Trump is meeting with an ex-bank CEO who wants to return to the gold standard(businessinsider.com)
businessinsider.com
Trump is meeting with an ex-bank CEO who wants to return to the gold standard
http://www.businessinsider.com/trump-meeting-john-allison-bank-ceo-abolish-the-fed-gold-standard-2016-11
30 comments
Since I know many here are much more inclined towards rigorous arguments, I highly highly recommend you read George Gilder's free book supporting something like a gold standard told through the lens of an information theory of money:
https://americanprinciplesproject.org/economics/new-george-g...
https://americanprinciplesproject.org/economics/new-george-g...
Holy crap, the ceo wants to get rid of the fdic, which is like the best protection against the sort of mass market crash (and runs on the bank) that caused the great depression.
And our current status quo of rampant and reckless monetarism is what causes such severe crashes and volatility.
(Not necessarily advocating getting rid of fdic)
It's also far less preposterous when you read the next sentence where he advocates banks have a 20% capital reserve requirement.
(Not necessarily advocating getting rid of fdic)
It's also far less preposterous when you read the next sentence where he advocates banks have a 20% capital reserve requirement.
> And our current status quo of rampant and reckless monetarism is what causes such severe crashes and volatility.
Insofar as there is an overreliance on monetary policy, that's because Congress has been uninterested in fiscal intervention to.address problems, which is the real source of severe economic problems (some short-term market volatility may be tied specifically to monetary policy, but that's far less important.)
Eliminating the independent central bank (the Federal Reserve) -- thus making both fiscal and monetary policy dependent on Congress getting its actually together -- makes this problem worse, not better.
> It's also far less preposterous when you read the next sentence where he advocates banks have a 20% capital reserve requirement.
Increasing reserve requirements will probably reduce the incidencenter of failure slightly, at the expense of being a giant break on the economy. But it doesn't make eliminating the FDIC far less preposterous.
Insofar as there is an overreliance on monetary policy, that's because Congress has been uninterested in fiscal intervention to.address problems, which is the real source of severe economic problems (some short-term market volatility may be tied specifically to monetary policy, but that's far less important.)
Eliminating the independent central bank (the Federal Reserve) -- thus making both fiscal and monetary policy dependent on Congress getting its actually together -- makes this problem worse, not better.
> It's also far less preposterous when you read the next sentence where he advocates banks have a 20% capital reserve requirement.
Increasing reserve requirements will probably reduce the incidencenter of failure slightly, at the expense of being a giant break on the economy. But it doesn't make eliminating the FDIC far less preposterous.
Too many assumptions about my opinions being made from my statement (which I agree I didn't substantiate). I'm making a more broad critique of fed.
We should have a federal reserve, but one who doesn't engage in central planning and has a healthy respect for the efficacy of free markets. If they raised rates fully in 2011-2013 they would've been heros, now they've completely distorted the global economy because prices simply cannot reflect information about the economy when money itself so widely fluctuates.
Money is a measuring stick, plain and simple. Economic activity can be thought of as scientific experimentation, except the results of these experiments can't reliably be measured when the measuring stick itself changes widely for political, and not fundamental reasons.
I'm not really making an argument for institutional changes, just that the people currently occupying the fed are benevolent morons.
We should have a federal reserve, but one who doesn't engage in central planning and has a healthy respect for the efficacy of free markets. If they raised rates fully in 2011-2013 they would've been heros, now they've completely distorted the global economy because prices simply cannot reflect information about the economy when money itself so widely fluctuates.
Money is a measuring stick, plain and simple. Economic activity can be thought of as scientific experimentation, except the results of these experiments can't reliably be measured when the measuring stick itself changes widely for political, and not fundamental reasons.
I'm not really making an argument for institutional changes, just that the people currently occupying the fed are benevolent morons.
> We should have a federal reserve, but one who doesn't engage in central planning and has a healthy respect for the efficacy of free markets.
The entire purpose of a central bank is to do central planning of monetary policy, so I'may not sure what a federal reserve that doesn't do central planning even means.
> If they raised rates fully in 2011-2013 they would've been heros, now they've completely distorted the global economy because prices simply cannot reflect information about the economy when money itself so widely fluctuates.
It sounds like you want them to do central planning, but optimizing different variables (rather than managing inflation against full employment, it sounds like you want them optimizing the much less clearly measurable degree to which prices reflect information about the economy.)
I'm also not sure what "raise rates fully" is supposed to mean; there isn't a fixed ceiling on rates.
Further, I'd like to see some reason to believe that your preferred policy would actually have produced better results by any concrete measure.
> I'm not really making an argument for institutional changes, just that the people currently occupying the fed are benevolent morons.
Well, you are clearly saying that. Some kind of support for that claim would be nice before calling it an argument.
The entire purpose of a central bank is to do central planning of monetary policy, so I'may not sure what a federal reserve that doesn't do central planning even means.
> If they raised rates fully in 2011-2013 they would've been heros, now they've completely distorted the global economy because prices simply cannot reflect information about the economy when money itself so widely fluctuates.
It sounds like you want them to do central planning, but optimizing different variables (rather than managing inflation against full employment, it sounds like you want them optimizing the much less clearly measurable degree to which prices reflect information about the economy.)
I'm also not sure what "raise rates fully" is supposed to mean; there isn't a fixed ceiling on rates.
Further, I'd like to see some reason to believe that your preferred policy would actually have produced better results by any concrete measure.
> I'm not really making an argument for institutional changes, just that the people currently occupying the fed are benevolent morons.
Well, you are clearly saying that. Some kind of support for that claim would be nice before calling it an argument.
Their job is to act a lender of last resort, not to centrally plan the economy despite what you think. They have as of only past couple decades taken on the latter role of central planning.
MV=PT
What you see above is central basis by which to interoperate all of the fed's behavior.
The above equation roughly translates to:
(Money supply) * (Turnover rate) = (Price) * (Transactions)
where: -money supply is outstanding cash or dollars -turn over rate is the frequency in which the cash changes hands = All the transactions that took place and their price
Current dogma of keynesian academic economists is that an ability to control the money supply will affect the rest of the equation and in theory the real economy. So (Money supply) is the variable the fed can control they use to pull the levers of our economy.
What's implied here then is a gross misunderstanding of what money actually is: a means of instrumentation and measurement.
For economies to properly function, entrepreneurs and participants in the economy need a consistent and reliable gauge to measure the performance of their (economic) experiments.
When supply of money in relation to other "things" is constantly and artificially manipulated, it becomes near impossible for the prices of goods and services to reflect actual information about fundamentals, comparative advantages, etc.
If you're technically inclined, I am essentially making an argument from the perspective of information theory.
Claude Shannon basically showed that to convey information, you need a medium that stays constant. Without that, it's impossible to distinguish the "medium" from the "message".
This is precisely what our academic oriented economists in charge of the fed and our prevailing economic school of thought have fucked up: They've tried to send a message through the medium itself in an attempt to activate parts of the economy, and have completely fooled themselves into thinking that while socialism and command economies are bad, control of the money supply is somehow different.
The issue is what people don't realize, is that free markets aren't about free exchanges of goods and services, but about free exchanges of information. And through the temptations and hubris of central planning they've compromised the medium through which participants in the economy can exchange information.
MV=PT
What you see above is central basis by which to interoperate all of the fed's behavior.
The above equation roughly translates to:
(Money supply) * (Turnover rate) = (Price) * (Transactions)
where: -money supply is outstanding cash or dollars -turn over rate is the frequency in which the cash changes hands = All the transactions that took place and their price
Current dogma of keynesian academic economists is that an ability to control the money supply will affect the rest of the equation and in theory the real economy. So (Money supply) is the variable the fed can control they use to pull the levers of our economy.
What's implied here then is a gross misunderstanding of what money actually is: a means of instrumentation and measurement.
For economies to properly function, entrepreneurs and participants in the economy need a consistent and reliable gauge to measure the performance of their (economic) experiments.
When supply of money in relation to other "things" is constantly and artificially manipulated, it becomes near impossible for the prices of goods and services to reflect actual information about fundamentals, comparative advantages, etc.
If you're technically inclined, I am essentially making an argument from the perspective of information theory.
Claude Shannon basically showed that to convey information, you need a medium that stays constant. Without that, it's impossible to distinguish the "medium" from the "message".
This is precisely what our academic oriented economists in charge of the fed and our prevailing economic school of thought have fucked up: They've tried to send a message through the medium itself in an attempt to activate parts of the economy, and have completely fooled themselves into thinking that while socialism and command economies are bad, control of the money supply is somehow different.
The issue is what people don't realize, is that free markets aren't about free exchanges of goods and services, but about free exchanges of information. And through the temptations and hubris of central planning they've compromised the medium through which participants in the economy can exchange information.
> Their job is to act a lender of last resort, not to centrally plan the economy despite what you think
The historical purpose of an independent central bank is to provide credibility to the currency (and, by way of that, also to provide some credibility to debt, especially government debt, denominated in the currency) by centrally planning monetary policy, and doing so at armsome length from the fiscal policy of the government.
The job of the Federal Reserve, specifically, as laid out in law expressly includes managing monetary policy with specific prioroties regarding productivity, employment, and inflation -- that is, within certain parameters management of the economy via monetary policy.
So, factually, you are wrong, no matter whatn ideologically, you think their job should be.
> What's implied here then is a gross misunderstanding of what money actually is: a means of instrumentation and measurement.
Money is a number of things, but while it's something of a very loose proxy measure for somethings, this is, historically, neither the primary intended purpose, nor the primary practical function of money.
> When supply of money in relation to other "things" is constantly and artificially manipulated, it becomes near impossible for the prices of goods and services to reflect actual information about fundamentals, comparative advantages, etc.
Insofar as this is true at all, it's just as true if the changes are due to forces other than central planning. And no matter what you use as money, and how you manage it, it's supply in relation to other goods and services is going to change.
The historical purpose of an independent central bank is to provide credibility to the currency (and, by way of that, also to provide some credibility to debt, especially government debt, denominated in the currency) by centrally planning monetary policy, and doing so at armsome length from the fiscal policy of the government.
The job of the Federal Reserve, specifically, as laid out in law expressly includes managing monetary policy with specific prioroties regarding productivity, employment, and inflation -- that is, within certain parameters management of the economy via monetary policy.
So, factually, you are wrong, no matter whatn ideologically, you think their job should be.
> What's implied here then is a gross misunderstanding of what money actually is: a means of instrumentation and measurement.
Money is a number of things, but while it's something of a very loose proxy measure for somethings, this is, historically, neither the primary intended purpose, nor the primary practical function of money.
> When supply of money in relation to other "things" is constantly and artificially manipulated, it becomes near impossible for the prices of goods and services to reflect actual information about fundamentals, comparative advantages, etc.
Insofar as this is true at all, it's just as true if the changes are due to forces other than central planning. And no matter what you use as money, and how you manage it, it's supply in relation to other goods and services is going to change.
"Reckless monetarism"? Meaning what, precisely?
We're in essence in stagnation because of low interest rates - assuming that's the cause and not the effect.
So now we're gonna go back to a demonstrably deflationary regime ( the gold standard ) and raise reserve requirements to 20%?
How is that not even more deflationary?
We're in essence in stagnation because of low interest rates - assuming that's the cause and not the effect.
So now we're gonna go back to a demonstrably deflationary regime ( the gold standard ) and raise reserve requirements to 20%?
How is that not even more deflationary?
Lol, it is objectively the "effect".
The feds fund rate has been set to near zero for almost 8 years. This is acts as the baseline cost of credit in our country and given our global financial stature, the world.
The feds fund rate has been set to near zero for almost 8 years. This is acts as the baseline cost of credit in our country and given our global financial stature, the world.
Bear with me - how does that tie back to monetarism ( which, according to my dim lights , we simply don't do ).
I presume you mean QE{I,II,II...} ? Those have been zero velocity efforts; buried in the back yards of big banks without a trace. Increased reserves with interest being paid on them.
I presume you mean QE{I,II,II...} ? Those have been zero velocity efforts; buried in the back yards of big banks without a trace. Increased reserves with interest being paid on them.
See my above reply to dragonwriter.
You're right, of MV = PT they have only manipulated the M (Money supply) so far.
But unless this destructive dogma and school of thought is put to an end they will begin to institute velocity efforts during the next crash since rates are essentially zero and it's all they'd have left: wealth tax or applied negative interest rate on deposits, helicopter money, etc.
You're right, of MV = PT they have only manipulated the M (Money supply) so far.
But unless this destructive dogma and school of thought is put to an end they will begin to institute velocity efforts during the next crash since rates are essentially zero and it's all they'd have left: wealth tax or applied negative interest rate on deposits, helicopter money, etc.
Agreed. For lack of a better choice, I tend to line up with Sumner and the Market Monetarists, which is a different flavor of monetarism yet ( and I'd think more in line with trying to get V up ). So the pallitative for monetarism may well be monetarism :)
The most important I think is how credit has increased since Bretton Woods was abandoned, allowing the country to continue to run trade deficits. Previously, this was limited by a gold standard.
Give me a break. Libertarians don't get to rewrite history on a whim.
There were massive and volatile crashes on the gold standard. Most famously, the Great Depression.
There were massive and volatile crashes on the gold standard. Most famously, the Great Depression.
I think back when the Great Depression happened it was a US trade surplus which eventually ended. US now have a trade deficit and has been since around the 1970s.
The laws of double-entry accounting being what they are, there is no "trade deficit" - the difference is made up mostly in financial services.
A trade deficit has a well-defined meaning, and describes a thing that does really exist. It must, of necessity, be offset by a net capital flow from the partner with the surplus to the one with the deficit (usually, in the form of increased foreign ownership of firms and property in the country with the deficit.)
It's can't be made up for in financial services, because trade in services, including financial, are included in the calculation of the deficit or surplus.
It's can't be made up for in financial services, because trade in services, including financial, are included in the calculation of the deficit or surplus.
But in a post-Bretton-Woods US, it amounts to financial services - or what ever it is that Wall Street does.
No, it amounts to assets, either financial or concrete (e.g., real property). And there's nothing special about the "post-Bretton Woods US". Financial assets are not the same thing as financial services.
Not all financial assets are in real property. I'd call assets that are not real property pretty much an artifact of the financial services industry. I don't mean just fees.
Your usage is much more precise.
I invoked Bretton because Truman was running around trying to get as much of the finance industry for the US during Potsdam and thereafter. Bretton Woods was roughly the same time frame.
Your usage is much more precise.
I invoked Bretton because Truman was running around trying to get as much of the finance industry for the US during Potsdam and thereafter. Bretton Woods was roughly the same time frame.
He wants to end the Fed outright, which is how we avoided a total disaster in 2008-9. But this is mostly because Bernanke, who is a student of the Depression was somewhat listened to.
The various scenes in "Too Big To Fail" where Bernanke speaks seem to have actually happened. To the limit of a narrative movie's ability to tell such a story, it looks pretty close.
And WHAT volatility??? We're so stable we're hidebound.
The various scenes in "Too Big To Fail" where Bernanke speaks seem to have actually happened. To the limit of a narrative movie's ability to tell such a story, it looks pretty close.
And WHAT volatility??? We're so stable we're hidebound.
The Fed (Federal Reserve) and the FDIC are separate things, and he wants to get rid of both, plus move back to a gold standard (which is another separate thing; the Fed existed for a long time with the gold standard.)
Yessir - I was drawing that from the article. His principle thing seems to be "end the Fed" and the FDIC thing was presented as a secondary consideration in the article.
Um, please do not confuse economic growth with volatility.
We've had enormous volatility, especially in forex and debt markets.
We've had enormous volatility, especially in forex and debt markets.
Point taken.
I was thinking more of the sort of volatility which is related to Fed policy or to the sort of banking that the FDIC is relevant to.
I was thinking more of the sort of volatility which is related to Fed policy or to the sort of banking that the FDIC is relevant to.
Does anyone know what this means to vc funding in the valley ?
Ending independent central banking in the US would probably destroy the credibility of US Government securities as an investment vehicle, which might in the short term make more money available in private markets. OTOHnot it's probably bad for any kind of investment in firms actually substantively tied to the U.S., and probably best for firms in the kitchen design of it distress expected to do well in a period of international political instability, not most tech startups (though some might do well.)
Then again, this kind-of talk doesn't mean he'll be appointed, or confirmed, or that his past stated policy preferences will make it into law.
Then again, this kind-of talk doesn't mean he'll be appointed, or confirmed, or that his past stated policy preferences will make it into law.
I think a lot of the VC funding probably ultimately comes from the increased credit that was allowed when Bretton Woods were abandoned.
One of the reasons people want to get rid of the FED is that they encourage markets to act recklessly because the FED is there to save the day when the panics start. But the problem is that there will always be panics and finding a buyer of last resort every time makes for a very unstable market and it limits its growth since the general risk is perceive as higher.
Thrump wants lots of changes but going back to the gold standard or getting rid of the FED will not happen during his administration.