Gyroscopic Investing

Looking at this chart, why does everyone believe that things were so rosy before the Fed?  I don't see how +/- 20 and 30 point swings in inflation/deflation is the ideal standard versus a fiat/Fed driven currency.....

http://www.multpl.com/inflation/

I (we) need to question everything taken as public gospel regardless of the source.  I bet most people have VERY strong opinions of the following, which were/are taken as gospel at one point and then swung/swinging the other way.

--Gold backed currency will prevent those sorts of things.  Apparently not!
--Cholesterol is bad...
--Saturated fat is bad...
--The stock market can't go any higher...
--The food pyramid...
--PE ratios are too high...
--Bonds can't go any higher...
--Gold can't go any lower...
--Climate change is man made...
--The moon landing was faked...
--etc, etc.

Nothing should be considered "truth" without evidence.

I think the fed probably has some activities and contingencies that are inherently too secretive and cronyist. There probably should be more fed auditing and oversight, and a monetary system that separates the lending function from the payments system is probably best in this day and age, but overall I see no reason to go to the Austrian extremes that are always talked about. Our system has a dual mandate, and if anything the fed has allowed price stability to exist at the expense of full employment (though they arguably can't do much at the zero lower bound (however I think setting a new inflation target would have done a lot)). 

I definitely interested in ideas about how our banking infrastructure can be run, but it's such a heated topic with deep implications to our economy and political philosophies that very few productive conversations can be had.

Cortopassi wrote: I (we) need to question everything taken as public gospel regardless of the source.
...--The moon landing was faked...
--etc, etc.

As I recounted at one of the PP get-togethers in Manhattan, after the 1969 moon landing a reporter went around interviewing people who insisted the event had been a government hoax.

One of the people he interviewed was an elderly woman living in the hills of southwestern Pennsylvania (an area, by the way, settled by some of my distant family in the 1770s).

The reporter asked her why she thought the moon landing was faked, and her angry reply was (IIRC): "I can't even get TV reception from Pittsburgh, and they claim they got those TV pictures all the way from the moon!?!?"

I disagree with the chart.

Bad data.

--The moon landings...

I've got a very good friend, engineer, smart as hell, who believes they were faked.  I personally cannot believe that.  Look at what we've done, Mercury, Gemini, Apollo, Skylab, Viking, Voyager, GPS satellites, ISS, the latest New Horizons to Pluto for God's sake and people can't believe we were able to send 2 people at a time to the surface of the moon some 200k miles away?

LC475 wrote: I disagree with the chart.

Bad data.

\

Ok, let's see what you got.....

The sources from the chart I posted are US BLS and Robert Schiller. 

If you have different data, post it.

Cortopassi wrote: --The moon landings...

I've got a very good friend, engineer, smart as hell, who believes they were faked.  I personally cannot believe that.  Look at what we've done, Mercury, Gemini, Apollo, Skylab, Viking, Voyager, GPS satellites, ISS, the latest New Horizons to Pluto for God's sake and people can't believe we were able to send 2 people at a time to the surface of the moon some 200k miles away?

That's truly weird.  I figured it was just kooks who were into that.

Show him this Mitchell and Webb sketch (2:06):
http://www.youtube.com/watch?v=P6MOnehCOUw

I think it's mostly misunderstanding of what the Fed actually does. Much of what people blame it for is actually the work of Congress. To the extent that the Fed facilitates Congress's borrowing and spending, Congress could create any sort of mechanism to do what it wants to do vis-a-vis borrowing and spending.

The data that Clacy linked to seem consistent with what I see elsewhere online. But The Fed was founded in 1913 and there have been plenty of ups and downs since then.

It sure is striking that whenever QE ends the US seems to plunge right back into a deflationary mode. Trying to find it all in one beautiful chart.

Well, let's see. We have an immensely powerful organization which:

1. Was designed in secret (Jekyll Island);
2. Presided over the worst economic decline in US history, much worse than the ones whose recurrence it was specifically supposed to prevent;
3. Is unaccountable to anyone for their actions, including their budget;
4. Can create "money" out of thin air at the touch of a button;
5. Has presided over a 90+% decline in the value of the currency they were supposedly founded to protect.

What's not to like?

clacy wrote:

LC475 wrote: I disagree with the chart.

Bad data.

\

Ok, let's see what you got.....

The sources from the chart I posted are US BLS and Robert Schiller. 

If you have different data, post it.

And then what?  You change your mind?

Ah, ha, ha, ha, ha, ha, ha!

No, I am perfectly happy to have you believe that the 1800s in the US were whatever kind of bombed-out apocalyptic monetary war-disaster zone that the wild lines on that chart prove to you they were.  You can have your history, and I can have mine.  Maybe you are more informed about history than me, maybe you have a better idea of what was really going on and how things really were in the 1800s than I do.  Then again, maybe not. 

But just to give you an example,

What was the inflation rate in 1880?

Was it really 20%?

Or was it [url=http://"https://www.minneapolisfed.org/community/teaching-aids/cpi-calculator-information/consumer-price-index-1800"]3.6%[/url]?

LC475 wrote:

clacy wrote:

LC475 wrote: I disagree with the chart.

Bad data.

\

Ok, let's see what you got.....

The sources from the chart I posted are US BLS and Robert Schiller. 

If you have different data, post it.

And then what?  You change your mind?

Ah, ha, ha, ha, ha, ha, ha!

No, I am perfectly happy to have you believe that the 1800s in the US were whatever kind of bombed-out apocalyptic monetary war-disaster zone that the wild lines on that chart prove to you they were.  You can have your history, and I can have mine.  Maybe you are more informed about history than me, maybe you have a better idea of what was really going on and how things really were in the 1800s than I do.  Then again, maybe not. 

I am not saying that I'm better informed.  Neither of us were around then, so all you have is data.  So far, I posted data from Robert Shiller (Nobel Laureate) and all I've seen from you is a statement that you don't believe the data and a link to the Minneapolis Fed which highlights 17 years of at least -5.1% deflation and 9 years of +5.1% inflation between 1800-1899 (with several of those in the double digits).

That doesn't seem very appealing to me, even if we assume that data is more accurate.

clacy wrote:I am not saying that I'm better informed.

No?  Well, you're not going to change your mind.  So.. same difference.

Neither of us were around then, so all you have is data.

Loaded word.  Data alone is meaningless.  What we have is information.  Of the information that we have from the 1800s about inflation/deflation, of all the wide array of information we have, statistical data is some of the sketchiest and least reliable types.

So far, I posted data from Robert Shiller (Nobel Laureate) and all I've seen from you is a statement that you don't believe the data and a link to the Minneapolis Fed which highlights 17 years of at least -5.1% deflation and 9 years of +5.1% inflation between 1800-1899 (with several of those in the double digits).

And that is probably all you will see, because you are not paying me. 

That doesn't seem very appealing to me, even if we assume that data is more accurate.

As I say: you are right.  You already know the right answer.  You aren't saying you're more informed as to the right answer, oh no, you wouldn't say that.  You just are.

Anyway, for anyone else who doesn't already know the right answer to everything: the objections that Fed-haters have to the Fed, most of those objections apply also to the fractional reserve banks of the 1800s USA.  That is, the main activity that the Fed-haters object to -- creating counterfeit money out of nothing by mere fiat decree -- that activity was one that the 1800s US banks also engaged in.  That is the activity that Fed-haters would claim leads to inflation, and to deflation indirectly, and in general to monetary instability.  Since that activity was going on in the 1800s in the US, they would expect there to be inflationary and deflationary swings during that time.  Thus, clacy, your confusion really is confused.

And, although swings there were, the apocalyptic picture of chaos and destruction painted by the chart of the Shiller numbers is ludicrous.  It's completely and utterly detached from reality.  I know it's nice and tidy to reduce things to a single, simple number and then make broad, confident extrapolations based on your unshakable faith in that number.  Try reading a newspaper from that era.

clacy wrote: Looking at this chart, why does everyone believe that things were so rosy before the Fed?

It's because far too many people have drunk the Jekyll Island Creature Kool Aid.  The reality of the Fed is incredibly mundane.  Pull back that curtain, Toto!

But yeah, that chart is bogus.  Probably not logarithmic before 1929 or something.