Use access key #2 to skip to page content.

Video: Monetary Policy, Inflation, and the Federal Reserve

Recs

9

July 12, 2008 – Comments (8)

Part 1:

Part 2:

More rough, unedited, low quality video from Pencils!  

8 Comments – Post Your Own

#1) On July 12, 2008 at 8:21 PM, DemonDoug (79.68) wrote:

Politics and economics are completely intertwined - looks like you are getting that.  There's a phrase "follow the money" - politics and government goes where the money is.

In terms of LTBH investing, you are right, it is about the quality of the company, being able to thrive no matter what government policies are.

You did pronounce "fiat" correctly.

The thing about fiat currencies and not having them backed by some hard assets is that those hard assets end up being a de-facto reserve behind all fiats - gold is still priced in dollars and can be used as a metric in terms of how strong the currency is.

With low interest rates, it is easy to see how that relates to financial asset bubbles (tech and housing).  It's not quite as simple as to consumer price inflation.  As far as "natural tendencies in the free market," there are always deflationary and inflationary pressures.  That's a great analogy with the paper dollar versus the silver dollar and buying gas.

BTW as far as the "free market," really there is no such thing, and never has been.  Because there has to be some regulation.  Capitalism without regulation tends to lead to a situation where there are monopolies.  I think most people would agree that monopolies are bad things for economies.  Even in societies where markets were more free, like as you said in the 1800's, there was still corruption, bribing, favored deals with government, etc.  It's the nature of humanity to try to get a competitive advantage.

I believe what we should strive for is a "fair market," and generally speaking the US and the world is at a place where the markets are more fair than they've probably ever been at any point in history.  They are by no means wholly fair, and I don't believe they ever will be, but that should be the goal - balance freedom of capitalism with regulation to prevent systemic abuses.

Report this comment
#2) On July 12, 2008 at 8:59 PM, TMFPencils (99.81) wrote:

Thanks for your thoughts.

Regarding monopolies, you may be somewhat right, but in many cases monopolies are not created without help from the government. This can come through special favors and certainly other factors as well. But I do not believe that monopolies are a consequence of the free market. Equality means equal justice for people, businesses, etc., and monopolies are created largely due to more favorable attitudes in their direction.

A market without regulation isn't very likely, I agree. But that does not justify an interventionist economic policy. Wage and price controls came in due to the rampant inflation after the Civil War (when a fiat monetary system was tried for several years and then abandoned due to its unpopularity). I think a lot of it comes from monetary policy. With a sound, steady currency it takes away much of the supposed need of government intervention. Certainly there must be laws, but I truly believe that that with sound policies very little government intrusion would be necessary. 

Report this comment
#3) On July 12, 2008 at 9:22 PM, DemonDoug (79.68) wrote:

There is a difference between "equality" and "freedom."  Communism seeks equality - it's just as bad as unchecked capitalism.

I'm not advocating interventionist policies.  What I do advocate for is proper application of regulations that are meant to keep the playing field as fair and level as possible.  Wage and price controls do not do this, and I would never advocate for this.

With a sound, steady currency it takes away much of the supposed need of government intervention.

I can't quite agree with this.  If the government did not intervene, Microsoft would probably own yahoo, google, oracle, sun, and cisco; or more likely microsoft would have made the business environment impossible for google to be able to rise up as they have done.  Are you familiar with the robber barons of the 1800's and the Sherman Antitrust Act?  You need more than just a sound currency to prevent monopolies.  I would read up on those things and just suggest maybe re-think what you are saying.  Complete de-regulation is a bad, bad, bad thing for capitalism.

There is a difference between regulation and intervention however.  Preventing microsoft from blowing up competition is regulation; giving out 200B evergreen loans to investment banks who are going down in flames from bad mortgages is interventionist.  I am for the former and against the latter.  I think we agree on the "interventionist" part.  It creates a moral hazard and is very bad in the long term.

As far as government involvement, the government is always involved whether it wants to be or not.  Whether it's simply through taxes or through a moral and legal obligation to protect the rights of its citizens, you are right, monopolies can't exist in an government vacuum.  But generally it's the government looking the other way while companies commit monopolistic practices.  It's not like the government bought every oil well and gave it to Rockefeller back in the day.

Report this comment
#4) On July 12, 2008 at 9:39 PM, bdash (27.40) wrote:

Im glad someone is talking about this, I think the common person ignores it because they feel that they cannot understand it. a fiat policy doesn't do the nation any good, however it will take something on the scale of the great depression to remove it. You should have mentioned that a reason why a fiat policy crumbles societies is that inflation, which is inevitable in this sort of policy, hurts the middle class and will eventually eliminate it; without a middle class all societies eventually fail.

Incidentally the Federal Reserve is unconstitutional:

Article I section 8: "Congress shall have the power to... coin Money, regulate the value thereof, and of foregin coin and Fix the Standard of Weights and Measures"

Report this comment
#5) On July 12, 2008 at 9:49 PM, GS751 (27.50) wrote:

great blog post.  I sent you an email about a couple of books.  It cannot end well, get your assetts out of US dollars, many companies you will find are traded on multiple exchanges in more sound currencies.

Report this comment
#6) On July 12, 2008 at 11:50 PM, TMFPencils (99.81) wrote:

Hi DD,

Thanks for clearing up your thoughts. Yes, we can both agree that interventionism is not a good thing long-term (and probably not short-term either given the major costs). And I agree that complete deregulation is a dangerous thing, I realized I didn't make this clear enough. My belief is that regulation at a federal level, for the most part, is unnecessary. Giving the choices to the states and more local governments I believe is a much more inline with a free market society and would be much more efficient and not nearly as much of a burden on businesses. So what I need to be clear about is that I believe in deregulation at a federal level and therefore giving the choices to the states. I think this makes much more sense especially with issues such as energy (the majority of Alaskans want to drill in ANWR as well as the governor there but federal law is preventing it).

The anti-trust laws have good intentions, but I still don't entirely believe that monopolies come as a result of a free society. In the end it is the consumer who makes the decisions in a free society, but you are right and some regulation is probably necessary, but it would seem to be much more efficient if the states were to make the laws and decisions. The majority of anti-trust cases are from companies trying to slow down and burden the competition in court, not because of unfair competition. Again, if this were moved down to a state level I think it would be much easier to see what works and doesn't work. Strong states rights are much more inline with the Constitution  as well compared to a strong federal government like we have today. 

And you are absolutely correct that there is a difference between "freedom" and "equality", at least in the ways the words are broken down today. The U.S. was founded on the principles of equal justice for all, not on creating a welfare state. Agree? 

And I'll look into the stuff you mentioned, it's great discussing this stuff.

DK 

Report this comment
#7) On July 13, 2008 at 1:11 PM, abitare (48.35) wrote:

David,

I appreciate your opinion and your post. I am from an older generation and have lived outside the US for 4+ years. I would never post my name and picture on the internet, unless it was for a business interest and require it. I understand how common it is these days, but what is popular is not always what is right.

If things deteriorate in a nation people get rounded up and thrown into camps, many for unfair and malious reasons (take a watch of PBS Commanding Heights). It has happened threw out history including the in the US. The FED has evolved into an unelected very powerful 4th house of govenment, aside the President, the Congress and the Senate. 

Europe is full of empty Jewish districts. Mao killed millions of Chinesse, Khemer Rouge emptied the cities, Shites are killing Sunni, Communist killed almost everybody (read Life and Death in Shanghi) etc.....

I hope I am incredibly wrong, but Habeus Corpus has been eroded, and Guantanmo exists.

Als die Nazis die Kommunisten holten,
habe ich geschwiegen;
ich war ja kein Kommunist.

Als sie die Sozialdemokraten einsperrten,
habe ich geschwiegen;
ich war ja kein Sozialdemokrat.

Als sie die Gewerkschafter holten,
habe ich nicht protestiert;
ich war ja kein Gewerkschafter.

Als sie die Juden holten,
habe ich geschwiegen;
ich war ja kein Jude.

Als sie mich holten,
gab es keinen mehr, der protestieren konnte.

Pastor Martin Niemöller (1892–1984) Report this comment
#8) On July 13, 2008 at 7:45 PM, DemonDoug (79.68) wrote:

pencils, I see exactly where you are coming from.  In principle I agree with pretty much everythig you are saying.  However, I believe your specifics are a bit too idealistic, and don't take into account unintended consequences.

My belief is that regulation at a federal level, for the most part, is unnecessary. Giving the choices to the states and more local governments I believe is a much more inline with a free market society and would be much more efficient and not nearly as much of a burden on businesses. So what I need to be clear about is that I believe in deregulation at a federal level and therefore giving the choices to the states. I think this makes much more sense especially with issues such as energy (the majority of Alaskans want to drill in ANWR as well as the governor there but federal law is preventing it).

See, this statement in principle I agree with, but there is some flawed thinking there.  If states had more direct control without federal regulation, imagine how varied tax policy would be from state to state.  And what about the federal minimum wage?  Should we eliminate that too?  States honestly have all the power they need to regulate corporations in their state - the federal government sets national standards to make sure that no one state can overrun the rest.  You only need to go back about 155 years to see what can happen when states have severely differing economic policies that are directly tied in to socio-political factors.

The anti-trust laws have good intentions, but I still don't entirely believe that monopolies come as a result of a free society.

I am stating that monopolies come about as the result of a completely lax regulatory environment.  http://en.wikipedia.org/wiki/Standard_Oil . Rockefeller didn't need the government's stamp of approval, he just needed a legal system that didn't outlaw monopolistic practices.

In the end it is the consumer who makes the decisions in a free society, but you are right and some regulation is probably necessary, but it would seem to be much more efficient if the states were to make the laws and decisions.

The problem with this, as it especially relates to monopolies, is that in the national and global marketplaces no one ever has a monopoly in a state.  It's a broader phenomenon and no state could realistically enforce anti-trust regulation.  And like I said, states have all the power they need - for example California has put huge penalties on insurance companies and required them to reduce their premiums due to unfair practices.  Many states are suing CFC and the state of NY has successfully gone after a lot of bad apples on the NYSE.  And I can also go back to my above declaration, if Abe Lincoln had adopted your policies, the USA might be split in two right now.  There are times a strong central government is completely necessary, and broad economic regulation along with the political and criminal laws that go along with it are completely necessary to maintain "equal justice."

 The majority of anti-trust cases are from companies trying to slow down and burden the competition in court, not because of unfair competition.

This is how it works now.  And it works fairly well, don't you think?  We haven't had a Standard Oil in a long time.  Imagine if Ma Bell (AT&T) hadn't been broken up in 1982.  Look at all the telecom innovations that have happened in the past 26 years.  Do you think that without government regulation, that that monopoly would have naturally broken up?  Or would it have continued to stifle competition, where we may not have things like advanced cell phones and broadband internet.

We can only wonder at what kind of operating systems the world would be using if there had been better anti-trust regulation of microsoft, or even now, if there was more strict regulation.

Again, if this were moved down to a state level I think it would be much easier to see what works and doesn't work. Strong states rights are much more inline with the Constitution  as well compared to a strong federal government like we have today.

Part of the federal government's mandate is to regulate inter-state commerce.  Since almost every company crosses state lines nowadays, I believe it is unrealistic to put too much faith in the individual states.

Article 1, Section 8, Clause 3: "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes"

This clause, among other federal powers, is why we don't have border patrols at the border of every state.

I definitely am in favor of states rights; I think the pendulum has definitely swung too far to the federal government with the Patriot Act, the Ag bill, a lot of our freedoms being legislated away, etc.  But making the central government too weak is definitely a very bad thing for many reasons I've outlined and many others I haven't.

The U.S. was founded on the principles of equal justice for all, not on creating a welfare state. Agree? 

Absolutely.  Death to welfare... for both the lazy poor and the corporate rich.

 

Report this comment

Featured Broker Partners


Advertisement