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Red_Chili
12-16-2008, 07:43 AM
No one I know is a free market purist. Push hard enough and you will find some area where every person opts for limits. No one I know would opt for a world of economic Allosauruses versus hordes of Ornithopod cows.

Especially since we tend to be the cows.

Survival of the fittest is great. If you are the fittest.

Government, however, can become an Allosaurus too. It does tend to distract the little velociraptors most of us work for, though. Velociraptors make yummy snacks. So maybe having the odd Allosaurus can come in handy some days.

So we end up somewhere in the middle ideologically (yes, you too, you you you Libertarian you).:hill:

http://www.smartmoney.com/blog/ (quoted because it will change with new blog posts no doubt):
Taking Stock

The Limits of Free Markets (http://www.smartmoney.com/blog/index.cfm?story=viewentry&entryID=831)
By: Igor Greenwald, 4:35 PM ET on 12/15/08
Add/View Comments (4) (http://www.smartmoney.com/blog/index.cfm?story=viewentry&entryID=831#add)

Joseph Schumpeter (http://en.wikipedia.org/wiki/Joseph_Schumpeter) is the dead economist most beloved by laissez-faire types for his paradigm of "creative destruction," the notion that progress depends on innovation that sweeps away outdated business models (and businesses, and jobs.)

The idea and the man have enjoyed a revival of late, bandied about with reference to General Motors and more broadly, capitalism's current crisis.
Free-market zealots are less likely to rehash the fact that Schumpeter thought capitalism was doomed, undermined by the growing dominance of the largest corporations and the popular opposition engendered by this concentration of wealth and power. Capitalism would give way to socialism not as a result of a tragic accident or a policy mistake but rather by popular demand. This would happen because capitalism would make most people richer. And richer people don't like surprises.

Our markets have been positively overflowing with surprises, of course: for the recent and soon to be ex-retirees, for the newly unemployed, for borrowers and lenders. And every bone-chilling gust of Schumpeter's destructive gale is making him look that much more prophetic, as voters demand that governments do something.

This popular distrust of change is something most libertarians don't deign to address. They just assume that more progress, more change, more absolute wealth is good, and that's that. The workers are to be promised "more jobs" and threatened with loss of same if they don't stoke capitalist fires. But what if the relatively prosperous worker no longer values maximizing his monetary gain as much as knowing that he won't lose his health care and home at the whim of the employer, or his nest egg to financial follies he can't fathom?

And what if millions of prosperous voters come to see such risks as an intolerable threat to their families and sense of well-being? What if it turns out that people value certainty and hate complexity? That's when the political market starts leaning to the left, irreversibly so according to Schumpeter. In the end, markets work for people and not the other way around. When markets fail, people seek fixes and alternatives.

The Greek chorus of free-marketeers would have us believe that the world as we know it is ending because governments around the world have thrown a few trillion of paper scrip and electrons at a mess of planetary proportions. In fact, this is not the end of the world or even of capitalism as we know it. Rather this is the continuation of the mixed economic system we've had for most of the last century, and the reason it's survived so long and will survive this is governments' rightful preference for expediency over ideology (aka principles) during emergencies.

Enterprise didn't die when children were banned from the factory floor nor when old-age pensions were introduced, though in both cases contemporary alarmists had argued that it might. On many quality of life measures, Japan and France lead the U.S. despite meddlesome public policies that don't seem to inconvenience the natives much.

The biggest political divide in Washington today is not between liberals and conservatives, or Democrats and Republicans. It is between realists who understand that the bailout, no matter how many zeros it ends up carrying, is part of the price of doing business in occasionally chaotic markets, and romantics whose notions of free-market efficiency have been cruelly dashed. But people aren't cogs and maximum efficiency is not their overarching goal. It's about time that free-market defenders started taking this into account.

Interesting how part of what Schumpeter said gets quoted by folks who are appalled at what else he said.

Is this YOUR middle? (I can hear the L screams now...). What is? What say you?
11458

Romer
12-16-2008, 07:51 AM
I say you may be a cow, but I prefer to think of myself as a Bull. Cows get turned to Steak, Bulls go to Stud Farms

Romer
12-16-2008, 07:57 AM
Seriously, My opinion is that the current GM Crisis is caused by the arrogance of both the Uniouns and GM Management Their Arrogance clouded their business sense, otherwise,how can you explain they were paying laid off workers.

Kind of like Eastern Airlines years ago when the Unions arrogance put the airline out of businees and cost all the employees their jobs

Is that Free Market or poor managemnt? I guess you could say the free market enabled the poor managers

DaveInDenver
12-16-2008, 08:58 AM
Hmmm, Schumpeter, he did predict that capitalism would eventually kill itself after all. Which it has, by creating a hyper-political class of intellectuals that attack the very basis of a free market. Pointing to mistakes in the command economy as failings of a free market, which they are anything but. This much he wrote in so many words. Liberal economists point to Schumpeter because he was a pure capitalist and predicted why it would necessarily fail due to politics. He was right. We followed that rabbit path just like he described. Others point to Schumpeter because he sounds a lot like a Marxist, which he only shares in the view of where we end up, not in the why (primarily because of government, not despite it). To him it's not inevitable, unlike Marx who thought we are doomed to egalitarianism by our nature. Maybe we are, I dunno, I'm certainly no sociologist.

Still, I fundamentally disagree with Igor Greenwald (who seems to shares that notion that we inherently want communism). I believe people when given true economic freedom chose not to be commanded and prodded into masses, told what to do (even if they don't know it's happening). I see economic freedom as true structural freedom, you can't separate economies and everything else, your daily life is the economy. But people are not allowed to make unfettered decisions anymore, the system is designed to protect the status quo. The evening news never presents the side that maybe the Fed tinkering with interest rates and Treasury propping up undeserving industries works against rationality of human nature. They can't say that, it doesn't fit in 10 second spots and requires more than passing thought.

We are told that inflation is just a thing to fix and control. We can deal with it later, after the government and Fed have pumped the money system full of paper. We are not told that inflation is only necessary to propagate the transfer of wealth from productive segments to middlemen who do nothing but change money. By buying into the idea that there are companies (mainly financial, but all inefficiency needs to be allowed to correct) too big to fail we are just cutting ourselves off that the knees ultimately. Deflation is necessary in a free market, but central banks never allow that to happen. They can't allow that to happen. We are taught this system from day 1 in grade school, how great Lincoln and Hamilton were. How taxes are necessary and patriotic. How you must be a good citizen and never question the great men behind the curtain. It's all designed to quell dissension, to keep people from thinking for themselves. Learning about Austro-libertarian economics and politics is hard. Reading von Mises, Franz Oppenheimer, Rothbard, Ballve, Eustace Mullins, Bastiat and Schumpeter is hard. It's not main stream and it's not popular. The system has done a fantastic job at concealing it's mistakes (like when's the last time the Federal Reserve released the M3 numbers?) and keeping us in the dark.

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."
--Adam Smith

"The maxim, that governments ought to train the people in the way in which they should go, sounds well. But is there any reason for believing that a government is more likely to lead the people in the right way than the people to fall into the right way of themselves?"
--Thomas Babington

"Everywhere the power of capital in its more concentrated forms is better organised than the power of labour, and has reached a further stage in its development; while labour has talked of international co-operation, capital has been achieving it."
--John Hobson

"Once it has been perceived that the division of labour is the essence of society, nothing remains of the antithesis between individual and society. The contradiction between individual principle and social principle disappears."
--Ludwig von Mises

Red_Chili
12-16-2008, 10:20 AM
I'm thinking it is a bit slow in the mechanical engineer trade today... :lmao:

Ask the Japanese what a deflationary cycle is like - and that was not runaway. I don't accept that it is kept from happening only in order to enrich 'the men behind the curtain'. While it may be arguable that liberal economic policy lengthened the Great Depression (and the GD was not the first of a series of Ds, so I don't buy that the GD was itself contrived by the aforementioned curtain men) the onset of it was also arguably lack of accountability - so the free market provided accountability. Ask your grandparents what that was like for them.

Nay
12-16-2008, 03:31 PM
Well, one thing we know is that there are no limits of suckers.

Exhibit A - A fifty billion (yes billion) dollar ponzi scheme ripping off the likes of Stephen Spielberg :lmao:

Free is a bad word in a liberal democracy. Are you more free or less free with your welfare being constantly subjected to the ravages of "free markets"? One might argue that having to work longer hours with a longer commute just to keep up economically while bearing the risk of downturns on a personal socioeconomic level is not an advancement of personal freedom, but rather a particularly devastating reduction of that very thing.

Mendocino
12-16-2008, 06:26 PM
Greenwald's premise seems to indicate that we have recently had a free market. We have not had a free market in a very long time; certainly no in the last 80 years.

Red_Chili
12-17-2008, 01:33 PM
Yup. But how exactly is Madoff's fractional reserve hedge fund scheme any different than the Federal Reserve system itself? If anything, it should serve as a wake up to the danger of non-100% reserve banking. The whole system only has a 10% reserve requirement.

You are equating 10% reserve with Madoff's scheme? You cannot be serious.

I would not invest in any financial firm that kept more than 10% of working capital idle.

DaveInDenver
12-17-2008, 02:04 PM
You are equating 10% reserve with Madoff's scheme? You cannot be serious.
I'll admit that I'm not the smartest man, but no need to be condescending.

But yes, I'm exactly saying that Madoff's hedge fund is substantially the same as fractional reserve banking, the way he was showing returns without basis. Banks only have to show 10% of their total deposited account balance in readily available cash. So they are playing a pay-it-forward shell game that through extension of credit can turn 1 dollar of deposits into 9 new dollars in loans of money that does not really exist. Eventually someone loses their money at the end of the line (which incidentally is why the FDIC was created in the first place, to protect the unreserved cash in the event of a bank failure or run). Same it would seem with Madoff's clients. There wasn't as much cash and equity as he claimed there was (and why he wasn't filing SEC returns obviously). How it is different than non-100% reserve banking? It's all based on the premise that normally some percentage less than 100% of investors, depositors, etc. will ask for their money at the same time.

I didn't say his scheme was anything like a business sitting on a mountain of cash, how a firm decides to distribute their equity and cash is important, but ultimately it's all accounted to net the same equivalent value.

Red_Chili
12-17-2008, 02:47 PM
Sorry if it sounded condescending, it was more like incredulous.

Madoff made up returns and funded them with others' deposits, and kept it up until there was no more money (and he took his share off the top). That is a true Ponzi scheme.

10% reserve means 90% of real money - REAL money - is out there getting real returns as working capital. It means that no, the bank cannot cash everyone's check at once for 100% of the funds they deposited. But they can cash 10% of funds needed, and borrow the remainder at the cost of intrabank lending.

In the pre-Fed 1880s runs on banks caused catastrophes, and one of my heroes, David Moffatt, acted as somewhat of a local Fed Reserve by guaranteeing to cover his competitor's withdrawals - which was also in his own interests, since it effectively stopped a panic. Such was not the case, usually.

I do not see the similarity. Madoff *pretended* to be the latter and was not.

Nay
12-17-2008, 03:00 PM
I would love to opt out of the rat race, where do I register a complaint and send my application for the good life?


Just about anyplace in Western Europe :lmao:

Or do you not envy their 6 weeks of vacation, when the continent about shuts down in August, their full high quality health care (yes, there are exceptions, but they are exceptions), their fully covered retirement and college education?

Did you notice during the Southeast Asia tsunami all the Swedes hanging out in paradise? How can they possibly afford to travel during Christmas at the peak of the winter travel season with their families, what with their 50% income tax rate, their costly best in world education and other public institutions?

How is it that they have one of the highest rates of second home and boat ownership in the world? How is it that these social democracies are at the top of the list for quality of life year after year after year globally in virtually every major category?

It's not free markets. It is a decision by a society to preserve a cultural high quality way of life via public institutions from whom they demand excellence instead of constantly tearing them down. It is also a relatively homogenous society acting in accord of its own cultural interests. When people in a society agree culturally, they tend to act in much greater accord than in societies where people have profound cultural differences like the U.S. This is why it is so easy to divide and conquer the U.S. middle class, and why it is so difficult in Europe (especially since their entire societies are essentially middle class). Why do you think we have cultural wedge issues in every election? Very effective.

It may be that the catastrophic costs of higher education, health care, elder care, and long term retirement, all left to the opportunities, risks, and luck of the individual, leaves the average individual stressed beyond their means in every possible meaningful quality of life category, and that this is simply the output of the free market: largely unhappy humans, even when they are relatively well off.

Two generations ago we had a 40/40 expectation. Work forty hours a week for forty years and live in retirement at the same standard of living when you retired. My wife's grandfather, who recently passed, had a simple goal: to be retired for as many years as he worked.

He was a self taught Naval architect who never had a big salary and worked at the Norfolk shipyard most of his life. Shortly before he passed, he realized his dream of being retired as long as his working career. He was able to care for his wife, provide financial assistance to his children and even grand children financially, and live independently with his wife until his late 80's. He still cares for his wife as her care is fully paid for, and she is doing well at 93.

Amazing what a pension, social security, and covered health care in combination with modest long term market investments can provide. These things have become the province of the wealthy, not the working man who never even went to college.

How many of you believe you will be retired at the same standard of living for as many years as you worked? We could not even afford $4 gas on a macro-economic level without rushing towards another great depression, but we are all going to retire with economic security? It brings to mind a saying:

"Welcome to Walmart".

DaveInDenver
12-17-2008, 03:22 PM
10% reserve means 90% of real money - REAL money - is out there getting real returns as working capital. It means that no, the bank cannot cash everyone's check at once for 100% of the funds they deposited. But they can cash 10% of funds needed, and borrow the remainder at the cost of intrabank lending.
The 90% is not real money beyond the first bank. The banks as a whole are lending out 10 times what the original claimed as reserve. Take an initial investment of $10, which might have come from deposits, investment or even FOMC funds, doesn't matter. The bank has to reserve $1 and can loan out $9. If that $9 is deposited into another bank, they can loan out $8, keep $1. It cascades through until the original $10 is $100 of inflated money floating around the system. If a bank was only loaning out the money once and truly keeping only 10% reserve, that would be different. But the pyramid part comes in the way the accounting credit is generated in the Fed system through inter-bank lending. The only way to keep it from inflating like this is if the money is held out by a non-bank. Like if a customer takes the original $90 loan and stuffs into a sock drawer, then the scheme does not generate all the fake money. But by about 10 or 20 lending cycles the bulk of the non-existent money is created.

DaveInDenver
12-17-2008, 04:18 PM
Europe's short work weeks are as much an attempt to solve structural unemployment problems as a cultural difference. If they worked 48 or 50 40-hour weeks like us, they'd have much higher unemployment. Europe the past couple of years has fundamental productivity issues. They have advantages in government spending over us in more unification of social programs (i.e., more central government spending than our multi-level system that increases waste). But the eventually end game is that entitlements and population growth stagnation will create major issues for them, too.

Anyway, I looked up some statistics.

Total home ownership amongst population
#1 Ireland: 83%
#2 Italy: 78%
#3 Australia: 69%
#4 United Kingdom: 69%
#5 Canada: 67%
#6 Finland: 67%
#7 United States: 65%
#8 Belgium: 65%
#9 Japan: 60%
#10 Sweden: 60%
#11 France: 54%
#12 Denmark: 53%
#13 Netherlands: 49%
#14 Germany: 43%

Government consumption in current US$ (per capita)
#1 Luxembourg: 13,231.395 $ per capita
#2 Iceland: 13,179.572 $ per capita
#3 Norway: 13,010.14 $ per capita
#4 Denmark: 12,374.129 $ per capita
#5 Sweden: 10,790.501 $ per capita
#6 Netherlands: 9,186.077 $ per capita
#7 Finland: 8,297.716 $ per capita
#8 France: 8,286.266 $ per capita
#9 Belgium: 8,161.056 $ per capita
#10 United Kingdom: 7,951.89 $ per capita
#11 Ireland: 7,100.648 $ per capita
#12 Austria: 6,596.583 $ per capita
#13 Japan: 6,443.958 $ per capita
#14 Germany: 6,291.013 $ per capita
#15 United States: 6,281.512 $ per capita
#16 Italy: 6,101.906 $ per capita
#17 Qatar: 6,005.587 $ per capita
#18 Australia: 5,965.827 $ per capita
#19 Canada: 5,953.575 $ per capita
#20 Switzerland: 5,760.444 $ per capita
#21 Israel: 4,972.145 $ per capita
#22 Kuwait: 4,912.54 $ per capita
#23 Spain: 4,611.471 $ per capita
#24 New Zealand: 4,322.022 $ per capita
#25 Portugal: 3,658.48 $ per capita
#26 Slovenia: 3,360.305 $ per capita
#27 Greece: 3,317.439 $ per capita

Secondary spending per student
#1 Switzerland: $9,348.00 per student
#2 Austria: $8,163.00 per student
#3 United States: $7,764.00 per student
#4 Norway: $7,343.00 per student
#5 Denmark: $7,200.00 per student
#6 France: $6,605.00 per student
#7 Italy: $6,458.00 per student
#8 Germany: $6,209.00 per student
#9 Japan: $5,890.00 per student
#10 Australia: $5,830.00 per student
#11 Sweden: $5,648.00 per student
#12 Netherlands: $5,304.00 per student
#13 United Kingdom: $5,230.00 per student
#14 Israel: $5,115.00 per student
#15 Portugal: $4,636.00 per student
#16 Spain: $4,274.00 per student
#17 Ireland: $3,934.00 per student
#18 Greece: $3,287.00 per student
#19 Czech Republic: $3,182.00 per student
#20 Hungary: $2,140.00 per student
#21 Thailand: $1,177.00 per student

Number of days not worked (i.e. days OFF) for every 1000 salaried employees (trying to correlate this, I don't understand it)
#1 Iceland: 367 days
#2 Spain: 316 days
#3 Norway: 239 days
#4 United States: 163 days
#5 Finland: 126 days
#6 Canada: 125 days
#7 France: 117 days
#8 Ireland: 72 days
#9 Australia: 61 days
#10 Italy: 59 days
#11 Denmark: 51 days
#12 Hungary: 47 days
#13 Turkey: 36 days
#14 United Kingdom: 21 days
#15 Mexico: 16 days
#16 Portugal: 11 days
#17 New Zealand: 8 days
#18 Poland: 7 days
#19 Netherlands: 1 days
#20 Switzerland: 1 days

Hours worked to buy a car
#1 Ireland: 1,823 hours
#2 Finland: 1,681 hours
#3 Austria: 1,672 hours
#4 France: 1,600 hours
#5 Canada: 1,552 hours
#6 Norway: 1,517 hours
#7 Belgium: 1,500 hours
#8 United States: 1,459 hours
#9 Australia: 1,244 hours
#10 Denmark: 1,206 hours
#11 Japan: 1,182 hours
#12 New Zealand: 1,175 hours
#13 Italy: 989 hours
#14 United Kingdom: 956 hours
#15 Germany: 861 hours
#16 Switzerland: 614 hours

Death from cancer
#1 Netherlands: 433 deaths per 100,000
#2 Italy: 418 deaths per 100,000
#3 Hungary: 411 deaths per 100,000
#4 Luxembourg: 409.7 deaths per 100,000
#5 Slovakia: 405.3 deaths per 100,000
#6 Ireland: 357.6 deaths per 100,000
#7 Czech Republic: 335.4 deaths per 100,000
#8 New Zealand: 327.3 deaths per 100,000
#9 United States: 321.9 deaths per 100,000
#10 Australia: 298.9 deaths per 100,000
#11 Norway: 289.4 deaths per 100,000
#12 France: 286.1 deaths per 100,000
#13 Austria: 280 deaths per 100,000
#14 Sweden: 268.2 deaths per 100,000
#15 Finland: 255.4 deaths per 100,000
#16 United Kingdom: 253.5 deaths per 100,000

Total health spending per person (public and private)
#1 United States: 4,271
#2 Switzerland: 3,857
#3 Norway: 3,182
#4 Denmark: 2,785
#5 Luxembourg: 2,731
#6 Iceland: 2,701
#7 Germany: 2,697
#8 France: 2,288
#9 Japan: 2,243
#10 Netherlands: 2,173
#11 Sweden: 2,145
#12 Belgium: 2,137
#13 Austria: 2,121
#14 Canada: 1,939
#15 Australia: 1,714
#16 Finland: 1,704
#17 Italy: 1,676
#18 United Kingdom: 1,675
#19 Israel: 1,607
#20 Ireland: 1,569
#21 United Arab Emirates: 1,428
#22 New Zealand: 1,163
#23 Spain: 1,043
#24 Greece: 965
#25 Portugal: 859
#26 Slovenia: 746

Total health expenditure as percentage of GDP
#1 United States: 14.6%
#2 Cambodia: 12%
#3 Lebanon: 11.5%
#4 Switzerland: 11.2%
#5 Sao Tome and Principe: 11.1%
#6 Monaco: 11%
#7 Germany: 10.9%
#8 Marshall Islands: 10.6%
#9 Togo: 10.5%
#10 Uruguay: 10%
#11 Iceland: 9.9%
#12 Malawi: 9.8%
#13 Niue: 9.7%
#14 France: 9.7%
#15 Malta: 9.6%
#16 Canada: 9.6%
#17 Norway: 9.6%
#18 Greece: 9.5%
#19 Australia: 9.5%
#20 Portugal: 9.3%
#21 Costa Rica: 9.3%
#22 Jordan: 9.3%
#23 Sweden: 9.2%
#24 Bosnia and Herzegovina: 9.2%
#25 Palau: 9.1%
#26 Belgium: 9.1%
#27 Israel: 9.1%
#28 Argentina: 8.9%
#29 Panama: 8.9%
#30 Denmark: 8.8%
#31 Netherlands: 8.8%
#32 South Africa: 8.7%
#33 Suriname: 8.6%
#34 Italy: 8.5%
#35 New Zealand: 8.5%
#36 Paraguay: 8.4%
#37 Slovenia: 8.3%
#38 Colombia: 8.1%
#39 Serbia and Montenegro: 8.1%
#40 Kiribati: 8%
#41 El Salvador: 8%
#42 Afghanistan: 8%
#43 Brazil: 7.9%
#44 Japan: 7.9%

GDP per capita in 2004
#1 Luxembourg: $65,994.27 per capita
#2 Ireland: $40,087.90 per capita
#3 United States: $39,319.40 per capita
#4 Norway: $38,196.17 per capita
#5 Switzerland: $33,062.09 per capita
#6 Iceland: $32,338.40 per capita
#7 Austria: $31,900.55 per capita
#8 Denmark: $31,768.96 per capita
#9 Netherlands: $31,749.74 per capita
#10 Belgium: $31,131.32 per capita
#11 Hong Kong: $30,537.76 per capita
#12 United Kingdom: $30,314.72 per capita
#13 Canada: $30,272.18 per capita
#14 Australia: $30,161.37 per capita
#15 Finland: $29,770.06 per capita
#16 Japan: $29,619.96 per capita
#17 Sweden: $29,443.24 per capita
#18 France: $28,758.11 per capita
#19 Germany: $28,215.45 per capita
#20 Italy: $27,905.13 per capita
#21 Singapore: $26,711.70 per capita
#22 Israel: $26,079.81 per capita
#23 Spain: $25,935.13 per capita

GDP per capita in 1900
#1 New Zealand: $4,320.00
#2 Australia: $4,299.00
#3 United States: $4,096.00
#4 Belgium: $3,652.00
#5 Netherlands: $3,533.00
#6 Switzerland: $3,531.00
#7 Germany: $3,134.00
#8 Denmark: $2,902.00
#9 Austria: $2,901.00
#10 France: $2,849.00
#11 Canada: $2,758.00
#12 Argentina: $2,756.00
#13 Sweden: $2,561.00
#14 Ireland: $2,495.00
#15 Spain: $2,040.00
#16 Chile: $1,949.00
#17 Norway: $1,762.00
#18 Italy: $1,746.00
#19 Hungary: $1,682.00
#20 Finland: $1,620.00
#21 Portugal: $1,408.00

Long term unemployment (12 months or longer)
#1 Slovakia: 10.2%
#2 Italy: 6.5%
#3 Greece: 6.4%
#4 Poland: 6.1%
#5 Spain: 6%
#6 Ireland: 5.6%
#7 Czech Republic: 4.4%
#8 Belgium: 4%
#9 Germany: 3.9%
#10 France: 3.8%
#11 Hungary: 3.1%
#12 Finland: 2.4%
#13 Australia: 1.8%
#14 Portugal: 1.7%
#15 United Kingdom: 1.5%
#16 Sweden: 1.4%
#17 Austria: 1.3%
#18 Japan: 1.2%
#19 New Zealand: 1.2%
#20 Denmark: 0.9%
#21 Netherlands: 0.9%
#22 Canada: 0.8%
#23 Luxembourg: 0.6%
#24 Switzerland: 0.6%
#25 Iceland: 0.2%
#26 Norway: 0.2%
#27 United States: 0.2%

Red_Chili
12-17-2008, 04:32 PM
The 90% is not real money beyond the first bank. The banks as a whole are lending out 10 times what the original claimed as reserve. Take an initial investment of $10, which might have come from deposits, investment or even FOMC funds, doesn't matter. The bank has to reserve $1 and can loan out $9. If that $9 is deposited into another bank, they can loan out $8, keep $1. It cascades through until the original $10 is $100 of inflated money floating around the system. If a bank was only loaning out the money once and truly keeping only 10% reserve, that would be different. But the pyramid part comes in the way the accounting credit is generated in the Fed system through inter-bank lending. The only way to keep it from inflating like this is if the money is held out by a non-bank. Like if a customer takes the original $90 loan and stuffs into a sock drawer, then the scheme does not generate all the fake money. But by about 10 or 20 lending cycles the bulk of the non-existent money is created.
Good in theory, but the analogy breaks down at the point where the bank makes no more return on investment than it costs them. They won't do that. They loan to businesses that pay much higher interest.

Regards the long list of statistics... what I get from that is that our healthcare system is drastically inefficient. ???

DaveInDenver
12-17-2008, 05:18 PM
Good in theory, but the analogy breaks down at the point where the bank makes no more return on investment than it costs them. They won't do that.
There is a whole sub-specialty of liquidity management and finance that's called maturity transformation that designs algorithms to mix the various holding instruments for the interbank loans. The original money come from the Fed at the discount rate, but they can transfer funds at the Federal funds rate, commercial paper rate, LIBOR, Treasury, funds swap rate, overnight repo and a number of other ways to avoid lending the money out of the bank at the regular prime rate. I don't know all the ins and outs, but the banks model these systems to hold money in ways that generates marginally small amounts of interest in huge volumes. The trick comes in how to correctly weight the risk/reward of the different instruments to make the most money. So all this funny money that is loaned is where the bulk of the non-reserve capital ends up. You are probably right that in reality it's not 90% growth on the original investment, but it's a monster amount of created money none-the-less. Then having these banks exposed to all these credit derivatives at several times their capital is serious business. JP Morgan was somewhere around 800% on derivatives against asset exposure, Chase about 500%. These companies combined had something like $20 trillion in derivatives and $500 billion in assets (this is why they had to consolidate, one or both would have gone under). Citibank was somewhere around 200% derivative exposure to assets, Bank of America about 150%. They are losing tremendous amounts of money as interest rates dive, which is why TARP money is being horded, to cover these losses. They are getting caught in this scheme just like Madoff did.
Regards the long list of statistics... what I get from that is that our healthcare system is drastically inefficient. ???
That was what crossed my mind. But I dunno how you measure inefficiency. Money spent is money spent. You would have to figure out where the money goes, maybe profit margins of health related companies? So how do you then factor in R&D, since both Europe and the U.S.A. have drug companies doing research with no guarantee of FDA or market acceptance. You'd have to weigh in liability here, lots of lawsuits flying around. The only experience I have with all this is my bro-in-law, who is a doctor now. He did a one year exchange program in Germany working for the CDC equivalent there. Plus my sister had her baby in Berlin, so they saw the inside of the medical system first hand. Their conclusion is that the U.S.A. is miles ahead in actual patient care in terms of the amount of resources doctors and nurses have at their immediate disposal. But since the bulk of people don't need all that stuff, it's probably an expensive waste to have sitting around. But in my sister's case her epidural nicked her spinal cord, which caused a slow spinal fluid leak. That caused her very serious headaches for two weeks after the birth. The hospital didn't have the right equipment to deal with it apparently, but I dunno much beyond that. They basically gave her Tylenol and told her to deal with it. Her description of it was the worst migraines she'd ever had. Shrug.

DaveInDenver
12-18-2008, 06:25 AM
and that this is simply the output of the free market: largely unhappy humans, even when they are relatively well off.
You keep pointing to the free market as the problem. List three markets that are truly free, where the market does what it does naturally. One without intervention, regulation, support, subsidy by government or the Fed. There are so many controls on the economy, it's ridiculous. The EPA, DOT, FDA, UL, UAW, SEC, FCC, FSA, HHS, HUD, TSA, CPSC, DORA, DEA, PPT, CRMPG it goes on and on.

The reason it seems to me behind us all feeling so poor is the constant grind of inflation and the structural cost associated with money generated through interest-bearing debt. The economy as a whole gets weighed down by it and it forces the redistribution of wealth from debtor productive industries to creditor speculative ones. IOW, as the private fiat money system runs its course, you see exactly what's happened the past few decades. It's financially more advantageous to be the shareholder or bank than be the factory or tradesman. The major money is made speculating about the value and collecting interest of advanced credit for production rather than being an actual producer of it.

Red_Chili
12-18-2008, 07:28 AM
There is a whole sub-specialty of liquidity management and finance that's called maturity transformation that designs algorithms to mix the various holding instruments for the interbank loans.
I agree that the whole derivatives thing was funny money, but that was a recent development. It hid true risk because it was so abstracted from the original obligations. It does not stand to reason that this is normal practice nor in any way caused by or related to the existence of the Fed. Tell ya what, I will print out your post and run it through a bank manager friend's thinking and tell ya what he says, howz dat?

That was what crossed my mind. But I dunno how you measure inefficiency. Money spent is money spent. You would have to figure out where the money goes, maybe profit margins of health related companies? So how do you then factor in R&D, since both Europe and the U.S.A. have drug companies doing research with no guarantee of FDA or market acceptance. You'd have to weigh in liability here, lots of lawsuits flying around. The only experience I have with all this is my bro-in-law, who is a doctor now. He did a one year exchange program in Germany working for the CDC equivalent there. Plus my sister had her baby in Berlin, so they saw the inside of the medical system first hand. Their conclusion is that the U.S.A. is miles ahead in actual patient care in terms of the amount of resources doctors and nurses have at their immediate disposal. But since the bulk of people don't need all that stuff, it's probably an expensive waste to have sitting around. But in my sister's case her epidural nicked her spinal cord, which caused a slow spinal fluid leak. That caused her very serious headaches for two weeks after the birth. The hospital didn't have the right equipment to deal with it apparently, but I dunno much beyond that. They basically gave her Tylenol and told her to deal with it. Her description of it was the worst migraines she'd ever had. Shrug.
Fair comments I'd say. Shows to go you, issues are never as simple and straightforward as we would like them to be (and therefore harder to solve). I would still have to say that although the US is cutting edge on many measures, the net results on many measures just isn't that much better on a cost-justified basis.

Which means it could be improved... duh. I am a master of the obvious. :hill: But liability lawsuits certainly seem to be the low hanging fruit. Let's hope they fix it without destroying the ability to sue for real live negligence or malpractice. Like the gal I heard about last night who lost her arm because someone injected Phenergan (migraine related medicine) too quickly. It corroded her veins and her arm went necrotic. Ewww. There's a lawsuit worth having.

Red_Chili
12-18-2008, 07:41 AM
You keep pointing to the free market as the problem. List three markets that are truly free, where the market does what it does naturally. One without intervention, regulation, support, subsidy by government or the Fed. There are so many controls on the economy, it's ridiculous. The EPA, DOT, FDA, UL, UAW, SEC, FCC, FSA, HHS, HUD, TSA, CPSC, DORA, DEA, PPT, CRMPG it goes on and on.
Exactly my point in the OP. However, I do not see a completely free market as a good thing. YMMV.

The reason it seems to me behind us all feeling so poor is the constant grind of inflation and the structural cost associated with money generated through interest-bearing debt. The economy as a whole gets weighed down by it and it forces the redistribution of wealth from debtor productive industries to creditor speculative ones.
I dunno, access to capital allows productive industries to multiply the value of the investment over the cost of access to it. That is capitalism at work, not a bad thing but a very good thing IMHO. Of course, it can go very badly, and because it is an interrrelated system it can go very badly for reasons outside that particular industry. That is the 'free' part of the (relatively) free market. It is not primarily due to government intervention (but of course government intervention can affect it for good or ill - usually, it seems, for ill, though I would not say necessarily so).
IOW, as the private fiat money system runs its course, you see exactly what's happened the past few decades. It's financially more advantageous to be the shareholder or bank than be the factory or tradesman.
Exactly. Because you are multiplying capital. Your investment (which is nothing more than a symbolic aggregate of labor + innovation - AKA 'money', at least that is my definition of the synthetic idea of 'money') made into a corporate investment funds an enterprise that adds additional labor and innovation, producing multiples of the original investment. Kind of the upside/inverse to your banks-lending-to-banks analogy above.

The major money is made speculating about the value and collecting interest of advanced credit for production rather than being an actual producer of it.
Or to put it otherwise: Major money is made betting on the future value of labor + innovation that you are capitalizing. Because this activity has more risk (which my 401(k) can demonstrate :rolleyes:), it has a higher potential return than showing up at work and cashing the ol' paycheck. So what you do with that paycheck can make you just a consumer, or make you a participant (through capitalization) in the engine of production.

DaveInDenver
12-18-2008, 07:54 AM
I agree that the whole derivatives thing was funny money, but that was a recent development. It hid true risk because it was so abstracted from the original obligations. It does not stand to reason that this is normal practice nor in any way caused by or related to the existence of the Fed. Tell ya what, I will print out your post and run it through a bank manager friend's thinking and tell ya what he says, howz dat?
I've been for the past couple of years been more and more a convert to the Austrian school (i.e. Carl Menger and Ludwig von Mises) and I get such tepid feedback about their theories from people in the business. Kirsten's dad and brother both work in the field (he bro works for Schwab as an institutional investor and her dad worked in finance). They are devout Keynesians to say the least. Even they can't explain some of this stuff to me.

Fair comments I'd say. Shows to go you, issues are never as simple and straightforward as we would like them to be (and therefore harder to solve).
No argument that it's not 1st grade simple to understand. Taken me a year to get half way through Theory of Money and Credit. :rolleyes: But there are built-in complexities that I'm really convinced are designed to obfuscate and hide the real mechanism. I'm sure it's as much since 99% of people don't care and their eyes glaze over when talking about economics. But when you start pointing out the inconsistencies, people think it's all about conspiracy theories or whatever. Well, maybe there is some behind the curtain men who have designed the game so that they can't lose. When you start overlying social, political and economic milestones, it's funny how problems line up with wars, how social injustice line up with speculative currency attacks, how the IMF and World Bank squeeze unfavorable governments. It's certainly hard to wade through the crackpots who believe there are House of Rothchild moon bases and people who see genuine correlations in history. There are powerful people running the game from behind the scenes, it should be obvious to any Obama supporter. The guy has changed his tune on just about everything now that he's getting the full picture and it's uncanny how much he is starting to sound a lot like a Bush, Clinton, Carter.

Red_Chili
12-18-2008, 08:23 AM
:lmao:
Yeah, no doubt. I figure the Huffington Post folks are gonna go ballistic (HEY! HE isn't what we voted for!), though to be honest I haven't checked recently. I do know a lot of conservatives are surprised... somewhat relieved... and holding their criticism. But the guy still thought serializing bullets and cases was in the realm of "common sense gun control that everyone can agree on", so I'm holding my opinion for now. But I digress.

I agree that shell-game complexity comes into play. It is amazing that smart people bought into financial instruments whose risk could not even be quantified. I did read something that an unanticipated consequence of government backing is causing the whole gin mill to start up again, this time leveraging that backing. :rolleyes:

But I still sense something of tin foil in some of your views of the Fed et.al. :hill: I've been wrong before, but... I dunno...
11468

Check this book out:
http://www.amazon.com/Good-Capitalism-Economics-Growth-Prosperity/dp/0300109415/ref=pd_ys_shvl_64

Appears to be well right of center, but probably worth a read. I was challenged by this critical review though:
http://www.amazon.com/review/R3GI5DZ3TJ3IUI/ref=cm_cr_pr_viewpnt#R3GI5DZ3TJ3IUI

Geez. The shortcomings of second-sourcing. Now I have to go friggen read "The Wealth of Nations". :bored: Not ever heard these aspects of Adam Smith emphasized. Usually folks rely on him for his apparent laissez-faire statements. It would appear he would fall in line with the OP.

Red_Chili
12-18-2008, 08:28 AM
Just about anyplace in Western Europe :lmao:

...

"Welcome to Walmart".
Good points all. :( Supports (echos) what the first linked article was saying too.

DaveInDenver
12-18-2008, 08:34 AM
Exactly my point in the OP. However, I do not see a completely free market as a good thing. YMMV.
But how would be know? Our markets haven't been unimpeded since the middle of the 19th century.
I dunno, access to capital allows productive industries to multiply the value of the investment over the cost of access to it. That is capitalism at work, not a bad thing but a very good thing IMHO. Of course, it can go very badly, and because it is an interrrelated system it can go very badly for reasons outside that particular industry. That is the 'free' part of the (relatively) free market. It is not primarily due to government intervention (but of course government intervention can affect it for good or ill - usually, it seems, for ill, though I would not say necessarily so).
Easy access to capital is essential to the economy. That capital needs to be available with terms that the economy can afford. By some calculations half the cost of everything is eaten up by the usury paid on the money itself. Money needs to be a mechanism for exchange within the economy, not have a value in and of itself beyond its natural commodity price.

There are several books that are much better at explanation than I could ever be, I really encourage people to look into it and draw some conclusions. The way it's told to us in grade school and on the TV is at it's very core propaganda. We're being fed a revisionist and sanitized version of it all, the real truth is far more complex than a few pages in history books.

Our money and the way it's created is IMVVVHO the underlying reason that our country is grinding to a halt. Certainly a non-trivial part of it is the loss of responsibility (both personal and societal) and the satisfaction of working hard to get your own part of the pie. Not to mention the nanny state that protects us from cradle to grave and how it costs us our liberty and freedom. But all of that is part and symptom of the fundamental problem.

More easily accessed:
What Has Government Done With Our Money? - Murray Rothbard
Web of Debt - Ellen Brown
The Case Against the Fed - Rothbard
Introduction to Austrian Economics - Thomas Taylor
Mises and Austrian Economics - Dr. Ron Paul

More academic tomes:
The Theory of Money and Credit - Ludwig von Mises
Monetary Theory and the Trade Cycle - F.A. Hayek
Money, Bank Credit, and Economic Cycles - Jesus Huerta de Soto
The Road to Serfdom - Hayek
The Anti-Capitalistic Mentality - von Mises
Essentials of Economics - Faustino Ballve

How about some competing view of history and politics:
America's Great Depression - Rothbard
Lincoln Unmasked - Thomas Dilorenzo
The Politically Incorrect Guide to American History - Thomas Woods
The Costs of War - John Denson (this is a collection of essays)
Socialism - von Mises
Human Action - von Mises
As We Go Marching - John Flynn
The Roosevelt Myth - Flynn

Red_Chili
12-18-2008, 08:56 AM
But how would we know? Our markets haven't been unimpeded since the middle of the 19th century.
That is how I would know. History.

Easy access to capital is essential to the economy. That capital needs to be available with terms that the economy can afford.
But it won't be available except with terms that make it attractive to invest, and that compensate for risk.

IMHO your book list shows those all beating the same drum.

DaveInDenver
12-18-2008, 09:02 AM
But I still sense something of tin foil in some of your views of the Fed et.al. :hill: I've been wrong before, but... I dunno...
I know you're just poking fun, but these views are most definitely not fundamentally crack pot.

Look up the biographies of these men. They are intelligent, accomplished people.

The fundamental developers of the Austro-libertarian school of economics:
Ludwig von Mises
Carl Menger
F.A. Hayek
Murray Rothbard
Frank Fetter
Henry Hazlitt
Frederic Bastiat
Gottfried Haberler

Modern day teachers of it: http://www.mises.org/faculty.aspx

These people teach at places like Loyola, Univ of Missouri, Auburn, Univ of Paris, NC State, West Point, Univ of Kansas, UVA, Northwestern, Ohio State. Not exactly slouch schools. Those are just people who are supported by the von Mises Institute, there are more who believe in the theories set forth by the Austrian economics of the 1900-1930 era. There are key threads in most of the beliefs within the Austria School. Not all believe the Fed needs to be abolished, some think it needs to be reigned in (even Thomas Jefferson recognized the danger of a private money issuing organization and why the Constitution states that is supposed to be a function of government). I see the value in keeping the organization separate from Congress when you think about the damage politicians could do with free reign over monetary policy. I happen to agree with JFK's position that the money loaned to the government must be interest free (see Executive Order 11,110). The interest on the money and debt is what is crippling the economy.

DaveInDenver
12-18-2008, 09:19 AM
That is how I would know. History.
Times are different now than 1780 or 1840, right? The damage from the Civil War & Reconstruction, of the Guilded Age and the various attempts at central banking I think make the experiment of heavily intervened markets no better for society and in many ways worse. We try to fix problems created by earlier central banks with a more powerful central bank. It never solves anything and creates more problems. We try to fix problems with laws that not only don't fix the problem but create scores of others. This is just too much to cover in 5 sentences on a forum, which is why I'm presenting the titles that I've read and am reading to are forming that conclusion. I don't suggest you take my word for it, I just present the scholarship and research for others to look into.
But it won't be available except with terms that make it attractive to invest, and that compensate for risk.

IMHO your book list shows those all beating the same drum.
Yes, there are plenty of references to Keynesian economics. Do you want listings for those? I thought the point of a discussion was to present my side and you counter with opposition. I believe in fundamentally unimpeded (from politics, economic meddling, the whole gamut) markets and you appear not to agree. So give me a list of books that you feel show me how Fed monetary policy since 1913 has been this great stabilizing force that has delivered us from recession and depression. It's protected us from the evil predatory ways of big business and vulture capitalism, make government more efficient and benevolent. Seems to me that the Fed has sure made the families of J.P. Morgan and J.D. Rockefeller and their banks and the IMF much better off and done nothing but grow the government into a monster. But we've driven manufacturing off shore, multiplied the number of people who rely on state support, driven up the cost of staples of living and created this unsustainable society that must always be driven to consume more and more to keep the game moving.

Beater
12-18-2008, 09:30 AM
you guys should get a room.....

DaveInDenver
12-18-2008, 10:07 AM
Geez. The shortcomings of second-sourcing. Now I have to go friggen read "The Wealth of Nations". :bored: Not ever heard these aspects of Adam Smith emphasized. Usually folks rely on him for his apparent laissez-faire statements. It would appear he would fall in line with the OP.
I should also say that I can see merit in the Milton Friedman and George Stigler frame of reference, the Chicago School (maybe because of Hayek, I dunno). Their views are very critical of the idea of the natural business cycle and they are most definitely not Misesian (despite generally being libertarian). But even Friedman believed the Fed needed to go.

PS: Checking out the book you linked, Good Capitalism, Bad Capitalism. Hoping we get bonuses this year. :doh:

Red_Chili
12-18-2008, 11:48 AM
you guys should get a room.....
What are you doing in our room??!?

DaveInDenver
12-18-2008, 11:53 AM
What are you doing in our room??!?
http://www.wtv-zone.com/GrannyJ/gifs/misc/gifs/no-trespass.jpg

Red_Chili
12-18-2008, 11:55 AM
So give me a list of books that you feel show me how Fed monetary policy since 1913 has been this great stabilizing force that has delivered us from recession and depression. It's protected us from the evil predatory ways of big business and vulture capitalism, make government more efficient and benevolent. Seems to me that the Fed has sure made the families of J.P. Morgan and J.D. Rockefeller and their banks and the IMF much better off and done nothing but grow the government into a monster. But we've driven manufacturing off shore, multiplied the number of people who rely on state support, driven up the cost of staples of living and created this unsustainable society that must always be driven to consume more and more to keep the game moving.
Ain't got a list. Nor, suddenly, the time; software releases today...:rolleyes:
Not sure I care for duelling booklists. Kinda like footnote warfare.:hill: Not claiming they have delivered us from recessions or a depression (not that they should, or even could), but sure as heck they have moderated.

I dunno, seems like views outside the main stream have the burden of proof. In Executive Summary form, puh-leeeeeze!:lmao: (which you have mostly done...). Perspicuity and elegance and all that rot.

I just don't see how the Fed could possibly be responsible for all the evils you decry. But I also don't see, at a macro level, that today's economy is fundamentally different from what it was 100 years ago (details, players, weighting of sectors, sure. Internationalization, sure). On a more granular level however, the buying power of the average American is ten times what it was then, which would seem to undermine your thesis.

Red_Chili
12-18-2008, 11:57 AM
http://www.wtv-zone.com/GrannyJ/gifs/misc/gifs/no-trespass.jpg

:lmao::lmao::lmao::lmao:

Of course, all are welcome to join the party... LOL

Groucho
12-18-2008, 12:48 PM
end The Fed!!!

Red_Chili
12-18-2008, 01:37 PM
That is perhaps a bit weighty on the 'summary' side of Executive Summary...

DaveInDenver
12-18-2008, 01:41 PM
That is perhaps a bit weighty on the 'summary' side of Executive Summary...
LOL! I dig the brevity. :-P