Svensson, vindicated.

I once read a book where Richard Rorty debated another philosopher on the nature of “truth.” Rorty claimed something to the effect that; “Truth was what your colleagues let you get way with.”

The other philosopher countered with a hypothetical.  Suppose someone says: “Most people believe X is true, but I believe that Y is actually true.”  Clearly they’d have in mind a different conception of truth.  Rorty countered that claiming something not widely believed is “actually true” is implicitly a prediction that it will be accepted as the truth at some point in the future.  That doesn’t always work, but it’s an interesting way of thinking about truth.

In any case, it can now be said that Lars Svensson’s critique of Riksbank policy has been proven “true” in the sense that his opponents have now recognized it as true (the following is from the excellent Ambrose Evans-Pritchard):

Sweden’s Riksbank has torn up the rulebook of global central banking, cutting interest rates to zero even though the economy is in the grip of a credit boom.

The extraordinary step is intended to stave off deflation but it comes at a time when the Swedish economy is growing at almost 2pc and property prices are rising briskly. The bank has abandoned earlier efforts to curb asset bubbles by “leaning against the wind”.

The Riksbank cut the deposit rate to -0.75pc in what looks like a preparatory move to drive down the krona. Governor Stefan Ingves said the bank has a toolkit of extreme measures in reserve, including use of the exchange rate.

If the Riksbank was caught off guard, it’s because they weren’t paying attention to the only world class monetary expert on their committee.

The Riksbank has in effect washed its hands of the credit boom, leaving it to government regulators to control household debt with mortgage curbs, liquidity limits for banks and other “macro-prudential” tools as best they can.

You mean regulators should deal with specific problems in a specific sector of the economy with a scalpel?  I thought the central bank needed to deal with the housing market with a sledgehammer, smashing the entire economy.

“What the Riksbank is doing is something that a lot of central banks around the world are going to have to do: once interest rates approach zero, they are forced to think about far more radical instruments,” said Lars Christensen, from Danske Bank.

The Riksbank – arguably the world’s oldest central bank, with a tradition of bold monetary experiments – carried out a dramatic volte-face in July when it slashed rates and gave up trying to restrain asset prices. Governor Ingves was outvoted in what amounted to a policy mutiny.

The shift over recent months is a triumph for Mr Svensson, who resigned last year in a stormy dispute. He said the bank made a mistake by tightening before the economy had fully recovered, and then compounding the error by allowing itself to be distracted by the noise of asset bubbles. “Low inflation has actually increased the households’ real debt burden. Riksbank policy has been counterproductive,” he said.

Svensson, vindicated.

The Riksbank is now fully aligned with the Yellen Fed in Washington, which argues that raising rates to stop asset bubbles merely destroys jobs for little useful purpose. Both are pitted against the Bank for International Settlements. The BIS says radical monetary stimulus may help individual countries but only by displacing the problem onto others, leading to a “Pareto sub-optimal” for the world as a whole. It warns that speculative excess is reaching pre-Lehman levels, and calls on global central banks to take pre-emptive action before the bubbles becomes unmanageable.

What is far from clear is whether the Riksbank can get away with such policies. It may run into harsh criticism from rest of the world if it is seen to engage in “beggar-thy-neighbour” stealth devaluation at a time when the Swedish economy is expected to grow 2.7pc next year, and has a current account surplus above 7pc of GDP.

Does the BIS think the eurozone is a bubble?  How much tighter should ECB policy be?  As an aside, Sweden’s a good example of why people should never, ever reason from a current account surplus.  It tells us nothing interesting about the business cycle.

Sweden was one of the first central banks to adopt price level targeting, in the early 1930s. In an intellectual sense, the ECB is at least 80 years behind Sweden:

The institution enjoys a prestige beyond its size, a legacy of the great Swedish economists of the early 20th century: Knut Wicksell, Gustav Cassel, Bertil Ohlin and Gunnar Myrdal. It is watched closely as a pioneer in central bank theory.

The bank famously began “price targeting” in the early 1930s after breaking free from the Gold Standard. The revolutionary policy was the precursor of today’s inflation targeting. It enabled Sweden to escape deflation early in the Great Depression, suffering far less damage than countries that stuck doggedly to failed orthodoxies.

And speaking of monetary innovators, the intellectual leader of market monetarism was recently interviewed by Erin Ade on Boom/Bust (at about the 3 minute mark.)  He is just as good at explaining ideas verbally as in print. But he looks slightly different from what I expected.

HT:  TravisV, Saturos


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99 Responses to “Svensson, vindicated.”

  1. Gravatar of Market Fiscalist Market Fiscalist
    29. October 2014 at 06:02

    Thanks for the Nick Rowe link.

    I am a huge fan of his and just by reading his posts had developed a mental image of him as the Keith Richards of Market Monetarism – and amazingly that’s exactly how he comes across in the interview (minus the beard of course).

  2. Gravatar of Daniel I. Harris Daniel I. Harris
    29. October 2014 at 06:27

    This gives me great hope for the world.

    Also, Nick Rowe, in addition to being brilliant, is also a super nice man. Every time I’ve met him, I’ve been blown away by both his intellect and genuine interest in and concern for others.

  3. Gravatar of Yes, Svensson was vindicated but the better part is that he showed that he could change his mind | Historinhas Yes, Svensson was vindicated but the better part is that he showed that he could change his mind | Historinhas
    29. October 2014 at 07:23

    […] Scott Sumner has […]

  4. Gravatar of Brian Donohue Brian Donohue
    29. October 2014 at 07:31

    I predict Sweden will do well. More data for MM coming…

  5. Gravatar of John Becker John Becker
    29. October 2014 at 09:27

    It looks like Sweden has a 7.2% unemployment rate and an inflation rate of 0.4%. What kind of “credit boom” doesn’t raise prices or hire people?

    http://www.tradingeconomics.com/sweden/indicators

  6. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 09:32

    So asset prices are very high across dozens of regulatory jurisdictions. The farther away a jurisdiction is from a liquidity problem the higher they are. Multiple choice question:

    Asset prices are high because:
    1) dozens of jurisdictions have induced regulatory excesses into asset markets in the past 15 years.

    2) the high prices are prudent and justifiable.

    Of course the Riksbank should always be aiming for regulatory optimality. But there is no particular reason that this is any more an issue now than any other time, unless after 15 years of these markets we are all still telling ourselves that markets just keep inevitably sprouting bubbles even though we all know the prices are wrong.

  7. Gravatar of Saturos Saturos
    29. October 2014 at 09:42

    Scott, I’d say it’s a tie between you and Nick as intellectual leaders. After all anyone who does widely read posts on Forty is clearly just as much of an intellectual as Rowe :-p

  8. Gravatar of Saturos Saturos
    29. October 2014 at 09:43

    Market Fiscalist, would that make Scott the Mick Jagger?

  9. Gravatar of Major.Freedom Major.Freedom
    29. October 2014 at 09:52

    The main problem with Rorty and his followers is their inability or unwillingness to subject their own beliefs to their own standards.

    “I once read a book where Richard Rorty debated another philosopher on the nature of “truth.” Rorty claimed something to the effect that; “Truth was what your colleagues let you get way with.”

    “The other philosopher countered with a hypothetical. Suppose someone says: “Most people believe X is true, but I believe that Y is actually true.” Clearly they’d have in mind a different conception of truth. Rorty countered that claiming something not widely believed is “actually true” is implicitly a prediction that it will be accepted as the truth at some point in the future.”

    OK, what then of Rorty’s own pronouncements? Since Rorty’s own beliefs are not widely accepted, then his belief is itself a prediction. Predictions are of course not epistemological statements. Rorty isn’t actually describing the relationship between human knowledge and truth (e.g. the constraints of the human mind itself). Yet Rorty presents his belief that humans cannot know objective truth as definitive, as an actual explanation of something true about the human mind, and what truth really is.

    Rorty’s actions contradict the content of his own pronouncements.

  10. Gravatar of Dan W. Dan W.
    29. October 2014 at 10:26

    I suggest everyone get some popcorn and watch the show. It ought to be a good one.

    But I do wonder, Scott. How would you feel if the “regulators” decided to nullify debt by simply decree? How is doing that any different than nullifying debt via currency devaluation?

  11. Gravatar of Scott Sumner Scott Sumner
    29. October 2014 at 10:38

    Market, I like the Keith Richards analogy, which reminds me I need to read his autobiography some day.

    Daniel, He must be super nice. I’m reasonably nice in person, but a total jerk dealing with commenters I don’t like. He’s even nice to commenters.

    Brian, I hope so. Svensson is skeptical, but I’m more optimistic. But a 1.5% rise in stock prices on the news suggests the change was either already priced in, or not that radical.

    John, Good question.

    Kevin, Yes, I’ve been arguing that the new normal or low real rates will lead to “bubbles” being spotted that aren’t really there.

    Saturos, Thanks, but Nick knows much more macro than I do. I may have him beat on macro history, but then David Glasner beats me there.

    I hope I’m not the Brian Jones of MM.

    Dan, Are you just pretending to be this clueless, or have you really learned nothing? Debt contracts are priced on the basis of certain expectations for NGDP growth, (or inflation if you prefer.)

  12. Gravatar of TravisV TravisV
    29. October 2014 at 10:41

    Reaction to the Fed news: “Already, the expected date of the first hike is priced one mtg earlier and the 2nd one is 2 mtgs earlier, compared w/ this morning.” -FTN

  13. Gravatar of Market Fiscalist Market Fiscalist
    29. October 2014 at 10:41

    Saturos – yes, here is my full MM Rolling Stones lineup

    Mick Jagger: Scott Sumner
    Keith Richards: Nicke Rowe
    Bill Wyman : Bill Woolsley
    Charlie Watts: David Glasner
    Ronnie Wood: Lars Christensen
    Mick Taylor: David Beckworth

  14. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 10:42

    The Fed keeps the “considerable time” language, and the market immediately prices in a movement in rate hikes of about 1 month sooner. Classic.

    Expectations channels are so overpowering right now that second order effects of Fed accommodation signals literally happen before Yellen can finish the sentence.

    Scott, I’m starting to think that if Yellen came out and announced they were going to increase Fed holdings to $10 trillion, the Fed would need to immediately start selling securities as a result of her statement, and the balance sheet would be down to $1.5 trillion within weeks, if not days.

  15. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 10:43

    Travis beat me to it…

  16. Gravatar of TallDave TallDave
    29. October 2014 at 11:14

    Time to go long Sweden? Well, at least if you’re Swedish, I suppose.

    raising rates to stop asset bubbles

    This is what drives me crazy — why does anyone think Central Planners can detect and defuse bubbles when no one else can?

    If investors see an obvious asset bubble, they aggressively short it. Almost by definition a bubble invisible to private markets can’t be known in advance.

  17. Gravatar of TallDave TallDave
    29. October 2014 at 11:18

    Expectations channels are so overpowering right now that second order effects of Fed accommodation signals literally happen before Yellen can finish the sentence.

    Chuck Norris can now empty a room simply by raising an eyebrow.

  18. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 11:31

    Hm. Maybe I spoke to soon. Equities were down slightly. Maybe this was partly a reaction to the end of QE where there was some hope of an extension. But if the short rates go up while equities fall, I would have expected long term forward rates to drop a little. Forward rates from about 5 years out were steady to slightly down the last I looked.

  19. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 11:32

    Correction, slightly up.

  20. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 11:38

    Geez. Sorry. I take it all back. Rates past 2020 were down slightly by the end of the day, so apparently the market sees the decision to end QE3 this month as a slight tightening signal that the Fed will commit to all the way to the first rate hike.

  21. Gravatar of Major.Freedom Major.Freedom
    29. October 2014 at 11:40

    Sumner:

    “Dan, Are you just pretending to be this clueless, or have you really learned nothing? Debt contracts are priced on the basis of certain expectations for NGDP growth, (or inflation if you prefer.)”

    It is really telling of one’s emotional and intellectual maturity to call someone clueless and then respond with a clueless statement.

    No, bond contracts are not priced on the basis of NGDP. They are priced on the basis of expected price inflation. Moreover, saying “NGDP or inflation if you prefer” is an equivocation. When bond market makers price bonds, the inflation they use is almost always expected CPI growth, not NGDP.

    If NGDP expectations were X instead of Y, then it won’t make a lick of difference to almost all bond market makers’ pricing models. They care about expected price inflation.

    MMs are in lala land. Too often I see claims being made as if NGDP is what everyone looks at. Is this not textbook ivory tower ideology?

  22. Gravatar of Kevin Erdmann Kevin Erdmann
    29. October 2014 at 12:04

    Weird. The late day drop in long rates coincided with a recovery in equities. Clearly I have no Idea what’s going on.

  23. Gravatar of Saturos Saturos
    29. October 2014 at 13:30

    “Accordingly, the Committee decided to conclude its asset purchase program this month. ”

    http://www.federalreserve.gov/newsevents/press/monetary/20141029a.htm

    Market Fiscalist, I wish that lineup were touring Perth at the moment instead.

  24. Gravatar of SG SG
    29. October 2014 at 13:32

    Good Krugman has been making some appearances lately, with good posts on Japan and on Svensson.

    I don’t know how I missed it when he posted it the first time, but Krugman’s Japan post included a terrific graph of an estimate of Japanese inflation expectations based on US TIPS, interest rate differential, and long-run reversion in real exchange rates. Great stuff.

  25. Gravatar of Philo Philo
    29. October 2014 at 14:09

    A good post, but . . . more Rorty foolishness! According to Rorty the last human being alive, just before the extinction of the species, could not possibly have a false opinion: his (future) colleagues–a null set–would let him get away with *anything*.

  26. Gravatar of Dan W. Dan W.
    29. October 2014 at 14:14

    Has the “Chicken Game” ever turned out well? Although as the saying goes for the scene in “Rebel without a Cause”, Buzz did win the game. It only cost him his life.

    https://www.youtube.com/watch?v=u7hZ9jKrwvo

  27. Gravatar of benjamin cole benjamin cole
    29. October 2014 at 15:32

    Excellent blogging. Maybe central banks should consider robust growth as Job 1.

  28. Gravatar of TravisV TravisV
    29. October 2014 at 15:33

    Has Zero Hedge’s Tyler Durden changed his mind and decided that deflation, not hyperinflation, is in the U.S.’s future?

    http://www.zerohedge.com/news/2014-10-29/every-bond-bears-worst-nightmare-1-simple-chart

    I don’t understand, does he have a coherent point of view?

  29. Gravatar of W. Peden W. Peden
    29. October 2014 at 16:13

    “I don’t understand, does he have a coherent point of view?”

    Yes: “DOOOOM!”

  30. Gravatar of maynardGkeynes maynardGkeynes
    29. October 2014 at 16:28

    I truly don’t get this. There’s no debate that, for as long as they last, bubbles create jobs. The problem is that the jobs don’t last long, and put resources into unproductive areas. Deflation (or disinflation) is, of course, the natural consequence such a bubble bursting. So, what I seem to be getting here is that everyone thinks that the Riksbank and perhaps Yellen are doing commendable work by preventing this type of disinflation/deflation. It seems to me, that the way to prevent bubble bursting deflationary shocks is to prevent bubbles from happening in the first place. I’ll admit that a “bubble job” is better than no job at all, but wouldn’t it be better to have policies that foster jobs (and careers) that are sustainable in the longer run? I’m not hearing that in this discussion. Obviously, I’m missing something, but would someone be so kind as to explain what it is? I’m genuinely puzzled.

  31. Gravatar of TravisV TravisV
    29. October 2014 at 17:33

    maynardGkeynes,

    You should study Prof. Sumner’s brilliant insight that there’s far too much obsession with “bubbles”. Tight money is far more harmful than bubbles. Consider 1987, for example.

    More specifically:

    (1) Unemployment is not the inevitable result of unsustainable bubbles. Unemployment happens because of a big slowdown in NGDP + downward nominal wage rigidity (which is strong in all educated countries).

    (2) A big slowdown in NGDP NEVER has to happen. If the Fed had the willpower, it could easily keep NGDP consistently growing 5% in perpetuity. And if it did, then huge increases in unemployment would be dramatically reduced.

    (3) Consistent market expectations of future 5% NGDP growth –> smaller quarterly fluctuations in RGDP –> smaller fluctuations in asset prices (or “bubbles inflating and bursting” as Austrians might call it).

  32. Gravatar of maynardGkeynes maynardGkeynes
    29. October 2014 at 19:19

    Travis, I think I do get Sumner’s argument that NGDP slipped, and that Fed could have done more, but the problem I see with your theory and that of Sumner’s, to the extent I have been able to comprehend it, is that it has causality reversed. It’s the bubble that causes the NGDP drop, not the other way around. Prof Sumner has been quite courteous in answering my posts, and I will not impose upon him to answer me on this basic point, which he has addressed ad nauseum elsewhere, but I just don’t see how he gets past this rather fundamental objection. Bubbles bursting are devastating events, that makes people stop spending, and businesses stop investing. It’s not primarily a monetary phenomenon, which I what I believe Prof Sumner has argued.

  33. Gravatar of TravisV TravisV
    29. October 2014 at 21:14

    maynardGkeynes,

    The Fed lets inflation get too low, stumbles, allows interest rates to approach 0%, and becomes timid and uncomfortable.

    You conclude that the whereas the Fed was previously powerful, it is suddenly powerless in this new situation.

    Not true. The problem is that their targeting regime (interest rates) is flawed. Use an NGDP target instead, since it doesn’t have a zero lower bound. The Fed always has the ability to achieve any NGDP they want. They just have to be willing to buy WHATEVER IT TAKES (even if that means 50% of the assets of the U.S.) to hit their desired target.

    It’s the willpower that’s the key. Google the “Chuck Norris Effect.”

  34. Gravatar of TravisV TravisV
    29. October 2014 at 21:20

    maynardGkeynes,

    Also see Prof. Sumner’s illustration of the importance of “expectations fairies” in this excellent recent post:

    http://www.themoneyillusion.com/?p=27741

  35. Gravatar of Daniel Daniel
    30. October 2014 at 00:31

    TravisV

    There is no single Tyler Durden. And no, coherence is not among ZeroHedge’s priorities.

  36. Gravatar of Saturos Saturos
    30. October 2014 at 01:14

    NYT has great retrospective on QE: http://www.nytimes.com/2014/10/30/upshot/quantitative-easing-is-about-to-end-heres-what-it-did-in-seven-charts.html?partner=rss&emc=rss&smid=tw-nytimes&abt=0002&abg=1

    TravisV, you would know that if you’d seen Fight Club. (Not a very good movie, though, so don’t bother.)

  37. Gravatar of James in London James in London
    30. October 2014 at 01:14

    You would think the FOMC, allied to the enormous resources of the Federal Reserve, would be able to ascertain the facts. Have market-based inflation expectations declined “somewhat”, as all bar Kocherlakota agreed, or suffered a “slide” as NK on his own stated?des
    http://www.federalreserve.gov/newsevents/press/monetary/20141029a.htm

    This looks like a slide to me.
    https://index.db.com/dbiqweb2/servlet/indexsummary?redirect=benchmarkIndexSummary&indexid=8196&currencyreturntype=USD-Local&rebalperiod=3&pricegroup=DBRVRT&history=4&reportingfrequency=1&returncategory=TR&indexStartDate=20111028&priceDate=20141028&isnew=true

  38. Gravatar of maynardGkeynes maynardGkeynes
    30. October 2014 at 03:02

    @Travis Thanks for taking the time to answer. Some very good points. Just one clarification — I do not think the Fed was or is all-powerful. Quite the opposite. I think it was inexcusable for any central bank to have allowed policy to reach the zero bound, as it has. I understand that you believe that zero is a not a true bound/limit, but that is not what the Fed believed at the time, and the fact that they allowed it to occur on their watch proves their shocking incompetence, even at their own silly game. As far as willingness to buy “whatever it takes,” I think that idea, like Chuck Norris, that is a total fantasy, and no theory that relies on it can be taken seriously.

  39. Gravatar of Dan W. Dan W.
    30. October 2014 at 04:04

    Travis wrote:

    “They just have to be willing to buy WHATEVER IT TAKES (even if that means 50% of the assets of the U.S.) to hit their desired target.”

    I appreciate your honesty of what a NGDP regiment really requires. So I wonder, where is the self-awareness among Monetarists to realize that such a concentration of assets in a bank that is by definition “Too-Big-To-Fail” is economically destructive?

  40. Gravatar of Daniel Daniel
    30. October 2014 at 04:29

    Dan W

    such a concentration of assets in a bank that is by definition “Too-Big-To-Fail” is economically destructive

    1) Moron is like moron does. Obviously, you’re too stupid to grok what a hypothetical is.

    2) Suppose that, indeed, the Fed had to drastically expand the money supply in order to keep nominal spending on path. Got any proof that’s “economically destructive” ? Or are just talking out of your ass, as is your usual habit ?

    Moron.

  41. Gravatar of Dan W. Dan W.
    30. October 2014 at 04:42

    Daniel,

    What percentage of the nation’s assets are you (hypothetically) willing for the Central Bank to purchase?

    It’s all a confidence game, right? Central Bankers have to convince the “economy” that it is serious about inflation. But like in the game of “Chicken” this means the Central Bankers have to make the “economy” believe they are willing to go over the cliff. Otherwise the “economy” will call the banker’s bluff. If you are a central banker, would you be ready to go over the cliff?

  42. Gravatar of Philippe Philippe
    30. October 2014 at 04:49

    Dan W,

    why don’t you try to explain why you think it would be ‘economically destructive’.

  43. Gravatar of Philippe Philippe
    30. October 2014 at 04:50

    what does go over the cliff mean?

  44. Gravatar of Ben J Ben J
    30. October 2014 at 04:55

    Dan W,

    I echo Phillipe’s point. You should make your own arguments, instead of engaging in a disingenuous Socratic method full of tortuous metaphors about rising inflation being “going over a cliff”.

  45. Gravatar of ssumner ssumner
    30. October 2014 at 05:07

    TallDave, Yes, for central banks to try to spot asset bubbles is like engaging in astrology, or voodoo.

    SG, That is interesting, but can we really have much confidence in forecasting moves in the real exchange rate?

    Philo, The last man could have a false opinion if he himself later revised it. But otherwise no.

    Remember that the statement “X is true” and the statement “I regard X as true” have identical meanings, when said by the same person. True statements are statements that are regarded as true. It’s a social convention as to who counts in this “regard.”

    Maynard, Deflation is certainly not the natural outcome of a bubble bursting, where did you get that idea? As you know, I don’t believe in bubbles, but even if I am wrong their bursting is not deflationary. In 1987 we had what anyone who does believes in bubbles would regard as a bubble. A classic “bubble”. Stocks soared and then crashed at the fastest pace in history. And there was no deflation, no loss of jobs. Indeed inflation accelerated after the bubble burst.

    Even the bursting of the tech bubble was not followed by deflation, although there was a modest loss of jobs afterwards.

    “Bubbles bursting are devastating events, that makes people stop spending, and businesses stop investing.”

    Again, this is wrong. Spending rose rapidly after the 1987 bubble burst, and spending rose modestly after the 2000 tech bubble burst. Spending rose in 2007 after the housing bubble burst. What hurt spending was the tight money policy of 2008. None of those three events were even close to being “devastating.”

    Dan, You said:

    “I appreciate your honesty of what a NGDP regiment really requires. So I wonder, where is the self-awareness among Monetarists to realize that such a concentration of assets in a bank that is by definition “Too-Big-To-Fail” is economically destructive?”

    Once again you have things exactly backwards. Under market monetarism the central bank balance sheet is much smaller than under the more hawkish alternative. Have you ever looked at the balance sheet of the Australian central bank? You really need to figure out what we are proposing if you are going to comment over here. I have many posts explaining why it is smaller.

  46. Gravatar of Dan W. Dan W.
    30. October 2014 at 05:14

    Philippe,

    “Over the cliff” means the Central Bank owns so many assets and is so enmeshed in the financial system that it cannot act one way or the other without impacting the economy. The economy as a whole becomes paralyzed as market participants pause and wait and react to to what the Central Bank is doing or might do, rather than acting for themselves.

    Monetarists are committing the same error as Keynesians. In theory stimulus is counter-cyclical. The reality is YOU DON’T KNOW WHAT THE CYCLE IS!!!!!!! How can one know how to counter what one does not know? So countries simply grow debt, year after year and say they are Keyneseian when they are not. It is the same with Monetary stimulus. You will add stimulus and add more and never know when to quit. But there is a quitting point, right? At some point the Central Bank will run out of assets to purchase. And the market knows this which is why the Central Bank can NEVER WIN THE CONFIDENCE GAME!!!!!

  47. Gravatar of ssumner ssumner
    30. October 2014 at 05:20

    Dan, I have a very simple question. Do you think you are ever going to post a comment that gets anything right? Just one comment. Here is your latest:

    “Monetarists are committing the same error as Keynesians. In theory stimulus is counter-cyclical. The reality is YOU DON’T KNOW WHAT THE CYCLE IS!!!!!!! How can one know how to counter what one does not know?”

    No, MMs favor targeting NGDP at a steady rate. We argue the central bank should totally ignore the business cycle. So tell me again why it’s a problem that we don’t know where we are in the business cycle?

    If you ever post a comment showing that you have at least a tiny understanding of anything that has been said over here, I’ll die a happy man.

  48. Gravatar of Dan W. Dan W.
    30. October 2014 at 05:30

    Scott,

    Here is a quote from Robert Samuelson. Is he right?

    “In terms of the quantity theory of money, we may say that the velocity of circulation of money does not remain constant. “You can lead a horse to water, but you can’t make him drink.” You can force money on the system in exchange for government bonds, its close money substitute; but you can’t make the money circulate against new goods and new jobs.”

  49. Gravatar of Daniel Daniel
    30. October 2014 at 05:32

    Dan W

    “Over the cliff” means the Central Bank owns so many assets and is so enmeshed in the financial system that it cannot act one way or the other without impacting the economy.

    Ok, I stand corrected. It IS possible to be as dumb as you are AND still be able to breathe and type simultaneously. I didn’t think it was, but you’ve proven me wrong.

    Yo, moron, get this – by its very existence,the central bank has an impact on the economy. There is no such as thing as “not using monetary policy”.

    You’d think it would be simple to get that, but then there’s imbeciles like you.

    The proper question(s) to ask would be – what exactly should the central bank aim for ? And which nominal variable should be targeted in order to achieve their stated aim ?

    And before you go on one of your retarded rants (spouting the same old bullsh*t that’s been debunked only a million times before) – there is no such thing as “doing nothing” !

    Ask yourself this (of course, assuming you can do such a thing is very generous on my part) – what exactly does “doing nothing” mean for a central bank ? Freezing the monetary base ? That’s a rather specific meaning of “nothing”. How’d you arrive at it ?

    Damn you’re stupid.

    Moron.

  50. Gravatar of Daniel Daniel
    30. October 2014 at 06:05

    Dan W

    the Central Bank can NEVER WIN THE CONFIDENCE GAME!!!!!

    So you’re saying that the Fed can’t target anything, and we’re doomed to alternate between high inflation and painful deflation ?

    I take it you believe two decades of steady 2% inflation were just dumb luck, right ?

    You’re so stupid, it’s mind-boggling.

  51. Gravatar of Becky Hargrove Becky Hargrove
    30. October 2014 at 06:33

    Lorenzo,
    I’ll borrow Scott’s “bulletin board” long enough to let you know your extra traffic is coming from Arnold’s “images” post.

  52. Gravatar of TravisV TravisV
    30. October 2014 at 06:48

    “German unemployment dips again in October”

    http://www.sunherald.com/2014/10/30/5884304/german-unemployment-dips-again.html

  53. Gravatar of Dan W. Dan W.
    30. October 2014 at 07:34

    Daniel,

    The confidence game I am referring to is the one being played out currently where it is hoped the Central Bank can instill growth expectations and realize this without any real pain or restructuring of the real economy.

    The Volker Fed forced a restructuring of the US economy. It was painful medication. But it established an economic environment where (1) real economic growth could occur and (2) monetary policy could be loosened yet the market would be confident the Central Bank would manage inflation.

    If Samuelson is right, and I believe he is, then there will be circumstances when monetary policy fails to gain traction in the real economy. If we are in such a situation, and I believe we are, then monetary stimulus will be largely ineffective. The main reason being that individuals sense no real change in their economic position but structural problems persist.

    Monetary stimulus coupled with government / economic reform would be effective. Unfortunately, but as can be expected, stimulus has the effect of delaying the urgency for reform. No one wants to bear the cost, either financially or politically, so nothing real changes. Except the money supply which continues to grow. And if, for reasons (who know why) money velocity reverses trend we may really see what happens when you get a tiger by the tail.

  54. Gravatar of Philippe Philippe
    30. October 2014 at 07:47

    Dan W,

    leaving aside your vague emotive clichés, what do you think the CB should be doing now? Raising its interest rate so as to stave off the threat of hyperinflation?

  55. Gravatar of Philippe Philippe
    30. October 2014 at 08:06

    “government / economic reform”

    what do you mean by this?

  56. Gravatar of Nick Rowe Nick Rowe
    30. October 2014 at 08:46

    Scott: thanks! But you are the MM leader.

    I find it stressful doing interviews. Trying to grab the right words instantly. I had a cold, had taken cold medicine, then a pint to settle my nerves. Got there 10 minutes beforehand, as told. Only to discover they had sent me the address of the wrong CTV studio. So I had to rush across town to the other studio, got there late of course, and went right in front of the camera.

    It’s also hard for me to believe I look like that and sound like that. I could hardly stand watching and listening to myself. My accent is a mutt. Rural Herts/Beds/+London from village elementary school, then “public” school, then Scotland and Berkeley as an undergrad, then Canada for grad. But I was a bit too old to change it much when I got to Canada. My students usually think I’m Australian, though I only spent one year there.

  57. Gravatar of Nick Rowe Nick Rowe
    30. October 2014 at 09:01

    Back on topic, the Swedish lesson is that it is very dangerous to let Finance People (or their arguments) anywhere near monetary policy. They just don’t get it. Or, you could say that Sweden got caught on it’s own Wicksellian and Neo-Wicksellian petard, by thinking of monetary policy as interest rate policy. That totally wrong-headed idea — that central banks need to raise interest rates because low interest rates are dangerous for financial stability — is floating around Canada too. Only a sophisticated Neo-Wicksellian, like Lars Svensson, can understand that if you are scared of low interest rates the last thing the central bank should do is raise interest rates. And since there is no hope in hell we could ever explain this to ordinary people, it really does give greater force to the argument that we should change the world to make fallacies true. If people think that inflation is bad, because it makes people poorer, let’s target NGDP, so they are right. And if people think that central banks’ raising interest rates does mean higher interest rates, let’s change the operating procedure so they are right. I *think* it can be done.

  58. Gravatar of Dan W. Dan W.
    30. October 2014 at 09:06

    Philippe,

    You know what they say about free advice… Instead I will recommend the latest reflections by Larry Summers:

    http://www.voxeu.org/article/reflections-new-secular-stagnation-hypothesis

    I greatly appreciate what Summers writes because he is honest about what has and is happening, economically, financially and socially. The punch line:

    “The case made here, if valid, is troubling. It suggests that monetary policy as currently structured and operated may have difficulty maintaining a posture of full employment and production at potential and that if these goals are attained there is likely to be price paid in terms of financial stability.”

    And I can’t help but highlight this particular statement concerning monetary stimulus:

    “These strategies have the difficulty of course that even if they increase the level of output, they are also likely to increase financial stability risks, which in turn may have output consequences.”

    Government / economic reform means recognizing that the US government is much too large, much too expensive and much too bureaucratic. Many reforms are needed there. Economic reforms include deregulating health care and education and allowing for a deregulated finance industry to coexist with a regulated banking system.

    As for central banking I prefer prudence and humility. The primary goal should be to instill principles and polices that support a robust, stable and accountable financial system. When a financial shock hits, as on 9/11, it is sensible for the CB to help absorb the initial shock. But it should not be the design of the central bank to subsidize economic loss caused by bad policy. The way I see it, a helicopter fed is no more desirable than a helicopter parent.

  59. Gravatar of Majromax Majromax
    30. October 2014 at 09:10

    It seems to me that an NGDP futures market would be an ideal way for a central bank to helicopter drop money into a depressed economy, without requiring the purchase of a majority of a nation’s land or productive assets.

    Imagine the CB makes an unlimited offer to buy and sell a 6-month NGDP contract, such that on-target NGDP pays $100.

    An agent who believed that NGDP would be below that target would sell a contract to the CB, gain $100 in consumable cash, and would repay the CB the difference when the contract matures. (To prevent defaults, this contract would probably have to be collateralized).

    This is a very “concrete step” — the CB makes an offer such that if it’s wrong, the agent profits, but at the same time by accepting the offer the agent increases the odds that the CB will be right. At the expiry of the contract when collateral is returned, below-target NGDP results in helicopter money.

    The only real, substantive issue is that this mechanism doesn’t work symmetrically for above-target NGDP. If the CB sells a contract for $100 it does remove money from temporary circulation, but being wrong here (NGDP still coming in above-target) does not helicopter-lift money — the contract acts like an increase in the interest rate. Success here relies on efficient, competitive markets, but arguably the same is true for the traditional interest-rate channel.

  60. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 09:14

    Sumner:

    “No, MMs favor targeting NGDP at a steady rate. We argue the central bank should totally ignore the business cycle. So tell me again why it’s a problem that we don’t know where we are in the business cycle?”

    The problem seems to be that MMs don’t even understand their own theory enough to answer challenges like the one Dan W made.

    The reason why MM theory as it stands hinges on “knowing” where or when in the business cycle we are, is that the theory itself is framed as counter-cyclical. It is presented as stimulative should output and unemployment otherwise decline unduly in the absence of NGDPLT, and anti-stimulative should output and employment otherwise rise unduly in the absence of NGDPLT.

    The hope in MM theory is that with stable spending, the real economy will not overheat and also will not not underheat, all else equal. You yourself have made this exact argument. Stable NGDP will allegedly reverse any chance should the economy ever become depressed, and vice versa. That IS a theory whose believers implicitly claim to know when in the business cycle we are, by banking the intelligence on a counter-cyclical socialist monetary rule.

    You implicitly claim to know when in the cycle we are by you banking on what you think you know about NGDPLT: that it will stimulate should the economy ever become depressed due to investors not respecting the socialist rule, and vice versa.

    Dan W did NOT make a false statement about MM when he compared it to Keynesianism in the way he did. What, do you think that Keynesians can start to claim “We don’t claim to know when in the cycle we are. As long as the government budget deficits rise when private spending falls, and falls when private spending rises, then this policy is an unthinking counter-cyclical policy that will lead us to stable growth, and that we won’t even look at any cycles, we’ll just blame deregulation and free markets for any slumps.” ? That this is not an implicit claim to know when the economy is slumping and when it is overheating by attributing the thinking aspect to a socialist rule of government intervention while the advocates wash their hands of it?

    NGDPLT could not even be presented as either a solution to the slump of 2008-2009, or a solution to the high price inflation during the 1970s, unless the presenter is claiming to know that NGDPLT is counter-cyclical, and hence implicitly claiming to know when in the cycle we are. Again, banking the intelligence factor on a socialist rule is not absolving oneself of believing one knows.

  61. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 09:18

    Central banks can do nothing. They can do nothing by living in a world where monetary competition is fully legal.

    Turning it into a useless defaced paper printing factory. Sure, it would still affect the economy by redirecting resources away from more important productions, but if doing nothing means having no effect at all, then nobody can ever do nothing.

  62. Gravatar of Philippe Philippe
    30. October 2014 at 09:31

    Dan W,

    as far as I am aware, Summers’ view is that the government should attempt to raise the supposed ‘natural interest rate’ via expansionary fiscal policy. He doesn’t recommend tightening both monetary and fiscal policy, which is what you seem to be advocating.

    “a helicopter fed is no more desirable than a helicopter parent”

    this is a meaningless analogy because there is no similarity between the two at all.

  63. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 09:47

    Philippe:

    “a helicopter fed is no more desirable than a helicopter parent”

    “this is a meaningless analogy because there is no similarity between the two at all.”

    There is a similarity in the minds of those who can’t think of a central coordinator/mind of an economy just like they can’t think of a central coordinator/mind of a household.

    A big reason why socialist ideas like monetarism arise is because of a misguided and flawed transposing of traditional household family structures, to society as a whole. Mommy and daddy government. Caring, benevolent, selfless mommy becomes the ideal government of most who we call political liberals, and the strict, duty driven, strong hearted daddy becomes the ideal government of most who call themselves conservatives.

    Dovish Fed, mommy.

    Hawkish Fed, daddy.

    Safety net, mommy.

    Stand on your own, daddy.

    Things get interesting when adult children socialists were raised by softy dads and hardcore moms. Makes for interesting ethical advocacies.

  64. Gravatar of Philippe Philippe
    30. October 2014 at 09:59

    MF, stupid garbage from you as usual, which does nothing but expose what a weird individual you are.

  65. Gravatar of Daniel Daniel
    30. October 2014 at 10:06

    Dan W

    there will be circumstances when monetary policy fails to gain traction in the real economy.

    So, in your universe, it’s possible to run the printing presses at full power and yet fail to generate inflation ?

    You’re even dumber than I thought.

    Also, it’s not the first time I asked you what “not using monetary policy” would look like. Instead we get moralistic sermons on how preventing a rise in unemployment is bad, because it (somehow) delays supply-side reforms.

    As for central banking I prefer prudence and humility. The primary goal should be to instill principles and polices that support a robust, stable and accountable financial system.

    So central banks should be concerned with public morality foremost. Gotta keep the drones in line.

    The unemployed ? F*ck ’em. They’re a bunch of lazy bums anyway.

    You are a total imbecile.

    This is you

    http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

    Moron

  66. Gravatar of Majromax Majromax
    30. October 2014 at 11:36

    @M.F:

    > NGDPLT could not even be presented as either a solution to the slump of 2008-2009, or a solution to the high price inflation during the 1970s, unless the presenter is claiming to know that NGDPLT is counter-cyclical, and hence implicitly claiming to know when in the cycle we are.

    Why? NGDPLT does not seem to demand any deeper knowledge of the business cycle than “is NGDP above or below target?” That question seems plainly answerable from national statistics.

    It seems to me that you’re conflating three different criticisms:

    *) The target is ill-defined. There is a convincing argument to be made that the US Fed’s “dual-mandate” is not well-defined, and likewise the ECB’s ambiguous “price stability” seems not well-defined, but NGDPLT seems very well-defined. The salient question here is “can reasonable people disagree about whether the current economy is meeting the target?”
    *) The target is unachievable, at least with socially-acceptable policy tools. This is a more subtle argument, and that’s where issues like the ZLB come into play. The US Fed could plainly target 200% yearly inflation, but no traditional policy measure has a hope of achieving that over the short term, since literal helicopter drops are socially unacceptable. However, this is a more technical argument than a principled one, since the range of what is acceptable or unacceptable is a political rather than economic question. (Interest on reserves was, after all, unacceptable in the US until recently.)
    *) The target is undesirable. This is where your Libertarian “bank competition” leanings come into play. This is a worthwhile question to ask, but it must be kept separate from the others. It might even be moot if the previous questions are in the negative.

  67. Gravatar of ssumner ssumner
    30. October 2014 at 12:35

    Dan, That’s how one talks to kindergardeners. Is that how your mind works?

    Nick, I thought you looked fine. As I watched that I wondered why I can’t be that calm in front of the camera. Maybe a “pint” would help.
    :)

    I can’t watch myself either.

  68. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 13:24

    Philippe:

    I think it is accurate in your case.

  69. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 13:31

    Majromax:

    A target is set because of a tacit belief that it will iron out what would otherwise be a more volatile business cycle. It is akin to: I don’t have to actually look at the real economy, because whatever happens, my rule, my plan for everyone’s spending, will ensure that monetary stimulus becomes more effective, the further away the real economy gets from “optimality”. The rule, the target, has more stimulative effect if for whatever reason the real economy goes deeply depressed or deeply overheated, and will become less stimulative the closer to the mid-cycle we get.

    I am not conflating what you said I am conflating in your three bullet points there. I am not critiquing the target, just explaining the tacit knowledge being presumed by those who advocate NGDPLT and who claim it would have helped during 2008-2009 and during the 1970s.

  70. Gravatar of Dan W. Dan W.
    30. October 2014 at 14:00

    Scott,

    I am a nobody and I can understand the exasperation of having to answer questions from an anonymous simpleton on the Internet. But Summers is a somebody. So what are you going to tell him to persuade him to your way of thinking?

    From Summers’ NABE speech:

    “The question arises, then, in the last 15 years: can we identify any sustained stretch during which the economy grew satisfactorily with conditions that were financially sustainable?

    At some point, however, growth in the balance sheet of the Federal Reserve raises profound questions of sustainability, and there are distributional concerns associated with policies that have their proximate impact on increasing the level of asset prices.

    There’s also the concern pointed out by Japanese observers that in a period of zero interest rates or very low interest rates, it is very easy to roll over loans; and therefore there is very little pressure to restructure inefficient or even zombie enterprises. So, the strategy of taking as a given lower equilibrium real rates and relying on monetary and financial policies to bring down rates is, as a broad strategy, preferable to doing nothing, but comes with significant costs.”

    http://larrysummers.com/wp-content/uploads/2014/06/NABE-speech-Lawrence-H.-Summers1.pdf

  71. Gravatar of Daniel Daniel
    30. October 2014 at 14:11

    Dan W,

    You are a very stupid and ignorant man

    relying on monetary and financial policies to bring down rates

    http://en.wikipedia.org/wiki/Fisher_equation

    Seeing as how printing money RAISES interest rates, I’d say reality had falsified Summers.

    Of course, I don’t expect anything to get through to that retarded little brain of yours.

  72. Gravatar of TravisV TravisV
    30. October 2014 at 16:02

    Has anyone taken a look at inflation expectations in Europe?

    They really seem to be stabilizing in the U.S…..

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=PmW

  73. Gravatar of Major.Freedom Major.Freedom
    30. October 2014 at 16:35

    Daniel:

    “Stupid”, “imbecile”, “moron”, “ignorant”, “retarded”…

    Let the hate flow through you.

    Expansionary monetary policy can lower rates through the liquidity effect. It is this effect the Fed has been relying on for decades in order to bring down and raise the overnight (fed funds) rate. When the Fed wants to lower that rate, they engage in more OMOs, I.e. “printing money”. Reality refutes your garbage – I hesitate to even call what you believe a – theory.

    Printing money only raises rates if the upward pressure from price inflation is greater than the downward pressure from the liquidity effect.

    The liquidity effect is what we call the phenomena of the money supply increasing by way of credit expansion, i.e. the loan market. When the quantity of loans unbacked by prior voluntary savings in the market takes place, which is encouraged by central banks flooding banks with new reserves, this puts downward pressure on rates. When that initial inflation then works its way through the economy from person to person, resulting in higher goods spending, then that puts upward pressure on interest rates. But since the present always has both pressures taking place, as well as the pressures from time preferences in the market, I.e. real rates, the resulting rates that prevail cannot be solely pinned on only one force such as what you claim.

    Yes, everyone gets the ridiculously trivial point that printing LOTS of money will almost certainly make rates rise. But that would only be because the upward pressure on rates from price inflation and higher rates of nominal profits would dominate all other pressures including any downward pressure from that same money printing to the extent it takes the form of credit expansion. But just because printing money at extreme rates raises rates, that doesn’t mean printing money never reduces rates. When the form of money printing, such as credit expansion, leads to downward pressure on rates dominating all other pressures, then money printing actually lowers rates.

    The lowering is of course temporary. The long run effect is to increase rates. And that is exactly why the Fed has to be “activist” if it wants to KEEP rates down. It has to increase bank reserves, encourage credit expansion, and at the same time make sure that consumer price inflation is kept down. Then rates can stay low for extended periods. Oh gee look at that, that is actually what is happening now.

    Daniel, you are uninformed, terrified, tormented, and very mad. You are letting your emotions rule you, and that is getting in the way of educating yourself, which requires a more stable mindset than what you have.

  74. Gravatar of TallDave TallDave
    30. October 2014 at 18:33

    Spending rose rapidly after the 1987 bubble burst, and spending rose modestly after the 2000 tech bubble burst.

    I live near the old Insull mansion (now a museum), built on the back of the “electric bubble” and soon lost in its aftermath as Insull was tried and convicted for overpromising to investors. Before that was the rail bubble, etc.

    There a couple studies on this, interestingly the end of each “bubble” also helps create the conditions for the next technological boom, by driving costs low enough to create new markets — for instance, the glut of cheap bandwidth due to the overbuild of network capacity in the late 1990s hastened the growth of social media, just as cheap electric power spurred the development of various household appliances.

    There’s a lot of ruin in a nation, but it’s an ill economic wind that blows no one any goods and services :)

  75. Gravatar of TallDave TallDave
    30. October 2014 at 18:43

    Dan W — Again, the purpose of looser monetary policy is not to lower interest rates, it’s to boost NGDP. In the long run, looser money leads to higher interest rates because if investors see inflation in their future they will demand higher nominal rates (and borrowers will accept them). That’s why interest rates went way up during the Great Inflation, and have been falling since Volcker broke the expectations by proving the Fed would accept recession to rein in inflation.

  76. Gravatar of Daniel Daniel
    31. October 2014 at 01:11

    Major_Moron

    Some people were dropped on their heads. You must have been thrown against a wall. Repeatedly.

  77. Gravatar of Dan W. Dan W.
    31. October 2014 at 03:04

    Daniel,

    You are a very unpleasant person. Perhaps you already knew that. Since my concerns are the same concerns voiced by Larry Summers and now Alan Greenspan I can only assume they are also on your list of “retarded” people. Please, do us all a favor and publish your list so we can all see who is “retarded” and who is not. This way there can be a full reckoning. Clearly there are points of view you do not wish to discuss or consider and responding as a juvenile is your way of keeping your mind protected from ideas you do not like.

  78. Gravatar of Dan W. Dan W.
    31. October 2014 at 03:15

    All,

    Please be accurate in your attributions and criticisms. It was Larry Summers who wrote “the strategy of taking as a given lower equilibrium real rates and relying on monetary and financial policies to bring down rates is, as a broad strategy, preferable to doing nothing, but comes with significant costs.”

    Question: Did today’s BOJ action lower Japanese interest rates? How would you explain the market’s response to the valuation of the yen?

    “In frenetic currency market trading, the yen tumbled to its lowest level in nearly seven years against the dollar, putting it on track for its biggest losses in more than a year.”

    http://www.reuters.com/article/2014/10/31/us-markets-global-idUSKBN0IK02D20141031

  79. Gravatar of Daniel Daniel
    31. October 2014 at 04:48

    Dan W

    You are total frickin’ moron. Being a moron, you cannot grasp the dimension of your stupidity – instead, you think the adversity is caused by petty people envious of your brilliance.

    But rest assured, that is not case.

    Back on topic – reality is non-negociable. 1+1 will always equal 2, no matter what morons like you would like it to equal (incidentally, no wonder Austrians are alergic to arithmetic – it reveals their theories to be total bullsh*t).

    As such, when you see people arguing that white is actually black – or, as is the current case, that printing money lowers rates – when the reality is just the opposite – you have to ask yourself what exactly is behind such bullsh*t.

    In your case, it’s because you’re a sadistic moron.

    In Greenspan’s case – he’s clearly old and feels a need to defend his reputation.

    In Summers case – he has a political agenda to push.

    Bullsh*t is bullsh*t, no matter who spews it – morons like you or politicians (let’s be honest here) like Larry Summers.

    Oh, and let’s not forget – you’re a total moron.

  80. Gravatar of Daniel Daniel
    31. October 2014 at 04:51

    Dan W,

    Further proof of your retardation – Bank of Japan devalues the yen, markets cheer this.

    Your conclusion ? The situation requires monetary tightening.

    Because the markets clearly don’t know anything. Which is exactly why everything must be privatized.

    You’re a total moron.

  81. Gravatar of Peter Drake Peter Drake
    1. November 2014 at 00:03

    I’d just like to comment that the insults detract from the discussion. They seem more about posters being self-indulgent than with moving the conversation along. If you want to compare others unfavourably to yourself then find a mirror and tell someone who cares.

  82. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 06:38

    Daniel,

    There is a practically unlimited desire in the general public to earn more money in anything they sell.

    No individual knows how much money there ought to be for everyone. Only through the market process in the production of money itself can we glimpse whether or not people are willing to devote more or less resources to money production instead of other goods production, or vice versa.

    You cannot rationally claim that because the Japanese stock market went up after an announced Yen devaluation that there should have been a Yen devaluation. One, that is reasoning from a price change, and two, there is no market in money so there was no markets anywhere cheering for any fiat devaluation. Socialist money is not a market.

    The Zimbabwe stock index skyrocketed during the hyperinflation under Mugabe, and after the financial crisis with high inflation. But only a fool would claim that the stock index going up is by itself proof that the markets should have been flooded with trillion percent inflation.

    Daniel, you are having a meltdown. Did you lose your job? A long time ago or recently? Having family problems? Maybe you should fix what is wrong in your life before devoting so much time on a blog where nobody cares about you anyway.

  83. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 06:41

    Daniel, you sound like your mind is broken and short circuiting. You have already prattled the childish insult of baby dropping and throwing. Is that all your repertoire contains? Moron, imbecile, retarded, sadistic, stupid, and dropped on head as baby?

    Lol

  84. Gravatar of Daniel Daniel
    1. November 2014 at 06:56

    Major_Moron

    The day I find myself in agreement with you over non-trivial matters is the day I will commit myself to a mental institution.

  85. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 06:56

    The costs of fiat money are not limited to just the materials in the paper, or the hard-drives and network cables.

    They also include whatever armed force is necessary to coerce 300 million people, and now millions more abroad as well with the petro-dollar scam, to keep the dollar as medium of exchange in the population. That of course means the costs of maintaining a state enforcer if fiat money, which we can’t pinpoint exactly but can estimate to be in the hundreds of billions each year.

    It is false to claim that a free market money would be “wasteful” because of an alleged increase in resources that would be devoted to producing private money. If one particular money were wasteful, then market forces would compel a change to a less wasteful money, and again and again towards the optimal money. This has already been done the world over so it won’t be reinventing the wheel. Precious metals has already “won” when the game is a free market and private property rights. Heck, even central bankers still use gold as a store of value. They don’t even trust themselves.

    You are scared that a free market in money will make it harder to make money. All those…other…greedy money hungry people who match up to your greedy money hungriness. If money were fully privatized, you wouldn’t have any violent armed thugs there to save you by printing off new money value for your greedy wants, because you are either too lazy to work hard producing or unable because of some unfair event that makes it impossible for you to earn money using your mind only, in your case spewing “moron” and “imbecile” on a random blog all day. Oh wouldn’t that be a good job for you. You would become rich. Like a swear jar, but that’s your job. So beneficial to the rest of humanity, if only everyone else clued in to how valuable your chulrish nonsense is, lol.

  86. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 06:58

    Mental institution? Come on, you can do better than that. You have used that before as well.

    Haven’t you spent time honing your craft and coming up with new insults? You’re boring.

  87. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 07:01

    Free market in money is a trivial matter, just like a free market in computers and insurance and warehouse services is trivial.

    It might not be trivial to those with autism or who were psychologically traumatized.

    They’re coming to take you away haha, they’re coming to take you away hoho

  88. Gravatar of Philippe Philippe
    1. November 2014 at 08:27

    “there is no market in money”

    http://en.wikipedia.org/wiki/Money_market

    of course, all markets are ‘money markets’ – people selling money for goods.

  89. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 08:52

    Philippe, you’re equivocating.

    A free market in money means economic freedom in the production and selling of money subject to profit and loss inherent in private property rights.

    The Federal Reserve is not a free market institution. It is a state monopoly backed by aggression against anyone who seeks to opt out of accepting or using fiat currency.

    If the state monopolized say the production of wheat and sugar, and forced people to pay it in wheat and sugar, then even if wheat and sugar were traded by those who are not statesmen, it doesn’t mean there is a free market in wheat and sugar.

  90. Gravatar of Philippe Philippe
    1. November 2014 at 08:58

    “A free market in money means economic freedom in the production”

    So are you saying that, for example, if the supply of something is fixed or determined by exogenous factors, there can be no free market in that thing?

  91. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 09:56

    With regards to a fixed supply, a fixed supply of something is not on its own sufficient to know there is no market in that thing, because it is possible, however unlikely, for a free market process to result in a fixed supply of that something.

    With regards to “determined by exogenous factors”, the only determinants in the free market process are individual private property rights based freedom of action. The complex of environmental phenomena/circumstances and innate/natural talents of individuals on the one hand, and hard work, drive and entrepreneurship on the other, are how we would explain the details of present and expected monetary conditions.

    In other words, there is nothing in what the money supply that on its own proves that there is no market for that thing.

    If the Fed stopped acting tomorrow, but their monopoly was still enforced, then the money supply would fluctuate within the constraints possible in that monopoly, by the member banks who expand and contract credit ex nihilo and thus affect the money supply to that extent. But over the long run, the money supply could not keep increasing, because banks need reserves to keep increasing in order to keep expanding credit.

    Also, and importantly, if the Fed stopped increasing bank reserves, then this is not an example of oh look now we have a free market. As long as the Fed monopoly is enforced, it is that enforcement which is “doing something” that makes the free market impossible. This last is what MMs have in mind when they awkwardly understand a cessation of Fed action as “Even if the Fed did nothing, they would still be doing something.”

    If alongside the Fed “doing nothing” the monopoly was also abolished, which allowed a revolution in money to take place, where money eventually became all private as people learned that other money worked a lot better than paper and government promises, then I suspect we would all agree that the Fed “doing nothing” in this case would really be doing nothing.

    But the Fed can’t do nothing as long as their monopoly is enforced. For then doing nothing is really a decision to “outsource” the money supply to member banks. It would be a decision to have member banks expand and contract credit, and thus the large portion of the money, given today’s reserve total will not be increased by the Fed in the future. It would be an institution in name only.

  92. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 10:03

    Gold and silver in the ground are not a part of the money supply in a gold and silver based free market economy.

  93. Gravatar of Philippe Philippe
    1. November 2014 at 10:04

    no one produces land, for example. The supply is fixed by exogenous factors. So you think there can be no free market in land?

  94. Gravatar of Daniel Daniel
    1. November 2014 at 10:13

    Philippe,

    1. You are free to set up your own private money, the only thing you actually have to use dollars for is paying taxes.

    2. The actual facts are irrelevant to nutbags. He’s just going to spew his Mises on us anyway, no matter what anyone says/does.

    Luckily for us, there are very few like him.

  95. Gravatar of Philippe Philippe
    1. November 2014 at 10:29

    Daniel,

    1. true to an extent. There are regulatory restrictions. In the US, privately minting and issuing coins intended for use as money, without explicit legal authorization, is illegal for example.

    http://www.law.cornell.edu/uscode/text/18/486

  96. Gravatar of Philippe Philippe
    1. November 2014 at 11:39

    “the only thing you actually have to use dollars for is paying taxes”

    And if the government were to accept or demand payment in something else – let’s say bitcoins for example – it would effectively be turning that thing into a form of ‘state money’, i.e. money backed by the legal power of the state. Which is why Hayek’s plan for ‘private currencies’ makes no sense when he says that they could be used to pay taxes.

  97. Gravatar of Major.Freedom Major.Freedom
    1. November 2014 at 18:28

    Philippe:

    “no one produces land, for example. The supply is fixed by exogenous factors. So you think there can be no free market in land?”

    I disagree. I think land is very much produced. Land that is worked on to make it arable, for example, is produced.

    Any geographical territory that is in any way altered or changed by man’s actions, is produced land.

    —————

    Daniel:

    “You are free to set up your own private money, the only thing you actually have to use dollars for is paying taxes.”

    False.

    First, that “only thing” makes a free market in money impossible.

    Second, there are the legal restrictions in the private minting of coins for use as money without the state’s permission.

    Third, you are ignoring legal tender laws. The state courts for example enforce debts in dollars.

    Facts? You don’t care about them.

    “Nutbag”? Well that’s a new one. Unfortunately, it is already boring.

    —————-

    Philippe:

    “And if the government were to accept or demand payment in something else – let’s say bitcoins for example – it would effectively be turning that thing into a form of ‘state money’, i.e. money backed by the legal power of the state. Which is why Hayek’s plan for ‘private currencies’ makes no sense when he says that they could be used to pay taxes.”

    Not if the payer can decide what to pay the state, instead of the state deciding what payers will pay it.

    Why should the state decide what payment it receives?

  98. Gravatar of Philippe Philippe
    1. November 2014 at 19:26

    “produced land”

    what you are actually referring to is ‘improved’ or developed land. The land itself is not produced.

    “Not if the payer can decide what to pay the state, instead of the state deciding what payers will pay it”

    Did you not see the word ‘accept’ in my comment?

    “…if the government were to accept or demand…”

    “Why should the state decide what payment it receives?”

    If anyone could decide to pay with whatever they wanted, then tax obligations would be meaningless and worthless. Just as any debts would be meaningless and worthless if debtors could choose to pay them with whatever they wanted.

    “First, that “only thing” makes a free market in money impossible”

    So when you say you want a so-called “free market in money”, what you are actually saying is that you want to “abolish the state”. Right?

  99. Gravatar of Scott Sumner, the Rortyian Historian Scott Sumner, the Rortyian Historian
    8. December 2015 at 08:57

    […] that “truth” is whatever your colleagues let you get away with. (I’ve dug up this post of him merely talking about it, but I’m pretty sure there are others where it looks like […]

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