Ron Paul now in charge of Federal Reserve oversight committee

[SemperFiUSMC]

JewfromRussia posted this in the comments:

A couple good points. One thing I disagree with is Paul's belief of the cause of business cycles. I don't think central bank policies cause them. I think the market does.

Let's take motor homes. People in Elkhart build motor homes. They build a lot because people buy a lot. But what happens when the market for motor homes achieves equilibrium? There are no customers to buy motor homes. So the manufacturer starts by dropping prices or creating incentives. His cost didn't go down, so at current cost structure he'll lose money selling at a lower price. So he has to reduce cost to stay in business. How? By laying off people. By reducing what he pays to ship his motor homes. By buying less pencils, paper, and computers. So now the paper, pencil, and computer industries are selling less of their products. So they in turn have to initially lower prices then cut costs. Failure to do so could lead to failure and demise.

The graphite, wood, paper mill, silicon, copper, plastic, aluminum, and fiberglass raw material providers are all negatively impacted. They reduce production leading to higher raw material costs, which starts to shut down purchasing by other customers.

Most importantly, the motor home industry builds coaches from vans and trucks produced by the auto manufacturers. A slow down in purchasing by the motor home industry ripples into the auto industry as a whole, which affects a LOT of workers, suppliers, and other raw material providers.

People lose jobs, so they stop flying to vacation. Busines stop sending sales guys on business trips. Airlines sell less tickets, and put off purchasing new airplanes until travel demand go up. Less travel means less people renting hotel rooms, which means need for less housekeepers.

Now add in all of the unemployed that government provides free money to (borrowing it from our kids kids with no intention of ever paying it back). Crime goes up because of situational ethics. People lose houses. Banks tighten credit availability. All of the things we're seeing right now. And all this because of weakness in one major industry in our economy.

This cycle repeats itself throughout the economy, until one day someone decides they want a new motor home. They go to one of the manufacturers that weathered the storm, and buy one. Then another. And another. And suddenly the manufacturer is loaded with orders. He's able to bring staff back on, buy raw materials, and start production. All the other industries that supply and support the motor home industry have to ramp back up. Banks see that loaning money is a good risk again, so they do it. People regain employment, and start buying the new dishwasher, car, home, and clothes they've needed. They buy because they know they can pay off their purchases.

Teddy Roosevelt could not have been more wrong when he said "build it and they will come". Yet that is how progressives think. And this is why TARP and the stimulus didn't work, aren't working, and will never work. They break all the laws of economics. Demand creates supply, not the other way around. Progressives, regardless of party, don't understand the most basic and fundamental element of economics. The customer.

In order for there to be commerce you first and foremost need a customer. Then a supplier. Then the customer has to be able to pay for it, whether with cash or credit. There are still no customers, although it's starting to change. But not very quickly.

The bottom line is this. Bankers are in the business of making money, just like averyone else. They are risk adverse. They don't lend money unless they believe it will be repaid with interest. Hoarding cash is akin to losing it, if for no other reason than inflation. It's not in their self interest to stop the economy.

 

[Blackhawk2001]

The only circumstances where "Build it and they will come" works, are where the "builder" has successfully identified a need ahead of demand. Look at the IPOD and Google phenomena.

 

[John Galt]

Mises.org is a great place to start with this subject. Let the people determine the markets, not the government, and certainly not a private institution like the Fed! Study a little about Andrew Jackson and his views on a Central Bank.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson

Start with subpoenas and finish with short ropes and tall trees, as this tyranny is of the worst kind. Everyone knew Hitler, Stalin, etc. were evil, but central bankers/planners and those that allow such actions are deceitfully evil.

 

[ATOMonkey]

In other news, commodities (not just futures) are trading at all time highs now, driving up the cost and fuel and ALL other consumer products.

Way to go FED!!!

 

[Ramen]

A couple good points. One thing I disagree with is Paul's belief of the cause of business cycles. I don't think central bank policies cause them. I think the market does.

Let's take motor homes. People in Elkhart build motor homes. They build a lot because people buy a lot. But what happens when the market for motor homes achieves equilibrium? There are no customers to buy motor homes. So the manufacturer starts by dropping prices or creating incentives. His cost didn't go down, so at current cost structure he'll lose money selling at a lower price. So he has to reduce cost to stay in business. How? By laying off people. By reducing what he pays to ship his motor homes. By buying less pencils, paper, and computers. So now the paper, pencil, and computer industries are selling less of their products. So they in turn have to initially lower prices then cut costs. Failure to do so could lead to failure and demise.

The graphite, wood, paper mill, silicon, copper, plastic, aluminum, and fiberglass raw material providers are all negatively impacted. They reduce production leading to higher raw material costs, which starts to shut down purchasing by other customers.

Most importantly, the motor home industry builds coaches from vans and trucks produced by the auto manufacturers. A slow down in purchasing by the motor home industry ripples into the auto industry as a whole, which affects a LOT of workers, suppliers, and other raw material providers.

People lose jobs, so they stop flying to vacation. Busines stop sending sales guys on business trips. Airlines sell less tickets, and put off purchasing new airplanes until travel demand go up. Less travel means less people renting hotel rooms, which means need for less housekeepers.

Now add in all of the unemployed that government provides free money to (borrowing it from our kids kids with no intention of ever paying it back). Crime goes up because of situational ethics. People lose houses. Banks tighten credit availability. All of the things we're seeing right now. And all this because of weakness in one major industry in our economy.

This cycle repeats itself throughout the economy, until one day someone decides they want a new motor home. They go to one of the manufacturers that weathered the storm, and buy one. Then another. And another. And suddenly the manufacturer is loaded with orders. He's able to bring staff back on, buy raw materials, and start production. All the other industries that supply and support the motor home industry have to ramp back up. Banks see that loaning money is a good risk again, so they do it. People regain employment, and start buying the new dishwasher, car, home, and clothes they've needed. They buy because they know they can pay off their purchases.

Teddy Roosevelt could not have been more wrong when he said "build it and they will come". Yet that is how progressives think. And this is why TARP and the stimulus didn't work, aren't working, and will never work. They break all the laws of economics. Demand creates supply, not the other way around. Progressives, regardless of party, don't understand the most basic and fundamental element of economics. The customer.

In order for there to be commerce you first and foremost need a customer. Then a supplier. Then the customer has to be able to pay for it, whether with cash or credit. There are still no customers, although it's starting to change. But not very quickly.

The bottom line is this. Bankers are in the business of making money, just like averyone else. They are risk adverse. They don't lend money unless they believe it will be repaid with interest. Hoarding cash is akin to losing it, if for no other reason than inflation. It's not in their self interest to stop the economy.

It is my understanding that Ron Paul believes that the market does indeed cause the business cycle as you describe it. He believes that the Fed setting arbitrary interest rates and creating monopoly money doesn't allow the market to correct itself in the event of an upswing/downswing.

Ending the Fed wouldn't stop upswings and downswings, but it would allow for faster corrections. Oh, and inflation could possibly be removed from our monetary system over the long term. Savers would be much happier.

We could also get out of debt. It is impossible for the US to get out of debt under the current system.

 

[CarmelHP]

Paul has coasted in the House for 30 years. He's now got a hammer, let's see if he uses it.

 

[dross]

It's fascinating to me how people can still believe in alchemy or perpetual motion machines.

Most of the tinkering with the market is based on the bizarre and unrealistic belief that we can somehow benefit from all the good stuff and prevent all the bad stuff. It seems to me that what we end up doing is getting less of the good stuff we might have gotten and either prolonging the bad stuff or cramming it down so that it bulges out in some unanticipated area.

Would it really be so bad if folks got wildly rich in one year, then lost everything in another? Would that really be so bad for the human condition? Take big risks if you want, but suffer the consequences. Take small risks and grow steadily with the understanding you'll never be wildly rich. Understand that wealth and glory are fleeting, and that you may end up back at a lower bracket.

Why do we want to let other people over whom we have no control pick the winners?

 

[ATOMonkey]

It's fascinating to me how people can still believe in alchemy or perpetual motion machines.

Most of the tinkering with the market is based on the bizarre and unrealistic belief that we can somehow benefit from all the good stuff and prevent all the bad stuff. It seems to me that what we end up doing is getting less of the good stuff we might have gotten and either prolonging the bad stuff or cramming it down so that it bulges out in some unanticipated area.

Would it really be so bad if folks got wildly rich in one year, then lost everything in another? Would that really be so bad for the human condition? Take big risks if you want, but suffer the consequences. Take small risks and grow steadily with the understanding you'll never be wildly rich. Understand that wealth and glory are fleeting, and that you may end up back at a lower bracket.

Why do we want to let other people over whom we have no control pick the winners?

Because our elite overlods know what is best for us. Now, eat your soylent green and be quiet.

 

[NordicHeathenVinlander]

Great news.... But Im curious on what the limits and abilities of his position. I hope he lets his action match his speech.

I loved him on Conspiracy Theory w/ Mr. Ventura.

 

[cadan]

Let's take motor homes....

There are two reasons this analysis is, I believe, not right. Here is why:

First, there is the issue of not considering at the beginning the reason for the failure of the motor home business is not lack of demand, but a scarcity of resources. Remember that all human beings have unfulfilled desires. For example, I would really like to own a boat, an SUV, a motor home, a house, a vacation home in a warm place down south, an airplane, etc,. etc,. Right now I have none of these things at all. Everyone is aware of things they want to have, but have not been thus far able to acquire. Why is it that everyone cannot have everything they want? Answer - because the world as it exists has a finite amount of resources. There is only so much steel, so much lumber, so much of every factor of production - and especially there is only so much labor. I would like to contend that the reason the motor home business begins to fall back is not due to lack of demand, for there are many people like myself who would like to have a motor home. Rather it is the case that consumers desires have shifted to favor the purchase of other things besides motor homes. The scarcity of resources ultimately imposes upon me and every other person under the sun the restriction that I can have either 'this' or 'that'. I might be able to purchase a motor home, but I would have to forgo the purchase of another alternative. Therefore, when consumers wish to purchase something else besides motor homes - let's say for example they like sailing, then what happens economically is that the sail boat industry's expansion occurs along side of the motor home industries contraction. Then the motor home industry is less profitable than it was before, and the marginal manufacturer (that which was least efficient) experiences financial losses. They must reduce the size of their operations which free's up resources (labor and materials) for use in the sail boat industry.

Thus, the reason an industry like motor homes finds itself at any time in a non-profitable situation is because consumers recognize that there other more valuable uses of their funds elsewhere. Therefore, one industries contraction in a free market occurs concurrently with another industries expansion. The described (so called "death spiral") is fiction, for the raw materials do not become unused, but simply used by other entrepreneurs.

Second, the analysis does not consider "real capital", namely those tools which are developed to enhance the productivity of labor. Entrepreneurs need always to decide upon how capital intensive of a production process is to be used and maintained (e.g. a fully automated robotic assembly line for motor homes, or supplying many laborers with hand tools), they save to create that capital structure (which takes time and effort), and then apply it to make something. The decision about what type of a capital structure is used is driven by the consumer just as much as the consumer directs the entrepreneur in what to make (as you say demand creates supply). Interest rates are the means of communicating the former, and market prices are the means of communicating the latter between consumers and entrepreneurs. Robert P. Murphy has the best 'short' explanation of this concept that I am aware of, so rather than go on to develop the concept here in my own words I will refer to his article to finish this second point: The Importance of Capital Theory - Robert P. Murphy - Mises Daily

Best Regards,
cadan

 

[SemperFiUSMC]

There are two reasons this analysis is, I believe, not right. Here is why:

First, there is the issue of not considering at the beginning the reason for the failure of the motor home business is not lack of demand, but a scarcity of resources. Remember that all human beings have unfulfilled desires. For example, I would really like to own a boat, an SUV, a motor home, a house, a vacation home in a warm place down south, an airplane, etc,. etc,. Right now I have none of these things at all. Everyone is aware of things they want to have, but have not been thus far able to acquire. Why is it that everyone cannot have everything they want? Answer - because the world as it exists has a finite amount of resources. There is only so much steel, so much lumber, so much of every factor of production - and especially there is only so much labor. I would like to contend that the reason the motor home business begins to fall back is not due to lack of demand, for there are many people like myself who would like to have a motor home. Rather it is the case that consumers desires have shifted to favor the purchase of other things besides motor homes. The scarcity of resources ultimately imposes upon me and every other person under the sun the restriction that I can have either 'this' or 'that'. I might be able to purchase a motor home, but I would have to forgo the purchase of another alternative. Therefore, when consumers wish to purchase something else besides motor homes - let's say for example they like sailing, then what happens economically is that the sail boat industry's expansion occurs along side of the motor home industries contraction. Then the motor home industry is less profitable than it was before, and the marginal manufacturer (that which was least efficient) experiences financial losses. They must reduce the size of their operations which free's up resources (labor and materials) for use in the sail boat industry.

Thus, the reason an industry like motor homes finds itself at any time in a non-profitable situation is because consumers recognize that there other more valuable uses of their funds elsewhere. Therefore, one industries contraction in a free market occurs concurrently with another industries expansion. The described (so called "death spiral") is fiction, for the raw materials do not become unused, but simply used by other entrepreneurs.

Second, the analysis does not consider "real capital", namely those tools which are developed to enhance the productivity of labor. Entrepreneurs need always to decide upon how capital intensive of a production process is to be used and maintained (e.g. a fully automated robotic assembly line for motor homes, or supplying many laborers with hand tools), they save to create that capital structure (which takes time and effort), and then apply it to make something. The decision about what type of a capital structure is used is driven by the consumer just as much as the consumer directs the entrepreneur in what to make (as you say demand creates supply). Interest rates are the means of communicating the former, and market prices are the means of communicating the latter between consumers and entrepreneurs. Robert P. Murphy has the best 'short' explanation of this concept that I am aware of, so rather than go on to develop the concept here in my own words I will refer to his article to finish this second point: The Importance of Capital Theory - Robert P. Murphy - Mises Daily

Best Regards,
cadan

Paragraph one synopsis:

I am not a customer for that product for any one of a billion reasons.

Paragraph two synopsis:

I am not a customer for that product due to opportunity cost analysis.

Paragraph three synopsis:

Manufaturers have to reduce cost to overcome the barriers described in paragraphs one and two.

 

[cadan]

Paragraph one synopsis:...
.

Hmm, the above synopsis omits the main point. Maybe I do not communicate well in writing. If I were to make a synopsis, it would be:

P1,P2) the motor home industry suffers when consumers choose to buy other products instead. Because they are buying other things, some other industry in the economy expands, whilst the motor home industry contracts. It's a wash, the economy in the aggregate does not expand or contract, and the motor home industries contraction does not propagate throughout the rest of the economy because another industry is expanding."

P3) interest rates and monetary policy effects do propagate through the whole economy and explain the business cycle.

BR,

 

[SemperFiUSMC]

Hmm, the above synopsis omits the main point. Maybe I do not communicate well in writing. If I were to make a synopsis, it would be:

P1,P2) the motor home industry suffers when consumers choose to buy other products instead. Because they are buying other things, some other industry in the economy expands, whilst the motor home industry contracts. It's a wash, the economy in the aggregate does not expand or contract, and the motor home industries contraction does not propagate throughout the rest of the economy because another industry is expanding."

P3) interest rates and monetary policy effects do propagate through the whole economy and explain the business cycle.

BR,

I sort of ignored the main point because I disagree with it.

Buying decisions are not if then else then else. Status quo is always no, and you have to overcome inertia to get a customer to separate with their cash. The automatic response to a no decision is not to go buy something else that would consume equal resources. In fact the current trend is showing that people are not spending on things that are not necessary, and are even withholding spending on necessary items. I other words the consumer has left the building and taken their money with them.

The economy is nothing but a Ponzi scheme. As long as you feed the beast, the economic cycle remains in equilibrium. Stop feeding the beast, and it dies. Simple as that.

Interest rates certainly affect economic activity, but they are lagging factors used to try to keep the cycle from spinning out of control or shutting down. Monetary policy also has an effect, but again it is a lagging factor used to tune, no start or stop the cycle.

The Fed putting another $500 billion into circulation has little effect the day the currancy is issued, except in hyper sensitive areas like stock markets and news reports. The effects of such policies are not seen for some period of time. Interest rate changes can be dramitic and immediately affect mortgage rates, auto loan rates, etc. which could spur or halt purchasing. But again there is a lag before they become fully effective. That of course assumes that stupidity is taken out of the equation. If the Fed were to go raise the interest rate 2 points it would kill growth tomorrow.

 

[cadan]

I sort of ignored the main point because I disagree with it.

Don't hesitate to critique me. If there is an error in my knowledge, you might injure my pride by pointing it out - but in the end it is a benefit for me.

Buying decisions are not if then else then else. Status quo is always no, and you have to overcome inertia to get a customer to separate with their cash. The automatic response to a no decision is not to go buy something else that would consume equal resources. In fact the current trend is showing that people are not spending on things that are not necessary, and are even withholding spending on necessary items. In other words the consumer has left the building and taken their money with them. The "unfed beast does not die, but lives on at a new equilibrium point"...

Indeed it is true that people do have the option of savings, namely building up their cash balances, instead of spending. I did not all address this in the above post. I will do so now, but in the end I hope to demonstrate that such savings can at worst be only a temporary effect, and further that it is not harmful, but instead beneficial.

Consider, that if the future were known with perfect foresight the need for savings would be non-existent. People hold a cash balance in order to be able to spend in order to meet the uncertainty in the future. Of course, people seek not so much a nominal value of savings, but to have a certain amount of "real" purchasing power in reserve. That is to say, generally rising or falling prices increase or decrease the purchasing power of ones savings even if the nominal numerical value remains unchanged. In times such as these when there is great uncertainty about the economy people desire to hold a higher cash balance in reserve. They restrict purchases of consumable goods, and build up a higher levels of cash balances in their bank accounts. When there is less demand for certain items (e.g. motor homes) the producers of such items will have a choice (1) store up a surplus of unsold products for future sale, or (2) reduce prices to move inventory and "clear the market". Since there is a logical limit to the storage of unsold products, the price of merchandise is going to fall sooner or later. As prices fall, the purchasing power of peoples savings increase. As the purchasing power of cash balances thus increases, the marginal value of adding to savings is diminished relative to the use value of purchasing. Thus, sooner or later, a new equilibrium is reached at a lower price level for merchandise with higher cash balances. The creation and exchange of merchandise resumes, and does not forever diminish.

Now, if the reason for economic trouble is that entrepreneurs have made a cluster of errors all at the same time (malinvestment) in the same direction (e.g. because of monetary effects), and if people have been consuming more than the could sustain because the believed they were more wealthy than they really were (e.g. witness the stock market rise and collapse), then for a time consumption needs to be restricted so that investment into the structure of production can take place. This restriction on consumption is precisely what permits further investment to be made into the proper lines of production to remedy the malinvestment described above. The bankruptcies of failing companies is a healthy thing as such companies which were formerly squandering resources are liquidated and the capital is reallocated to the creditors and eventually employed in efforts which are more valuable to the end consumer. I'll defer a more detailed explanation about this, as Robert P. Murphy's article already well describes the phenomena.

The Fed putting another $500 billion into circulation has little effect the day the currancy is issued, except in hyper sensitive areas like stock markets and news reports. The effects of such policies are not seen for some period of time. Interest rate changes can be dramitic and immediately affect mortgage rates, auto loan rates, etc. which could spur or halt purchasing. But again there is a lag before they become fully effective. That of course assumes that stupidity is taken out of the equation. If the Fed were to go raise the interest rate 2 points it would kill growth tomorrow.

The interest rate hike would indeed make some projects which are now profitable, become unprofitable. However, non-capital intensive projects become more profitable instead. So the economy would shift the structure of production from more to less "lengthy" processes. The manipulation of interest rates by a bureaucrat in Washington cannot be said to reflect the preferences of consumers except in the most distant way (voting). And with an ostensibly independent Fed who casts a vote on this matter in any direct sense at all? If the government did not manipulate the market, the preferences of individuals would dominate, just like in the private production of any good. That is to say, there is a marketplace for borrowing and loaning which has a balance of supply and demand. Further, the creation of new money is detrimental. It does not create any new goods, it simply empowers the first recipients of the money to bid away "real goods" from those who otherwise would have come to possess them.

BR,

 

[Duncan]

The Beast About to strike

[ame=http://www.youtube.com/watch?v=ZEHsIcsjtdI]YouTube - Michael Jackson - Thriller - Thriller[/ame]


It's close to midnight and something evil's lurking in the dark
Under the moonlight, you see a sight that almost stops your heart
You try to scream but terror takes the sound before you make it
You start to freeze as horror looks you right between the eyes
You're paralyzed

'Cause this is thriller, thriller night
And no one's gonna save you from the beast about strike
You know it's thriller, thriller night
You're fighting for your life inside a killer, thriller tonight

You hear the door slam and realize there's nowhere left to run
You feel the cold hand and wonder if you'll ever see the sun
You close your eyes and hope that this is just imagination, girl!
But all the while you hear the creature creeping up behind
You're out of time

'Cause this is thriller, thriller night
There ain't no second chance against the thing with forty eyes, girl
Thriller, thriller night
You're fighting for your life inside a killer, thriller tonight

Night creatures calling, the dead start to walk in their masquerade
There's no escaping the jaws of the alien this time
(They're open wide)
This is the end of your life

They're out to get you, there's demons closing in on every side
They will possess you unless you change that number on your dial
Now is the time for you and I to cuddle close together, yeah
All through the night I'll save you from the terror on the screen
I'll make you see

That this is thriller, thriller night
'Cause I can thrill you more than any ghost would ever dare try
Thriller, thriller night
So let me hold you tight and share a
Killer, diller, chiller, thriller here tonight

'Cause this is thriller, thriller night
Girl, I can thrill you more than any ghost would ever dare try
Thriller, thriller night
So let me hold you tight and share a killer, thriller, ow!

(I'm gonna thrill ya tonight)
Darkness falls across the land
The midnight hour is close at hand
Creatures crawl in search of blood
To terrorize y'alls neighborhood

I'm gonna thrill ya tonight, ooh baby
I'm gonna thrill ya tonight, oh darlin'
Thriller night, baby, ooh!

The foulest stench is in the air
The funk of forty thousand years
And grizzly ghouls from every tomb
Are closing in to seal your doom

And though you fight to stay alive
Your body starts to shiver
For no mere mortal can resist
The evil of the thriller

 

[Muzzle Flash]

Good read u guy's , but my is nothing is going to change.