maple_leafs182

They ended up dividing the junior tranches up into more tranches, so there were AAA rated BBB securities. If someone doesn't understand this all, I would watch the movie Inside Job, it explains the role the market played in this. The only problem I had with the movie is it does not mention monetary policy at all. Now that I think we are all on the same page, lets talk bailouts, stimulus, zero percent interest rates and the current economy. From where I see it, Ben Bernake is trying to re-inflate the real estate bubble. It has not been working, many of the banks are reluctant to give out loans. However, since the banks have all this extra money, they have been investing it in the stock market. This is why the stock market has rising, there is a stock market bubble. Ben Bernake also says there will not be QE3, I am having a hard time believing him. The US monetary base has more then double in the past 3 years as the Fed has been trying to create an inflationary boom. Since an expansion of the money supply leads to a devalued dollar, why would people continue to invest in US government bonds. Pimco, the largest mutual fund in the world just sold off all its US government bonds. So Who is going to be there to buy the bonds. China has been the big lender but even they have began diversifying away from the dollar. The US government can't just stop having a 1.5 trillion dollar deficit if the want to see some stability or growth in the economy, they will have to sell more bonds and I think the Fed will be forced to buy them. If the US dollar continues to be devalued, at some point nations will drop it as the world reserve currency leading to a crash of the dollar.

I agree with most of that. This is why I have been buying silver and been encouraging people on this forum to buy silver since it was at $16.50 an ounce. It is a good hedge against the US dollar collapsing, it has nothing to do with making money, it is all about preserving your wealth. One thing I disagree with you is on how much impact monetary policy has on the overall economy. You keep saying the Fed is some kind of boogyman, it is not that. I just disagree with Keynesian economics and Keynesian monetary policies. You say the dollar is going to collapse, it is because of Keynesian policies the US dollar will collapse, it is the expansion of the money supply that is bringing the dollar down. This is why I am against central banks, their policies have the potential to bring nations crashing down. I also think the US won't be fine, I think it will suffer a severe depression along with the rest of the world. I also think we might be setting the stage for World War III.

Dre, you realize not every economist agrees with you, many point the blame at the federal reserve. What do you think will happen in the future to the US economy?

http://images.tribe.net/tribe/upload/photo/013/e00/013e009e-f1eb-4021-8884-b13e7f477588 Look at how much the purchasing power of the US dollar has fallen since the Federal Reserve Act was passed. To say we would not have televisions or telephones is absurd. Why would having easy access to money increase innovation. Having a smaller pool of money to chase would increase the need for firms to create innovative products in order to attract consumers. If there was 100% reserve banking, banks would not have to be entirely out of the lending picture, instead of them making loans based on the amount of dollars they have in demand deposits, they can make loans based on term deposits, money the depositor would not be able to touch for a certain period of time. As I said, I agree, ABS's were a large part of the equation, but so was the Fed lowering interest rates after the dot-com bubble burst. What is your opinion of the economy now, do you believe QE1 and QE2 will save the economy.

It does matter. When banks expand the money supply threw fractional reserve banking, this devalues the dollar. All the dollars you have now have less purchasing power then they did ten years ago. Having policies that essentially rob the people of there wealth should be illegal. Creating money out of nothing is technically counter-fitting, if you or I did this, we would be charged with a crime yet it is legal for banks to do this. In my opinion if ordinary citizens cannot do something, then banks or the government should not be able to do it either. What I think Pliny is saying and correct me if I am wrong is that most the money that was invested in the mortgage market was created through fractional banking and easy credit. Foreigners would not of been able to invest in ABS's if there had not been low interest rates or cheap credit in order to create that money in the first place.

You guys are both wrong because you guys are both right. However, I would put more the blame more on fractional reserve banking and a fiat currency. If there was a sound currency from the beginning, I don't believe the banks or many of the corporations that exist today would of been able to become as large as they are now. Read this quote over a couple of times, the banks and corporations are depriving the people of their property. I think they should be higher too, I'm thinking at around 100%. In my opinion banks should not be allowed to create money out of nothing. Loans should be created threw term deposits not threw demand deposits and fractional reserve banking.

K, I get what you are saying and yes, you are correct but that is only part of the problem. The loans where created threw the fractional reserve system. The money issued by the banks at the time of the loan was created out of thin air. Like you said it could of happened in any kind of economy. However, if there was a sound currency, the banks would not have been able to give out such a large amount of loans. The scale of the problem would have been much smaller with a sound currency. Also, interest rate do matter. I'll assume the American central banking system works in a similar way to Canada's. The federal reserve acts as a bank to commercial banks. The overnight interest rate determines how much interest the commercial banks will receive from the deposits they have at the Fed. The higher the rate, the more interest they will receive, the more likely they will have larger deposits at the Fed. With more money out of the system and at the Fed, that means there is less money for the banks to loan out. The Fed is also responsible for transaction between commercial banks. If one bank does not have enough money to pay another bank, a loan will automatically be created by the Fed. The bank the loan was issued to will then have to pay back the principle plus the overnight rate back. Because of this, at higher interest rates, banks will most like have higher deposits at the Fed to try and avoid having to pay the high interest rates. Having a central bank and fractional reserve banking system greatly impacts the overall economy.

After the housing bubble burst, why would banks decide to make more loans when hundreds of banks just failed from making bad loans. You don't think banks would become more cautious when making new loans. A shrinking supply for loans means interest rates would rise. Yes, CDO's were a big part of the problem. However, the loans would not have been made without the Fed lowering interest rates and securitization from government sponsored institutions like Freddie Mac and Fannie Mae. Bush_cheney, you have said that people will continue to buy US government bonds. This should be a sign to you for things to come.

Being a I left wing libertarian, I would say the prime difference between right wing and a left wing libertarian is that right wing libertarians believe more in capitalism where left wing libertarians believe more in some form of socialism. Pliny, I know you consider government running parts of the economy as being socialism, and if that is the case, I would agree with you and other libertarian conservatives and say that capitalism or the free market is more effective. However I truly believe that the entire economic system needs to be overhauled, I think that economic decisions should be made at the local level using a scientific method to better manage the resources.

Of course it is important to understand what causes the bubbles. It is the Feds fault, if there was a truly free market, interest rates would of naturally risen after the dot-com bubble burst and again after the housing bubble. Since the fed has a monopoly over interest rates, they artificially lowered them to encourage people to borrow and spend in an attempt to create an inflationary boom. There would not of been such an investment in houses if interest rates were not so low. Yes, if you look at my next post, I corrected that.

What are you basing this on? the rise in GDP? If so, have you took into consideration how much of that rise in GDP is newly created debt? Yes.

If some of you like Rand Paul, why not Ron Paul?

K, do you see it? http://graphics8.nytimes.com/packages/flash/business/DEBT_TRAP/media/interactives/timeline.swf Look at that graph, Americans saved more and had less debt in the 70's. What growth has come from QE2 and having interest rates near zero? All I see is inflation and no growth. Central banks do influence fiscal policy because they allow governments to monetize their debt. The busts are created because the market is trying to correct itself. After the bust, central banks try to create and inflationary boom to try and offset the bust. However, they don't allow all the bad debt from the bust to be liquidated, it still sticks around. All Central banks do is just try and re-inflate the bubbles which leads to bigger busts down the road. Not until the US dollar collapses.

Ok you're right, it is the CPI which also measures inflation but it is different from core inflation. You didn't answer my question. Central Banks encourage people to invest in a market when they normally would not, how is that desirable, central banks create the booms and busts. Central banks exist because big governments and big banks want them to exist.

Rand Paul has introduce a plan to cut the deficit by 500 billion dollars. Rand Paul opposed the Patriot Act. I don't know if Rand Paul has come out against the war in Iraq but I do know that his father did.

I posted this somewhere else but got no responses so I figured I would try again. The housing bubble was formed when the Federal Reserve lowered interest rates after the dot-com bubble burst, it was the Fed's attempt to stimulate the economy. It worked, lowering interest rates, mortgage securitization from Frannie and Freddie and loose lending practices by the banks(banks didn't care if people didn't pay back their mortgages because house prices were rising), together they fueled the housing bubble which stimulated the economy. As soon as people started defaulting on their mortgages, the supply of houses in the market grew which led to the fall in house prices. This led to speculators leaving the market because the could no longer make money off buying and selling houses, this led to the demand for houses to fall which led to an even bigger fall in prices. As the mortgage market collapsed, the Federal Reserved lowered interest rates to near zero in another attempt to stimulated the economy. It hasn't been working so the Fed is now trying to stimulate the economy threw quantitative easing measures which simply means pump trillions of dollars into the economy. This still isn't working, the only reason GDP is rising is because of the increased government spending, it is the increased amount of debt and resulting spending that is pushing GDP up. The whole time this has been going on, trillions of dollars of new debt has been created, since money is created through debt, the money supply has been expanding. An expansion in the money supply is what leads to inflation. The real inflation rate of America is around 9%. The Federal Reserve says it is lower but they only say this because they fudge the numbers. The Federal Reserver does not include the rising food and fuel prices and they substitute higher quality goods out of the basket of goods with lower quality goods and claim there is no inflation. Inflation is leading to higher commodity prices; food, oil, gold and silver are rising. The cost of living is rising. First question, how is the Fed suppose to fight off inflation if the only weapon it has to stimulate the economy is inflation. They could raise interest rates but that would derail the economy. Second question, why should institutions like central banks exist?

I do think that would be a good idea. Doing that might mess up the economy but the economy is fake anyways. Yes, Rand Paul does oppose big government. Rand Paul wants to cut spending both on the welfare and warfare sides. Rand Paul is heavily influenced by his father Ron Paul who is a true libertarian.

I know my views might seem crazy or radical and I'll try to explain them better over time. I am going to start with central banks. The housing bubble was formed when the Federal Reserve lowered interest rates after the dot-com bubble burst, it was the Fed's attempt to stimulate the economy. It partially worked, lower interest rates and with Frannie and Freddie backing mortgages, together they fueled the housing bubble which stimulated the economy. The wars in Iraq and Afghanistan were also a large contribution to the overall strength of the American economy. The housing bubble collapsed when higher oil prices started cooling down the economy. Lower income families were losing there jobs or they couldn't afford the rise in the cost of living so they ended up defaulting on their mortgages...you know the rest. Shortly after the Federal Reserved lowered interest rates to near zero in another attempt to stimulated the economy. It isn't working so they are now trying to stimulate the economy threw quantitative easing measures which simply means pump trillions of dollars into the economy. This still isn't working. The whole time this has been going on, trillions of dollars of new debt has been created, since money is created through debt, the money supply has been expanding. An expansion in the money supply is what leads to inflation. The real inflation rate of America is around 9%. The Federal Reserve says it is lower but they only say that because they fudge the numbers. The Federal Reserver does not include the rising food and fuel prices and they substitute higher quality goods out of the basket of goods with lower quality goods and claim there is no inflation. On this forum about a year ago I said to buy silver, that was at $16.50 an ounce. It is trading at $35.00 an ounce. Just saying, you would have double your investment. I nearly double my investment and I am still buying silver. I only said that because if you look at what the Fed is doing they are simply trying to create an inflationary boom. If there was a truly free and capitalist market in America, interest rates would of naturally raised after the housing bubble because banks would be too frightened to give out loans. The market would have naturally corrected itself by getting rid of all the bad debt and malinvestment. Since the supply for loans would fall the supply curve would shift left on the demand curve leading to higher interest rates. Since the Fed has a monopoly they can artificially bring rates down. First question, why should institutions like central banks exist? Second question, how is the fed suppose to fight off inflation if the only weapon they have to stimulate the economy is inflation. They could raise interest rates but that would derail the economy.

This is why I stated in my post earlier that I disagree with the current monetary system. This is where I disagree. I think money itself inhibits the advancements in technology. Like Bonam said, it would be too expensive to implement new technologies into cars that would then make cars more durable and efficient. It is money and the profit motive that is inhibiting technological advancement. We now have car companies that implement planned obsolescence into the design of their vehicles to ensure that there will be further demand for their products in the future. My question is how do we expect to manage our scarce resources efficiently if we continue to produce cheap, inefficient products that end up in land fills or junk yards later. Economics is suppose to be the study of how we manage our scarce resources. Instead of us learning how to better manage these scarce resources, the study of economics has simply become the study of money patterns. We have come to measure everything in terms of money. The Gross Domestic Product(GDP) of a nation is suppose to determine or be and indicator of the standard of living for the people in that nation, the problem with GDP is it does not incorporate leisure time or general happiness of the population. In the US last year health care costs amounted to 17% of their total GDP, using the logic that an increase in GDP improves the standard of living is to say if there were more sick and dieing people, economically, the people would be better off. I think how we use money as a measure of success is a distortion of reality.

My prediction is the US dollar will collapse within two years. The US needs their government to have a 1.5 trillion dollar deficit and print 700 billion in quantitative easing measures in order to keep their economy going. At the rate they are creating new debt and increasing the money supply I would say the resulting inflation will be too much for the economy to take. The fed says the inflation rate is at around 2% but that is only because they fudge the numbers, the real inflation rate is closer to 9%. Source

Oil prices are rising because the US dollar that is used to buy oil is being devalued as a result of programs such as QE2. Libya has little to do with the rise in oil prices. Oil prices were rising prior to Libya's protests along with other commodity prices.

I'll first say I disagree with the market economy and monetary system. Corporations hold a ton of power over the people, they have a lot f influence over the production decisions we make as a society. Corporations work based on the profit motive so they end up producing cheap and inferior goods. Imagine if GM had to maintain all the vehicles it produced. GM would end up producing a vehicle that is easy to maintain and efficient. The car would be built with some sort of release on the motor so that if the motor broke down, they would simply release it and replace it with a working one. There is no sense in having the whole car out of commission if there is simply a motor problem. This is how I see it. There is no liberal, conservative or communist way to build a vehicle, there is only a scientific way. If we applied science with the most advanced technologies, we would produce a vehicle that would be far more efficient and long lasting then anything the market economy produces now. To economize is to reduce waste, our economy doesn't economize.

I agree, but our current economy wouldn't be able to function properly, we would slip into a depression.

The economy wouldn't be able to function without oil from the middle east. The economy can't function at $150 a barrel oil. If oil continues to rise the global economy will collapse.

Oil and gold futures sound good but don't invest in the USA dollar.