Best Thread Keynes Vs. Hayek

[new_trader]

You don't know how funny you are. You talk about eroding consumer purchasing power disposable income etc yet you talk about raising rates to tackle inflation.

True but in each case you need to consider time lags t-1, t+1 you know the stuff don't you.

Let's have some clarity from you for once instead of silly links.

Atilla, you have selective amnesia.

In summary, I have said repeatedly that the inlationist policy of keeping interest rates low and expanding the money supply via a printing press only benefits a profligate Government. All else is a consequence of this premise.

The insidious monetary process of political manipulation of the value of national currencies destabilizes the peace of the social order; it increases strife among citizens; it causes intense divisions and political partisanships. But the ensuing bubbles of inflation and the busts of deflation can be coped with by nimble speculators, even as they impoverish the middle class and all those on fixed incomes. Throughout history currency wars lead to irreconcilable class rivalries at home, often born of undervalued currencies, competitive devaluations and national tariffs, joined to trade-blocking quotas.

If we truly wish to rule out systemic financial disorder and currency wars, and their consequences then we need a return to a sound money policy.

 

[LuKOs.ro]

From Greenspan in 1966:

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Austrian Economics 101.

 

[Martinghoul]

Spoken like a true Keynesian.

Yes, I already know that you're very proficient at slogans and names.

At this point, it would be most welcome if you could make a logical argument or provide some evidence that would actually support your assertions.

 

[Martinghoul]

I think we should assume the interest rate cuts at the very least raised the growth rate of inflation otherwise we could start drawing conclusions that make absolutely no sense lol. Comparitive statics are our friend

Sorry, what's "comparitive statics"?

Do interest rate cuts always raise inflation? Is that the case in an environment that we're in at the moment and were in during the 2008 crisis? What did you think have more effect on UK inflation, interest rate cuts or VAT and other indirect tax hikes?

 

[Martinghoul]

Atilla, you have selective amnesia.

In summary, I have said repeatedly that the inlationist policy of keeping interest rates low and expanding the money supply via a printing press only benefits a profligate Government. All else is a consequence of this premise.

The insidious monetary process of political manipulation of the value of national currencies destabilizes the peace of the social order; it increases strife among citizens; it causes intense divisions and political partisanships. But the ensuing bubbles of inflation and the busts of deflation can be coped with by nimble speculators, even as they impoverish the middle class and all those on fixed incomes. Throughout history currency wars lead to irreconcilable class rivalries at home, often born of undervalued currencies, competitive devaluations and national tariffs, joined to trade-blocking quotas.

If we truly wish to rule out systemic financial disorder and currency wars, and their consequences then we need a return to a sound money policy.

But wait, what sort of student of history are you? Didn't the Great Depression, which, arguably, was the greatest episode of "instability of the peace of the social order; strife among citizens; intense divisions and political partisanships; class rivalries; national tariffs, etc" in recent history, occur during the period of what you define as "sound money"?

 

[Martinghoul]

From Greenspan in 1966:

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Austrian Economics 101.

But wait a second... I thought Alan Greenspan is a famous idiot. So it's OK to quote him when he talks about the gold standard, but in everything else he's an evil inflationist bubble-blower?

 

[enragedcow]

Sorry, what's "comparitive statics"?

Do interest rate cuts always raise inflation? Is that the case in an environment that we're in at the moment and were in during the 2008 crisis? What did you think have more effect on UK inflation, interest rate cuts or VAT and other indirect tax hikes?

I have respect for you so please don't take this as an affront to your intelligence.

Comparitive statics is just the usual way of analyzing economic phenomena. you look at each effect in isolation as you move through the policy mix/shock assuming there's some infinitismal period between each one so that you can look at the net effect rather than end up getting lost in the mumbo jumbo of dynamics etc because seriously looking at every single movement in the variables is just ridiculous.

Real Interest rate cuts will raise inflation yes. If done through expansionary monetary policy (be that open market transactions or quantitative easing) the effect is more obvious, in the medium run monetary policy is neutral and only causes inflation (because output returns to it's natural rate) - assuming the real interest rate cuts don't result in firms investing more in infrastructure which would lift the natural rate of output.

Of course interest rate cuts induce firms to increase investment (though for simplicity's sake not in infrastructure) and consumers to spend and exporters face increased demand for their products. So that pushes up short run income which then leads to inflationary pressure on prices through a decrease in unemployment (increasing workers ability to demand higher wages pushing costs and thus prices up).

VAT actually won't stay in inflation for very long, NZ increased GST (basically VAT) and it's estimated that the effects of the increase will only show up in inflation for a few quarters. I'd focus more on the effects of a VAT increase as an increase in taxes rather than inflation. Of course it does affect purchasing power for a short time can't deny that.

More directed towards NT: i'm not sure why you're so against policy makers intervening with real interest rate cuts, in the face of what is the worst financial crisis since the depression (and more widespread) I think a bit of (medium run) inflation is a small sacrifice to ensure that in the short run income is kept at a level such that unemployment doesn't skyrocket.

Imagine the extent of social unrest if policymakers didn't cut real interest rates, unemployment sitting at (for argument's sake) 30% and 80% among youth/unskilled workers.

And e'rryone should just stop with the capitalism bashing, the fact that we're not all forced to work on massive farms and eating the exact same portion of rations each day is testament to the fact that we've finally got it right.

Don't like banks getting bailed out and don't like "golden handshakes"? to thee is say in the words of Barack Obama "eat yo' peas..."

 

[new_trader]

Facts about a Fascist state.

15 Facts About Military Spending That Will Blow Your Mind


Welcome to the U.S.S.A

 

[new_trader]

More directed towards NT: i'm not sure why you're so against policy makers intervening with real interest rate cuts, in the face of what is the worst financial crisis since the depression (and more widespread) I think a bit of (medium run) inflation is a small sacrifice to ensure that in the short run income is kept at a level such that unemployment doesn't skyrocket.

What you're saying is that the imbeciles who were the architects of the worst financial crisis since the great depression know what they need to do to get us out of it...More of the same! Read Alan Greenspan's full essay on the Gold standard, he explains clearly how free banking and interest rates work. He wrote the essay before selling his soul to politics but he appears to be returning to his senses now.

Gold standard now supported by Alan Greenspan the person who help destroy USD - YouTube


There are flaws in your argument about a 'bit of inflation' and preventing unemployment because there are hidden costs of the policy, the unseen consequences which can be summarized with the broken window fallacy.

How can you or anyone logically argue that the policy makers aren't actually preventing new jobs from being created? The fact is you don't know and the modern economists don't know either.

As for Governments knowing what they are doing, here is just one example of the Government thinking it knows better than the free market, and the taxpayers will foot the bill:

Solyndra, Solar-Panel Maker in California, Seeks Bankruptcy - Bloomberg

 

[Atilla]

I have respect for you so please don't take this as an affront to your intelligence.

Comparitive statics is just the usual way of analyzing economic phenomena. you look at each effect in isolation as you move through the policy mix/shock assuming there's some infinitismal period between each one so that you can look at the net effect rather than end up getting lost in the mumbo jumbo of dynamics etc because seriously looking at every single movement in the variables is just ridiculous.

Real Interest rate cuts will raise inflation yes. If done through expansionary monetary policy (be that open market transactions or quantitative easing) the effect is more obvious, in the medium run monetary policy is neutral and only causes inflation (because output returns to it's natural rate) - assuming the real interest rate cuts don't result in firms investing more in infrastructure which would lift the natural rate of output. What if households and companies pay off debts reduce gearing instead? Different periods and economic scenarios and time periods need consideration.

What you say is typical monetary BS. Like a trading system may work during one season or even decade but not the next.

I studied the response of the Ms to interest rate changes and didn't find it to be elastic at all. In fact time and consumer behaviour as well has money definitions have all changed. eg: People don't have many notes and coins in pockets as 20-30 years ago. It's all credit cards. In fact even with APR of 20+% on credit cards they still run up debts. So Ms is about inelastic as one can get to changes in interest rates.

Ok let's say consumer behaviour is stupid not realising credit cards translate to real money but Governments debt also grown. One can build a very strong case to argue that it is more expectations theory and confidence that is a better determining factor of the Ms than interest rates. Companies too have greater risk appetite in a boom period then during a recession - even though interest rates may vary considerably.

So when you quote "Real Interest rate cuts will raise inflation yes!" my reply is no not necessarily. Then you go and throw an if and a but bla bla bla...

Of course interest rate cuts induce firms to increase investment (though for simplicity's sake not in infrastructure) and consumers to spend and exporters face increased demand for their products. interest rate cut whilst raising exports via investment and currency changes also raise cost of imports via currency effect. So that pushes up short run income Time lag before incomes rise due investmentwhich then leads to inflationary pressure on prices Is this inflation imported or due to something else? through a decrease in unemployment (increasing workers ability to demand higher wages pushing costs and thus prices up). Not true as there is no evidence of wage inflation due to influx of imported labour.

VAT actually won't stay in inflation for very long, NZ increased GST (basically VAT) and it's estimated that the effects of the increase will only show up in inflation for a few quarters. I'd focus more on the effects of a VAT increase as an increase in taxes rather than inflation. Of course it does affect purchasing power for a short time can't deny that.

More directed towards NT: i'm not sure why you're so against policy makers intervening with real interest rate cuts, in the face of what is the worst financial crisis since the depression (and more widespread) I think a bit of (medium run) inflation is a small sacrifice to ensure that in the short run income is kept at a level such that unemployment doesn't skyrocket.

Imagine the extent of social unrest if policymakers didn't cut real interest rates, unemployment sitting at (for argument's sake) 30% and 80% among youth/unskilled workers.

And e'rryone should just stop with the capitalism bashing, the fact that we're not all forced to work on massive farms and eating the exact same portion of rations each day is testament to the fact that we've finally got it right.

Don't like banks getting bailed out and don't like "golden handshakes"? to thee is say in the words of Barack Obama "eat yo' peas..."

I won't bother responding to your whole text but it sounds a lot like basic economic text book monetarist nonsense which is not always supported by the evidence at all.

People lack the ability to analyse and consider outcome of policy.


So you don't like golden handshakes - I'm pleased to hear and you don't like to punish wrong doers. So what is the opposite side of bonus culture and 10 fold increase in top managements salaries in the last decade whilst company growth, profits and dividends have shrunk?

Pension fund managers and jobs for the select boys - no one is going to rock the boat as they are all in each others pockets... It's a racquet Al Copone would be proud of.

 

[Atilla]

What you're saying is that the imbeciles who were the architects of the worst financial crisis since the great depression know what they need to do to get us out of it...More of the same! Read Alan Greenspan's full essay on the Gold standard, he explains clearly how free banking and interest rates work. He wrote the essay before selling his soul to politics but he appears to be returning to his senses now.

Gold standard now supported by Alan Greenspan the person who help destroy USD - YouTube


There are flaws in your argument about a 'bit of inflation' and preventing unemployment because there are hidden costs of the policy, the unseen consequences which can be summarized with the broken window fallacy.

How can you or anyone logically argue that the policy makers aren't actually preventing new jobs from being created? The fact is you don't know and the modern economists don't know either.

As for Governments knowing what they are doing, here is just one example of the Government thinking it knows better than the free market, and the taxpayers will foot the bill:

Solyndra, Solar-Panel Maker in California, Seeks Bankruptcy - Bloomberg

Agree with returning back to the currency backed by Gold standard reserve system in due course.

Also commented way back in the many hyper-inflation threads that inflation would be the ultimate outcome of these excessive billions bailing out banks. In contrast to quite many debating deflation. :smart:

A little suprised Mr G changing his tune having provided free and easy credit for so long and being instrumental to our current mess. At least Mr G has the humility to recognise his mistakes and begin to consider merits of gold standard again.

 

[scose-no-doubt]

Or has he now rebalanced his portfolio lol.

 

[enragedcow]

Rofl at the journalists jumping to conclusions "alan greenspan supoorts return to gold standard" lies, he clearly stated "either a gold standard or a currency board." so yes he does obviously like the idea of a gold standard but knows there are other options.

Personally I think in this modern period where gold is used for so many electronics and other advanced technologies a gold standard would be catastrophic because the supply of gold isn't worth even as much as all the USD circulating alone.

Again, an opinion rather than concrete evidence: a return to the gold standard just seems to have too many disadvantages, particularly the loss of monetary policy as a stabilizing mechanism. Recently there was a massive earthquake in Christchurch NZ causing a huge increase in government deficit and probably the main cause of the lacklustre growth we've had. Absent the reply of the RBNZ decreasing the OCR as well as increasing money supply through open market interactions I believe NZ could have fallen far further into recession.

 

[counter_violent]

Also commented way back in the many hyper-inflation threads that inflation would be the ultimate outcome of these excessive billions bailing out banks. In contrast to quite many debating deflation. :smart:

What a pile o crap. and what will be the outcome when QE2 fails further down the line, as it surely will . Sticking plasters at best ! The reality:- the patient needs radical surgery or we may lose him.

The inflation seen is not the whole picture. Of course it is not in any govt's interests to highlight all the areas of deflation such as housing, wage cuts, continual and persistent job losses yada yada. There is no confidence....non whatsoever...the people are slow as always to wake up to the facts, but gradually they are catching up with reality lol.

As I pointed out to you a number of months ago, the market actions WILL dictate govt's policies. The proof (if any were needed) is that Europe's leaders are being dragged kicking and screaming against their will into making bad financial decisions just to pacify the "lets try calm the masses and the markets and get back to business as usual crowd".
Bad policy is bad policy no matter how it's dressed up and it will eventually catch up with the decision makers.

Govt's are becoming increasingly redundant in their effectiveness, not only in finding solutions to current out of control problems but also their, questionable, right to govern. Little by little, people are waking up to these facts.

The global revolution is now well under way and I expect will take many different paths over the coming months/years.

http://www.marketwatch.com/story/now-the-main-event-inflation-vs-deflation-2010-08-04

 

[LuKOs.ro]

To be honest, as you may have noticed, people (and governments) want to apply Keynesianism in hard times (to avoid the pain of correcting exuberance) and to apply libertarianism in good times (to avoid the pain of regulation when it is actually needed)

They can't chose the ideology they follow depending on whether it suits your purpose. Or can they ?

 

[new_trader]

Personally I think in this modern period where gold is used for so many electronics and other advanced technologies a gold standard would be catastrophic because the supply of gold isn't worth even as much as all the USD circulating alone..

That is the argument used by people who don't understand the gold standard.

Put simply.

1) The price of gold would be re-valued so that if the $US is backed by gold again the value must be high enough so that holders of $US will not feel the need to redeem them.

2) Under a gold standard, prices fall as productivity increases which is a usual economy of scale process. Look at computers, TV’s and other consumer electronics that have got cheaper as productivity has improved/increased.

3) Under a gold standard wages don't need to rise as much (or at all) because of point 2 above, stable prices and low inflation.

 

[Atilla]

What a pile o crap. and what will be the outcome when QE2 fails further down the line, as it surely will . Sticking plasters at best ! The reality:- the patient needs radical surgery or we may lose him.

The inflation seen is not the whole picture. Of course it is not in any govt's interests to highlight all the areas of deflation such as housing, wage cuts, continual and persistent job losses yada yada. There is no confidence....non whatsoever...the people are slow as always to wake up to the facts, but gradually they are catching up with reality lol.

As I pointed out to you a number of months ago, the market actions WILL dictate govt's policies. The proof (if any were needed) is that Europe's leaders are being dragged kicking and screaming against their will into making bad financial decisions just to pacify the "lets try calm the masses and the markets and get back to business as usual crowd".
Bad policy is bad policy no matter how it's dressed up and it will eventually catch up with the decision makers.

Govt's are becoming increasingly redundant in their effectiveness, not only in finding solutions to current out of control problems but also their, questionable, right to govern. Little by little, people are waking up to these facts.

The global revolution is now well under way and I expect will take many different paths over the coming months/years.

Now, the main event: inflation vs. deflation - Todd Harrison - MarketWatch

CV you lack clarity and getting on your soap box about big G again.

The inflation we have is effectively one induced by rise in energy and commodity prices. Not wage inflation. Unless ofcourse you are referring to bonus inflation.

Don't confuse it with the disgraceful bank heist and government bailouts at tax payers expense. There is massive debt and with reduced disposable income (making ends meet or paying off debt) yes there is loss of confidence.

However, there is no deflation. One only has to look at prices. I'm not sure what you understand by deflation but what you describe is more a case of stagflation - high prices with high unemployment and stagnating economic output.

This is similar in some respects to the 74 oil price shock led inflation and stagflation of the late 70s. The key difference - there is no industrial led wage inflation. At least not yet but with the mass demonstrations - next year things may change.


On a separate issue I've understood something about you and NT's mind set. You have a limited finite understanding of what you know and that is your baseline which you can make meaning of everything else around you. NT barks on about fiat currency and the negative aspects of inflation and you about big government.


One has to broaden one minds and don't cling-on to that which you are so strongly attached. Like a wounded animal you guys keep going back to the same old well trodden ground.


Another key point - which is that there has been a collossal dramatic redistribution of income and wealth from tax payers to bankers. The Elite Leaders of the so called West have failed to acknowledge this.

Bankers are still getting bonuses and stupid salaries whilst the man on the street is paying higher taxes. There is very little correllation between hard work, reward and bonus. It's disguised theft by bonus and reward structures which are very aggressive to talents we are told we need.

Why is it that markets always rise towards xmas. It's because fund managers are using our pensions to gamble on markets to top up their bonuses. I base by S&P bets solely on this conclusion knowing full well out of 20 years in about 19 of them markets rise in the 4th Qtr. After a while one has contempt for the markets. No freaking rational behind it at all.


Bashing the underclass and attacking miniscule DSS payments which are a drop in the ocean compared to trillions of billions paid to banks doesn't cut the mustard. Whether it is acknowledged or not events will take their paths.

 

[new_trader]

Atilla, I can’t help it if you are incapable of connecting the dots. It isn’t a mystery why commodity prices are rising when they are priced in fiat currencies.

You are correct; I want Governments to return to the old well trodden path of a gold standard instead of the current old well trodden path of currency debasement and economic ruin.

I’m not sure why you think a new economic theory needs to be invented when current Governments are repeating the old well trodden mistakes of the past.

 

[new_trader]

Why is it that markets always rise towards xmas. It's because fund managers are using our pensions to gamble on markets to top up their bonuses. I base by S&P bets solely on this conclusion knowing full well out of 20 years in about 19 of them markets rise in the 4th Qtr. After a while one has contempt for the markets. No freaking rational behind it at all.

Using 'our' pension funds to gamble on markets...

So, what are pension funds and what are markets?

 

[Atilla]

Atilla, I can’t help it if you are incapable of connecting the dots. It isn’t a mystery why commodity prices are rising when they are priced in fiat currencies.

You are correct; I want Governments to return to the old well trodden path of a gold standard instead of the current old well trodden path of currency debasement and economic ruin.

I’m not sure why you think a new economic theory needs to be invented when current Governments are repeating the old well trodden mistakes of the past.

Increase in demand and reduced supply.

Popullation increases and dwindling energy supplies.


Why do you think energy and commodity prices are rising if not for the reasons above?