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Posted by
BradyNet
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Friday, November 21, '03
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Not even Milton Friedman or the austrians want to move into a miami condominium model!
But besides that...booms and busts are the consequence of franctional reserves requirements. Central Banks, as you say, are a by-product of that. Once you have fractional reserves, you <must> have central banks, otherwise as you say the booms and busts are more prolongued.
My argument is against fractional reserves, without which you would not need central banks.
Fractional reserves introduce the money multiplier.. once you do that banks have the incentive to extend the lending to the limit to stay competitive. Eventually the expansion turns into a bubble and banks run the risk of going bankrupt. Then the CB comes in to print money galore in order to save the banks. In a way creating an enormous transference from creditors to debtors through the inflationary mechanism, and usually adding more debt to the government that is in the end the ultimate bailer-out.
Booms and busts are a monetary phenomenum.
If you want to know the price of Guano you ask <me>!
Guano 12 is comfortably bid at 92.15%.
Veni <not> responding to the UST rally.
http://www.globeandmail.com/servlet...
Monetary policy in small open economies has become an FX trageting tool??
<Russia Gazprom ADR jumps after results beat forecast
MOSCOW, Nov 21 (Reuters) - Gazprom's American depositary shares jumped 6.15 percent to $23.3 in London on Friday morning after the world's largest gas company posted a net profit 21 percent above consensus forecasts.
Moscow-traded local shares (GAZPPE.RTS) also rose an extra percentage point to catch up with the broader market. Shares in the Russian company posted a 1.63 percent gain to 36.78 roubles by 0940, with the benchmark RTS) up 1.46 percent. >yahoo
There was deflation and deflation before the invention of Central Banks.
<If we would move to a double banking system. Whereby certain banks act as investment banks intermediating money and other certain banks guard deposits, both activities in exchange of a fee, there would not be artificial credit expansion>
I think you are unique in opposing the fractional reserve system (I mean, not even Milton Friedman or the Austrians are against banks!). All I can say is that no succesful modern economy functions without banks expanding the money supply-- which doesn't prove you're wrong. Still...
<there would be no need for Central Banking other than on a suvervisory role, there would be no booms and bust... etc..>
I fundamentally disagree with the above. Boom-bust cycles were much the norm BEFORE the advent of Central Banking. Look at the number of bank failurs in the days when J. P. Morgan was the lender of last resort, as compared to today. Or look at a graph of the US GDP before and after WWII-- you will notice a visible dampening in the amplitude of cycles in the latter half of the XX century: sure, part of that can be explained by the relative growth of the service sector, which is less cyclical. But the positive influence of the FED, to me, is undeniable. If you have fractional lending, you need a someone with a printing machine to pre-empt simultaneous claims on deposits (otherwise known as bank runs; which is why the gold standard was eventually thrown into the dust-bin of history in the US and Europe and why dollarization-- begging MP's pardon!-- is a bad idea elsewhere)
While I disagree with your ideas, I bow to your consistency: you would do away with central banks AND banks! Radical!
B27: 99.00-99.50 :-)))))
B30: 114.00-114.50
B40: 102.00-102.50
Gu: 91.75-92.75
GUAAANOOOO30: 70.20-70.75 :-))))))
I find the analogy very ilustrative. For a year in question, the one for which we are comparing GDP at the beginning and the end, GDP is just a stock produced. Mr Bush, borrows in the market and inflates G.. by definition GDP gets inflated. That borrowing will have to be paid eventually through higher taxes or higher inflation. Please don't say that it can be paid through real GDP growth, because it can't be in the type of numbers we are discussing.
Regarding the multiplier...I do not denied its mathematical existance. All I am doing is contesting its economic relevance. The only reason why there is a money multiplier is that there is a fractional reserve requirement, which is in essence a very perverse mechanism to promote growth. When somebody makes a deposit he has the right to be repaid at maturity, and the bank will stipulate that in the contract. Yet we all know that if everybody reclaims their deposits at the same time that would not be possible unless the Central Bank starts printing money to bail out the banking sector. Franctional reserves are at the beginning of Central Banking which we all know is at the core of the inflationary nightmare of the XXs century..
If we would move to a double banking system. Whereby certain banks act as investment banks intermediating money and other certain banks guard deposits, both activities in exchange of a fee, there would not be artificial credit expansion, there would be no need for Central Banking other than on a suvervisory role, there would be no booms and bust... etc..
In summary I do not believe in the fact the the <multiplier> is a free lunch. It is a very costly one that should be avoided by all means.
<Let's compare with an individual.... Would you say that an individual is richer because he now owns a 1 million dollar house and owes a 1 million dollar mortgage. The guy is exactly as he was before in terms of net assets.>
The analogy is imperfect: balance sheet is a stock concept, while GDP is a flow concept. A better analogy would be look at how an individual's income changes because he decided to take out a mortgage and buy a house...
<You are in way agreeing the keynesian <multiplier> effect..which I don't.>
Do you agree with the bank multiplier? The concept according to which banks create money by lending out a fraction of their deposits, a fraction of which in turn is lent out, a fraction of which... etc? The keynesian multiplier is the same thing: a dollar spent by the government to pay a civil servant is in turn partially spent by the civil servant, which is in turn partially spent by someone else... etc, etc-- such that the original one dollar of spending grows to a multiple of itself (as a function of the marginal propensity to consume and blah, blah, blah). The same thing happens for I and C, by the way.
So, what exactly do you disagree about the keynesian multiplier? (I am an admirer of the Austrian school just as much as the next guy, but just because something carries the name "Keynes" dont make it necessarily wrong! :-)))
I think the point you are making is that there is growth which is sustainable in the long run-- the so-called potential GDP -- and there is growth which is unsustainable, be it because it does not elicit new investment, be it because it ends in inflationary quagmire or be it because it explodes the balance sheet... In the case of the US, with ample idle capacity, it apperas that GDP growth is still significantly below potential, though debt is ballooning faster than an Argentine province's under Duhalde... not good!
<Gaucho, I assume that is the argument behind Bush’s tax cut and the deficit spending and the issue is whether it works (with the same old ways of measuring GDP, …..I am sure that GDP measurement can be questioned , but it is not the issue here.). Related questions : Is the increase in the production worth the costs( including the increased deficits engendered lack of confidence in US economy) .>
Amigo: just as in the issue of CPI understatement, I am at a disadvantage to make an educated assessment because I don't live in the US. In general, though, I subscribe to Paul Krugman's view-- according to which Bush's tax cuts were probably a very inefficient means of boosting demand. Rather, they served the purpose of giving a tax break to the very rich, at the expense burdening future generations (piling up debt)...
another example: Moscow cash flows from prostitution are mostly control by chechen mafia. Both funny and tragic.
If I guess optimistically that Al Quaeda has a budget of 20 m$ yearly and the US is spending 200 bn$ then something is out of whack - the method of combat is just grossly inefficient. This is no war where the other side will be eventually economically exhausted because they lack weapons, personel etc. These terrorist guys can sell a few kebabs, polish a few shoes, buy some semtex and they are in terrorism business. No need for F16s, Arbrahams, shiny shoes, armoured vests and a Kentucky Fried chicken at their base.
GNoE policies lack logic - as simple as that. It would be far cheaper and much more efficient if GNoE would send their police officers for education to Israel, Algeria, Northern Irland, Basque country, Corse etc.
looking for: Argy FRB, Argy27, BraNMB, Bra24, BraDCB, BraC, Bra40, Ecu12, Ecu30, Rf28, minfin7, T30, VenDCB, Ven27
thanks in advance
http://orbita.starmedia.com/~anacol...
she wrote this on nov 10, 2001:
EEUU en guerra
Tenemos derecho a cuestionar
lo que Washington quiere hacernos creer
http://www.lainsignia.org/2001/novi...
Was 9/11 over Vietnam (which GNoE LOST)? I don't think so.
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