and then the banks go and do risky things with it. There are really good arguments that this is good, essential even, that it is how a society can take risks and build things while people still feel confident in their savings. But there are arguments the other way, that illusions are bad, that this system is unnecessarily crisis-prone and that we should only fund risky activities with risky investments and keep the safe investments truly safe. Narrow banking is an attempt to do that, to offer safe investments that don’t fund risky activities, to separate pure money accounts from loans and trading and the rest of the asset side of the bank balance sheet. And the Fed says: No thanks; sure that would be safer for depositors, but it would make the risky banks riskier. People who deposit their money with banks because that’s the closest they can get to a risk-free money account would no longer think that, and might move their money to narrow banks because those are risk-free money accounts. The illusion would be punctured, and the Fed, at some level, likes the illusion.
...

https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank

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There was a great Op-Ed letter this morning in the WSJ on Bretton-Woods/Monetary System/Trump deficits/etc.  Written by a professor from Roanoke College.  I'll try to post it later.  Most of you should read it.  

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59 minutes ago, Lobo said:

There was a great Op-Ed letter this morning in the WSJ on Bretton-Woods/Monetary System/Trump deficits/etc.  Written by a professor from Roanoke College.  I'll try to post it later.  Most of you should read it.  

Already did, paper copy, because I am old and grumpy and exceedingly wealthy.

Bottom line was that gold standard is fine until somebody starts acting like a human and flashing the credit card at strippers, then the French say, "Mon Dieu! Your dollar, take eet back, give us some gold, haw haw haw!"

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The Netherlands Central Bank has just published a fascinating new paper, titled "Monetary policy and the top one percent: Evidence from a century of modern economic history". Authored by Mehdi El Herradi and Aurélien Leroy, (Working Paper No. 632, De Nederlandsche Bank NV: https://www.dnb.nl/en/binaries/Working paper No. 632_tcm47-383633.pdf ), the paper "examines the distributional implications of monetary policy from a long-run perspective with data spanning a century of modern economic history in 12 advanced economies between 1920 and 2015, ...estimating the dynamic responses of the top 1% income share to a monetary policy shock." ...

They find that "loose monetary conditions strongly increase the top one percent’s income ...

In other words, accommodative monetary policies accommodate primarily those with significant starting wealth, and they do so via asset price inflation. ...

https://trueeconomics.blogspot.com/2019/05/3519-rich-get-richer-when-central-banks.html

To the surprise of no one I expect.

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Shrinking middle class = populism

Populism will turn into something worse soon.

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6 minutes ago, Zavala said:

Shrinking middle class = populism

Populism will turn into something worse soon.

Which sounds worse, redistribution or revolution?

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24 minutes ago, David Dennison said:

Which sounds worse, redistribution or revolution?

[LittleBrownEyedGirlShruggingGif,YouKnowTheOne]

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On 1/9/2019 at 8:44 AM, Fudge Nuggets said:

People have been saying that since the US got off the gold standard.

latest?cb=20130603002924

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46 minutes ago, David Dennison said:

Which sounds worse, redistribution or revolution?

Redistribution from who? 

The ruling class? 

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One area of the Fed that confuses me is that they basically printed $4 trillion to cover the 2008 (& 2011) crisis via QE.  Except for the fact that we're the US, it's really no difference than Argentina printing new money to pay bills.  And isn't that toxic debt still on the govt balance sheet?

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19 minutes ago, Nice Guy Eddie said:

One area of the Fed that confuses me is that they basically printed $4 trillion to cover the 2008 (& 2011) crisis via QE.  Except for the fact that we're the US, it's really no difference than Argentina printing new money to pay bills.  And isn't that toxic debt still on the govt balance sheet?

But we are the U.S. and we managed to keep inflation under control even though we printed $4 trillion. Beyond that, all U.S. debt will be serviced as per usual.

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17 minutes ago, David Dennison said:

But we are the U.S. and we managed to keep inflation under control even though we printed $4 trillion. Beyond that, all U.S. debt will be serviced as per usual.

But QE is about the only weapon the Fed has now.  Will it work next time?

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1 minute ago, Nice Guy Eddie said:

But QE is about the only weapon the Fed has now.  Will it work next time?

You're telling me that dumping 1.5 TRILLION of stimulus into an already humming economy via the trump tax cuts wasn't a fiscally prudent thing to do and has left us without levers to pull in the event of an actual economic downturn? Ya don't say.

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2 minutes ago, Nice Guy Eddie said:

I'm just talking crazy. Everyone learned their lessons in 2008 and everyone will act better now.

Human beings have a long history of making good, rational decisions.

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23 minutes ago, Nice Guy Eddie said:

I'm just talking crazy. Everyone learned their lessons in 2008 and everyone will act better now.

"To big to fail" = more cash to burn

It's like if the mafia comes to collect your debts at out back at the casino, but then just lends you more money to try to win back enough to pay the debts

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3 hours ago, David Dennison said:

By raising their taxes and ending their subsidies.

Two more questions - 

What is the threshold for 'rich'?

So the redistribution begins with the government taxing the rich more. Gather up all that extra money the rich have been hording..

Then what is the plan?

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3 minutes ago, Zavala said:

Two more questions - 

What is the threshold for 'rich'?

So the redistribution begins with the government taxing the rich more. Gather up all that extra money the rich have been hording..

Then what is the plan?

Fuck it, let's say $10 million dollars? And put that money into infrastructure and social projects?

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1 minute ago, Zavala said:

Two more questions - 

What is the threshold for 'rich'?

So the redistribution begins with the government taxing the rich more. Gather up all that extra money the rich have been hording..

Then what is the plan?

Let's call the rich anyone who currently falls within the top tax bracket. Or even the top two. Then we need to create more brackets within those groups and raise the very top marginal rates by a lot. 

Then we need to end subsidies for people in those groups because they don't need any help from the government. They already have the means to help themselves.

Then we use the added revenue to shore up the social safety net and the programs that help the poor and middle class.

Easy peasy.

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Whut yew gotta git is some good ol Mercury Dimes for when the SHTF, yew kin use them to barter with, cept this one ol boy he come up and say "ALL AH NEED IS BRASS N LEAD", well hell shore everbody got brass n lead, spose yew jes wanna BUY somethin n yew don't wanna shoot th'sumbitch? That's when yew need that silver dime's all ah'm sayin' then this other ol boy sez "Well Ah Just Need Some Taters Then Ah Kin Starve Y'all Out" well shore yew got taters but after a while of tater tater tater yew'll pay for a dash o hot sauce or pepper hell they used to transnavigate the globe for one shaker o pepper yew know they'll want some once the S done HTF and that is jest another case o where a honest 90% silver Mercury Dime when come in handy jest like it, uh, prolly does right now in Somalia or Honduras or Vermont.

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15 minutes ago, Captainant said:

Fuck it, let's say $10 million dollars? And put that money into infrastructure and social projects?

What is a social project? Is this just government funded housing?

14 minutes ago, David Dennison said:

Let's call the rich anyone who currently falls within the top tax bracket. Or even the top two. Then we need to create more brackets within those groups and raise the very top marginal rates by a lot. 

Then we need to end subsidies for people in those groups because they don't need any help from the government. They already have the means to help themselves.

Then we use the added revenue to shore up the social safety net and the programs that help the poor and middle class.

Easy peasy.

So already the current plan plus raise top marginal rates by a lot? Wont they just do the same thing they do now?

https://www.topaccountingdegrees.org/taxes/

Quote

If you're one of the 1% of Americans who control over 40% of the country's wealth, life is full of choices. Among them -- how best to keep all that money away from the government? The U.S. economic system offers no shortage of loopholes allowing the ultra-rich to shortchange Uncle Sam.

Tax rates for those making >$1 million level out at 24%, then declines for those making >$1.5 million. Those making $10 million a year pay an average income tax rate of 19%. $70-$100 billion is the estimated tax revenue lost each year due to loopholes.

 

I'd rather focus on getting rid of corrupt government and bureaucracies than try to chase down more top earner money in tax dollars. 

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