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Everything posted by adrock3215

  1. It would only devalue the currency of the issuing bank. Each bank currency would be exchangable for every other bank currency in a currency exchange market (we have this today, it's called the foreign exchange market, where I can take my dollars and buy euros, or my yen and buy reais). In so much as market participants view the currency of a particular bank as being secure, then that banknote will trade at a premium to other, less reputable, banknotes on the market. If, in general, all bank practices are shady and suspect, then market participants would choose to hold gold, and so the currency exchange market would diminish and the medium of exchange would be gold. This is unlikely, because in a free market, if all banks were shady, there would be a startup opportunity for a more trustworthy bank. Personally, I think practices would differ across banks, which means that reserve ratios, banknotes, denominations, etc, would all vary depending on the issuing bank. That's fine. But what you are, in effect, saying, is that you think FRB is morally wrong because it is fraud, and that it should not be permitted in a free society. I happen to disagree with you, because I think that an individual and a bank can draw a contractual agreement stipulating the terms of the deposit, including the amount of reserves that a bank holds in the vault.
  2. That's the point of this discussion, which is why I called you on the contradiction. FRB banking entails taking a deposit for 100 ounces of gold and printing 100+X notes. That is the definition of fractional reserve banking. Printing a receipt for a depositor entails printing a gold backed note. That is the definition of a banknote. The bank is not loaning out more money than it has in the vault, because the supply of money is static. What they are loaning out is paper claims to gold at some future redemption date (or they can loan out the gold and give the depositor the bank notes, it doesn't make a difference). The bank can do this rationally because it mitigates losses by calculating the probability that all depositors will show up at the bank at one time to redeem all the printed notes in circulation. Insurance companies also conduct business in this manner. For instance, if every car owner insured by Geico got into a car accident tomorrow and totaled their car, Geico would be insolvent, and also probably wouldn't pay you at all. Under FRB, the note is not worth its face value unless the bank is solvent. During periods of insolvency, the note is obviously worth much less than its face value, or it can even be totally worthless.
  3. I think that it is possible to discuss solely the Austrian theory of the business cycle while rejecting other tenets of Mises' work. I will do that in this thread, since that is what it was originally predicated upon. There may be others here with a better understanding economics than I, so please correct me if I am wrong in any regard. This isn't correct. When banks in a free economy reduce their reserve ratios and loan out funds gathered from depositors, they have the choice to loan out gold from the vault or claims on gold which remains in the vault, i.e. banknotes. Either way, the supply of actual money is static and does not change. What changes is either the number of banknotes in circulation, or the amount of gold in the vault. But the total amount of gold, i.e. the money supply, in the economy remains the same, and therefore the theory actually does see an entirely essential difference between the two scenarios described. I will attempt to explain the theory better. The essence of the Austrian Business Cycle is deduced by Mises from the "a priori" premise that man must act. While Mises is epistemically incorrect, he ends at a conclusion which can be supported by inductive premises. We can inductively reason that man has free will, that his survival depends upon the use of his reasoning mind, and that he must act under the guidance of reason to survive, rather than plant his feet in the ground and wait for rain and sunlight. But the fact that a man must act--indeed, that he acts at all--implies the foundational principle of economics; namely, that life can be viewed as essentially two arbitrary periods: current and future. The totality of life as action is a tradeoff between current consumption and future consumption or current production and future production. Depending on an individuals preferences for his own time and its value therein, he allocates his consumption and production between present and future. But actions in an exchange economy include another factor which affects the preferences of economic actors between present and future. This is identified as interest. Interest rates as such reflect the value that an individual places on his or her time. For instance, I may loan you $100 at 10% for a year because I feel that the rate of interest adequately compenstates me for the fact that I won't be able to use my $100 in the next year while you have it. Likewise, I may feel that 5% is not adequate compensation for my loss of utility, and therefore I will not extend the loan to you. Depending on the length of time I loan my money to you, I determine the appropriate level of compensation. The marginal utility of $100 to me within the next hour may be very low, because I don't plan on leaving the house and spending $100 within the next hour. However, within the next month, $100 may have a greater marginal utility to me, because I will need it to pay my phone bill at the end of the month. In a free market, the supply and demand of loanable funds based on the time preferences of economic actors will set the prevailing market interest rate in the same way prices of any other good are set. In an economy where interest rates are manipulated by central planners, the supply and demand of loanable funds is distorted and the price-signaling-mechanism of interest rates for the time preferences of economic actors is lost. As a concrete illustration of this manipulated economy: an increase in loanable funds based on a shift in consumer preferences towards higher savings rates becomes fundamentally indistinguishable from an increase in loanable funds based on the increase of the monetary base. The effect of both is a decrease in interest rates, although one represents an increase in actual wealth produced while the other represents an increase in paper notes. In regard to the business cycle, a nonproductive, paper-money induced decrease in interest rates leads to the boom phase of a business cycle. One of the major contributions of the Austrians is the discovery that capital is heterogeneous. Under this theory, the term structure of interest rates represents the increased uncertainty associated with longer term capital loans. This means that the interest rate on a two year loan is not simply the interest rate on a one year loan given today plus the interest rate on a one year loan given one year from now. There is a premium demanded by the lender for the time his money is lent out which increases in proportion to the length of the loan. When interest rates decrease in a free market, preferences of consumers are revealed to be longer-term, and therefore investment by producers in more capitalistic (longer-term) enterprises increases relative to investment by producers in less capitalistic (shorter-term) enterprises (although investment in both increases). The plant which makes the transistors to sell to Dell (long-term capital stock) is cheaper to finance when capital becomes less expensive relative to the Dell computer store that sells to consumers (short-term capital stock). But when rates are lowered without any change in consumer preference or any increase in savings, present consumption becomes cheaper to finance AND producers allocate capital toward future production. Thus during the boom phase, when interest rates are artificially low, producers invest in longer-term capital stock than is actually warranted by the amount of savings in the economy, while consumers will want to increase current consumption. That is: there is no real transfer of wealth from savers to entrepreneurs, only a scramble for resources between producers and consumers, one of whom wants to produce more and the other wants to consume more. I think we can look at the current crisis to see this sort of process. This is the day of the 6 and 7 year car loan and the 40 year mortgage. New investment products created under the period of cheap money are becoming longer and longer in maturity, because artificially cheap money stimulates long-term investment. Moreover, since 1998, the median US consumer has increased consumption by 38% while income has risen by something like 3.8%, because cheap money stimulates current consumption. There's probably more to write, but I spent long enough writing this, and I'll be back later anyhow.
  4. The owner wouldn't receive the gold notes? Then how would the owner of the gold lay claim to his gold? Surely he would have to get a receipt of some kind, a written contract acknowledging that he deposited gold to say the least. Without that, he would be relying on the "Banker Joe knows what I look like, so he'll remember I deposited gold" story, which won't hold up so well in court. The point of FRB is that the depositor does get 100 notes, while the bank simultanously retains the right to print a certain amount 100+X notes (according to reserve ratios), and loan X notes to borrowers.
  5. There is an article on CNNMoney here about the Central Banks also anticipating deflation. Personally, I would appreciate a little deflation. However, we know that this will not be allowed to happen. There is a quote from a Bernanke speech a few years ago (he was just a board member at the time I believe) where he says something like (paraphrasing): "Luckily, the central bank always has a weapon against deflation: the printing press." Thomas: Firstly, you have to recognize that the dollar has gained a huge amount of value this year. The second issue you tried to spin is relating gas prices to Obama. Over the long term (say, 100 years) Obama will have very little, if any, effect on oil prices. What is certain is that oil prices will continue their long-term upward trend, regardless of who is in the Oval Office and what clowns we have in Congress (unless some new technology is discovered which makes the use of oil obsolute). EDIT: Ok, I went and found Bernanke's speech, and you can find a pdf file of it here on the Fed's website. Although the topic of the entire talk is deflation, here is the relevant quote I mentioned:
  6. Sorry Cap, I haven't had time to get around to this post. I will return to it later. For now, I will just say that Mises was a great economist and a terrible philosopher. We needn't look to him for moral guidance or metaphysical and epistemic clarity; rather, we look to Mises for his contribution to economic thought. We all know that abstractly Mises starts at the wrong premises (Rand knew that about him also), but that doesn't preclude his thought from consideration. Certainly the Austrian Business Cycle could be a rough description of observable and factual truth, despite the fact it was "created" from unsound and invalid premises. Sort of like the Christian that you manage to agree with on that one concrete issue. The study of economics is a relatively new discipline (viewed from an historical perspective). Right now it is dominated by sundry variations of positivist methodologies. The only school that challenges these establishment methods is the Austrian School, which is why they aren't taken seriously. Austrians think economic truth can be deduced a priori, without reference to reality. I think that there is a lot of intellectual work to be done in terms of laying out a fully Aristotolean philosophical framework for economic thought and truth; that is to say: a rational and inductive basis for economics. Granted that we both agree on the fact that Mises did not achieve such an accomplishment, we can proceed with our discussion, seperating the supposedely "a priori" premises of Mises from observable concretes.
  7. I don't think we should even give this issue any thought. Who cares what AIG does? The major problem that should be addressed by the media is: Why should AIG be bailed out? Whether they use the money for so-called "proper" purposes or whether they spend it on prostitutes is inconsequential to the underlying principle.
  8. What's even more outrageous is a law that violates an individual's autonomy by restricting his right to immigrate where he wishes. You are performing the typical bait-and-switch-Michael-Savage manuever by conflating the issue of the welfare state with the issue of immigration. Immigrants should be breaking our unjust laws to enter our country...let 'em in. I'm all for Yaron Brook's (somewhat lighthearted) program to fix the current financial crisis: "Buy a house, get a green card."
  9. Could you please explain why you do not agree with the Austrian conception of the business cycle? Also, what, in your view, is the cause of business cycles? You've denied that cheap money creates economic cycles in a few threads now, but you haven't proposed an alternative theory to explain the origin of economic booms and busts.
  10. No, I wouldn't say that. In a bygone era (namely, pre-1980), the left has done a great deal to destroy this country. In today's world, the left is digusting as well. But they are not winning the battle for this country's future because they have great ideas, they are winning it because they have the only ideas. The right is an intellectual vacuum, with the exception of a few misc. people. But even those few, i.e. George Will, have deserted the corrupted party within the last year. Don't get me wrong, because both parties bother me equally. The thing I have a problem with is when someone tries to make the case that one is better than the other.
  11. I have seen in many threads Sophia stubbornly hold to the conviction that the left is somehow a greater threat than the right in today's world. Unfortunately, this is not the case. America has been sold short by the right; it is the right who has destroyed America with its unbridled pragmatism and refusal to support capitalism on principle. There is no way that Obama will be a worse president than Bush. Likewise, there is no way that the coming elected officials will restrict freedom more than the the tag team of the Republican Congress and Bush. The Republican party has destroyed any hope for capitalism in America for at least the next 20 years. Prancing around and calling Obama a socialist (while voting to spend $700 billion on the bailout bill) does NOT make you a defender of freedom by any measurable regard. The question is no longer: Who's going to destroy America, the right or the left? The answer has been empirically given, just look at the facts. America has been destroyed, and the right did it.
  12. Yeah, Greenspan definitely acted on that mistaken Keynesian premise. And I agree with you in that the slowdown would have been brief in a free market. My point is that Greenspan's cheap money (or the Federal Reserve system in general) caused the worst financial crisis in a century. We will get to double digit unemployment before this is over. The thing is to think of the public's response to it, i.e. "the greedy suits on Wall St did it". Either way the economy played center stage in this presidential election, with each candidate trying to pitch a sort of 'New New Deal'. My second point is the ramifications of 9/11 on our social liberties (wiretapping, etc). Put the two (loss of economic+social freedoms) together and you get big government gone wild. I see your point that Nov 4 was a pivotal day, and indeed it was. But no one looks back at the earlier part of this century and says the day FDR won the elction was the the day of change. People do, however, look back and say that Oct 24 1929 was a day of change for this country, that it led to Roosevelt, that it caused the Depression, etc. Of course they're wrong in their concretes, but even one who believes in the Austrian Business Cycle (as I do) can grant that Oct 24 1929 was a pivotal point, after which the American attitude became increasingly anti-capitalist. Either way, don't get me wrong. I think your paper is really good.
  13. I think that is where you and I would differ. Indeed 9/11 did directly affect the lives of most, case in point: the housing bubble. My thesis revolves around the fact that Greenspan's hand was forced--he had to lower rates dramatically to spur consumption and forestall a post 9/11 recession. Unfortunately all he did was buy time and magnify the inevitable economic downturn. We know what his cheap money led to (the housing boom), and the role its effects have had on this election (this is the political system effect you mentioned). I single out 9/11 as a prime marker for a turn toward permanently larger government, with increased involvement in both economic and social affairs (how many policies have been enacted to "keep America safe from terroism"?).
  14. It's a good and well-written essay, but I have to differ from you in a few regards. The first is that I think the Republicans should take more blame, since their party and platform is disgusting (I think Reagan in particular should be singled out as disgusting). Secondly, I wouldn't mark Nov 4 2008 as the date. My thesis is that Sept 11, 2001 is the modern date of a sort of permanent change for this country.
  15. Finally, change has come to Washington. On a serious note, I read a bit about Volcker and Giethner possibly being offered the Treasury secretary position. I would be much happier with either of these guys than with Summers.
  16. I have always recognized the general moral status of FRB. However, what is unclear to me is the issue of asymmetric information. In other words, the bank will always know more about itself than I can know about it. There are some clever accounting tricks to make it look like a certain amount of reserves are being held, when in fact they are not--I'm thinking of the so-called "Sweep accounts" in particular. Would the bank have to disclose to me when I open my account that they offer sweep accounts, and indeed that some customers have sweep accounts with them? Maybe this isn't an issue.
  17. That's true to an extent. But her lasting legacy is her overwhelming stupidity, which contributed largely to the dislike to her by many independents. The CBS interview is what did it...
  18. Honestly, Government and Politics majors will be studying this election for years to come. McCain ran one of the worst campaigns in recent memory; picking Palin was just one of many, many errors. On the other hand, Obama ran the best campaign possibly in history. The level of organization (across the entire country) and attention to detail was stunning. The gulf between the two campaigns was just dramatic, speaking strictly in terms of how they were run.
  19. The mainstream media has got it all wrong: This stock market selloff is racist. Why won't the media expose it for what it is? Short selling is a hate crime.
  20. Kendall, my personal take on getting Objectivist thought into the intellectual discussion is through the arts. Victor Hugo writes in Notre Dame de Paris that "thought emancipates itself in all directions at the same time as the arts." And of course, one can remember the terrific argument Hugo presents for how thought manifested itself in architecture before the printing press was created. Certainly there are some Objectivist values present in today's art (I think that the sense of life in some Pop songs resonates with certain Objectivist values). However, to me, the astounding chasm of quality art in today's world (whether painting, literature, sculpting, music, movies, or performance, and to some extent architecture) is the entry point for inserting Objectivism into 'mainstream' intellectual discussion. I could honestly see a major, widely read work of new fiction causing a cultural and intellectual shift and an acceptance of new ideas into the academy. Also, possibly a literary critic, a 21st century Samuel Johnson or John Ruskin; an Objectivist version of Harold Bloom would really be tremendous for getting new ideas into the intellectual forum. I think that thought starts in the humanities and spreads it way out. The opportunities are there right now.
  21. There was an Oped written by a Republican Congressman in the Washington Post today that advocated a pretty heavy reformulation of the party. The Republican party was resoundingly crushed yesterday. His view was that the Republican party has come to be associated with George Bush. He recommends a return to principled governance based on limited government and economic freedom, but also advocates a lesser embrace of social conservatism. He recommends a few things, but the one that I can remember off the top of my head is a push for a "timetable" to sell off government equity stakes in banks (since timetables will be in vogue for at least the next 4 years, he says). Edit: Oh, I also remember him coming out against earmark spending, and he says the Gingrich led 'Republican Revolution' of the 90's made it a huge problem. I got the feeling that he was very unapproving of Bush, Gingrich, and the Republican Party in general. I think that there is a real chance here to reform the party and incorporate more elements of freedom (social and economic). Unfortunately, if we want to do that we will have a tough uphill battle against the wacko Huckabee-followers.
  22. I used to have one of his paintings as my desktop. My wife really loves him. I haven't really studied some of his paintings yet, just glanced over. I think he's great!
  23. I think this is a bit disingenuous. It would restrict the rate of economic growth to growth due to production. What we have in our current system is false growth due to inflation and expansionary credit creation. These are not comparable scenarios. Right now we buy gold with paper dollar bills. Under a gold standard, you would buy all products with gold.
  24. The thing is that they are both utter pragmatists in the worst possible way. Whatever they say means nothing, because neither one acts on principle. There is no point to looking or listening to anything either one has to say, because rest assured he is saying it for some "practical" reasons. The guiding force in the lives of both McCain and Obama is "do whatever works", and there will be little difference between the two administrations.
  25. There is very little of what you have said that stands to reason. Your plan is absurd. The entire premise is wrong, because there is no fundamental or ideological difference between an Obama administration and a McCain administration. Therefore, since this is demonstrably the case, there will not be any difference in practice. You're a right-wing religious nutjob trolling to find some sympathy. Make no mistake about it, Sarah Palin is a total idiot; John McCain is a total idiot; Newt Gingrich is a total idiot; Ronald Regan is a total idiot; Michael Savage is a total idiot; Bill O'Reilly is a total idiot. Having a "conservative" in the White House means nothing. Get outta here.
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