I’m sure I could dig up the data if you wanted.P.S. This pattern of trade deficit is unsustainable and adds to our debt without improving our ability to pay it back (without huge inflation). Isn’t that just common sense?
Inflation would raise values of real estate, helping out the banks, and all property owners. I say pour lots of money into the economy, even if we have to run a national lottery that pays out more than it pays in.The goal is to get demand up, when we have 10 percent un-used capacity, and almost unlimited capacity to import goods, labor, capital and services. Now I’m going to go buy another 14% seven-year CD for my IRA…”I.e., my opinion was intellectually quite sound — apparently the same as Volcker’s — but it was also very much in my own personal interest.Now this time, as a self-employed professional trying to run a business, well, the recession has been … not so kind to me. Over time, mortgage interest rates came down while LTV ratios and loan terms increased, as you can see from the charts below. So, if it increases rates, lowers rates or does QE, it’s all “government intervention”.Indeed — more to the point, even if the government does not touch the money supply, that still constitutes government intervention, as long as the government holds a monopoly on the issue of legal tender. The first time the (New York) Federal Reserve used their policy tools to try and provide liquidity, the economy collapses.
One was the general anti-business environment created by the New Deal – He was able to save money more easily as inflation surged past his mortgage rate.
I used the monetary base as the benchmark of policy, of the Fed “doing nothing.” But of course a modern inflation targeting or dual mandate central bank is not instructed to target the monetary base or interest rates; they are instructed to produce stable macroeconomic conditions. Used to estimate targeted fed funds rate 1971-1989. I hear many criticizing the methods by which currency is created, e.g. It’s like a doctor who used the “classical” treatment and the patient always got better in a few weeks trying some new treatment. He is widely hailed by the “experts” as being the biggest expert on the errors of the Great Depression.Where are the 36 masked economist who are arguing for tightening and how are they able to control the Fed?If this survey you point too is so important in determining the monetary policy then perhaps we should have more of the surveys and pay greater attention to them.Not sure if you are being sarcastic, but I am not arguing for a gold standard.
But why did the Depression happen in the first place?
Money was “tight” in both years, indicating that the Friedman-Schwartz theory of the Great Depression needs some modification.”There is no mystery at all, in 1921 you had one year of deflation, in 1929-33, you had 3 1/2.
I’m simply questioning why it is the Fed doesn’t loosen up on monetary policy.
The obsession among Austrians about how money is “injected” into the economy for example is based on historical institutional observations rather than on what the Austrians called praxeology.But far and away the larger risk is that we will make the mistakes of 1937, and that we will not have a recovery that is sustained, that we will make the mistakes that Japan made, and that we will have a decade or two of stagnation. I need to be careful about that.Tom, Low interest rates don’t mean easy money. Burn Bernanke’s printing presses!” Krugman kinda touched on this with his “damn the rentiers” columns, but he missed the main point thanks to his usual obsession with hunting malignant villians.The “special interests” who benefit from all the above aren’t just his parasite coupon-clippers. This will stimulate the economy too, and every dollar spent gets re-spent etc.
The problem is that the causal links are way too dense in the social sciences to extract conclusions from data, you can’t run controlled experiments, and in order to even select relevant data requires a prior theory. However, under current circumstances, the effect of reducing the IOER rate on financial conditions in isolation would likely be relatively small. “I’m aware of all the government interventions during the Depression, but the fact remains that the first time the Federal Reserve made an effort to fight off a contraction, it ended up being the worst contraction ever.”You’ve got his exactly backward.
And let’s put leeches on anemia patients. Even Austrians could clearly see that 10 bucks is not enough for the monetary supply of the United States. There is no permanent trade-off between inflation and unemployment so higher inflation in itself will not reduce unemployment as long there is a monetary equilibrium in the economy. They’ve publicly admitted that one reason they are reluctant to ease is that they are getting so much criticism for QE2.“The tight money case for the Great Depression is inherently flawed. I suffered in the downturn because my stocks fell so sharply–more than offsetting the lower cost of living. If we get 3% growth from here on starting soon that’ll be fine too.
I know you attribute the 1937-1938 “recession within a Depression” to a spike in the real demand for gold. I hear some arguing for ending the Fed and ending the government backstop to fractional reserve banking….ending the government monopoly of currency and ending the unfavorable tax treatment for other free market currencies with thousands of years of hisory. While wages are intrinsically less flexible than say commodity prices, this is a good thing and it’s hard to know how flexible they would be without government interference.
The guy who gets his hands on the newly created money later has to pay higher prices ceteris paribus whether that shows up as inflation or not.First of all, if there there are unused resources (labor, a mine not being operated), and I print up money and get it going, then I do not re-direct resources to me, except those unused. And free market forces depressed the interest rate even more sharply than the 3.5% drop that actually occurred. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. I can’t imagine why it would make any difference whether the Fed buys a bond from a bank, or Bill Gates. Those make no sense, as the new money is sold at market prices, and quickly moves away from the original recipient.
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