Thread: House passes Ron Paul bill to audit the Fed

Over the medium and long term, inflation helps those with debt. Sure your 30k CC bill isn't any less, but your wages will rise at the same rate as inflation over time, so it will be a smaller percentage of your overall income. Your debt to earnings ratio will get a lot sunnier, and your earnings will stay even with the price of other commodities, which in effect makes you richer.

That's why farmers have historically liked price inflation, because their good are worth more in relation to their debts. Same for people like me with student loans. Over time, my wages will increase in relationship to those debts as inflation rises.

More money is also a good way to increase lending, construction, etc, because it makes less sense to stuff it in your mattress. That increases wages and hiring across the board.

You guys should go retake Econ 101.

In case you guys have not noticed - there are multiple kinds of inflation. Notably wage & price. If they march hand in hand, people owing money win. In fact, that is why (besides a bit of tax help) houses were considered such a good investment. Borrow now and pay a large part of it back when the dollar is worth half as much...

Broadly speaking, tommyvee nailed it and DBS sort of missed how it usually works over time. In fact, this was part of how the US was likely going to manage cutting the true value of its international (notably to China)debt until Bush blew up the economy with retarded tax cuts on a credit card. Too fragile to inflate now.

What is the gain here compared to the risk....... the Fed like it or not is probably the single most important player in the global economy and lets be honest there is some funny money shit going on there.

But funny money is how our economy works so I don't see why we should go poking the beehive right this second.

An economy is a concept that essentially is a result of how everyone feels, this only has the possibility to have a large impact if its negative. Additionally monetary policy hasn't really been the problem, cheap money wasn't great in the Housing bullshit but monetary policy alone was 5% of that shit.

The problem with the economy now is nobody has anything to feel really positive about and there does not seem to be a new industry or major technical advancement to jump start the good feelings. Money has no velocity even though there is plenty of it and its cheap.

Lastly this is a I hate gov't thing mixed in with a little bit of batshit crazy gold standard people. Gold standard types should by default be laughed out of town for their inability to understand basic concepts of our economic system. The I hate gov't people are almost equally as stupid because while the Fed ain't perfect it's one of the least shitty gov't agencies and I don't know who the fuck you think is going to do it any better. Politicizing monetary policy is monumentally stupid, you can fuck up abortion rights or something and walk away from it but fuck up monetary policy and we are seriously in the shit.

Originally Posted by spindrift

Too fragile to inflate now.

I think that just depends on how you do it. I think the best thing for the economy would be to print a bunch of money and drop it out of a helicopter so people could pick it up and spend it. That would cause inflation, but would help the economy.

Same with passing some laws/incentives to get companies to hire more people. That would cause short-term inflation as the new hires would start consuming more, but that would also mean the economy was improving, and would boost a lot of confidence in the markets.

What the Fed is doing wrong, IMO, is saying that they are going to fight inflation, no matter what, which basically means we won't see a big boom in employment, because it would cause a bump in inflation in the short term.

Inflation isn't always a bad thing, it just needs to be done for the right reasons and in the right way. There are definitely a lot of ways to fuck it up, though, and we'd all be buying loaves of bread with wheelbarrows full of cash.

You guys are fucking high if you think wages will increase commensurately with prices.

Especially for the low wage earners. How long since the fed minimum wage has been raised?

Median wages will rise with inflation over the long term in a healthy economy. Minimum wage doesn't really affect that, but it does affect wages in the lower quartile.

Ignoring the other rather unappealing aspects of most things RP - anything that has RP's name and any word related to economics or finance or banking - and not of the general form "RP is an ignorant moron with respect to <fill in word>" should either be ignored or laughed at. But then I'm never sure what to expect from a body stuffed with such geniuses as RP and Paul Ryan. As I've said before, these dunces make the Taliban look like America's best friend.

I mean Ron Paul auditing anyone is laughable. Somehow getting his hands on the nation's banking machinery? I can't imagine the national and global economic carnage.

We can only pray that their attempts at law with respect to our nation's finances languish and die. And being an atheist, I tend to use the word "pray" very, very sparingly...

Originally Posted by Phildo_Baggins

Median wages will rise with inflation over the long term in a healthy economy. Minimum wage doesn't really affect that, but it does affect wages in the lower quartile.

quoted for emphasis.

We are NOT in a healthy economy, and long term wage growth is meaningless when people can barely make ends meet as it is.

Originally Posted by ArmadaBC

What is the gain here compared to the risk....... the Fed like it or not is probably the single most important player in the global economy and lets be honest there is some funny money shit going on there.

Yeah, the Fed is playing a confidence game. Back when attempts to defend the U.S. dollar at a fixed rate per ounce of gold led to the collapse of Bretton Woods in the 70s, getting a handle on high inflation and restoring confidence was a hard fought decades long battle. Now the Fed is loath to give up its 2% inflation target.

Which sort of makes sense because once the inflation jeannie is out of the bottle it's not certain that the Fed could easily bring it back under control again. Unfortunately the cost of being too conservative, too cautious means a depressed economy.

Even though it now seems apparent that money was actually tight starting in 2008, hard money folks still only see the cost of too much inflation, blind to the cost of too little, and are still referring to "helicopter Ben's printing press." So instead of a middle ground the choice is presented as being between two equally unattractive bad equilibriums rather than targeting growth that is not too fast and not too slow.

Originally Posted by doughboyshredder

quoted for emphasis.

We are NOT in a healthy economy, and long term wage growth is meaningless when people can barely make ends meet as it is.

Well, you're still missing my original point which was that inflation is good when it comes from fiscal stimulus or because of an improving economy. It's bad if it's a stagflation type scenario, but that's not what we're seeing here.

Originally Posted by Phildo_Baggins

Over the medium and long term, inflation helps those with debt. Sure your 30k CC bill isn't any less, but your wages will rise at the same rate as inflation over time, so it will be a smaller percentage of your overall income. Your debt to earnings ratio will get a lot sunnier, and your earnings will stay even with the price of other commodities, which in effect makes you richer.
...
You guys should go retake Econ 101.

If Econ 101 is too much trouble, maybe 5 seconds with wikipedia would do (but arguing that "Inflation makes us ALL less wealthy" is simpler than facing the complex reality). And sure, pure price inflation with no wage inflation would hurt low-income people, but price inflation and wage inflation are inextricably linked for obvious reasons.

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

An increase in the general level of prices implies a decrease in the purchasing power of the currency. That is, when the general level of prices rises, each monetary unit buys fewer goods and services. The effect of inflation is not distributed evenly in the economy, and as a consequence there are hidden costs to some and benefits to others from this decrease in the purchasing power of money. For example, with inflation, lenders or depositors who are paid a fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings, while their borrowers benefit. Individuals or institutions with cash assets will experience a decline in the purchasing power of their holdings. Increases in payments to workers and pensioners often lag behind inflation, especially for those with fixed payments. Increases in the price level (inflation) erode the real value of money (the functional currency) and other items with an underlying monetary nature.

Debtors who have debts with a fixed nominal rate of interest will see a reduction in the "real" interest rate as the inflation rate rises. The real interest on a loan is the nominal rate minus the inflation rate.
Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring that central banks can adjust nominal interest rates (intended to mitigate recessions),[5] and encouraging investment in non-monetary capital projects.

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[6] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.[7][8]
Today, most economists favor a low, steady rate of inflation.[9] Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.[10] ...
Negative
High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation.[11] Uncertainty about the future purchasing power of money discourages investment and saving.[29] And inflation can impose hidden tax increases, as inflated earnings push taxpayers into higher income tax rates unless the tax brackets are indexed to inflation.

With high inflation, purchasing power is redistributed from those on fixed nominal incomes, such as some pensioners whose pensions are not indexed to the price level, towards those with variable incomes whose earnings may better keep pace with the inflation.[11] This redistribution of purchasing power will also occur between international trading partners. Where fixed exchange rates are imposed, higher inflation in one economy than another will cause the first economy's exports to become more expensive and affect the balance of trade. There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation.

[edit]Positive
Labor-market adjustments
Nominal wages are slow to adjust downwards. This can lead to prolonged disequilibrium and high unemployment in the labor market. Since inflation allows real wages to fall even if nominal wages are kept constant, moderate inflation enables labor markets to reach equilibrium faster.[35]
Room to maneuver
The primary tools for controlling the money supply are the ability to set the discount rate, the rate at which banks can borrow from the central bank, and open market operations, which are the central bank's interventions into the bonds market with the aim of affecting the nominal interest rate. If an economy finds itself in a recession with already low, or even zero, nominal interest rates, then the bank cannot cut these rates further (since negative nominal interest rates are impossible) in order to stimulate the economy – this situation is known as a liquidity trap. A moderate level of inflation tends to ensure that nominal interest rates stay sufficiently above zero so that if the need arises the bank can cut the nominal interest rate.[citation needed]
Mundell–Tobin effect
The Nobel laureate Robert Mundell noted that moderate inflation would induce savers to substitute lending for some money holding as a means to finance future spending. That substitution would cause market clearing real interest rates to fall.[36] The lower real rate of interest would induce more borrowing to finance investment. In a similar vein, Nobel laureate James Tobin noted that such inflation would cause businesses to substitute investment in physical capital (plant, equipment, and inventories) for money balances in their asset portfolios. That substitution would mean choosing the making of investments with lower rates of real return. (The rates of return are lower because the investments with higher rates of return were already being made before.)[37] The two related effects are known as the Mundell–Tobin effect. Unless the economy is already overinvesting according to models of economic growth theory, that extra investment resulting from the effect would be seen as positive.
Instability with Deflation
Economist S.C. Tsaing noted that once substantial deflation is expected, two important effects will appear; both a result of money holding substituting for lending as a vehicle for saving.[38] The first was that continually falling prices and the resulting incentive to hoard money will cause instability resulting from the likely increasing fear, while money hoards grow in value, that the value of those hoards are at risk, as people realize that a movement to trade those money hoards for real goods and assets will quickly drive those prices up. Any movement to spend those hoards "once started would become a tremendous avalanche, which could rampage for a long time before it would spend itself."[39] Thus, a regime of long-term deflation is likely to be interrupted by periodic spikes of rapid inflation and consequent real economic disruptions. Moderate and stable inflation would avoid such a seesawing of price movements.
Financial Market Inefficiency with Deflation
The second effect noted by Tsaing is that when savers have substituted money holding for lending on financial markets, the role of those markets in channeling savings into investment is undermined. With nominal interest rates driven to zero, or near zero, from the competition with a high return money asset, there would be no price mechanism in whatever is left of those markets. With financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers' preferences, and thus allow financial markets to function in a more normal fashion.

The obvious bottom line is that "some" inflation is essential for a healthy economy (because the alternative is much more destructive deflation), but the optimum level of inflation is very debatable. The other obvious bottom line is that any rate of inflation benefits some people and hurts others, so the monetary policy has an inevitable political aspect.

Blanket claims that inflation "makes us ALL less wealthy" are incorrect and insupportable. If you disagree, please link to any economist who supports that stupid and easily falsified claim.

Originally Posted by Phildo_Baggins

Well, you're still missing my original point which was that inflation is good when it comes from fiscal stimulus or because of an improving economy.

Another way to look at it is that we have lots of unemployed or underemployed people who have cut back on their expenses or are living with their parents. An equilibrium that will exist for as long as the economy is only adding somewhere in the neighborhood of a 100-thousand jobs a month.

But if circumstances changed so that the economy was adding 300-thousand-to-400-thousand jobs a month then all those people would start spending more, looking for places to rent, houses to buy, and then how could prices and wages not increase a little? Prices and wages would not increase if the Fed cooled things down by adhering to a lower inflation target but then we would risk going back to a 100-thousand jobs a month (sometimes less, sometimes more).

Originally Posted by doughboyshredder

quoted for emphasis.
We are NOT in a healthy economy, and long term wage growth is meaningless when people can barely make ends meet as it is.

One reason that we are currently not in a healthy economy is because stubborn "hard-money" proponents have forced the economy into a liquidity trap, because of their paranoid fears of non-existent inflation. This means that monetary policy does not address the real problem, persistent high unemployment and low investment, but instead addresses a potential fear for the future.

As Triage mentions, run-away inflation is a real risk over the long term, but so is deflation (ask Japan).
Using the UK as an example of the risks of inflation is pretty funny, since due to austerity in the UK (just like US "balanced budget", "gold-standard", "Religion of the Holy Ron Paul" believers have proposed) the UK (along with the EU) is running a severe risk of a deflationary economic collapse.

http://www.telegraph.co.uk/finance/c...-in-China.html

http://www.metro.co.uk/news/628638-d...to-50-year-low

http://www.managementtoday.co.uk/new...rate-falls-24/

http://www.bignewsnetwork.com/index....lation-breakup

Originally Posted by tommyvee

Blanket claims that inflation "makes us ALL less wealthy" are incorrect and insupportable.

I will concede that point.

I also apologize for being an asshole earlier. I was just trying to rile you up.

It's been a VERY long time since taking econ, and I did a lot of research today on price inflation and wage inflation. There are so many intricacies that it really can't be boiled down to simple blanket statements such as I made earlier.

Obviously there needs to be a balance point between price inflation, job growth, and wage inflation. I don't purport to know the answers. We can look to Europe and see that when price inflation runs rampant, wages stay stagnant, and there is no job growth it's a recipe for disaster.

Originally Posted by doughboyshredder

We can look to Europe and see that when price inflation runs rampant, wages stay stagnant, and there is no job growth it's a recipe for disaster.

what the fuck are you talking about ilikecandy?
http://epp.eurostat.ec.europa.eu/sta...e_price_levels

Originally Posted by doughboyshredder

I will concede that point.
I also apologize for being an asshole earlier. I was just trying to rile you up.
It's been a VERY long time since taking econ, and I did a lot of research today on price inflation and wage inflation. There are so many intricacies that it really can't be boiled down to simple blanket statements such as I made earlier.
Obviously there needs to be a balance point between price inflation, job growth, and wage inflation. I don't purport to know the answers. We can look to Europe and see that when price inflation runs rampant, wages stay stagnant, and there is no job growth it's a recipe for disaster.

You win massive points for taking the time to look at information and adapting your view point based on that information (something all of us on PAH often fail to do, certainly including myself). Sometimes I recognize that I am searching for evidence to back up an argument, rather than searching for data to understand the situation.

And I sure don't know the answers either. When you look at macroeconomic experts' track record, their ability to predict economic events does not look much better than random coin tosses. Krugman has had a better run lately than some of the Chicago-school guys like Taylor, but maybe that just means Krugman's model will be the next to fail. It surprises me that all the computational power available has not created better bottom-up economic simulations with real predictive power (of course there is the self-referential problem, in that a successful simulation would have economic impacts that in turn would have to be simulated).

Originally Posted by doughboyshredder

I will concede that point.

I also apologize for being an asshole earlier. I was just trying to rile you up.

It's been a VERY long time since taking econ, and I did a lot of research today on price inflation and wage inflation. There are so many intricacies that it really can't be boiled down to simple blanket statements such as I made earlier.

Obviously there needs to be a balance point between price inflation, job growth, and wage inflation. I don't purport to know the answers. We can look to Europe and see that when price inflation runs rampant, wages stay stagnant, and there is no job growth it's a recipe for disaster.

Lots of Europe's problems have been forced austerity during the teeth of a recession. In Greece's case some of it was necessary, but in the UK they pretty much just shot themselves in the foot.

Originally Posted by tommyvee

It surprises me that all the computational power available has not created better bottom-up economic simulations with real predictive power (of course there is the self-referential problem, in that a successful simulation would have economic impacts that in turn would have to be simulated).

Interesting. I was just thinking about this the other day. It seems we should be able to compute the answers to these problems using simulations.

Originally Posted by doughboyshredder

it seems we should be able to compute the answers to these problems using simulations.

They do already.

But Ron Paul still disagrees with them. On "principle". What can you do?

Originally Posted by tommyvee

It surprises me that all the computational power available has not created better bottom-up economic simulations with real predictive power (of course there is the self-referential problem, in that a successful simulation would have economic impacts that in turn would have to be simulated).

Originally Posted by doughboyshredder

Interesting. I was just thinking about this the other day. It seems we should be able to compute the answers to these problems using simulations.

In economics, the Lucas critique stipulates that for a model to accurately predict the effect of a new policy on the economy—even if the model works under existing policy—you also have to accurately model individual behavior. That means modelling in economic terms irrational behavior as well as rational behavior which at some point in the future might be possible with advances in psychology or neurology. But that's not going to happen any time soon.

That being said, it is no accident we are currently in the 2% inflation range.

Originally Posted by Triage

In economics, the Lucas critique stipulates that for a model to accurately predict the effect of a new policy on the economy—even if the model works well for existing policy—you also have to accurately model individual behavior. That means modelling in economic terms irrational behavior as well as rational behavior which at some point in the future might be possible with advances in psychology or neurology. But that's not going to happen any time soon.

That being said, it is no accident we are currently in the 2% inflation range.

That's about what I figured.

PNWtwit is full of shit, as usual.

Originally Posted by Triage

In economics, the Lucas critique stipulates that for a model to accurately predict the effect of a new policy on the economy—even if the model works under existing policy—you also have to accurately model individual behavior. That means modelling in economic terms irrational behavior as well as rational behavior which at some point in the future might be possible with advances in psychology or neurology. But that's not going to happen any time soon.

That being said, it is no accident we are currently in the 2% inflation range.

That being said, perhaps they can do the first model on the irrationality of grandstanding politics such as this refusal to pass a bill to audit the Fed. 'Course, when a dumbass voting public doesn't see beyond the drama propaganda perpetuated in the insanity instilling subliminal tv mindfuck, I guess Congress will continue to push collective America's nuts through the meat grinder with all kinds of 'policies'.

Originally Posted by splat

That being said, perhaps they can do the first model on the irrationality of grandstanding politics such as this refusal to pass a bill to audit the Fed.

For what it's worth, the Federal Reserve is annually audited both internally and independently by private accounting firms as well as by the GAO. There have also been numerous acts of congress over the years that have specified Federal Reserve audits as well.

Somebody more familiar with this bill can probably provide better detail but the last time this came up the audit was better described as a public disclosure of the Federal Reserves independent operations not necessarily an audit per se. Which makes sense because the Feds intervention in the market is only justified by extreme crisis. What Ron Paul, and this bills intention as I understand it, gets right is that the Fed should not be picking winners and losers like Goldman and AIG etc.

Originally Posted by Triage

Somebody more familiar with this bill can probably provide better detail but the last time this came up the audit was better described as a public disclosure of the Federal Reserves independent operations not necessarily an audit per se. Which makes sense because the Feds intervention in the market is only justified by extreme crisis. What Ron Paul, and this bills intention as I understand it, gets right is that the Fed should not be picking winners and losers like Goldman and AIG etc.

That's my understanding as well. This is not so much an audit in financial terms as much as it is a fact finding mission. The desire is to find out the who's, the why's, and the how's of the financial institutions that were bailed out.

Everyone should want this information to come out unless they have something to hide.

Originally Posted by Triage

For what it's worth, the Federal Reserve is annually audited both internally and independently by private accounting firms as well as by the GAO. There have also been numerous acts of congress over the years that have specified Federal Reserve audits as well.

Somebody more familiar with this bill can probably provide better detail but the last time this came up the audit was better described as a public disclosure of the Federal Reserves independent operations not necessarily an audit per se. Which makes sense because the Feds intervention in the market is only justified by extreme crisis. What Ron Paul, and this bills intention as I understand it, gets right is that the Fed should not be picking winners and losers like Goldman and AIG etc.

Also, who owns the Fed and just how much money are they making loaning the US operating capital?