tag:blogger.com,1999:blog-2499715909956774229.post4545129027450275711..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: End the Fed?Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger84125tag:blogger.com,1999:blog-2499715909956774229.post-54876394211057858562011-06-26T11:55:01.517-07:002011-06-26T11:55:01.517-07:00The post is so scattered with common places and mi...The post is so scattered with common places and misinterpretaions that one wonders what is its real purpose. Fortunately someone has already invited Williamson to read somethning in Austrian economics before trying to disparage it<br /><br />However here are some easy to follow considerations which easily show Williamson’s inconsistencies<br /><br />1. The Fed is immoral? Of course it is! It is to be asked? I leave it to each of you to define how to call the destruction of savings and wealth transfer by printing money out of nothing. Of course then “the Fed is doing is mysterious, secretive, and underhanded”. If Williamson dares to deny that does he know where all those trilions of dollars that the Fed has printed have gone? Why some banks and companies were allowed to fail and others saved? The Fed has lent money to foreign countries? Under what conditions and terms? It seems to me that Williamson is not aware of what he says when he states "central bank is best viewed as just another financial intermediary, the unique characteristic of which is that It has a monopoly on the issue of burdens class of liabilities." Wow!!! Could that monopoly be granted to me too? Has Williamson noticed that if he start doing what the Fed does ends up in jail? Contrary to what he belives (point 5 of Williamson’s post) , this also explains why when the government grows, liberty is compromised and society is split into subjects and kings in the longer run deposts. <br /><br />2. Is the FED uncostitutional? Williamson begins by stating that he is not a constitutional expert. But then how can he pontificate about that? For Jefferson a staunch supporter of limited government, free trade and perhaps the real father of the constitution a central bank was unconstitutional and if I remember correctly he was the one that shut down to the one created to finance the war of independence (... just another reminder of morality of central banks). He had fully understood that any central bank is an inflationary machine serving the interests of politicians and the politically connected . Just what the Fed has shown to be in recent years by monetizing huge portions of the government debt and financing without limit major banks and groups at zero interest rates while the average American lost everything. Williamson should know that until the civil war it was the prevailing opinion that the powers granted to the government were only those expressly mentioned in the constitution and a central bank was clearly against his dictation. <br /><br />3. The Fed is impractical? Williamson here refers to the mandate of the Fed "We want price stability". It is worth to remember that it is not the only one and seems that Williamson really believes that printing money and manipulating interest rates means wealth creation. The fact is that the Austrians have clearly explained (Hayek got a Nobel Prize for his studies on the business cycle) that price stability is a serious blunder and implies unintended consequences: it generates boom and therefore sooner or later bust. In other words, an economy that grows, necessarily shows falling prices and therefore consumers (including the poorest part of the population) exploit productivity gains in full. Contrary to the usual lithany, see for example the period between 1870 and the invention of the Fed when the U.S. probably experienced the highest increase of GDP per capita in their history. So…yes the Fed promotes bad policies (point 4 of the original post)<br /><br />I a’m not sure why Williamson tries to caricature Ron Paul. Maybe it's just intellectual laziness or is that like many economists Williamson live on public money?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-44880955019000963832011-03-22T11:41:48.794-07:002011-03-22T11:41:48.794-07:00Morgan,
I was just trying to make the point that ...Morgan,<br /><br />I was just trying to make the point that the 100% reserve requirement that you find in Murray Rothbard's writings is actually very un-Libertarian. The ideas are very intellectually confused. One principle of Ron Paul and the Austrians is that they do not like taxation, large government, and interference with private activity. The 100% reserve requirement effectively interferes with private financial intermediation and works like a tax. The tax effectively "steals" from private financial intermediaries, but no one actually gains from it. This is pure social loss. With the income tax, for example, the government gets some revenue, and the social loss is some distortion in private decisions that results - you may reduce the incentive to work hard for example.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-45167093226440225662011-03-21T19:44:34.638-07:002011-03-21T19:44:34.638-07:00Stephen,
OK, I've established that the Fed by...Stephen,<br /><br />OK, I've established that the Fed by increasing its liabilities can increase the reserves of the banks, who can use their increased reserves to create liabilities that increase the money supply. <br /><br />I've also established that there are two fundamental differences between the creation of a liability by a bank when it buys a McDonald's bond and when I buy one. The first is that the bank's creation of a liability increases the money supply, whereas mine does not. The second is that the bank's purchase of a bond leads to inflationary pressures (on prices) in one sector without balancing deflationary pressures in another sector as occurs in the case of my purchase of a bond. That's why Fed can use open market purchases to increase the rate of price inflation. This tends to raise the prices of nearly all products, while my private action does not increase the money supply and tends not to raise the general price level, because the inflationary effect in one sector is balanced by a deflationary effect in another sector.Thinkornoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-61983530256699165802011-03-21T12:57:49.398-07:002011-03-21T12:57:49.398-07:00Stephen, so glad to find you out here!
"Furt...Stephen, so glad to find you out here!<br /><br />"Further, restricting private financial intermediation with a 100% reserve requirement, while un-Libertarian and inconsistent with what Paul seems to stand for, is also economically inefficient - it works like a tax on financial intermediation. Theft, as it were."<br /><br />Theft from whom?Morgan Warstlerhttps://www.blogger.com/profile/16938589106562557110noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-51401072311145166182011-03-21T07:07:52.448-07:002011-03-21T07:07:52.448-07:00"Hence, effectively, there are reserve requir..."Hence, effectively, there are reserve requirements and at some point to expand their loan portfolio (create additional money out of thin air) a bank will need additional reserves (as a practical matter to avoid the risk of being closed)."<br /><br />Yes, in the sense that any retail business needs to keep cash on hand.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58948313873594726632011-03-21T00:04:07.852-07:002011-03-21T00:04:07.852-07:00Stephen, I can't buy groceries with a McDonald...Stephen, I can't buy groceries with a McDonald's bond, just to mention one obvious difference between money and a bond.<br /><br />Banks still need reserves even if the Fed doesn't require that they have them. For example, if I try to cash a check at my bank, they have to give me cash. They better have reserves in cash. They can't just give me another check, drawn on themselves. Likewise, if I try to transfer funds to another bank, my bank better have reserves. Banks that can't meet their obligations with reserves (cash or deposits at the Fed) are closed.<br /><br />Hence, effectively, there are reserve requirements and at some point to expand their loan portfolio (create additional money out of thin air) a bank will need additional reserves (as a practical matter to avoid the risk of being closed). <br /><br />The Fed provides through its purchase of bonds from banks, the reserves the banking system uses to expand its loans. That is how it enables the banks to create more liabilities - money out of thin air.Thinkornoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43656822009877340512011-03-20T19:10:27.867-07:002011-03-20T19:10:27.867-07:00But money is just a name. What makes the McDonald...But money is just a name. What makes the McDonald's bond less monetary than the Federal Reserve note? Both of these things are traded around. I could buy the McDonald's bond by drawing down the balance in my checking account. I can also "buy" Federal Reserve notes by drawing down the balance in my checking account when I go to the ATM.<br /><br />The Fed does not "enable banks to create money out of thin air." A commercial bank does not need any OK from the Fed to issue liabilities. If you mean that reserve requirements constrain banks, that is not true any more. With the advent of sweep accounts, reserve requirements no longer effectively constrain financial institutions. Actually the Fed now has the power to get rid of reserve requirements - a good idea as this is just an inefficient tax on banking.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-91466507624220918082011-03-20T15:28:06.872-07:002011-03-20T15:28:06.872-07:00Stephen, when I buy a bond from the McDonalds, the...Stephen, when I buy a bond from the McDonalds, the money supply does not increase. When the Fed buys a bond, the money supply does increase. That's one significant difference.<br /><br />A second significant difference is that when I buy the bond, I will typically liquidate some other asset first. (Otherwise, my cash balances, relative to my income etc., will decline below my normal desired level of cash balances.) If I liquidate an Apple bond, then that's going to slow activity in the computer sector and at the same time balance it with increased activity in the fast food sector. There's an inflationary effect on prices for fast food and a deflationary effect on prices for computers. <br /><br />When a bank creates money to buy a bond from McDonalds, there is no immediate coupling to another sector. That comes later, as inflation, and it is spread out over all sectors. That's why the Fed's enabling of banks to create money out of thin air is inflationary.Thinkornoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-8919992091176432022011-03-20T11:58:23.570-07:002011-03-20T11:58:23.570-07:00Thinkor,
The idea is that there is nothing myster...Thinkor,<br /><br />The idea is that there is nothing mysterious or devious about creating liabilities out of thin air. It's done in the private sector too.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-38290713314065828042011-03-20T10:57:22.829-07:002011-03-20T10:57:22.829-07:00Stephen, you wrote "The Fed creates liabiliti...Stephen, you wrote "The Fed creates liabilities out of 'thin air' to purchase the assets in its portfolio. A bank creates deposit liabilities out of thin air to purchase the assets in its portfolio."<br /><br />Those deposit liabilities are counted by almost everyone as "money". So what's your problem with Ron Paul characterizing the Fed as "creating money out of thin air"? <br /><br />Is it just that you'd prefer him to say "enables the creation of money out of thin air at one remove and in rough proportion to the amount of liabilities the Fed creates out of thin air"?Thinkornoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-26246269040646009602011-03-18T07:23:46.287-07:002011-03-18T07:23:46.287-07:00Scott's Mom,
I quite miss my mother, who depa...Scott's Mom,<br /><br />I quite miss my mother, who departed this world some time ago. Unfortunately, you're not much of a replacement. I don't even like the name Scott. Can't I be George or Bob?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-24846398785958303022011-03-18T07:02:20.560-07:002011-03-18T07:02:20.560-07:00FYI, I did call you Scott on purpose. Your mom na...FYI, I did call you Scott on purpose. Your mom named you Stephen, but clearly with the intent that her son would grow up to be a wise and strong man. <br /><br />Since that never happened, I prefer to call you Scott. Its more common and less esteemed, much like you, despite what you thinkScott's Momnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-30339118191156188432011-03-18T06:59:19.351-07:002011-03-18T06:59:19.351-07:00Scott you are pathetic. I left a post on this sit...Scott you are pathetic. I left a post on this site yesterday. It was neither slanderous nor profane, but nonetheless it was not positive. I returned 30 minutes later to find that, despite the fact that there were other replies to it, you had deleted it. This tells me the following:<br /><br />You are so consumed with vanity that you return to this altar you have built to worship yourself, at least twice an hour. For a man proclaiming to be so important and involved in such big things, you don't seem to have much to do<br /><br />Furthermore, it becomes a hard sell for anyone to hear you talk about your superior knowledge when you are so afraid of the truth and honest discussion that you are censoring posts that don't fit your viewpoint.<br /><br />And its even sadder that you do this in an effort to portray some false image of how your pseudo-intellectual ramblings are received by the general public. Are you so desperate for validation that you find consolation in misleading into believing that you are highly esteemed by the general public? (or "anonymous" as the case may be, assuming that "anonymous" is not actually you).<br /><br />Since you love academia so much and have such respect for Ph.Ds, here's a nugget for you. A great and wise Ph.D once devised the pyramid of self realization. And at the top of that pyramid was the self realized person. And to get there you had to rise above seeking the validation of others. <br /><br />So its really sad that for all the accolade and praise you give yourself over your long career, that you are still a mental infant seeking mommy's approval from people that aren't your mommy. To the point of having to lie and censor to make yourself believe that mommy loves you.<br /><br />I have never seen a smaller more pathetic person. And the degrees, braggadacio and insults aren't fooling anyone. You didn't predict the end of the housing bubble, but I did. You didn't predict the Wall Street crash, but I did. You didn't buy a bunch of New Zealand dollars at 75cents per, but I did. I'm a chemist and my economics are batting 1.000 while you're here claiming superiority after a run of tragic and inexcusable failures. <br /><br />But clearly you need to do this, lest you be made to look publicly the way you so obviously feel privately. Small and pathetic and afraid. Do you really think you are fooling anyone?Scott's Momnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82001015773614504162011-03-18T02:12:02.205-07:002011-03-18T02:12:02.205-07:00Actually, even though I know better, I took a look...Actually, even though I know better, I took a look at the link above. Is this guy Dr. Williamson a serious academic? He can't develop an argument nor can he properly write a sentence. <br /><br />Mr. Wenzel, if this is your competition in the marketplace of ideas, business is good. I left the following comment on his blog. <br /><br />Is this a serious sentence:<br /><br />In case you didn't know, Ron Paul is a US Congressman.<br /><br />Really? You begin your argument against a certain viewpoint with which you disagree by priggishly dismissing the influence of an obviously influential person. Very powerful opening. <br /><br />Dr. Williamson, in case you didn't know, Thomas Paine was an 18th century pamphlet writer.<br /><br />By the way, if I were a Ph.D. scientist interested in displaying a superior point of view, I would at least attempt to be cognizant of proper grammar. Maybe you could take a break from the mental gymnastics of justifying the confiscation of wealth through making the money--not to be confused with making money--and focus on the conditional subjunctive and comma usage. Just a suggestion.The ultimate sagging mattressnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-18383132925740566032011-03-18T02:04:11.985-07:002011-03-18T02:04:11.985-07:00Is this a serious sentence:
In case you didn'...Is this a serious sentence:<br /><br />In case you didn't know, Ron Paul is a US Congressman.<br /><br />Really? You begin your argument against a certain viewpoint with which you disagree by priggishly dismissing the influence of an obviously influential person. Very powerful opening. <br /><br />Dr. Williamson, in case you didn't know, Thomas Paine was an 18th century pamphlet writer.<br /><br />By the way, if I were a Ph.D. scientist interested in displaying a superior point of view, I would at least attempt to be cognizant of proper grammar. Maybe you could take a break from the mental gymnastics of justifying the confiscation of wealth through making the money--not to be confused with making money--and focus on the conditional subjunctive and comma usage. Just a suggestion.Not a member of the Ron Paul sect but stillnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-63166268311296632032011-03-17T13:05:11.860-07:002011-03-17T13:05:11.860-07:00Stephen, this comment below was just a cheap and b...Stephen, this comment below was just a cheap and bogus insult and now you are hiding under your desk.<br /><br />What a man of character you are.<br /><br />"What's behind your fear of mathematics? It's just a language - nothing really hard about it."Greg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82496798220343571922011-03-17T12:55:31.324-07:002011-03-17T12:55:31.324-07:00Stephen, it turns out you are one of the critics o...Stephen, it turns out you are one of the critics of the cargo cult of maths:<br /><br />"Fannie and Freddie, like all other large financial institutions, played important roles in the financial crisis. Can we quantify those roles? Because of the complicated relationships among financial institutions, I think this is impossible."<br /><br />Impossible to do something in math terms -- you don't say.Greg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-52958787069982817712011-03-17T12:44:47.220-07:002011-03-17T12:44:47.220-07:00Stephen, so you've got nothing -- nothing but ...Stephen, so you've got nothing -- nothing but changing the topic and insults?<br /><br />You won't discuss William White, you won't discuss the work of Lawrence White on the Fed, you won't discuss the work of Frydman, Buiter, Bhide, Woodford, and Caballero on the limitations of the current fashions in math modeling.<br /><br />Fantastic!<br /><br />Like Charlie Sheen, you are Winning!Greg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75974083518138196412011-03-17T12:13:24.322-07:002011-03-17T12:13:24.322-07:00Anonymous,
I understand your concerns. When I get...Anonymous,<br /><br />I understand your concerns. When I get the latest numbers on Friday I'll write something on the Fed and inflation. Though I don't think Ron makes any sense, I'm a Fed critic too. No sense ending the institution, but it can indeed work better.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-69620052579278302742011-03-17T11:29:49.756-07:002011-03-17T11:29:49.756-07:00All well and fine from all you eggheads out there....All well and fine from all you eggheads out there. My wife and I are on a fixed income and are heading to FRY's to get groceries. INFLATED groceries. Bust and Boom, yea right. With all the flying Ben has been doing, the cash is not here. By the way Stephen, no money for poker here either. Any ideas on how to survive the increased cost of living.<br /><br />Cheers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-66936496965503831252011-03-17T11:17:01.938-07:002011-03-17T11:17:01.938-07:00Greg,
We're done I think. Go fume somewhere e...Greg,<br /><br />We're done I think. Go fume somewhere else.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-70918988032850713602011-03-17T10:41:09.419-07:002011-03-17T10:41:09.419-07:00So Stephen, what is your answer to Frydman, Buiter...So Stephen, what is your answer to Frydman, Buiter, Bhide, Woodford, and Caballero?<br /><br />Are they just insufficiently competent in maths?Greg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48266066876633323202011-03-16T21:42:28.941-07:002011-03-16T21:42:28.941-07:00So, why was William White ignored?
White and his ...So, why was William White ignored?<br /><br />White and his BIS staff seems finally now to have gotten at least Otmar Issing's attention:<br /><br />http://www.imf.org/external/np/seminars/eng/2011/res/index.htmGreg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-45977730951705966612011-03-15T23:06:42.994-07:002011-03-15T23:06:42.994-07:00Caballero on bewitchment by math constructs:
http...Caballero on bewitchment by math constructs:<br /><br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1683617Greg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-34244465980790854172011-03-15T22:41:02.194-07:002011-03-15T22:41:02.194-07:00Buiter on the pathologies of the DSGE construct:
...Buiter on the pathologies of the DSGE construct:<br /><br />http://www.voxeu.org/index.php?q=node/3210Greg Ransomnoreply@blogger.com