Are things worse now than 8 years ago? Hell yeah. 8 year years ago, we were at the peak of the bubble. It was not normal, and you can't "recover" back to living in a bubbly dream. That is not recovery.

Are things worse than they were 20 years ago? I'm willing to be persuaded. Clearly, the top 10 percentile of household had done well. But so have 75-90 and 50-75 percentile households. They're slowly building wealth as well.

This leaves us with the bottom half of the households. Not surprisingly, they are base-lining the same way they were base-lining always. This isn't a great situation. But this is not a new trend, either.




Inflation was also decreasing. In early 80s, inflation was hitting almost 15%!!! This makes perfect sense.

The question here is about post 2000 rates, though.

Let's think back:

We just went through the dot-com bubble. We just had the biggest terrorist attack in modern history that was going to bring us into a global war for the next 20 years.

People were afraid. Markets were afraid. Things were not looking up by any means. The Fed decided to keep rates as generous as possible to prevent the country from going into recession.

And what about the political atmosphere? Both Clinton and Bush were bragging that under their watch - under their policies - more Americans own their home than ever. How did that happen? What that a metric to be proud of?

There was no "they" moving thirty year treasuries.

What a terrible and misleading graph. No matter if it supports your argument or not. Because your y axis is actually dollars and not % growth it distorts how much each groups' net worth went up. Even if the bottom 25% NW quadrupled and the top 10% only went up 25% the graph would show that the top 10%ers went up more.

Why are you using such an old graph (a 6 year old graph)?

Deflation has never gone well. It has consistently led to lower employment and a shrinking economy.

I will grant that there is a chicken and egg argument to be made, but when every example sucked, it is reasonable to not want to try it again.


It isn't a political argument. It is a "look what happens every time there is deflation" argument.

I'm referencing the oft-cited "Look at WWII National debt levels, we are fine now!"... Debt incurred during this period (aside from certain new deal programs) was almost entirely on a one time basis for the war effort.

Basically, look at this chart. I am using this one (public + private, public is essentially identical though) because its the only one I could find with the full US history since the civil war.

Chop off the little "war-time debt" blip that was immediately repayed, and really look at the trend. Since the implementation of massive domestic spending and the expansion of the cold war empire abroad (beginning in the late 60's/70's) The pattern is clear... US spending (both military and domestic) is increasing on an ongoing basis....



And wasteful bureaucratic domestic expenditure and military empire doesn't go away. Large governments are absolutely capable of killing societies (again look at europe, entire generations destroyed)

I mean that's the problem with social spending. It violates ethical absolutes, and there is absolutely 0 accountability. It's legalized theft (costs must be paid eventually) and I personally think most domestic spending is very very immoral no matter how just the cause sounds.

You can't create a central bank then claim that it isn't responsible for what happens after. The fed's job (among other things) is to keep the credit market functioning at sensible levels. They are constantly adjusting rates and making asset purchases in response to demand and inflation.

I'd rather they weren't there, believe me, but seeing as they are the ones currently delegated essentially free reign of the federal bond market they are as responsible as someone driving a car would be.

So seeing as 95% of factors re: the credit market are in their direct control, it stands to reason they made decisions in response to demand and inflation etc, in agreement with those rates.

What else would they be doing all day? It's a central bank... they weren't sleeping for 30 years!

That is a soundbite argument.

deflaltion is the result of a problem, maybe the problem means a period of lower employment and shrinking economy is now part of decent solutions.

The bust part of boom and bust always sucks, saying that a type of strategy sucks when its only up for consideration during busts is saying absolutely nothing at all.

Companies going bankrupt always sucks but anyone who says we should never allow bankruptcies because they always suck would be ready for the funny-farm.

As above its saying nothing at all. Its may even be true that its a bad idea but its not because of anything so far said.

Pretty sure at this point the US is just running the Martingale system.

So let's see. I made a comment strictly regarding median household income when the recession supposedly ended and then during the "recovery". You respond by addressing "net worth" at the peak of the bubble and now. We are talking about different things and I'm not even in disagreement with what you wrote. Of course I agree that trying to re-inflate asset bubbles to restore paper networth that was never real to begin with is not a real recovery. Tell that to the Federal Reserve and government though. Regarding household median income like I was talking about though:

Median household income down since beginning of recovery - Article a year old but main point still valid.

Obama can't shake economy's downside amid signs of growth - This article touches on some of the areas, although the theme of "confusion" or "puzzlement" throughout the article is because it assumes a false premise of a strong recovery having taken place thus far.

There's plenty of other areas out there that are indisputably inconsistent with a strong recovery as well. People who seem to be asking where's the data the disputes a strong recovery needn't only google statistics on disability, labor participation, food stamps, welfare, unemployment duration and benefits, poverty rate, etc for more than a few minutes.

This discussion regarding interest rates being completely separated from government and set by the market is pretty hilarious though.

Yes, he was trying to. You really should learn the art of letting someone hang themselves -- more entertainment value that way.

From a technical standpoint, the market (everyone but the fed) does set the interests on debt. So yes he is correct. The fed just influences the market to move the interest rates in the direction it wants by buying or selling bonds. Because of how powerful and literally limitless the fed is from a monetary perspective, they do however indirectly control interest rates.

Deleveraging is an inevitable consequence of a boom getting too boomy and leading to a bust - you simply can't force people to borrow. There was a lot of argument during QE1 and QE2 about the Fed pushing on a string.* What they did accomplish was keeping the money supply at a reasonable level.

Deflation makes deleveraging more painful and can be avoided through intervention. Granted, deleveraging still hurts, it just makes some individually rational behaviors that are collectively harmful (walking away from an upside down debt on an asset, sitting in cash instead of investing in productive endeavors) less rational.

It is all about how you want the deleveraging to proceed. You can't grow your way out of it during the deleveraging phase of a credit cycle. The remaining options are to actively encourage default/bankruptcy or to deflate the value of the currency compared to real assets. Generally, default/bankruptcy on a massive scale is more disruptive than a decrease in the value of a currency.

The real problem, to me, is whether it is possible for governments to act reasonably during boom times. It is fairly easy to justify increased spending during busts if you have saved for a rainy day. Fairly difficult to not spend money hand over fist during booms to put that rainy day fund together.

*I imagine that there wasn't as much rumbling about QE3 because most of the Austrian Economist monetarists who put their money in gold and silver couldn't afford their internet connections anymore.

and maybe that was optimal and maybe it wasn't, I tend to agree it was along the right lines at this stage.

What seems really dubious is the claim that we must avoid deflation while inflating the boom further. Allowing deflation when the collapse was less dangerous may have been a solid plan.


That's really unclear unless you only consider some spurious subset of pain. The impact of policy lasts a long time and much pain will never be correctly attributed. Avoiding the pain of an earlier deleveraging may have resulted in far more pain overall.


It feels like an assumption of your conclusion. Its not clear that there aren't times when sitting on cash causes the least collective harm.

Again I tend to agree but deflating on a less massive scale might be even better at times.

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I agree, it was the regulators/law makers/etc who causes this collapse

The support for the boom when it wanted to bust could only not be very stupid if remedial action was also taken. Supporting the boom while not sorting out the underlying problems was the main reason for the mega collapse.



They generally make a very bad mistake about timescales in their arguments which are otherwise fairly solid. I don't think they grasp that identifying something is unsustainable doesn't mean it will fail soon of that it wont take so long that the failure will have become discounted to irrelevancy or superseded by events. Their opponents make the corresponding mistake of dismissing the analysis because most of the time the disaster never happens.

Except for that they actually don't! The relationship just isn't there. I'm just speaking to the peanut gallery, since I'm sure you already know this.

Long-term treasury rates dropped during the 1920s and 1930s, while the Fed's holdings as a percentage of treasury debt increased both decades. Long-term treasury rates rose during the 1940s, 1950s, 1960s, and 1970s, while the Fed's holdings as a percentage of treasury debt rose during the 1940s, 1950s, and dropped during the 1960s and 1970s. Long-term rates dropped during the 1980s, 1990s and 2000s and (so far) in the 2010s, while the Fed's holdings as a percentage of treasury debt dropped during the 1980s, rose during the 1990s, dropped during the 2000s and rose during the 2010s (so far).

They do have an influence on long-term rates in a way. When they raise the overnight rate, that has an effect on long-term rates. More recently, when they say that they are going to buy more treasuries people feel safer and the rates drop, and when they say they are going to buy less rates rise.

This would be a smack to the face of Austrian economists and monetarists everywhere if those sort of people were interested in reality.

There is a difference between a balloon popping and letting a bit of air out in an amusingly squeaky way.

I'm not exactly sure how close we were to complete collapse and (annoyingly to me at least) redistribution, but it was a bit too close for comfort.

Having 28,000 fewer Kcal of food is a bit easier to handle over the next 5 years than having the same calorie reduction over the next month.

My assumption (based on observation) is that everyone running the same direction doesn't tend to go well. The existence of contrarians tends to mitigate bubbles and busts.

We, at least over here, had pretty good protective regulations up until recently. We dropped them because the sun was shining consistently three days in a row. Basic human nature at its finest.

Our "mega-collapse" led to an unemployment rate that your lot would love to have during a boom.

I think that the entire underlying problem is human nature.

Some air has been let out in a non-amusing squeaky way - that may have been necessary to avoid a pop. However it may have been better to let our some air before there was danger of a pop.

I agree and I tentatively suggest it might have been far better to let out a bit of air air when we were in a more comfortable place. That would mean acknowledging just how bad the mistakes of the regulators et al were.


Absolutely. The very point we seem to agree on and less chance of dying as well.


I agree, its one of the ways regulators et al make such bad mistakes. They encourage identical behavior in the very areas that we need less brittleness.

The fault lines of poor regulation were laid during your good period.

"Our" rates are pretty close I believe - "yours" are a tad higher if anything. I know that of my american family most are working over here and it sure ain't because of the weather.

Of course but if we are to usefully moderate it with regulation then it needs to be good regulation. Regulation that hides risk has fairly inevitable consequences despite being very popular as people like do so like to believe.

Triffin's Dilemma

+1, i've always wondered this!

Why does so much of economic policy hinge on forcefully increasing lending, or fractional reserve etc... why should fractional reserve even exist?

Does anyone else feel that fractional reserve specifically is probably the most unethical thing that exists in modern society?

As someone above mentioned, this is identical to martingaling the entire financial sector. Eventually such leverage is built that a small shift in asset prices wipes out the bank... except they are repayed in full every single time by the government. Imagine martingaling under those circumstances! It would be the single most profitable betting system in the world.

And government MASSIVELY increases the prevalence and acceptance of this practice... some banks were leveraged 50 to 1 during the crisis! It's massive, legalized fraud that just usually turns out okay...

The free market knows when and if it needs to borrow. And who from...A well run private business is essentially incapable of making the incorrect decision as to whether it needs to borrow or not.

A central banking system + fiat currency doesn't really benefit anyone but the government. Banks benefit slightly, but the main benefactor is the government, which can now inflate, steal or borrow whatever it needs, and can even lower the rates on which it has to pay interest!

Seriously, for you central bank supporters, is there any party that ACTUALLY benefits from this system long term other than government? No one at all. From a strictly mathematical perspective, EVERYONE is forced to behave less efficiently over the long term.

Plus, asset volatility (the only conceivable argument for the Feds existence) is still sky high! Theres no conceivable benefit that citizens are getting out of the existence of a central bank or bottomless fiat. If you are a regular citizen who is for the existence of the Fed, please tell me a single benefit that is provided for you.

Also, as far as deflation goes... in a low leverage gold standard-esque economy, wouldn't deflation simply be the gradual lowering of prices over time to reflect increased competition?

Obviously deflation that occurs in periods of extreme leverage is bad, the shocks can be huge... But in a considerably less leveraged society, deflation would simply become the very, very simple mechanism of a limited amount of currency being competed for.

Sure your money might be worth 1% more next year... but starting a business (in a free economy) could yield a 100 fold return! I really don't think "vanilla" deflation would cause a problem other than a slightly more volatile interest rate.

Living in a world without the financial quicksand of government inflationary policy is just so foreign to people that it seems odd at first. Actually, when I was younger I was actually taught that the free market alone caused inflation! That expansionary money supply policy had NOTHING to do with it!

Thanks public schools (national debt). It's almost at the point where every single thing in my life has had the value ($ or otherwise) sucked out of it by government.

A dollar saved since 1970 has lost over 90% of its value...Forcing people to either invest in things they have no business investing in (most people really have no business being the stock market, but they are forced to by inflationary policy) or go broke, can't be the best way to run society. I'll take unregulated currency+ occasional light deflationary shocks any day.

Can I as why we should think that? It has dangers but it doesn't seem unethical.

I wonder if we could ran many economies in parallel whether the non-fiats would triumph in the long term. I'd think i'd back the fiats but what good arguments do we have?

Sure fiat has boom-bust cyclical risk but non-fiat may be far too conservative

I agree with him. In almost any other setting, it would be fraudulent or ponzi-ish. Certainly if the next 40 years reveals that haircuts to savings accounts are going to start happening, then screw that. People are going to put their money elsewhere, when possible.

It is perfectly legal to be a full-reserve bank in 'merica. The reason why no banks are full-reserve banks is because no sensible person would deposit their money at one.

Quick back of the napkin estimates are that you would be charged the greater of $120 or 1% per year on your gross balance, plus $10 per internet transaction (deposits and withdrawals) and $30 per face-to-face or paper transaction (aka, checks). And that is only if the bank were popular enough to make its fixed costs negligible.

Fractional reserve has nothing to do with fiat currency. It just means that banks are allowed to lend out a portion of their deposits.

When we were on the gold standard, all of our banks were fractional reserve banks.

Not much of a worry about that here (I don't know precisely whether deposits are guaranteed elsewhere) now that we have the FDIC. Before we did there were fairly frequent bank runs.

Nowadays, if a bank gets itself in a position where it can't meet withdrawal demands or looks like it might not be able to the FDIC parachutes in, sells the assets (including deposits) to other banks and you still get your moneys. There was a cool documentary about how they do this that I can't find.

So you are saying basically in a free society, banks would charge people a small fee to safeguard money...seems like the way it should be! Costs would be driven down significantly by competition, and banks could still make significant (just not obscene) amounts of money by arranging borrowers and lenders.

Remember, all the "interest" that banks pay isn't a real gain, it just counteracts inflation. With current inflation estimates, you lose over 1.5% per year in real value, so assuming you did away with central banking, guarantees, deposit insurance etc. all together, your proposed system is actual better for investors!

Honestly, that seems fair to me (and this was the function of banking for the first several hundred years it existed). A commercial bank should be a place that you store your money to protect it against theft. Nothing more.

Until people stop expecting return by investing in NOTHING, over leveraging will continue... at this point almost every new dollar created is debt to banks!
I think that is the crux of my entire argument. Under the current system... virtually all currency created is "phantom money"... it is ALL debt.

Once things start going wrong, and every asset on everyone's books is essential based on debt... even a small decrease in real asset value just wipes out the banking system!

But anyways, take a step back... so under a non fractional reserve system, you would have your commercial bank accounts...

Then a bank would ALSO have the ability to arrange borrowers and lenders if customers wanted to earn interest on your money! The point is the borrower should pay the interest to the lender... it should be a direct relationship that isn't obscured by the fact that the money isn't there in the first place! You don't need fractional reserve to have a fully functioning credit market... at all!

Sure. I think it's one of those things that is so commonplace people don't challenge it on ethical grounds... much like slavery or drug prohibition.

Philosophical thought experiment: Bear with me if it sounds familiar, I simplify it to an extreme so the ethics become clear. There are 3 people. Tim, Brad, and Harry.

Tim inherits a million dollars. He gives his money to Brad for safekeeping. Brad gives Tim a receipt.

Now Brad, knowing that the chance of Tim needing his full fortune at once is slim., immediately loans 95% of Tim's money to Harry to buy a house. (Not that it matters morally, but this is for Brad's own gain exclusively, customers don't get paid interest in todays banking environment, while banks are still charging several percent for loans.)

Now Tim loses his job, his wife is demanding child support, he needs rent money etc.. He comes to Brad with the receipt asking for the money back...

Except it isn't there. Brad has STOLEN Tim's money. Now whether Brad lent it to someone for his own gain (because of course he now can't get it back), bought a Ferrari, or railed it up his nose, the money was STOLEN. This is fractional banking, and it is unethical. It violates property rights on the most basic, primal level imaginable.

Some people get confused, because federal deposit insurance covers all deposits in case of a banking system meltdown. But FDIC doesn't have NEARLY enough money to cover bank assets, even during a partial run. It is not real. I repeat, FDIC insurance is NOT REAL.

Now, in this instance, there is a single measure that can be taken by the central bank in case of a bank run. They can print (not QE, literally print) the additional money they need to pay depositors. It takes only a brief reading of the history of the Weimar Republic to see that this is NOT an option. The best case scenario is devaluating the currency of the rest of the nation by an equal amount to that stolen, and the worst case scenario is a hyperinflationary spiral.

Cliffs: The fact in today's debt based banking/currency system, is that any dollar above the reserve held by the bank has been stolen by banks and leveraged to the hilt in an almost infinite chain of "thin air" lending. It isn't "borrowed", because the money isn't even there! Deposits are stolen and replaced with receipts, in the hope that the martingale never hits a bust, and if it does, more money will be stolen, printed or borrowed to compensate. And the dance goes on....

Just because these catastrophes happen rarely doesn't make it ANY less wrong. Fractional reserve is theft.

Does that make more sense?

great post...

(I'm sorry... is praise allowed on these forums?)

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Not even close to what I said. I said that full-reserve banking is already legal.

Making additional rules and regulations to eliminate my option of banking at a fractional reserve bank would be, by definition, less freedom.

You are welcome to keep your savings however you wish.

In the past, full-reserve banks were just as legal as they are today, we were on the gold standard, deposits were not guaranteed, and there was no central bank. This led to bank runs and economic crises on a quite regular basis.

For some reason, there was no demand from the people for full-reserve banks. Again, if people wanted to bank at a full-reserve bank, someone would be smart enough to profit from the demand.

You are more than welcome to bank at such a bank. It is perfectly legal to charter such a bank. If there were demand for it, someone would already be doing it.

Also, direct peer-to-peer lending is currently perfectly legal. I'm not sure how you think that eliminating my choice to not bother is an increase in freedom.