I love how they imply that devaluation of the dollar is an unforeseen consequence of printing money, such as when it says Bernanke assures Obama that quantitative easing will result in a strong dollar.

No, devaluation is the goal. Multiple countries (such as China) intentionally keep their currencies low so their exports cost less. Cheaper exports mean more people buying them... more demand leads to more jobs. Same here... devaluing the dollar is, in part, an attempt to reduce unemployment.

The video also implies that Obama is afraid countries will stop buying US treasuries. In truth he wants the opposite. When China buys US treasuries it raises the value of the dollar relative to China's currency, which is what Obama wants to stop. It makes our exports more expensive, therefore reducing demand for our products overseas. China does not want their currency value to go up because it would cause civil unrest if demand for their products dropped (or at least that is what they seem to believe).

This doesn't mean that devaluing the dollar is the best course. It really sucks for people who have savings in dollars and/or rely on a fixed income (elderly) because it will begin reducing how much they can buy with that money (assuming prices rise as a result of dollar devaluation, which hasn't really happened yet). On the other hand, a weaker dollar is great if you have fixed-rate debt in dollars (such as student loans). If the debt is variable-rate then a weaker dollar could lead to higher interest rates on the loans.


I'm not endorsing the practice of quantitative easing, but the video is setting up a pretty big straw-man in what I can only assume is an attempt to scare people into either buying gold or supporting the Tea Party. People are free to do either of those things, but hopefully it isn't because they misunderstand the situation.

>> ^HadouKen24:

This video makes it seem like there are no good reasons to want to avoid deflation. But the vast majority of economists recognize that it's a bad thing. And they're probably right.
The lower costs of deflation are good for consumers in the short term, for certain. But lower prices means less production--companies just aren't going to be able to afford to pump out as many goods or provide as many services. That means companies can't afford to hire as many people. There will probably be layoffs.
The result of this would likely be that, since people have less money, companies will yet again have to lower prices in order to sell their goods. Which means more layoffs, which means lower prices, and so on. A downward spiral as deflation increases.

I wish the people who make these kinds of videos would at least take Economics 101 at their local college--heck, a community college would probably do.


Mild inflation and deflation aren't really cause for alarm though. More over, the entire point of the video was that the prices for almost everything, except houses, are on the rise. Food inflation is the most drastic area it can affect. You can live anywhere, but if you can't eat, it's over. And so, to form an entire economic position around housing instead of food is a bit off the mark. You can look back to the depression for statistics one spending trends. The percent people spend towards housing is so marginal, it isn't even a full percent.

And lower prices don't mean lower production per say. If you are getting 1 dollar of profit instead of 100, but the dollar buys more it balances out. The problem is when things inflate or deflate rapidly. The total money supply dictates the price of things in conjunction with their demand. If the money supply shifts to rapidly, it becomes either to risky to save(inflation), or to risky to consume(deflation). Both have meltdown thresholds. Most assuredly, we are running a greater risk of a hyper inflation. Hyper inflation is par for course on a fiat central banking model, it has hit the world hundreds of times. Hyper deflation is more rare, and the only real famous case is our own depression...most depressions are hyper inflation.

In other words, you can have the spiral either way, which you correctly point out. But fiat hyper inflation is more common and the current direction of financial policy. A time will come, however, when we can no longer finance the purchase of new bonds to drive down interest rates. Interests rates on bonds will rise rapidly. This will cause the interest rate on the national debt to rise, most likely it will have to go up to 20% to make up for all the 0% we have had. At that time, the government budget of today will be the same value as needed to pay the interest on the national debt, alone. At that moment, people will find American bonds and treasuries a weak investment. This will cause a sell off of bonds, which has an effect of raising interests rates even more. This will force the government to print more money to buy more bonds from itself to lower rates so the debt can be payed off. This causes a massive devaluation of the currency (hyper inflation), which is the death of that currency.

This is our path, it has been walked by many. Only drastic and serious actions can whip out of a hyper inflation once it starts, and it is very painful indeed.

No. It may jumpstart it temporarily but as you print more money, the value of the dollar drops, and then we're stuck with inflation. And so to incentivize people to spend money in an inflated economy the Fed then in turn manipulates interest rates (cheap credit) and creates market bubbles that give the impression people are making more money because more money is available than before and there's no major change in interest rates, so it's cheap credit.

And so because credit is cheap we no longer spend from savings, but spend from credit. That means we don't save our money before buying that TV or buying that car, but instead buy it on credit. This poses a major problem because we become accustomed to living in debt, and we tend to spend more. And why shouldn't we when saving money means it will be devalued over time based on inflation.

Between 1813 and 1913 the cost of gold per ounce remained rather steady (approx. $30/ounce), and it wasn't until we abandoned a value backed currency (meaning currency that cannot be printed out of thin air like the Fed has been doing since 1913) that we saw increases from 1913 to 2010. Today gold is closer to $2000/ounce. This is why saving money in a bank is a bad investment (and so is saving your cash in a coffee can) and therefore people are incentivized to spend from credit and invest in risk retirement investments.

Capital is savings. Capitalism is spending from savings. What we have now isn't not true Capitalism, but rather spending from credit, i.e., spending from debt. And it's dangerous. Eventually the dollar bubble will pop, and we'll most likely be left where the Germans were after WWI with a worthless currency they burned in the winter to stay warm.

The largest scam of the fiat currency system, however, is who is rewarded and who is most strongly affected negatively. when money is printed, the government, the banks and the military industrial complex receives the money first and spends it before "inflation" drops the value. It then gets circulated through society, and the last people to have their cost of living adjusted for inflation tends to be those on Social Security. It's really an unfair and cruel system.

Anyhow, that's the gist of it as far as I understand it.

This sure does feel biased.

It's almost as if this video is trying to conflate income tax with building roads and infrastructure. But we should know zero income tax goes to that.

The housing bubble was bad, but was it the fault of private lenders? The lenders take their cues from Freddie Mac and Fannie Mae, which are both FEDERALLY SPONSORED! If Freddie and Fannie aren't lending, then banks don't lend. We also know the Federal Reserve create arbitrarily low interest rates that inflated the housing bubble.

This video brings up specious arguments.

>> ^quantumushroom:

"The CBO is required to score a bill based on the assumptions provided by the bill's authors. It's worth about as much as a report card filled out by the student himself."


Both parties have an incentive to do this. Yet even with the Republicans with providing the figures, this is what the CBO had to say about the 2001 Bush tax cuts:

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that H.R. 1836 would decrease governmental receipts by $70 billion in 2001, by $512 billion over the 2001-2006 period, and by $1.26 trillion over the 2001-2011 period.

Source: http://www.cbo.gov/doc.cfm?index=2867&type=0

Let's recap. CBO estimate for bush tax cuts under Republicans. Massive increase in deficit. History says, massive deficit. CBO estimate for health care reform under Democrats. Reasonable decrease in deficit. How is that not crystal clear, and not entirely indisputable?

Oh you think growth was great? It was consistently less than under Clinton. See how it averages about 4% under Clinton and averages roughly 2.5% on the graph at the bottom of the page?

Source: http://www.indexmundi.com/united_states/gdp_real_growth_rate.html

And you know what, you'd probably be thinking right now that uncertainty over the debt is hampering investment. You bet it is. You know what is going make much more difference than taxing wealthy consumers several percentages more? Increasing the likelihood that US public bond interest rates skyrocket once people realise the US cannot pay back its debt.

History has shown that the original Bush tax cuts did this. Estimates under Democratic AND Republican administrations have shown this.

Which begs the question of why you are pushing an ideology that we know will do damage and is clearly going to damage to the economy?

If not, dispute my facts directly, and prove me wrong. All your claims about government efficiency, ideology and morality do nothing to address these simple numbers.

By the way, everything beyond that initial paragraph has nothing to do with what we were talking about. I can rant about Republicans wanting to reduce working class income to slave labour and how some of them think that Obama is a secret muslim. The fact is though, nobody rational seriously belives that or your assertions that progressives want to destroy the economy through ramming through equality.

The only people who believe this nonsense are those who get suckered into believing the ranting of demagogues before elections.

I haven't paid for anything with cash in years.

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But don’t stop there, because the sites may not list all of the best deals. Credit unions often offer lower interest rates; find one that will accept you at Creditunion.coop.

>> ^RedSky:
Given the rock bottom interest rate and the sheer quantity of other measures I think they've rightly concluded that monetary policy has little effect in stimulating an economy out of a downturn. Really it's common sense and historically all but proven that only actual fiscal spending can stimulate a bearish market, much in the same way lowering taxes would have little effect.

I wouldn't say history has shown monetary policy to have no stimulative effect, ever. I think history has shown that in certain types of recessions, traditional monetary policy can cease to be effective. Which leaves more unconventional types of monetary policy once advocated by an economics professor by the name of Ben Bernanke. If only he was in charge of the Fed right now, maybe we'd see some more of that from the Fed...

>> ^RedSky:
Additionally the Federal Reserve's role is really inflation rate targeting than anything else.

Not true -- what Hayes said is correct, the Fed has a dual mandate of maintaining low inflation and full employment. The Fed tends to focus more on that first part, often at the expense of that second part. That's a bad thing.

>> ^RedSky:
And honestly, when I see MSNBC programs like this blatantly ignoring highly relevant facts, exaggerating their point much in the same way Fox does, (such as by making it seem the Federal Reserve has been passive the past 2 years) it makes me call into question anything else I hear from them.

I agree that to someone who hasn't been following the Fed's actions at all for two years might be left thinking that the Fed has refused to do anything for 2 years. But I don't think that's intentional mischief, I think it's an oversight by people trying to make a somewhat opaque topic understandable to people whose eyes normally glaze over whenever there's talk about the Fed and monetary policy.

Oh, and based on everything I've read, fiscal stimulus would be the preferred tool to use here, it's just that we've got the usual political paralysis generated by Democratic spinelessness and Republican audacity preventing us from using it.

What the fed can do to create jobs is extremely limited. The problem with the labor markets at present are the labor markets, not the fed. 1) Very few job openings are getting applicants with the requisite skills to do the job. 2) Those that have the skills demand more money than the prospective employers find worth paying to fill the position. 3) Abundant upside-down mortgages have significantly decreased the mobility of the labor force.

The fed can do little to remedy any of these problems, other than maybe inflating the currency so quickly that suddenly that salary everyone is used to making is palatable to employers. The fact is, they've already done that, it's just that the dollar is still irrationally overvalued (against, for instance, the yuan).

What I wish they had done is straight up bought the houses, rather than the MBSs. Doing so would have liberated debt laden workers so that they could go start a new life, while reducing the interest profits made by the banks. Instead they chose a strategy of recapitalizing the banks, leaving people to pay exorbitant interest rates on debt they no longer have the assets to cover. I realize it probably would have required a bit more work on the logistics end, and the fed ain't exactly a property management firm, but it would have put the money in the hands of those that needed to spend it the quickest.

@NetRunner

Given the rock bottom interest rate and the sheer quantity of other measures I think they've rightly concluded that monetary policy has little effect in stimulating an economy out of a downturn. Really it's common sense and historically all but proven that only actual fiscal spending can stimulate a bearish market, much in the same way lowering taxes would have little effect. The incentives, which otherwise would have worked are there, but consumers and investors are behaving irrationally.

Additionally the Federal Reserve's role is really inflation rate targeting than anything else. It's directive is not to stimulate growth but to avoid stifling it. As an unelected and independent agency it's out of place and overreaching if it does anything beyond that and frankly damages its credibility in achieving its main objective.

I agree that the stimulus measure was clearly not sufficient to match the economic downturn and that a swifter recovery from a larger stimulus would likely have paid for itself with increased tax revenue. The blame for that rests with a lack of resolve and commitment by Democrats and partisan opposition by Republicans.

And honestly, when I see MSNBC programs like this blatantly ignoring highly relevant facts, exaggerating their point much in the same way Fox does, (such as by making it seem the Federal Reserve has been passive the past 2 years) it makes me call into question anything else I hear from them.

The Fed is a private bank. It should be abolished. They have more control over YOU than the government. They set interest rates, expand and contract the money supply. The government likes this FED since the can borrow from it instead of asking the American people for the money. We should be printing our own money supply as mandated in the Constitution.

Now for this video. The Fed HAS dumped Trillions into the economy. The people are not spending/ companies are not hiring because people are scared about this administration policies of raising taxes / OBAMA care/ possible cap and trade. And the banks are hording it.

If the democrats stay in power after this fall election the economy will get worse. If the Republicans gain control and repeal most of of the damaging policies that have been passed in the last 1 1/2 years and promise to stop spending ( like for real, not ) then maybe there will be some good economic news next year.

Netrunner why do you post such leftest crap?

This is pretty much as close as it gets to demagoguery.

Consumers are spending less because they are continuing to rebalance towards saving. Businesses are preferring to build up saving buffers rather than investing partially because of this lack of demand and because they are still relatively uncertain about economic conditions given everything from debt worries in Europe, worries of a housing bubble in China, and from the tepid recovery itself.

Obviously in a case like this, the interest rate has very little effect on economy. Not that rates can be cut any lower. They've been at 0-0.25% since the end of 2008 and it appears will stay that way, with the official tagline since then being 'for an indefinite period of time' - something blatantly relevant and obvious that was omitted here.

That and the fact that they are doing something, buying up Treasury bonds from maturing mortgage debt securities.

Not to mention they have been for a while, they took their balance sheet up to $2.3 trillion, an unprecedented amount. It seems only yesterday that the complaint was that the Federal Reserve was taking on too much debt as an unelected government entity.

As for the argument the inflation rate is currently low, changing the money supply through the buying and selling of government securities takes 18 months to fully impact the economy, so it is easy to say there is no inflationary pressure currently, but it is much harder to predict with certainty the situation in one and a half year's time.

They're not the only safe investment out there, but they're the safest investment. Also, the interest rates on T-Bills are already less than the rate of inflation, except for really long term ones >5yr.

>> ^jwray:

Ideally T-Bill interest rates shouldn't even be as much as inflation. You should actually have to make an informed choice and take a risk to make money, rather than participating in an ever-snowballing hereditary aristocracy.


@jwray, I was responding to that. Maybe I just take it for granted that you can't really get T-bills to reliably be below inflation, since the US also offers inflation-protected securities (TIPS), which means you're never going to see traditional treasuries have an interest rate lower than that of TIPS + expected inflation.

I also pointed out that T-bills and longer-term US government bonds aren't the only safe investment out there.

Don't get me wrong, I'm all for your idea of raising taxes to balance the budget, I just think trying to eliminate the deficit during a recession would be counterproductive. It wouldn't encourage more lending, it would discourage it.

>> ^jwray:

If people aren't investing in T-Bills, they're either going to invest that money somewhere else or hoard it under their mattress. So deficit spending will help when confidence is low but won't be worthwhile at other times.
Ideally T-Bill interest rates shouldn't even be as much as inflation. You should actually have to make an informed choice and take a risk to make money, rather than participating in an ever-snowballing hereditary aristocracy.


The price on T-bills is set by auction, and I'm not so sure it'd be a wise idea to put a thumb on the scale with them. If we systematically undervalued them, then people who (randomly?) got them for less than others were willing to pay would just sell them to the people willing to pay more.

As for stopping a snowballing hereditary aristocracy, you can't eliminate the market for safe investment instruments entirely. For example, you can still buy Canadian debt, British debt, German debt, Japanese debt, AT&T debt, Microsoft debt, McDonald's debt, WalMart debt, etc.

Besides which, that's not how the snowballing hereditary aristocracies I'm familiar with have maintained an empire. Instead they hire talented people to manage their investments to maximize return while managing risk, and enjoy the endless flood of riches that result.

It seems like estate taxes, capital gains taxes, progressive income taxes and the like are the only reliable way to stop hereditary aristocracies from snowballing into virtual monarchies.

If people aren't investing in T-Bills, they're either going to invest that money somewhere else or hoard it under their mattress. So deficit spending will help when confidence is low but won't be worthwhile at other times.

Ideally T-Bill interest rates shouldn't even be as much as inflation. You should actually have to make an informed choice and take a risk to make money, rather than participating in an ever-snowballing hereditary aristocracy.