The Role of Central Banking in Economic Crises

[Rational Gaze]

Well, either I've woken up in the bizarro world, or people are actually beginning to wake up and accept reality because The Telegraph, a mainstream news outlet, has just published this piece recognising that the cause of our various economic crises are due to central banks:
http://www.telegraph.co.uk/finance/e...ral-banks.html

Central banks are the agents of special interests and are robbing the general population to prevent bankruptcy of those who should, in fact, go bankrupt. Printing money is merely taxation in another form. Rather than robbing citizens of their money, government robs their money of its purchasing power.

Here's a good video explanation by Glenn Jacobs of all people:

There is also a good video series called eEconomics by David Angelo that explains things such as gas prices, gas taxes, tax rates, etc. I was thinking about making an Economics 101 post on TWeb for awhile now, since it seems a lot of people here are functionally and/or economically illiterate, but this seems as good a starting place as any.

[seanD]

This stuff is way over the head of TWeb audience (and the video is way too long). You won't get much of a response, if at all, until maybe after the crash, then it will be significant to them because they'll be wondering why it happened.

[Rational Gaze]

This stuff is way over the head of TWeb audience (and the video is way too long). You won't get much of a response, if at all, until maybe after the crash, then it will be significant to them because they'll be wondering why it happened.

I find it all remarkably easy to understand. I guess I should probably stop assuming that people have more than half a brain, then.

[myth]

I find it all remarkably easy to understand. I guess I should probably stop assuming that people have more than half a brain, then.

I'll watch the video later, but I read the article. The concept doesn't seem all that hard to grasp.

[seanD]

One thing is for sure, one can't look at the present dire state of the entire global economy (and that just requires a very brief google search of the subject to verify that) and not conclude that there has to be a common factor causing all this at the same time. Then when you discover that all the central banks around the world (FR, ECB, BOJ, PBC, etc.) are doing the same things to try and remedy this problem all at the same time, it's not hard to conclude what that common factor is.

[Rational Gaze]

One thing is for sure, one can't look at the present dire state of the entire global economy (and that just requires a very brief google search of the subject to verify that) and not conclude that there has to be a common factor causing all this at the same time. Then when you discover that all the central banks around the world (FR, ECB, BOJ, PBC, etc.) are doing the same things to try and remedy this problem all at the same time, it's not hard to conclude what that common factor is.

Also, if you look at all the times these policies have been tried before, they have all led to disaster. Weimar Germany, Hungary, Yugoslavia, Zimbabwe, Czech Republic. The list goes on and on. As the saying goes, those who do not study history are doomed to repeat it, whereas those who do study history are doomed to watch those who have not studied history repeat the same mistakes.

[seanD]

Also, if you look at all the times these policies have been tried before, they have all led to disaster. Weimar Germany, Hungary, Yugoslavia, Zimbabwe, Czech Republic. The list goes on and on. As the saying goes, those who do not study history are doomed to repeat it, whereas those who do study history are doomed to watch those who have not studied history repeat the same mistakes.

Which is strange why central banks follow the same monetary course. I've never been able to explain that rationally.

[Rational Gaze]

Which is strange why central banks follow the same monetary course. I've never been able to explain that rationally.

Because even though all the data shows that such policies are economic suicide, they base their ideas on models based on abstract mathematical formulas and calculations. The obvious problem is that human beings have free will, and their decisions and choices cannot be accurately predicted by mathematical models. Yet, all the data that the model cannot account for will be written off as 'anomalous', yet this 'anomalous' data will invariably be the reason the model fails. For any given economic situation, you'll get 10 different 'mainstream' economists all make different predictions. Invariably, only one of them (if any) will get it right. Even if you can predict what will happen 99% of the time, that 1% will be what causes the model to fail.

[Rational Gaze]

Undeterred by the deleterious effects of their economically suicidal policies, negative interest rates may soon be adopted by the US Federal Reserve:
https://mises.org/library/why-negati...ates-will-fail

[Rational Gaze]

This article backs up what I've been saying:
http://www.express.co.uk/finance/cit...rabia-oil-deal

"Investors had hoped oil producers could agree to a cut in production to help ease the huge oversupply glut that has pushed prices down to their lowest levels in a decade in recent weeks... Oil prices fell below $34 as hope for an immediate deal faded, sparking an end to the recent rally seen on the FTSE 100 and other global markets... Market disappointment that production has not been cut, but rather stabilised, is causing a widespread sell-off in risk assets such as the FTSE 100 and oil in favour of the newly re-established safe haven of gold.... Over the past 18 months oil prices have fallen to below $30 a barrel from as high as $115 in mid-2014. The slump was triggered by booming U.S. shale oil output and a decision by Saudi Arabia and its OPEC Gulf allies to raise production to fight for market share and drive higher-cost production out of the market."

That's right. Dum-dums are freaking out because oil prices have DROPPED. The dreaded phantom boogeyman that is 'deflation'. As anybody with more than half a brain can tell you, low prices are a good thing. Moreover, neither deflation nor inflation are inherently bad. What is bad is artificial inflation and deflation... the kind caused by monetary policy driven by central banking cartels. Another interesting comment above mentions investors turning to gold. I mean, it's not as if Austrians have been saying that gold and silver have been the best basis for a monetary system since the late 1800s and early 1900s. Oh wait, they have.

[seanD]

I agree that Keynesian deflation fear is economically illogical (although I do find it amusing that Keynesian economists were trying to find a bright side in deflating gas prices, hoping consumers would use the money to consume in the broader economy, which didn't happen). However, I think much of the fear for deflating oil prices is the volatility in the derivative market. What sparked the collapse of Lehman Bros, the cascading banking meltdown and the 2008 crisis was bust of the housing boom which resulted in the implosion of the derivative market. Now it's looking like 2008 all over again, only this time it's falling oil prices, wild market swings, and banks such as deutsche bank over-leveraged with oil derivatives and on the brink of collapse. I mean we're seeing the EXACT same things that led up the Lehman -- rumors about its over-leveraging issues, Lehman's denial of any issues, Lehman's mass layoffs and reported losses, it's sinking stocks, then boom.

[Rational Gaze]

I agree that Keynesian deflation fear is economically illogical (although I do find it amusing that Keynesian economists were trying to find a bright side in deflating gas prices, hoping consumers would use the money to consume in the broader economy, which didn't happen). However, I think much of the fear for deflating oil prices is the volatility in the derivative market. What sparked the collapse of Lehman Bros, the cascading banking meltdown and the 2008 crisis was bust of the housing boom which resulted in the implosion of the derivative market. Now it's looking like 2008 all over again, only this time it's falling oil prices, wild market swings, and banks such as deutsche bank over-leveraged with oil derivatives and on the brink of collapse. I mean we're seeing the EXACT same things that led up the Lehman -- rumors about its over-leveraging issues, Lehman's denial of any issues, Lehman's mass layoffs and reported losses, it's sinking stocks, then boom.

Well, that's the thing. Boom-bust cycles are fuelled by central banking and monetary policy and the housing crisis was no different. When you try to manipulate markets like this, it always blows up in your face. From what I can see, Keynesians KNOW that their policies cause bubbles (at least they admit it from time to time). Paul Krugman, for instance, blathered on about replacing previous bubbles with new bubbles. Essentially, they have cause and effect backwards. They think creating jobs will help fix the economy, when fixing the economy is what will create new jobs. They think setting interest rates artificially low (and now we are seeing negative rates) will help fix the economy, when it is fixing the economy that will allow the interest rates to become low naturally. They think pumping money into businesses will 'stimulate' the economy. They think printing money and giving it to the rich will help fix the economy (trickle-down economics anybody?).

The economy is like a scab. You just have to stop picking at it and it will get better on its own.* What I find personally hilarious is that these same kinds of people will also advocate for minimum wage laws when it is their policies that have caused wages to lose value, and minimum wage laws just add fuel to the fire. This is the genius progressive economic plan: print money and give it Wall Street, steer the economy into the stock market, pump money into corrupt corporations, and then fiddle with the interest rates until it all blows up in their face. Rinse and repeat. I remember when Elizabeth Warren was trying to claim that deregulation led to the financial crisis. The irony is that the example she used was of the 'big four' getting bigger and 'putting too much stress on the system'... when they were combined... by the regulators. In reality, whilst the Fed was created to combat depressions and recessions (as paradoxical as that might seem), it is also responsible for every depression and recession so far, including the greatest in history, the current recession and the Great Depression. It is also no coincidence that the Fed was launched right around the time that the US introduced its income tax... 1913.




*(The same logic can be applied to conflict and instability in the Middle East. The Middle East will 'get better' if we just leave it alone and stop picking at it.)