Economics is Hard. Don’t Let Bloggers Tell You Otherwise

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Davos's picture
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Economics is Hard. Don’t Let Bloggers Tell You Otherwise

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Some Fed economist (with a hard-earned Ph.D mind you) named Kartik Athreya (who lasted at Citigroup as an associate Vice President for a whopping 7 months before getting sacked in 1998 only to find solace for his expiring unemployment benefits in the public sector) has written the most idiotic "research" piece to come out of the Federal Reserve since 1913, and the Fed has written a lot of idiotic research since then - after all you don't destroy 98% of the dollar's purchasing power in 97 years with non-idiotic research. But this just takes the cake. In "Economics is Hard. Don’t Let Bloggers Tell You Otherwise" Kartik says: "I argue that neither non-economist bloggers, nor economists who portray economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are likely to contribute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public." Alas, all Kartik achieves is to convince the general public that feeding Fed "economists" alcohol after midnight and letting them directly upload their resultant gibberish to the Fed's broad RSS feed the second they think they have a coherent thought , is generally a disastrous idea.

Okaaay, hmmm, Bernanke has a Ph.D in economics....he isn't a blogger.

 

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DrKrbyLuv
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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

Economics is purposely made as complicated as possible so the people feel too intimidated to gain an understanding of basic fundamentals.  It is at the fundamental level that most relevant questions and challenges should arise.  Unfortunately this rarely happens as people are mesmerized with inflation, deflation, bank reserves and a bunch of other stuff that prevents us from discussing the most important issues.

For example, has any economist with a PHD explained why we as a nation, borrow money from private banks that have none?  The alternative is to simply print money instead of bonds and in doing so, eliminate the need for a national debt and income taxes.

The reason people get so much information from blogs and websites is because the media has become a propaganda machine that simply can't be trusted.  Without the blogs and internet, there would be no real news.

Larry

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

DrKrbyLuv

has any economist with a PHD explained why we as a nation, borrow money from private banks that have none?  The alternative is to simply print money instead of bonds and in doing so, eliminate the need for a national debt and income taxes.

Well, I can try.

First of all, when you say 'we as a nation' are you talking about the government, or about individuals and corporations? Because the answer is slightly different in each case.

If we are talking about individuals and corporations, then the reason for borrowing is to take advantage of the special status of banks that allow them to guarantee a share in the future output of individuals and corporations to other individuals and corporations. Without this, any co-ordinated production would be very difficult to organise.

But what you have to bear in mind is that the money the banks issue represents the future output before it is available for consumption. Once the output is available for consumption, the money must somehow be 'disappeared' to avoid the existence of both the ownership of that output and a claim to that output! So there is a problem with money that does not have to be repaid - it's not clear what it represents and so it may have doubtful acceptance and value.

As far as the government is concerned - yes it can 'print' money to make its purchases. But eventually, the rising quantity of money is likely to induce rising prices. As these rises in prices start to become factored in to future economic decisions, there is a real risk of significant inflation - ie: inflation that actually impacts on real economic activity.

So the government must have some way to withdraw at least some of the money it creates when it spends. It does this by taxation and by issuing IOUs (bonds and bills) in exchange for money. The balance between the two is supposed to be determined by economic considerations - I think it's much more for political reasons (the wealthy would far rather buy interest-bearing bonds than be taxed!)

That is the basic story as I see it.

And I reckon economics is not that hard. But what most economists do is not economics - it's the mathematics of a fantasy world.

Dr Diarmid Weir

http://www.diarmidweirphotography.co.uk/wealth_without_money/

 

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

diarmidw wrote:

Well, I can try.

Hello diarmidw,

I don't think you answered my question so if ya don't mind I will restate it.  I asked why we as a nation borrow money from banks that don't have any.  They create it all on the spot as needed, for free and then collect interest.  "We the People" solely back up the money they create with pledged property and future earnings.  The banks add no backing and no guarantees that their money will not lose value before we can repay it.

The banks are collecting money for nothing and in the process destroying our economy with unnecessary debt.  Why do we borrow from them when we can create for free ourselves?

diarmidw wrote:

First of all, when you say 'we as a nation' are you talking about the government, or about individuals and corporations? Because the answer is slightly different in each case.

Just to clarify, my comment was "why we as a nation, borrow money from private banks that have none?" I was referring to "We the People" through our representative government and the rule of law under as a republic.

diarmidw wrote:

Once the output is available for consumption, the money must somehow be 'disappeared' to avoid the existence of both the ownership of that output and a claim to that output!

By disappeared are you saying that money must be destroyed?  If so I would disagree as there is no reason for money to be destroyed when the government spends it into circulation to buy things like productive infrastructure.  Our system destroys money every day making it an inherently contracting system.  New money must be created at a greater rate to stave off defaults and prevent a depression.

diarmidw wrote:

As far as the government is concerned - yes it can 'print' money to make its purchases. But eventually, the rising quantity of money is likely to induce rising prices. As these rises in prices start to become factored in to future economic decisions, there is a real risk of significant inflation - ie: inflation that actually impacts on real economic activity.

The money supply never becomes too great if it is endowed with value by the addition of new tangible assets that benefit the people.  The only difference is that instead of monetizing debt, we are monetizing wealth.  As I mentioned earlier, our current system inherently contracts through the constant destruction of money.  By monetizing wealth, we are restoring the balance for a more natural system.

Thanks for the interesting discussion,

Larry

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...
DrKrbyLuv wrote:

Without the blogs and internet, there would be no real news.

Larry

+1 !!!!!!!!!!!!!!!!!!!

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

I'm starting to think Bernanke/Paulson/Geitner/Greenspan aren't as stupid as most people think.  I would take everything they say with a huge grain of salt.  Their job is about keeping the U.S. ponzi scheme going & not much else.  I also think that many of the smartest economists are very naive about how the real world works.

The wealth of America is such an illusion.  Our capitalistic society combined with getting a huge head start on the rest of the world after WWII lead to great wealth.  But, in the late 1960's or so that real wealth has been slowly seeping away.  To counter this our government has devised one scheme after another to maintain it's perceived wealth.  The value of the USD has benefited greatly from being the reserve currency.  Our military has given us many economic allies & advantages that is unparalleled by any other country.  Our economy is 70% serviced based and we're the richest country on the planet?  Something is seriously wrong with that statement.  Why should a worker in China make 12x less than a worker in the U.S.?  Is our DNA worth 12x more? Our work ethic is not what it used to be.  We've become fatter, lazier, and more dependent on the government.

The fact is our banks are insolvent.  Our local, state, & federal governments are (becoming) insolvent.  The USD is way overvalued.  Bernanke has nothing to work with, absolutely nothing.  His job is to keep the game going.  It's not about answering questions truthfully or forthrightly.  It's about keeping the music going both domestically & internationally.

The U.S. plays a very important role in the world with it's military.  That role is very complicated & certainly controversial, but nevertheless it's one that can't be neglected.  If the U.S. was destabilized domestically, the reverberations throughout the world would be immense.

I'm sure Bernanke's marching orders (from both Bush & Obama) were something along the lines of "extend, pretend, lie, do whatever the hell you have to do to keep things going".

I think it's very naive to think in terms of fairness or whether things are just or not.  It's about survival on many levels & it is what it is.

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...
DrKrbyLuv wrote:

diarmidw wrote:

As far as the government is concerned - yes it can 'print' money to make its purchases. But eventually, the rising quantity of money is likely to induce rising prices. As these rises in prices start to become factored in to future economic decisions, there is a real risk of significant inflation - ie: inflation that actually impacts on real economic activity.

The money supply never becomes too great if it is endowed with value by the addition of new tangible assets that benefit the people.  The only difference is that instead of monetizing debt, we are monetizing wealth.  As I mentioned earlier, our current system inherently contracts through the constant destruction of money.  By monetizing wealth, we are restoring the balance for a more natural system.

Just saying that does not make it true.  I have been thinking about sovereign money and I think most peoples problem with it ( at least the ones that are not completely fixated on commodity money ), is their difference in belief of what can and cannot cause inflation.  If you can ever prove that point, you might have a valid argument but until then some of us will remain unconvinced.

I can see how monetizing wealth restores some balance to our current debt based system but if we have a completely sovereign monetary system, not so much.  In a completely sovereign monetary system there would be no balance because there would be no destruction of money and no negative feedback to excessive money creation. 

If the sovereign money supply grew as you plan ( without any tax collections or monetary destruction ) might not it also quickly become an exponential system?

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

DrKrbyLuv

We the People" solely back up the money they create with pledged property and future earnings.  The banks add no backing and no guarantees that their money will not lose value before we can repay it.

Banks are only intermediaries. The money they issue is a promise to its ultimate recipients (those paid in money by borrowers) backed by the promises of the borrowers to produce something the recipients can exchange money for. The role of the banks is to administer this process and enforce the borrowers' promises. They are incentivised by a reduction in their share capital when loans fail. This means there is a risk for them. It is for administering the loan, money issue and deposits, and for taking on this risk, that they 'earn' interest.

By giving equal value to the money issued from all their loans, and by enforcing repayment of loans, they are giving some guarantee that money will not lose value.

The money supply never becomes too great if it is endowed with value by the addition of new tangible assets that benefit the people...As I mentioned earlier, our current system inherently contracts through the constant destruction of money.

To take the last point first. Money is constantly being created and 'destroyed' (when loans are repaid). This means that it is a flexible system, that can, in theory, adjust the stock of money to suit the needs of real exchange and production. If you are claiming that more money is being destroyed than created because of interest payments, then the rejection of that was my starting point. I am pretty sure that when you look at the right numbers net bank debt will be found more or less equal to the stock of all money (notes, coin and deposits) in circulation minus government securities held outside government. I've checked the UK numbers and this seems to work out. I'll try and do it for the US, also.

For the second point, I think you are confusing value and 'added value'. If a 'new tangible asset' is created, this doesn't happen out of thin air. It is created from pre-existing resources. If you issue $1000 to purchase the resources needed to create it, and the added value of the new asset (the additional value of the new asset over the original resources) is 10% ($100), then you have permanently put into the economy ten times more money than you have created new value. If we keep doing this, the value of money will continue to fall over time. Since this will be anticipated by everyone, there is a real risk of a damaging and uncontrollable inflationary spiral.

There has to be some way of withdrawing money (or at least most of it) after it has served its purpose of enabling exchanges and production to take place. In general, given constant velocity of circulation, the stock of money should expand at a roughly comparable rate to the addition of new value, which is not the same as the rate of creation of new tangible assets.

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

dryamm2000,

The wealth of America is such an illusion.

The wealth of America is very real.  It is the homes, infrastructure, cars, land, ect....  But the idea that the bank actually loans us something is a complete act of deception and that is the real illusion.

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

>But the idea that the bank actually loans us something is a complete act of deception and that is the real illusion

Thinking back to the creation of money slides from the crash course, if i go to a bank and borrow $1000 then initially the bank has no money. the fact I can borrow that $1000 i understood to mean that the government/fed has essentially backed that loan by initially offering a bond to the bank. So the bank's ability to loan is based on the value of the bonds it holds. ie. the bank is just reselling the loan/bond with interest.

When a bank resells the bond's value too many times (ie. derivatives / gearing / leveraging) then the problem is that there's not enough money to guarantee those loans, meaning that the government/fed only issued 1 bond even though the bank loaned out as if there were 10 bonds. And since derivatives aren't yet regulated (thanks to Greenspan et al) there's no transparency on how leveraged the banks are. So our wealth sits on top of risk which neither the banks nor the government/fed want us to know the extent of. The lack of visibility of the risk is the illusion of our wealth.

I may be partially/totally wrong, and if so provide links so i can learn.

 

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...
jumblies wrote:

So our wealth sits on top of risk which neither the banks nor the government/fed want us to know the extent of. The lack of visibility of the risk is the illusion of our wealth.

That's exactly right.  It's one big Ponzi scheme.  The very last thing they want is visibility as it would reveal the Ponzi scheme for what it is & it would all come crashing down overnight.   Bernie Madoff's hedge fund was worth $50 billion one day, & the next it was worth $0.

Thomas Hedin wrote:

The wealth of America is very real.  It is the homes, infrastructure, cars, land

Yes we have nice homes, cars, roads, sewage/water plants, and power grids.  Much of it was obtained in a psuedo-fraudulent way if you ask me.  Those roads & cars become a lot less valuable when the price of oil in USD's doubles or triples.  Living in a Mcmansion isn't so hot when your belly is hungry.  The U.S is like a wild bear that has become domesticated.  It's hunting & gathering skills were second to none up until 1970, then we started to become dependent on other countries not unlike a bear becomes dependent on humans when it starts being fed.  Over the years the bear starts hunting less & less not unlike the U.S. producing less & less.  Eventually the bear is very fat, lazy, & has lost it's hunting skills.  That's where the U.S. is today.  A majority of our factories have shut down & we have become reliant on other countries for our existence.  Our "wealth" is not our fat blubber ie our houses & such.  Our wealth was our productive capacity & natural resources.  If & when we get cut off from the handouts from the rest of world, it's going to be like a domesticated animal being released into the wild.

 

The ECRI is plunging.  The Baltic Dry Index is plunging (31 days in a row!).  Home sales are plunging.  Consumer credit is rapidly contracting (70% of our GDP comes from the consumer).  But, the market is going up.  Even if QE 2.0 is being priced in the markets are still not behaving as they should.  Bernanke is pulling his levers & twisting dials to suit his purposes.

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

Economics like Philosophy is the art of making the simple complex. In an effort to make things a little simpler here, I offer some quotes of one of the greatest economists of our time.  This should make things as clear as ...................well uh mud.

V

 

I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said.
Alan Greenspan

The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.
Alan Greenspan

"I believe that the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically -- I should say, fully -- hedged." -- 2000

"Even though some down payments are borrowed, it would take a large, and historically most unusual, fall in home prices to wipe out a significant part of home equity. Many of those who purchased their residence more than a year ago have equity buffers in their homes adequate to withstand any price decline other than a very deep one." -- October 2004
.
"The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions .... Derivatives have permitted the unbundling of  financial risk.

"Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities." -- October 2004

"Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward." -- February 2004
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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

Dryam2000 wrote:

"extend, pretend, lie, do whatever the hell you have to do to keep things going"

Well said!  I agree that this has been the plan since the financial coup d'état of 1913 (creation of the private Federal Reserve).  Our private debt based system is a fraudulent scam that cannot hold up to the scrutiny of mathematical logic.  It must be hidden by deception and lies by the media, politicians, educational system and mainstream "economics."  No easy task but when you hold a private monopoly to create money for free you have all the money needed to buy the lies.

diarmidw wrote:

Banks are only intermediaries. 

Banks are much more than "intermediaries" as they hold a monopoly to create money for virtually free to lend, or if they want, for their own investment accounts (thirty percent of the money created by banks, with accounting entries, was invested for their own accounts during 2007).

diarmidw wrote:

The money they issue is a promise to its ultimate recipients (those paid in money by borrowers) backed by the promises of the borrowers to produce something the recipients can exchange money for.

Maybe I misunderstand what you are saying but it looks to me like the banks are the "ultimate recipients."  The banks are assured of collecting either the principal + interest or to take the pledged collateral, all for free.  Private loans are backed by private collateral and public loans are backed by the people and property of the United States.  The banks add absolutely no additional backing nor guarantees.  We are even stuck paying for their defaults via Fannie, Freddie and FDIC.  They have little to no risk which is why they speculate so irresponsibly.

A credit union or a "thrift" (e.g. savings and loan) acts as "intermediaries" as they loan their depositors money to others instead of creating new money for free.

I suggest that the U.S. Treasury solely hold the power to create new money (as specified in our constitution).  Banks could then borrow or pay an issuance fee on the new money needed for loans.  They would incur costs in the creation of their product like any other business and eliminate federal income and employment taxes in the process.

Larry 

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

>The wealth of America is very real.  It is the homes, infrastructure, cars, land

I'd disagree in that continuing from my comments above I'd replace "wealth" with "debt". Yes we have cars 'n houses 'n roads and all that, but most/all of it isn't owned by us. We're still making payments. I may have a car in my drive, but the bank owns the car (and the drive).

 

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

removed...posting problem

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jumblies
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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

>The wealth of America is very real.  It is the homes, infrastructure, cars, land

No, the "debt" of America is very real. The "wealth" is an illusion.

Yes we have cars 'n houses 'n roads and all that, but most/all of it isn't owned by us. We're still making payments. I may have a car in my drive, but the bank owns the car (and the drive).

 

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

Jumblies,

The very fact that 100% of this banker created debt money can buy anything in the world leaves us with the illusion that it is wealth, but as we can all agree it is not.  Wealth is any Thing that mankind has produced to enhance the standard of living.  All money today does not represent wealth but unpayable debts owed to the banking system.  This needs to change.  Money should represent wealth based on the production of the people.

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Re: Economics is Hard. Don’t Let Bloggers Tell You ...

Thomas Hedin wrote:

The very fact that 100% of this banker created debt money can buy anything in the world leaves us with the illusion that it is wealth, but as we can all agree it is not.  Wealth is any Thing that mankind has produced to enhance the standard of living.  All money today does not represent wealth but unpayable debts owed to the banking system.  This needs to change.  Money should represent wealth based on the production of the people.

I would take that a little further and say that Wealth is everything that the Earth and Sun provide that keeps us alive and healthy.  So I would amend your last sentence to say: "Money should represent wealth based on the production of the people as limited by the Earth's ability to regenerate whatever it is that people produce (over a reasonable time frame)."  In my mind, that essentially amounts to whatever net energy our ecosystem captures from the sun while taking care not to overproduce the essentials of life, such as topsoil, fresh water and clean air.

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