Rothbard on the Panic of 1819.

[Anarchist420]

http://mises.org/daily/4020

The linked editorial is an excellent read. It shows how much better our situation would've been if the Fed had just kept deflating two years ago.

It illustrates how Jackson became pro-hard money (after all, he was the first president to start a true hard money policy as the silver standards started by Monroe and Washington were phony silver standards called the silver exchange standard). Interestingly, Jefferson destroyed the last remnants of the silver exchange standard, just like Nixon destroyed the last remnants of the gold exchange standard. Why Jefferson did that, I don't know. I believe the country was on 100% fiat money from the time Jefferson suspended the counterfeit silver standard started by Washington until Treasury Sec. Dallas started the counterfeit silver standard back up in the Monroe Admin. Then when Jackson got rid of the Central Bank, he issued the Specie Circular which was the first hard money standard the country was on. That lasted until Lincoln replaced it with the National Banking Acts. Then Grant got the country back on hard money. That lasted until 1913, when the country went on the gold exchange standard which was very unstable because Congress kept debasing it and the Fed controlled the specie reserve ratio for commercial banks.

So for a true hard money standard, you don't want any government mint, any national control of specie reserve ratios, interest rates, and you don't want any regulations whatsoever. And you don't want the government to collect in both gold and silver. Only one or the other (and keeping government revenues to a minimum) is best.

 

[alent1234]

gold is the ultimate fiat money

 

[momeNt]

http://mises.org/daily/4020

The linked editorial is an excellent read. It shows how much better our situation would've been if the Fed had just kept deflating two years ago.

It illustrates how Jackson became pro-hard money (after all, he was the first president to start a true hard money policy as the silver standards started by Monroe and Washington were phony silver standards called the silver exchange standard). Interestingly, Jefferson destroyed the last remnants of the silver exchange standard, just like Nixon destroyed the last remnants of the gold exchange standard. Why Jefferson did that, I don't know. I believe the country was on 100% fiat money from the time Jefferson suspended the counterfeit silver standard started by Washington until Treasury Sec. Dallas started the counterfeit silver standard back up in the Monroe Admin. Then when Jackson got rid of the Central Bank, he issued the Specie Circular which was the first hard money standard the country was on. That lasted until Lincoln replaced it with the National Banking Acts. Then Grant got the country back on hard money. That lasted until 1913, when the country went on the gold exchange standard which was very unstable because Congress kept debasing it and the Fed controlled the specie reserve ratio for commercial banks.

So for a true hard money standard, you don't want any government mint, any national control of specie reserve ratios, interest rates, and you don't want any regulations whatsoever. And you don't want the government to collect in both gold and silver. Only one or the other (and keeping government revenues to a minimum) is best.

Government always seems to end up legislating towards the monied interests. A few may come along and try to knock the banks down to reality, but in the end the banks won, Austrian economists such as Rothbard are laughed at, and gold becomes a barbarous relic.

 

[First]

gold is the ultimate fiat money

Bumping this.

 

[momeNt]

gold is the ultimate fiat money

You misunderstand both fiat and money.

 

[3chordcharlie]

You misunderstand both fiat and money.

Money, is the ultimate fiat money.

 

[halik]

I too have background in IT and hold strange opinions on monetary policy.

Note the correlation of successful developed economies and central banks.

" That lasted until 1913, when the country went on the gold exchange standard which was very unstable because Congress kept debasing it and the Fed controlled the specie reserve ratio for commercial banks."
http://en.wikipedia.org/wiki/Panic_of_1837
http://en.wikipedia.org/wiki/Panic_of_1857
http://en.wikipedia.org/wiki/Panic_of_1873
http://en.wikipedia.org/wiki/Panic_of_1893
http://en.wikipedia.org/wiki/Panic_of_1907

The fed deflated in 1931 also (raised interest rates to defend the dollar), lead to many great things.
http://econ.duke.edu/uploads/assets...PE/Lec 09--International Monetary History.pdf

 

[Elias824]

The Fed let the economy continue to deflate and even raised interest rates heading into the great depression. I think the Fed made the best choice they could by dropping the interest rates in 2008, though their quantitative easing a few years later was pretty pointless.

 

[LegendKiller]

The Fed let the economy continue to deflate and even raised interest rates heading into the great depression. I think the Fed made the best choice they could by dropping the interest rates in 2008, though their quantitative easing a few years later was pretty pointless.

QE had many points, none of them pointless.

 

[Elias824]

QE had many points, none of them pointless.

Well it had a point, the problem was it didn't accomplish anything other then raising commodity prices.

 

[halik]

Well it had a point, the problem was it didn't accomplish anything other then raising commodity prices.

Might wanna plot libor of any tenor ante and post QE. Same thing for the TED spread.

 

[Elias824]

Might wanna plot libor of any tenor ante and post QE. Same thing for the TED spread.

What?

 

[Jhhnn]

Comparing a frontier agrarian economy to a modern financialized capitalistic economy is like comparing apples and aardvarks.

The advent of the FRB put an end to the imbalances that caused earlier panics, and their misdirection in the early 1930's made things worse, not better, necessitating the first 100 days of the New Deal.

Too bad Obama and the Dems didn't act the same way when they had a chance.

 

[Jhhnn]

Might wanna plot libor of any tenor ante and post QE. Same thing for the TED spread.

Might want to put that in terms everybody can understand, rather than the lingo of finance, if you're actually trying to make a point.

 

[momeNt]

David Ricardo analysis of the business cycle from the early 19th century, as described by Murray Rothbard in “Economic Depressions”

Bolded points are my emphasis

“The natural moneys emerging as such on the world free market are useful commodities, generally gold and silver. If money were confined simply to these commodities, then the economy would work in the aggregate as it does in particular markets: A smooth adjustment of supply and demand, and therefore no cycles of boom and bust. But the injection of bank credit adds another crucial and disruptive element. For the banks expand credit and therefore bank money in the form of notes or deposits which are theoretically redeemable on demand in gold, but in practice clearly are not. For example, if a bank has 1,000 ounces of gold in its vaults, and it issues instantly redeemable warehouse receipts for 2,500 ounces of gold, then it clearly has issued 1,500 ounces more than it can possibly redeem. But so long as there is no concerted “run” on the bank to cash in these receipts, its warehouse-receipts function on the market as equivalent to gold, and therefore the bank has been able to expand the money supply of the country by 1,500 gold ounces.

The banks, then, happily begin to expand credit, for the more they expand credit the greater will be their profits. This results in the expansion of the money supply within a country, say England. As the supply of paper and bank money in England increases, the money incomes and expenditures of Englishmen rise, and the increased money bids up prices of English goods. The result is inflation and a boom within the country. But this inflationary boom, while it proceeds on its merry way, sows the seeds of its own demise. For as English money supply and incomes increase, Englishmen proceed to purchase more goods from abroad. Furthermore, as English prices go up, English goods begin to lose their competitiveness with the products of other countries which have not inflated, or have been inflating to a lesser degree. Englishmen begin to buy less at home and more abroad, while foreigners buy less in England and more at home; the result is a deficit in the English balance of payments, with English exports falling sharply behind imports. But if imports exceed exports, this means that money must flow out of England to foreign countries. And what money will this be? Surely not English bank notes or deposits, for Frenchmen or Germans or Italians have little or no interest in keeping their funds locked up in English banks. These foreigners will therefore take their bank notes and deposits and present them to the English banks for redemption in gold—and gold will be the type of money that will tend to flow persistently out of the country as the English inflation proceeds on its way. But this means that English bank credit money will be, more and more, pyramiding on top of a dwindling gold base in the English bank vaults. As the boom proceeds, our hypothetical bank will expand its warehouse receipts issued from, say 2,500 ounces to 4,000 ounces, while its gold base dwindles to, say, 800. As this process intensifies, the banks will eventually become frightened. For the
banks, after all, are obligated to redeem their liabilities in cash, and their cash is flowing out rapidly as their liabilities pile up. Hence, the banks will eventually lose their nerve, stop their credit expansion, and in order to save themselves, contract their bank loans outstanding. Often, this retreat is precipitated by bankrupting runs on the banks touched off by the public, who had also been getting increasingly nervous about the ever more shaky condition of the nation’s banks.

The bank contraction reverses the economic picture; contraction and bust follow boom. The banks pull in their horns, and businesses suffer as the pressure mounts for debt repayment and contraction. The fall in the supply of bank money, in turn, leads to a general fall in English prices. As money supply and incomes fall, and English prices collapse, English goods become relatively more attractive in terms of foreign products, and the balance of payments reverses itself, with exports exceeding imports. As gold flows into the country, and as bank money contracts on top of an expanding gold base, the condition of the banks becomes much sounder.

This, then, is the meaning of the depression phase of the business cycle. Note that it is a phase that comes out of, and inevitably comes out of, the preceding expansionary boom. It is the preceding
inflation that makes the depression phase necessary. We can see, for example, that the depression is the process by which the market economy adjusts, throws off the excesses and distortions of the previous inflationary boom, and reestablishes a sound economic condition. The depression is the unpleasant but necessary reaction to the distortions and excesses of the previous boom.

Why, then, does the next cycle begin? Why do business cycles tend to be recurrent and continuous? Because when the banks have pretty well recovered, and are in a sounder condition, they are then in a confident position to proceed to their natural path of bank credit expansion, and the next boom proceeds on its way, sowing the seeds for the next inevitable bust.

But if banking is the cause of the business cycle, aren’t the banks also a part of the private market economy, and can’t we therefore say that the free market is still the culprit, if only in the banking segment of that free market? The answer is No, for the banks, for one thing, would never be able to expand credit in concert were it not for the intervention and encouragement of government. For if banks were truly competitive, any expansion of credit by one bank would quickly pile up the debts of that bank in its competitors, and its competitors would quickly call upon the expanding bank for redemption in cash. In short, a bank’s rivals will call upon it for redemption in gold or cash in the same way as do foreigners, except that the process is much faster and would nip any incipient inflation in the bud before it got started. Banks can only expand comfortably in unison when a Central Bank exists, essentially a governmental bank, enjoying a monopoly of government business, and a privileged position imposed by government over the entire banking system. It is only when central banking got established that the banks were able to expand for any length of time and the familiar business cycle got underway in the modern world.”

The irredeemable currency regime thought they cured this little "quirk" that was able to check bank credit expansion and result in a bust to the boom.

Banks succeeded in convincing Nixon to take us off the gold standard, it was holding the American people back, they even provided a bucket full of establishment economists to support the movement. Banks no longer had a check on their credit expansion, they were able to dump credit on americans, more and more, they mortgaged nearly every american up until 2008, now they need the homes back though to fix their balance sheets.

This pissed off the commoners so they got off the couch and protested on wall street, they want change. I'm sure this time Papa Soros will gather up an army of economists and convince us that the failure wasn't irredeemable currency, it was that there were MANY irredeemable currencies, we need a world currency. A currency arrived at by the free market (gold) is still a barbarous relic, we need a world currency to go forward into our worldwide capitalistic economy.

The torment that Austrian free market economists go through when they see failure all around them is sometimes time too much to bear, but the message must be delivered

 

[halik]

Might want to put that in terms everybody can understand, rather than the lingo of finance, if you're actually trying to make a point.

In short, QE reduced the cost of risk and restarted the credit markets.

 

[halik]

David Ricardo analysis of the business cycle from the early 19th century, as described by Murray Rothbard in “Economic Depressions”

Bolded points are my emphasis



The irredeemable currency regime thought they cured this little "quirk" that was able to check bank credit expansion and result in a bust to the boom.

Banks succeeded in convincing Nixon to take us off the gold standard, it was holding the American people back, they even provided a bucket full of establishment economists to support the movement. Banks no longer had a check on their credit expansion, they were able to dump credit on americans, more and more, they mortgaged nearly every american up until 2008, now they need the homes back though to fix their balance sheets.

This pissed off the commoners so they got off the couch and protested on wall street, they want change. I'm sure this time Papa Soros will gather up an army of economists and convince us that the failure wasn't irredeemable currency, it was that there were MANY irredeemable currencies, we need a world currency. A currency arrived at by the free market (gold) is still a barbarous relic, we need a world currency to go forward into our worldwide capitalistic economy.

The torment that Austrian free market economists go through when they see failure all around them is sometimes time too much to bear, but the message must be delivered

So you're saying we need more regulation on bank leverage?

I hate to bring empirics to libertopita, but Canada has the same monetary policy, same fiat currency, same personal savings rate, yet they didn't experience anywhere near the real estate dislocation that we did. Logic would imply that the cause of the '08 events isn't monetary policy or lack of gold standard. Same goes for Australia - central bank, fiat currency and no collapse of residential sector.

The torment of Austrian economists is empirical reality.

 

[momeNt]

So you're saying we need more regulation on bank leverage?

No, banks need to compete over physical specie, it would eliminate credit expansion immediately if banks went to redeem another bank's deposits for the physical and there was not enough or any gold behind the note. It would be too risky to print more notes than deposits physically at the bank.

Investment does not need to be facilitated at all by bank credit creation, if investment came only from saving we would eliminate the problem of bank credit caused inflationary booms and the resultant credit crunches.

 

[momeNt]

So you're saying we need more regulation on bank leverage?

I hate to bring empirics to libertopita, but Canada has the same monetary policy, same fiat currency, same personal savings rate, yet they didn't experience anywhere near the real estate dislocation that we did. Logic would imply that the cause of the '08 events isn't monetary policy or lack of gold standard. Same goes for Australia - central bank, fiat currency and no collapse of residential sector.

The torment of Austrian economists is empirical reality.

Do they have the same economy? Answer empirically.

 

[halik]

Do they have the same economy? Answer empirically.

Canada is about as close to US as it gets - same interest rate policy, personal savings rates, securitization for primary and secondary markets etc etc. You're the one making the argument that fiat currency and/or monetary policy caused this, I'm merely shooting empirical holes into your thesis.

If the monetary policy or fiat currency were the culprit, you'd expect to see a similar outcome in other places that fancy the two...

 

[halik]

No, banks need to compete over physical specie, it would eliminate credit expansion immediately if banks went to redeem another bank's deposits for the physical and there was not enough or any gold behind the note. It would be too risky to print more notes than deposits physically at the bank.

Investment does not need to be facilitated at all by bank credit creation, if investment came only from saving we would eliminate the problem of bank credit caused inflationary booms and the resultant credit crunches.

Except for the whole issue that growing economic output denominated by a physical asset with a fixed supply is inherently deflationary, which in itself renders any institution that charges interest to lend said asset proxies useless.

Why deposit anything in a bank, when you get a real return by stuffing it into your mattress? Or the funner question, why buy anything now when you get buy it later less?

Personal question for ya - feel free to be honest. You have no formal background and/or education in economics and mostly found out about this stuff thru wikipedia and/or blogs and youtube right?

 

[fskimospy]

Canada is about as close to US as it gets - same interest rate policy, personal savings rates, securitization for primary and secondary markets etc etc. You're the one making the argument that fiat currency and/or monetary policy caused this, I'm merely shooting empirical holes into your thesis.

You do realize that attempting to use empirical evidence is useless against Austrian economics, right? It's economic religion, they don't care what the facts say.

 

[momeNt]

You do realize that attempting to use empirical evidence is useless against Austrian economics, right? It's economic religion, they don't care what the facts say.

So you also agree empirically speaking of course, that Canada and USA have economies similar to enough to each other that we can derive facts from variables with enough certainty that we can assert them as empirical fact?

Hmm, seems dubious. Canada until 2008 was running trade surpluses, USA ran trade deficits for like the last 40 years. Definitely empirically similar enough.

 

[halik]

So you also agree empirically speaking of course, that Canada and USA have economies similar to enough to each other that we can derive facts from variables with enough certainty that we can assert them as empirical fact?

Hmm, seems dubious. Canada until 2008 was running trade surpluses, USA ran trade deficits for like the last 40 years. Definitely empirically similar enough.

How would trade surpluses impact the supposed malinvestment due to low central bank interest rate policy (freely available credit)?

Or for that matter, how does fiat currency impact lender/borrower decisions when both the assets and liabilities are denominated by the currency?

 

[fskimospy]

So you also agree empirically speaking of course, that Canada and USA have economies similar to enough to each other that we can derive facts from variables with enough certainty that we can assert them as empirical fact?

Hmm, seems dubious. Canada until 2008 was running trade surpluses, USA ran trade deficits for like the last 40 years. Definitely empirically similar enough.

It's science, you don't derive conclusions to be facts, you use evidence to lend support to or disprove a theory. Of course the US and Canada have lots of similarities with which you can form conclusions about various economics principles from.

Look, we already know you don't believe in evidence. I was telling halik that it was pointless to argue with you because of that, what makes you think I would start?