Oh, no, Ben, no, you really blew it...

[GaiaHunter]

Right, they are a "private bank" but they have monopoly privilege of printing the legal tender granted by the government. The President also appoints the people in charge of the Fed. So I consider it pretty much government control of the monetary system.

Good for the Swiss, interesting idea with the parallel currency.

Why doesn't the US government prints the money directly instead of selling it to the FED, then?

They pay 2-3% interest to the FED and the FED is already the biggest creditor of the US government.

 

[matt0611]

Why doesn't the US government prints the money directly instead of selling it to the FED, then?

They pay 2-3% interest to the FED and the FED is already the biggest creditor of the US government.

Its more "independent" this way I guess.
As much as I dislike the current system, I much rather have Ben Bernanke in charge of our money than I would the likes of Nancy Pelosi or Harry Reed.

 

[GaiaHunter]

Yes, but not because of deflation, which would spark even greater losses.

The housing market was a bubble - there was too much supply for the actual demand of houses to live on.

What created the bubble?

Speculators for sure, but only happened because there was an increase of money supply and money direct to the housing market (even some programs backed by the federal government) in the first place.

Had the money supply not expanded, maybe even contracted at that point in time, and house prices wouldn't have raised.

Mortgages would have been smaller, people would spent less and saved more since home equities would have been smaller, etc.

Yes, people's real purchasing power is decreasing. This isn't because of inflation, this is because pretty much everyone's marginal value is dropping to zero. Deflation isn't going to change the fact that right now there are simply too many people and not enough to do. Do you want to turn this into a discussion about what purpose people serve if we approach post-scarcity?

If that is true then why does the US keep importing more and more products instead of producing themselves?

 

[GaiaHunter]

Its more "independent" this way I guess.
As much as I dislike the current system, I much rather have Ben Bernanke in charge of our money than I would the likes of Nancy Pelosi or Harry Reed.

It is appointed by the politicians anyway as you said yourself.

There is 3% extra that the tax payers have to pay for that "independent" board that is appointed by the politicians anyway.

 

[BigDH01]

Why doesn't the US government prints the money directly instead of selling it to the FED, then?

They pay 2-3% interest to the FED and the FED is already the biggest creditor of the US government.

Federal law. For what it's worth, I believe the Fed credits the treasury any interest it earns anyway. It doesn't have to be this way, and when the Fed credits the treasury it might as well be the treasury "printing" cash. Not that selling debt to the private sector is much different, the treasury still increases net financial assets in the economy (given that treasuries are basically equivalent to USD, both are liabilities of the gov't with the asset being written down on balance sheets at the Fed).

 

[matt0611]

Federal law. For what it's worth, I believe the Fed credits the treasury any interest it earns anyway. It doesn't have to be this way, and when the Fed credits the treasury it might as well be the treasury "printing" cash. Not that selling debt to the private sector is much different, the treasury still increases net financial assets in the economy (given that treasuries are basically equivalent to USD, both are liabilities of the gov't with the asset being written down on balance sheets at the Fed).

Yes, this is true, all the profits the Fed makes are turned over to the treasury. I believe in the budget its under something like "federal reserve remittances to the US treasury".

 

[GaiaHunter]

Federal law. For what it's worth, I believe the Fed credits the treasury any interest it earns anyway. It doesn't have to be this way, and when the Fed credits the treasury it might as well be the treasury "printing" cash. Not that selling debt to the private sector is much different, the treasury still increases net financial assets in the economy (given that treasuries are basically equivalent to USD, both are liabilities of the gov't with the asset being written down on balance sheets at the Fed).

If you are selling to someone that doesn't have a printing machine and actually have to pay you with already existing USD, there is no new money creation.

If the FED wasn't monetizing the federal debt, US wouldn't find enough investors (at least at current interest rates) to service its bonds obligations.

 

[BigDH01]

If you are selling to someone that doesn't have a printing machine and actually have to pay you with already existing USD, there is no new money creation.

Yes there is. Every treasury sold increases net financial assets in the economy and goes down on the asset column for whoever the buyer is at the Fed. I can then, say, use these treasuries as collateral to get cash from the Fed.

Might start here:

http://neweconomicperspectives.blogspot.com/2010/11/yes-government-bonds-add-to-private.html

 

[BigDH01]

The housing market was a bubble - there was too much supply for the actual demand of houses to live on.

What created the bubble?

Speculators for sure, but only happened because there was an increase of money supply and money direct to the housing market (even some programs backed by the federal government) in the first place.

Had the money supply not expanded, maybe even contracted at that point in time, and house prices wouldn't have raised.

Mortgages would have been smaller, people would spent less and saved more since home equities would have been smaller, etc.

Lots of things created the bubble, namely piss poor risk assessment on just about all accounts. Of course, it didn't help that banks were basically draining their capital reserves to make risky loans and calling the collateral "good."

If that is true then why does the US keep importing more and more products instead of producing themselves?

In our case, it's largely because the Chinese have pegged their currency in such a way that the dollar can't naturally respond to the trade imbalance. Normally, the dollar would've lost it's relative value against the yuan long ago and the cost of labor would equalize. In the end though, that's not the real problem. We still manufacture more than anyone in the world, and our ratio of manufactured goods compared to the world is pretty stable. The problem that workers face (in China too) is productivity gains from automation which drastically increases per capita productivity.

 

[GaiaHunter]

In our case, it's largely because the Chinese have pegged their currency in such a way that the dollar can't naturally respond to the trade imbalance. Normally, the dollar would've lost it's relative value against the yuan long ago and the cost of labor would equalize. In the end though, that's not the real problem. We still manufacture more than anyone in the world, and our ratio of manufactured goods compared to the world is pretty stable. The problem that workers face (in China too) is productivity gains from automation which drastically increases per capita productivity.

But US also import more from Europe than exports there, despite EUR continued rise against the USD.

http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/united-states/

Trade in goods

EU good exports to the US in 2010: €242.1 billion
EU goods imports from the US in 2010: €169.5 billion

Trade in services

EU services exports to the US 2010: €125.2 billion
EU services imports from the US in 2010: €131.0 billion

Foreign Direct Investment

EU investment flows to the US in 2009: €79.2 billion
US investment flows to the EU in 2009: €97.3 billion
Investment stocks inward in 2009: €1044 billion
Investment stocks outward in 2009: €1134 billion

http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/china/

China

China is the single most important challenge for EU trade policy. China has re-emerged as the world's third economy and the biggest exporter in the global economy, but also an increasingly important political power. EU-China trade has increased dramatically in recent years. China is now the EU's 2nd trading partner behind the USA and the EU's biggest source of imports by far. The EU is also China's biggest trading partner.

The EU's open market has been a large contributor to China's export-led growth. The EU has also benefited from the growth of the Chinese market and the EU is committed to open trading relations with China. However the EU wants to ensure that China trades fairly, respects intellectual property rights and meet its WTO obligations.
China

The European Union and China are two of the biggest traders in the world
Trade in goods

EU goods exports to China 2010: €113.1 billion (+38% on 2009)
EU goods imports from China 2010: €281.9 billion (+31% on 2009)

EU's imports from China are mainly industrial goods: machinery and transport equipment and miscellaneous manufactured articles. EU's exports to China are also concentrated on industrial products: machinery & transport equipment, miscellaneous manufactured goods and chemicals.
Trade in services

EU services exports to China 2009: €18 billion
EU services imports from China 2009: €13 billion

Foreign Direct Investment

EU inward investment to China 2009: €5.3 billion
China inward investment to EU 2009: €0.3 billion

Despite the rise of the EUR, Europe became somewhat more competitive against China.

 

[BigDH01]

But US also import more from Europe than exports there, despite EUR continued rise against the USD.

The dollar's reserve status allows us to run these deficits for some amount of time. Eventually though, the EUR will increase in relative value and equalize the direction of trade.

Despite the rise of the EUR, Europe became somewhat more competitive against China.

What do you mean? Europe imports a lot from China because their currency is strong against the dollar and thus strong against the yuan, seeing as how the yuan is pegged to the dollar.

 

[GaiaHunter]

The dollar's reserve status allows us to run these deficits for some amount of time. Eventually though, the EUR will increase in relative value and equalize the direction of trade.

Hasn't it already increased in relative value?

What do you mean? Europe imports a lot from China because their currency is strong against the dollar and thus strong against the yuan, seeing as how the yuan is pegged to the dollar.

I mean that the exports from Europe to China grew at a faster pace than the imports, so the trade deficit actually shrank.

 

[BigDH01]

Hasn't it already increased in relative value?

Yes, but we also have the world's reserve currency, which means that we can run these deficits as there is incredible demand for the dollar. This might not always be the case, either we lose reserve status or demand for dollars falls, and Ricardian or H-O models will tell you that trade imbalance will normalize.

I mean that the exports from Europe to China grew at a faster pace than the imports, so the trade deficit actually shrank.

China still has to buy the things it can't make from somewhere. Germany made a conscious decision some time ago to focus on intensive manufacturing with an export driven economy. Their strategy (as the EU's largest exporter, by far) is now paying off. Over the long run, the EU's FDI in China will result in some of those more intensive industries moving to China.

 

[1prophet]

Gold is an element with an atomic mass of 197 and has certain useful metallurgic properties.
Otherwise it has no more intrinsic value than saffron, beads, or pubic hairs from a tick. It has only whatever value humans assign to it.


Ron Paul has some interesting and refreshing skepticism to GOP orthodoxy, but when he gets on this gold kick he sounds like a fking idiot (like today.)

He should just make the argument straightforward and say he favors a contractionary monetary policy, and we just have that debate of why its a stupid fking idea in our current situation.

Then maybe the US should dump its gold reserves on the open market, the largest in the world over 8000 tonnes, and pay off some of its bills before someone realizes that the gold it's holding has no more intrinsic value than the pubic hairs from a tick.