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Our monetary system is insane

bernorange

By bernorange
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Snake Diggity

Snake Diggity 4714

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10 hours ago, Rusty Shackelford said:

The Fed Is Planning To Send Money Directly To Americans In The Next Crisis

https://www.zerohedge.com/markets/fed-planning-send-money-directly-americans-next-crisis

This is a great idea.  Filtering stimulus thru companies (who end up just stacking cash on their balance sheets) instead of giving it directly to consumers is the primary reason we haven’t been able to efficiently stimulate the economy over the last 80 years, and why we haven’t seen inflation despite trillions of extra dollars being put into circulation.  
 

At first glance the idea of a 3rd mandate for the Fed to fight racial inequality sounds like a disaster in waiting, but I would be open to listening.  To me the unemployment mandate is in effect fighting racial inequality without igniting vitriol.

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sidis

sidis 10019

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9 hours ago, maninblack said:

It's called a social security number

what is called a social security number?  your credit score?  your social security number assignment from the government is synonymous with FICO's calculations?

giphy.gif

 

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Dnaguy

Dnaguy 12653

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9 hours ago, Snake Diggity said:

This is a great idea.  Filtering stimulus thru companies (who end up just stacking cash on their balance sheets) instead of giving it directly to consumers is the primary reason we haven’t been able to efficiently stimulate the economy over the last 80 years, and why we haven’t seen inflation despite trillions of extra dollars being put into circulation.  
 

At first glance the idea of a 3rd mandate for the Fed to fight racial inequality sounds like a disaster in waiting, but I would be open to listening.  To me the unemployment mandate is in effect fighting racial inequality without igniting vitriol.

Why even have an elected body for government?

Lets just have an appointed body of fiscal experts run things.

Democracy is messy. Best just cut out the middle man.

Amiright?!

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Snake Diggity

Snake Diggity 4714

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45 minutes ago, Dnaguy said:

Why even have an elected body for government?

Lets just have an appointed body of fiscal experts run things.

Democracy is messy. Best just cut out the middle man.

Amiright?!

Not sure I get your point.  The Fed governors are presidential appointments, as is the chairman, who must be confirmed by the senate.  

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washparkhorn

washparkhorn 9974

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On 8/3/2020 at 4:14 PM, Dnaguy said:

Why even have an elected body for government?

Lets just have an appointed body of fiscal experts run things.

Democracy is messy. Best just cut out the middle man.

Amiright?!

One would hope our elected leaders would do the right thing, but we know that is bullshit. 

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elfenix

elfenix 34754

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4 hours ago, GRHorn said:

 

in december 1930, an ounce of gold bought 295.28 kWh of electricity.  today, an ounce of gold buys 17,225 kWh of electricity.  a kWh of electricity is worth 1/58th of what it once was. 

Edited by elfenix
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bernorange

bernorange 8385

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9 hours ago, elfenix said:

in december 1930, an ounce of gold bought 295.28 kWh of electricity.  today, an ounce of gold buys 17,225 kWh of electricity.  a kWh of electricity is worth 1/58th of what it once was. 

 

8 hours ago, elfenix said:

in 1933 an ounce of gold bought 3.58 hours of a professional pilot's time.  today an ounce of gold buys 18.17 hours of a professional pilot's time.  pilots are only worth 19.7% of what they once were. 

What point are you trying to make? Because assuming your statements are true, an ounce of gold not just held it's value over the last 100 years, it increased in value (relative to the goods and services you mentioned).  Menawhile, the US Dollar lost most of it's value relative to the same items.

You might argue that had we continued to use gold as money, this would be evidence of deflation, but not all deflation is bad.  Certainly credit deflation is bad, but this is a different thing. 

Quote

...
Monetary economists distinguish a benign deflation (due to the output of goods growing rapidly while the stock of money grows slowly, as in the 1880–1900 period) from a harmful deflation (due to unanticipated shrinkage in the money stock). The gold standard was a source of mild benign deflation in periods when the output of goods grew faster than the stock of gold. Prices particularly fell for those goods whose production enjoyed great technological improvement (for example oil and steel after 1880). Strong growth of real output, for particular goods or in general, cannot be considered harmful.
...

https://www.cato.org/policy-report/marchapril-2008/good-gold

Most people alive today have only lived with fiat money.  The wisdom of centuries past has been lost on them (bold emphasis is mine):

Quote

...
In order for something to function well as money, it must possess six characteristics. Explain each of the characteristics of money as follows:
- Divisible — Money must be easily divided into small parts so that people can purchase goods and services at any price.
- Portable — Money must be easy to carry.
- Acceptable — Money must be widely accepted as a medium of exchange.
- Scarce — Money must be relatively scarce and hard for people to obtain.
- Durable — Money must be able to withstand the wear and tear of many people using it.
- Stable — Money’s value must remain relatively constant over long periods of time.
...

https://www.philadelphiafed.org/-/media/education/teachers/resources/fed-today/Functions_and_Characteristics_of_Money_Lesson.pdf

The fiat Dollar has failed the stable value pillar.  Should the G8/G20/Davos crowd execute a plan to effect a NWO (replacing the dollar as the world's reserve currency with something else), or the middle east start trading oil for something other than dollars, Americans will have a very rude awakening.

 

Edited by bernorange
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elfenix

elfenix 34754

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What point are you trying to make?

you might as well pick any arbitrary commodity and compare it to gold, rather than a dollar.  and then, it turns out, her observation becomes bullshit.  gold might be an investment vehicle (a shit one at that - in order to avoid the risk of the whole financial system collapsing and people only being willing to take gold, for the period from 1934 to today you'd have given up on $650,000 worth of gains compared to putting $100 in the S&P 500.  yay?).  it is certainly a useful industrial and aesthetic metal, but it's a fucking shitty currency.  the stock is too limited and controlled by exogenous factors - how much was mined, how much sunk to the bottom of the sea, how much was used making computer processors and space probes.  i'd rather have my currency's value set by demand for just the currency part of it and not have to compete with nvidia's need to produce AI processors. 

let's just look at the price of gold.  do we really think the dollar has lost nearly of its value in the last year? (note: i really hate graphs that don't start with 0)

2020-08-08-15-05-38.png

 

 

Menawhile, the US Dollar lost most of it's value relative to the same items.

has it though?  a kWh produced and delivered today is far more reliably delivered, far safer for the employees of the electric co and fuel producers, and much cleaner for the environment than the one produced in 1933.  the end product, though very similar, isn't quite the same.  are safety, reliability and cleanliness valuable?

how about other goods?  the nominal price of a mustang is 10x what it was 40 years ago, but 40 years ago there wasn't a mustang that did 0-60 in 5.3 seconds that would run problem free for the next 5 or 7 years (or maybe more!) while getting 30+ mpg highway and not kill you in the event of a collision.  are those things valuable?  

23 years ago i bought a computer for $2,000 and it weighed 20 pounds, needed a 30 lb monitor, had to be plugged in all the time, and showed only pixelated titties one frame every 30 seconds as the images downloaded.  now for a quarter that or less i can buy a computer that fits in my pocket and can not only show titties in HD in real time but also could record titties in 4k.  all without wires! 

and sure, the dollar has lost value compared to some things like eggs, butter, and pasta.  but those are now 3 or 4 times the price they were 85 years ago.  that's not the rapid descent into valuelessness that the tweeter implies. 

 

 

 

 

 

 

 

Edited by elfenix
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elfenix

elfenix 34754

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5 hours ago, Rusty Shackelford said:

If you were making an honest comparison between the stock market and gold, the chart would be 1971 - present (for obvious reasons)

1b9778e89d8e609c6290a8747d120791.jpg

i was using the comparison invited by the twit, but ok.  a $100 investment in gold in late 1971 at a price of $42.50 would today be worth $4,863.53 today.  a $100 investment in the s&p 500 on january 2, 1972 (or whenever the first trading day was) would today be worth $12,189.44 cents.

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Rusty Shackelford

Rusty Shackelford 414

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On 8/9/2020 at 1:04 AM, elfenix said:

i was using the comparison invited by the twit, but ok.  a $100 investment in gold in late 1971 at a price of $42.50 would today be worth $4,863.53 today.  a $100 investment in the s&p 500 on january 2, 1972 (or whenever the first trading day was) would today be worth $12,189.44 cents.

That's way off, according to the data provided here

https://www.macrotrends.net/charts/stock-indexes

https://www.macrotrends.net/charts/precious-metals

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bernorange

bernorange 8385

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On 8/8/2020 at 3:30 PM, elfenix said:

you might as well pick any arbitrary commodity and compare it to gold, rather than a dollar.  and then, it turns out, her observation becomes bullshit.  gold might be an investment vehicle ... but it's a fucking shitty currency.  the stock is too limited and controlled by exogenous factors ... i'd rather have my currency's value set by demand ...

let's just look at the price of gold.  do we really think the dollar has lost nearly of its value in the last year? ...  and sure, the dollar has lost value compared to some things .... that's not the rapid descent into valuelessness that the tweeter implies. 

 

On 8/9/2020 at 1:04 AM, elfenix said:

i was using the comparison invited by the twit, but ok.  a $100 investment in gold in late 1971 at a price of $42.50 would today be worth $4,863.53 today.  a $100 investment in the s&p 500 on january 2, 1972 (or whenever the first trading day was) would today be worth $12,189.44 cents.

I didn't author the tweet in question, but I suspect the reason gold was singled out for comparison is precisely because of it's history as money.  It is highlighting the failure of fiat money (the current dollar) to maintain a stable value over a long period of time.  Her observation doesn't "become bullshit" if you observe that the dollar has lost value against other things too.  That simply reinforces the point that inflation has eroded the value of the dollar over the last century (or 86 years).  I'm not sure why you think her observation on the loss of value of the dollar since 1934 is so radical.  There are plenty of inflation calculators available on the web will will show you the same thing.   This one from the BLS shows $100 in January 2020 has the same buying power as $5.12 in January 1934:

https://www.bls.gov/data/inflation_calculator.htm

The dollar has lost most (ie. at least 95%) of it's value since 1934.  Inflation and the "inflation tax" are baked into cake.

The only value fiat money provides over sound (hard/gold) money is the freedom for governments to spend beyond their means.  At least, until creditors lose faith in them.  We haven't seen that downside here in the USA yet.  Most Americans likely believe it will never happen.  I think we are getting much closer to that event horizon. 

Edited by bernorange
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Rusty Shackelford

Rusty Shackelford 414

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23 minutes ago, elfenix said:

there's these things called dividends

True, but also management fees, expense ratios, trade commissions, etc that offset the dividend yield somewhat.

 

Anyway the point is that the dollar has lost it's purchasing power immensely, and the relative rise of gold and stocks priced in USD prove the point.

Edited by Rusty Shackelford
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elfenix

elfenix 34754

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3 hours ago, bernorange said:

I'm not sure why you think her observation on the loss of value of the dollar since 1934 is so radical.  There are plenty of inflation calculators available on the web will will show you the same thing.   This one from the BLS shows $100 in January 2020 has the same buying power as $5.12 in January 1934:

https://www.bls.gov/data/inflation_calculator.htm

hey that's just an order of magnitude different!

3 hours ago, bernorange said:

The only value fiat money provides over sound (hard/gold) money is the freedom for governments to spend beyond their means.  At least, until creditors lose faith in them.  We haven't seen that downside here in the USA yet.  Most Americans likely believe it will never happen.  I think we are getting much closer to that event horizon. 

don't spend beyond your means types have been predicting that the nation would be bankrupted and sold to its foreign creditors for 3 centuries and it has yet to happen.  creditors don't want the collapse of society.  they don't even want no inflation.  they just want predictability.  and the fiat dollar has given that to them in relative spades. 

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bernorange

bernorange 8385

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Past performance is not indicative of future returns. It's usually a good idea to at least be aware of your assumptions and biases.  When I started talking about the dangers to the Dollar's global reserve currency throne ten years ago or so, I was more or less a lone voice in the wilderness.   Now Goldman Sachs, the Council on Foreign Relations and possibly the World Economic Forum (hosts of Davos - depending upon how you read between the lines) are publicly questioning or outright advocating the dethroning the dollar.  These are groups with real influence and power.

 

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RDCanecutter

RDCanecutter 26901

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We've had an actual case of currency collapse right next door, more than once, but probably the most dramatic when the peso went  from about 22/dollar to 3000 or so, back in the big hair 80s.

We now pause for atmosphere:

Seems like anything solid you could have bought with your pesos would have been the thing to do.  Stocks bonds gold beanie babies, you don't know what might win, invest that bumwipe in something.

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GRHorn

GRHorn 105

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For a board that claims to be concerned with all the injustices in our country, the fact that this thread drops off the board for 5 months is just retarded. I saw this NYT oped and thought of this thread. 
 

I think we probably get to UBI relatively soon and the poor end up fighting for increases in their crumbs while asset prices prices balloon until something real happens.

By 2030 the world of global finance is going to be a very different place. 

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GRHorn

GRHorn 105

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40 minutes ago, CowboyFred said:

Nice of you to come back to the cloak room after dotard is gone.  I’m sure your posts will be just as informative as they were before you left for a few months.

Trust me, I have no interest In discussing politics here.
 

The monetary policy of our country is something that concerns people no matter which political party they prefer. I’ll only be posting here or the funny tweet page. 
 

 

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bernorange

bernorange 8385

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Quote

Over the last two years, the richest 1% of people have accumulated close to two-thirds of all new wealth created around the world, a new report from Oxfam says.

A total of $42 trillion in new wealth has been created since 2020, with $26 trillion, or 63%, of that being amassed by the top 1% of the ultra-rich, according to the report. The remaining 99% of the global population collected just $16 trillion of new wealth, the global poverty charity says.
...
Gabriela Bucher, executive director of Oxfam International, called for taxes to be increased for the ultra-rich, saying that this was a "strategic precondition to reducing inequality and resuscitating democracy."
...

https://www.cnbc.com/2023/01/16/richest-1percent-amassed-almost-two-thirds-of-new-wealth-created-since-2020-oxfam.html

Direct link to report:

https://www.oxfam.org/en/research/survival-richest

 

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Nice Guy Eddie

Nice Guy Eddie 13740

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Smart people are getting even smarter about extracting wealth/money from the bottom 80% if not 95% and moving it to the top.

A perfect example is so much capital moving into the single family housing market recently. If you want to buy your first house, you might need much-better-than-average income to get into a house. Or help from your family for the down payment.

When I moved into my house in 2005, you could buy in my neighborhood with a 100-125K salary. Which equates to maybe 150-180K in today's money. Today there's no chance you could buy in my neighborhood short of a 250-300K income. And even that would be tight with many of the homes. 

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bernorange

bernorange 8385

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3 hours ago, Bullneck said:

Are you arguing in favor of wealth distribution?  Kinda sounds that way.

No.  I posted the article because the extreme distortion in wealth inequality growth due to central bank policies is a visceral example of problems with the monetary system. 

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Nice Guy Eddie

Nice Guy Eddie 13740

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When someone raises up wealth redistribution as the boogey man, the fact is that we're constantly in the state of wealth redistribution. Except right now it's flowing from the poor and middle class to the wealthy at the highest rate since pre-Depression.

When it flows to the wealthy via tax policies or investments, the rich are hailed as wise and job creators.  When someone raises the idea of slowing that flow if not reversing it, they're the biggest communist the world has seen since Marx.  Karl not Groucho.

Another form of redistribution is inheritance. Boomers as a group are getting up there, and starting to shift their wealth to Gen X and Millennials.

 

 

Edited by Nice Guy Eddie
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Pods

Pods 7637

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In retrospect, it might have been a terrible idea to give a huge amount of public money in tax cuts and forgiven "loans" to corporations and business owners with very few strings, or oversight, attached. 

I mean, you could only look at something like this in retrospect. It would be impossible to predict this exact outcome based on the last 42 years of data. 

Who, aside from literally everyone, could have seen this coming?

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bernorange

bernorange 8385

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Read the news today that the Fed is essentially guaranteeing 100% of deposits at all banks and it reminded me of The Narrow Bank's quest to get a Master Account at the Fed.  Read back to post #50

https://www.surlyhorns.com/board/topic/7236-our-monetary-system-is-insane/?do=findComment&comment=953704

and post #72

https://www.surlyhorns.com/board/topic/7236-our-monetary-system-is-insane/?do=findComment&comment=1249796

or you can find more details here:  https://www.pmbug.com/threads/narrow-banking.3846/

It seems like the entire banking system is now a narrow bank but with added risk opportunities for the banks.

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Satchel

Satchel 6983

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Why are Republicans always knee deep in this kind of crap?
 

In a letter dated March 3 to Federal Reserve Chair Jerome Powell, Sen. Tim Scott (R-SC), the ranking member of the Senate Banking Committee, and nine of his GOP colleagues expressed concern that an ongoing Federal Reserve review may go beyond a 2018 law that eased regulations on smaller banks and “may unjustly increase capital requirements and have a chilling effect on market making activities and availability of financial services...

 

The letter pushed back against ideas for increasing the buffer that banks are required to hold in reserve to guard against losses, arguing that banks “seem to have weathered the real-life stress test of the COVID-19 pandemic well.”

Within days, the banking sector saw the second- and third-largest bank failures in history.

 

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bernorange

bernorange 8385

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Another episode in the "centrally planned fiat monetary system is awesome" series:

Quote

... Monetary policy design has traditionally taken aggregate productivity as given. In the workhorse model of monetary policy – the New Keynesian model – the central bank faces a trade-off between stabilising inflation and reducing the short-term deviations of output from its potential level. If monetary policy can affect misallocation and TFP, the central bank should also ponder how its decisions will impact the supply side of the economy in the medium term. Such considerations may be of relevance in phases of very active monetary policy, such as in the current inflationary environment.

This paper seeks to shed light on the interaction between monetary policy and capital misallocation and its implications for optimal monetary policy. ...

Our model predicts that an expansionary monetary policy shock improves capital allocation and thus raises TFP. We call this effect "the capital misallocation channel of monetary policy". We present empirical evidence supporting this prediction: expansionary policy induces high-productivity firms to increase their investment more than it does for low-productivity firms. The central bank has an incentive to exploit the capital misallocation channel, by engineering a temporary economic expansion to increase TFP at the cost of some inflation. ...

https://www.bis.org/publ/work1148.htm

TFP = total factor productivity

117 page PDF paper at the link above if you suffer from insomnia

Edited by bernorange
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bernorange

bernorange 8385

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* bump *

Water is wet

Quote

Long-run price stability could be a key feature of the gold standard, researchers with the Federal Reserve Bank of Philadelphia find.

In their working paper, published in February, Jesús Fernández-Villaverde and Daniel Sanches explore how the gold standard would operate as a monetary framework in a hypothetical small open economy ...

https://www.centralbanking.com/central-banks/monetary-policy/7961027/switch-to-gold-standard-could-stabilise-prices-philadelphia-fed-research

Here's the paper:

Quote

We present a micro-founded monetary model of a small open economy to examine the behavior of money, prices, and output under the gold standard. In particular, we formally analyze Hume’s celebrated price-specie flow mechanism. Our framework incorporates the influence of international trade on the money supply in the Home country through gold flows. In the short run, a positive correlation exists between the quantity of money and the price level. Additionally, we demonstrate that money is non-neutral during the transition to the steady state, which has implications for welfare. While the gold standard exposes the Home country to short-term fluctuations in money, prices, and output caused by external shocks, it ensures long-term price stability as the quantity of money and prices only temporarily deviate from their steady-state levels. We discuss the importance of policy coordination for achieving efficiency under the gold standard and consider the role of fiat money in this environment. We also develop a version of the model with two large economies.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4744246

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