Should We End the Fed?

Discussion in 'YouTube Digest' started by hawkeye, Sep 18, 2012.

  1. Yippe-Ki-Ya

    Yippe-Ki-Ya New Member

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    Well for one thing - the inflation that the Fed exports to Australia
     
  2. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    Have we seen that yet? Data suggests not yet.
     
  3. lucky luke

    lucky luke Well-Known Member Silver Stacker

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    ok, I'll try.

    Is it the Fed which has led to QE1, QE2 and QE3?. With these injections of money, does the US$ comparitively weaken compared to other major world currencies? The effect of the US$ being weaker against other currencies makes US products more competitive (read "cheaper") on the world market. With regard to our AUD, is it really worth over $1 US? With our govt not intervening to weaken our dollar at the same time that the Fed is weakening the US$, how are our manufacturers (the few that exist) supposed to compete with the same products made in the USA?

    When the Fed makes and announcement, then it has global implications. Why do you think we in Australia are immune from this?

    and then there is this thread which overlaps my explanation........... http://forums.silverstackers.com/topic-30926-bernanke-s-qe3-squeezes-rba-on-rates.html
     
  4. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    Ok, I understand your reasoning, and in part I think it has merit in theory. However, it may be a long bowe to draw in blaming QE's for the AUD/USD cossrate as it currently stands.

    It is well known and documented that the AUD has historically been a 'commodity currency'. It is also no secret that the China boom (though it may be coming to end) has played a significant part in pushing the AUD higher. This is evident by the rise of the AUD leading into the 2008 GFC, where the AUD rose close to parity. QE1 did not begin until Nov 2008. So, if it is the Fed to blame, it must only be in very recent times, but even this is questionable given recent commodity prices and export volumes over the last few years.

    This latest round of QE may put pressure on the RBA to lower rates, but it hasn't happened yet. And while inflation remains in the target band for the RBA, it is premature to lay blame for inflation.

    Until any of this actually eventuates, then I don't see (from a personal viewpoint) how the Fed can be blamed for the 'negative flow-on effect it's activities have on our lives here in Australia'.

    Edit to add: Oh, one other thought. :) To reason that the Fed's QE weakening of the USD is giving the US manufacturing sector an unfair advantage to which AUS manufacturers cannot compete, seems to be suggesting that the Fed's QE strategy is infact a somewhat clever and effective strategy, and not that dumb after all?
     
  5. Lovey80

    Lovey80 Well-Known Member

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    The government will always in some way have control over the financial system. The problem is, that would be a great start from this point. We can argue with the government or at least try to reform it when we get it to the point where it is the government that is causing the inflation/ erosion of savings etc etc etc... They have given that responsibility to the banking system. At least if the government was wholly responsible for it, private corporations wouldn't be the ones making mega profits off of it and at least then the so called "benefits" of it would go to "us" not the bankers....

    Prior to 1913 there wasn't a government monopoly central bank to my knowledge, the banking cartels set up their own version of one to stave off bank runs when they lent out far too much money. Sure the 1800's weren't a free market but at least back then you didn't have a small group of people (the central bank board) setting the price of money. There sure was flaws in the pre Fed era and I believe what I suggested above was a far far superior alternative to the creation of the Fed. I called it Glass-Stegal type because of the familiarity with the law that has become so infamous, in practice it would be far stricter yet the other half of the system would be regulated by the free market.
     
  6. hawkeye

    hawkeye New Member Silver Stacker

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    Says who? And how do you know that? Can you see the future?

    If you follow much of the libertarian community, including people like Ron Paul, you'll find that the big push is not so much to reinstate the Gold Standard, but to take the whole system completely out of the hands of the govt. A view I completely agree with.

    And here I thought you were a small government guy. Now you are advocating for the government to have total control. You can't have it both ways.

    For the government to have any effective control over the financial system it needs a considerable amount of power. Otherwise, bankers are just able to game a corrupt system. The only option is for market regulation. Profit margins will be cut to the bone by vigorous competition and banking will be like any other long established industry, not something which generates mega-profits.

    What you are saying is that you want the banks to continue to screw the population as long as the money goes to the government because you think it will somehow make it's way into your hands. I can see numerous problems with this.

    I don't think either of us are experts on 19th century banking (I think there's probably a tiny amount of people in this world who are), so maybe we should avoid that discussion.

    Glass-Steagall is a red herring imo. I don't know where this idea came from but I haven't seen any actual analysis behind it. Perhaps you could point me to some. Saying things were basically OK before 1999 or whenever it was seems ridiculous to me. And how did it cause the worldwide problems? I think things go much deeper than that.
     
  7. Lovey80

    Lovey80 Well-Known Member

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    Whoa there, it seems that I haven't been clear. I would love nothing more than a 100% backed gold standard. That meaning 100% reserve. Fractional Reserve Banking gone for ever and the market to set interest rates. The "central" banks sole responsibility would be the coining of currency and the auditing of the banking system to ensure that banks were not lending out more than they had in reserves and balance of trade payments to other countries. Someone has to enforce that! Even if we move to the very end of the laissesfaire spectrum, there still needs to be some sort of watchdog to ensure the rules are abided by.

    I'm saying exactly the opposite of that. Other than my comment above, all I am saying is that "if" the population is going to be screwed through bad monetary policy ie inflation etc etc etc it would at least be a step in the right direction to have government do it directly and take the benefits of that (needing less direct taxes as a result) away from the banks who give nothing back to us in return. I'm not saying that is a good end state, far from it, but it would be better than giving this free kick to the banks as we do now and at least a good first step.

    Yes Glass-Stegal is a red herring as you have focused on that rather than the core of my point and that is the separation of basic retail banking which should be purely a service based industry and that of investment and loan banking. It has become a distraction to my point. I never said everything before 1999 was ok and far from it. I would just rather see people's savings/operating accounts insulated from the speculation of the banking sector. I want to see those funds not counted in a banks assets when attempting to sure credit funding. I want those accounts insulated from dodgy policies like covered bonds. And mostly I want a system where the tax payer should never ever have to be put in a position where they have to guarantee their own money.
     
  8. hawkeye

    hawkeye New Member Silver Stacker

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    First of all thanks for the clarification. If it seemed like I was attacking you, that wasn't my intention. Maybe we got off on the wrong foot.

    But think about this for a second. Why would it be a good first step. It is going down the road of more government control, more socialism and is ultimately the road to communism. It would entail far more govt control and interference in our lives than what we currently get.

    And do you think if they were getting more money they would reduce the taxes significantly? Or would they spend the money on social programs for the good of us all? Which of course would have to be managed and regulated. More rules and bueracracy.

    OK, well, I think the phrase GS is a bad one to use unless you are directly referring to it.

    You need to ask why this crazy speculation is going on. Here's my answer...

    Banks are historically quite conservative. I know it's hard to imagine for the people who have lived in this era but it's true. Lending is a risky business.

    What has happened is that governments have taken over the banking system, with the willing aid of many bankers of course. The bankers want a lender of last resort, something they can go to if their bets go bad, which allows them to make risky bets with the implicit, and sometimes explicit knowledge, that they can tap the government(taxpayers) when things go bad. Why does the government like this arrangement? In a word, jobs. The credit bubbles that are created from all this lending create booms that then convince their citizens that they are managing the economy good and providing prosperity for the maximum number of people. They don't think too much about busts, either they think they can manage them or they figure they can blame them on the other party.

    This is a dangerous system. We've already seen the wealth destruction that occurs and there is no incentive for this situation to end while ever the govt has control. I would argue it is the major reason for the increasing wealth gaps in society as small numbers of people benefit hugely from credit bubbles and large numbers suffer. It's the definition of a bubble.

    Fraud should be prosecuted certainly. And this happens all the time in other private sector industries. Why is banking special? If people believe they have been defrauded by banks in a private free market situation they can sue them. If banks engage in FRB in a free market situation and some people consider that fraud they can sue the bank and see what a court has to say. This is in a world of course where govt is not involved in banking and there are no govt banking regulations.

    There's no incentive for the govt to do the right thing with banking. If it all collapses, as some believe, they will set up a system which suits them. While ever they have control there will always be the temptation over time to take it over for the "public good".

    Sorry for the long answer.
     
  9. Yippe-Ki-Ya

    Yippe-Ki-Ya New Member

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    +100 Hawkeye
     
  10. Lovey80

    Lovey80 Well-Known Member

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    That's ok mate I wasn't taking it as an attack. I have put a lot of thought to the whole system and how I would change it in reality.
    I'm not sure what your problem with what I am saying actually is or if maybe your understanding of how things work now is ok with you?

    Right now the government sets the inflation targets for the RBA to act on. This right here is the very crux of the problem and what I am suggesting as a first step, doesn't change that at all (remember its a first step or at the very least one that has to happen on a moral hazard argument). The RBA itself increases the money supply by about 3% of the total money supply expansion in any calendar year. The other 97% of money supply expansion happens through the banking sector.

    So let assume the CPI isn't a piece of government propaganda for a second and assume they average 3% annually (yeh I know the CPI is a joke and inflation is much higher). That's a 3% tax on the wealth of every Australian and a 3% erosion of the wages of every working Australian. What gives the banks the right to do 97% of that? What gives the banks the right, to make pure profit by stealing the purchasing power and wage strength of every single Australian? The Australian constitution certainly doesn't!

    As TOTALY screwed up as doing so would be if the government was doing exactly the same thing, at least the people get to vote one way or another for the government to spend those benefits how they chose. You and I don't get to chose how a bank spends the profits it made by stealing our wealth unless we outlay huge sums of money of what we have left over after they have finished stealing from us.

    Does that sound like a democracy to you? We can start working toward a libertarian society at the same time but at least "we the people" can take back control of the benefits of this wealth erosion as a first step. Do I think the government will spend less? That will then be up to the voters to determine.

    Yes basic retail savings and loan is traditionally conservative, I'd certainly like to keep it that way with my Love-Board-Hawkeye act ;)

    But, the Goliath nature of how banks operate now with derivatives and MBS and all the rest of the huge speculations puts the little guy on the street with a steady job and a mortgage at risk. Look at how the big players of today were at the root cause of the dodgy PONZI schemes that caused the 1929 crash. Goldman Sachs anyone?

    While you say the government has taken over the banking system, I say the banking system has taken over the monetary system by taking it hostage. By using debt to enslave us all, they have the politicians by the balls to ensure they act to save them (not us) every time the credit bubbles pop. Every time there is a pop it's monetarily deflationary, which should be fine, but as the money supply contracts, so does prices, wages etc etc etc but with the debt not contracting with it as fast, wages become sticky so do prices etc which causes the unemployment.

    Edit: this is where Keynes saw it right but IMO got the remedy wrong. He wants to reflate the bubble, instead we should have allowed the debt to be extinguished or even better, never allow it to balloon so far in the first place. A gold 100% standard with no FRB does this.

    Absolutely. But the problem is, if left to its own devices, the big players lose HARD also.

    We have to get the free market situation without FRB in the first place. Government has to set the rules as such before a court can prosecute them for it. Right now the banksters are so far in the hip pockets of the pollies that the pollies make all this (most of it) legal before they get up to this dodgy shit. Take Goldman selling those complete rubbish MBS they KNEW were worthless throughout 2007 and then shorting them. That alone contradicted the weak as piss laws that were in place and STILL not one of them has even been charged let alone seen the inside of a court room.


    I love the long answers and you are 100% right on the last para. What we need is a small political party shouting these things to begin to wake up the people, so when the SHTF maybe the people will turn to them to implement the picking up of the pieces. I'd volunteer to start it myself, but i have a long way to go in achieving my own financial goals and politics certainly won't help me do that.
     

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