Would a fixed money supply and full reserve banking eliminate boom-bust cycles?

[Zebo]

Without fractional reserve wealth would really be concentrated and borrowing would be like payday loan center rates. OTOH it's a pyramid if not matched with production and you get Zimbabwe.

 

[ShawnD1]

As the house worth appreciates, so does the rent. If the landlord holds onto the property long enough, eventually the rent will equal the mortgage payment (win for the landlord). In the case where the house price always depreciates, eventually the rent will equal the mortgage payment (win for the renter), but I'd gather the renter would be moving when the lease expires as rent will be cheaper (dollar-wise) elsewhere leaving the landlord holding the mortgage.

They'll set the price to whatever pays the mortgage. With a deflationary currency at a fixed renting rate, the rent costs would appear to grow exponentially, just like they do right now. With our normal money, you start with a $500 rent, then $520, then $540, and it just keeps going up and up. Rent might be $900 per month today, but 10 years ago it might only be $500. With deflationary currency the price would be a constant $500, but the value of that $500 is what baloons up to $900.

Make sense?

 

[Mani]

Hell no. Had lunch the other day with a senior chair at the Fed. Contrary to some of the conspiracy theorists, he wasn't some powerhungry villain trying to corrupt the U.S. economy - quite to the contrary he was a very purely academic guy who feels it's important to keep the economy stable. If anything, varying the money supply is the one tool we have to stop the bleeding when things go to hell. Cycles are a part of every single ecosystem in existence - including markets and economies. The best we can do is try to keep the bottom from falling out when the troughs hit.

 

[her209]

They'll set the price to whatever pays the mortgage. With a deflationary currency at a fixed renting rate, the rent costs would appear to grow exponentially, just like they do right now. With our normal money, you start with a $500 rent, then $520, then $540, and it just keeps going up and up. Rent might be $900 per month today, but 10 years ago it might only be $500.

They can set it to whatever they want. If the rent is too high then renters aren't going to rent and the landlord will have to come up with all the money to pay the mortgage for the property. In a market where rent continues to go up (because home prices go up because the buying power of the dollar goes down) the landlord will have to cover less and less. In a market where rent continues to go down (because home prices go down due to the buying power of a dollar going up), the landlord will have to cover more and more because no renter is going to renew their lease to pay $500/mo when they can pay $480, then $460.

With deflationary currency the price would be a constant $500, but the value of that $500 is what baloons up to $900.

Make sense?

Don't know what you mean by this.

 

[GaiaHunter]

Hell no. Had lunch the other day with a senior chair at the Fed. Contrary to some of the conspiracy theorists, he wasn't some powerhungry villain trying to corrupt the U.S. economy - quite to the contrary he was a very purely academic guy who feels it's important to keep the economy stable. If anything, varying the money supply is the one tool we have to stop the bleeding when things go to hell. Cycles are a part of every single ecosystem in existence - including markets and economies. The best we can do is try to keep the bottom from falling out when the troughs hit.

Just because someone is good or at least not evil it doesn't make them right.

The thing with free markets is that they will try to correct imbalances and what the fed is doing is trying to keep the market from going where it wants to go. But the market will go to where it has to.

Look at the dotcom bubble burst - a very gently economic slope. Why was that?

Because the Fed increased the money supply by lowering the interest rates and the government decided to guarantee loans to buy houses.

Now we had the house bust which had the politicians and the fed stayed out probably never happened in the first place.

And the response is again the same - easing the supply of money to try to prevent the market from correcting. It worked somewhat (or gave that appearance) for a short period of time but the signs for the future aren't good.

 

[Mani]

Just because someone is good or at least not evil it doesn't make them right.

The thing with free markets is that they will try to correct imbalances and what the fed is doing is trying to keep the market from going where it wants to go. But the market will go to where it has to.

Look at the dotcom bubble burst - a very gently economic slope. Why was that?

Because the Fed increased the money supply by lowering the interest rates and the government decided to guarantee loans to buy houses.

Now we had the house bust which had the politicians and the fed stayed out probably never happened in the first place.

And the response is again the same - easing the supply of money to try to prevent the market from correcting. It worked somewhat (or gave that appearance) for a short period of time but the signs for the future aren't good.

You're assuming of course that markets are rational and that they are truly "free" in and of themselves. As long as a government is in existence, as long as there is any semblance of regulation, a market is not going to automatically find some natural equilibrium. There will be cycles if regulated, and if not. Government/ fed intervention is meant to pad the lows, yes - but this has been a policy measure put in place for decades because people don't want another GD. That said, the consequence for that is that the fed itself is not perfect, and there's no question that they may introduce smaller recessions - a small price to pay at the end of the day.