Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

>From Buffalo, but not in da midst, Paul Zarembka wrote:
> The think my deepest problem is that I have never truly understood money.
> Thus, I don't really understand gold as money or a $20 Fed piece of paper
> as money.

I think a lot of professional economists don't understand money. To my
mind, money is fundamentally social, representing an agreement and
consensus among traders. In a modern capitalist society, with billions
of traders, such a social agreement cannot be created among
individuals (except on a small scale, like those Ithaca HOURS).
Instead, it has to be done _by the state_. Thus, money ends up being
fundamentally political.

People talk about paper money being valued because of a general
agreement among people (I accept money because everyone else does).
But in a global market economy, the state has to be the backbone of
the monetary system, maintaining its scarcity. Usually this job is
delegated to a central bank, which specializes in keeping money scarce
(with the price of money > 0, so that the average price of commodities
< infinity). When the political system -- and thus the central bank --
falls apart (as with Germany in the early 1920s) you see the scarcity
of money go away (and hyperinflation).

Gold (or specie) money is based on the natural scarcity of the metal
(and the behavior of the gold-supplying countries). But in practice,
it only works in the gaps between governments, and in the gaps between
intergovernmental agreements. No state will give up the power it gets
from being able to use fiat money. And no-one likes the deflation that
typically results because the supply of gold is so inelastic.

In any event, the government gets involved with even gold money,
preventing counterfeiting, the shaving of coins, etc. It can also
abuse the gold standard, by adding lead to the coins, etc. It also
gets involved when we see various kinds of credit built upon the
monetary based formed by the gold supply.

If money is political, it must be controlled ultimately in a
democratic way: we must gain control over those who run our lives.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[Doug Henwood]

On Nov 16, 2007, at 12:14 PM, Bill Lear wrote:


Didn't Randy Wray write a nifty, enlightening book on this topic?


He did, though he's got a weird theory behind it. But I'd have
thought a Marxist economist would have read the Chapter on Money from
the Grundrisse, which kicks Wray's ass.

If I were more vain, I'd also point out that I wrote a book called
Wall Street, available for free download at



that has a lot about bourgeois and radical theories of money.

Doug

Re: [PEN-L] Libertarians on the Central Banks

[Bill Lear]

On Friday, November 16, 2007 at 12:06:56 (-0500) Doug Henwood writes:
>On Nov 16, 2007, at 12:00 PM, Paul Zarembka wrote:
>
>> The think my deepest problem is that I have never truly understood
>> money.
>> Thus, I don't really understand gold as money or a $20 Fed piece of
>> paper
>> as money.
>
>I have to admire your nerve in admitting this. But you're a professor
>of economics with a PhD in the field, right? With a specialization in
>Marxism, and from the looks of your pub list, capital theory? How can
>this be?

Didn't Randy Wray write a nifty, enlightening book on this topic?


Bill

Re: [PEN-L] Libertarians on the Central Banks

[Doug Henwood]

On Nov 16, 2007, at 12:00 PM, Paul Zarembka wrote:


The think my deepest problem is that I have never truly understood
money.
Thus, I don't really understand gold as money or a $20 Fed piece of
paper
as money.


I have to admire your nerve in admitting this. But you're a professor
of economics with a PhD in the field, right? With a specialization in
Marxism, and from the looks of your pub list, capital theory? How can
this be?

Doug

Re: [PEN-L] Libertarians on the Central Banks

[Paul Zarembka]

Perhaps Jim's summary is a bit too short.  Ron Paul, and libertarians more
generally, claim that central banks AS SUCH are the problem -- at least
that is what I understand of them.  Jim proposes to me (off list) that the
Fed needs to be democratized, which would seem to imply that the existence
of a central bank is acceptable, but not the manner in which the one in the
U.S. is run.

Jim's idea is interesting.  This political position -- against Ron Paul --
would to restrain from attacking the Fed insofar as it is a central bank
but instead in regard to its being run undemocratically.  The political
advantage to this argument is that folks could understand such an argument
while Ron Paul encourages fear of anarchy, collapse of the $20 note in your
wallet, and the economy as a whole.

One thing that I have learned in this discussion is that the fact that
since some of the interest earnings of the Fed are turned over to the
government, an overriding importance attached to the Fed earning interest
may be somewhat called into question, but of course not entirely.

The think my deepest problem is that I have never truly understood money.
Thus, I don't really understand gold as money or a $20 Fed piece of paper
as money. I believe Joan Robinson once said something like "we all use
money, but what is it?"

Paul Z.

P.S.  Doug, I accept your apology.


(Vol.23) THE HIDDEN HISTORY OF 9-11-2001  "a benchmark in 9/11 research"
  video summary from Snowshoe Films at http://snowshoefilms.com
(Vol.24) TRANSITIONS IN LATIN AMERICA AND IN POLAND AND SYRIA
* http://ourworld.compuserve.com/homepages/PZarembka

From:Jim Devine <[EMAIL PROTECTED]>
Subject: Re: Libertarians on the Central Banks

from a side-discussion with Paul [Zarembka, not Ron]:

I wrote:

> The Fed should be subject to democratic control. Paul is against
> democracy, as far as I can tell, favoring market control instead.


Paul summarizes: "the issue is not central banking as such but how it is
run".

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

from a side-discussion with Paul [Zarembka, not Ron]:

I wrote:
> > The Fed should be subject to democratic control. Paul is against
> > democracy, as far as I can tell, favoring market control instead.

Paul summarizes: "the issue is not central banking as such but how it is run".

--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[Paul Zarembka]

Peter,

Let's accept every criticism of the Fed you mention below.  Probably
libertarians would say the same, and say it more frequently and with more
vigor.

As I understand Marx, banking capital is an intermediary between finance
capital and industrial capital.  As such, it is in the vortex of
capitalism.  But Libertarians don't talk much about industrial capital, the
working class and exploitation.  Nor do they talk about surplus value.  So,
do we ignore Ron Paul's comments on the Fed, accept it, or try to change
the question.

Ron Paul is a player on the national scene.  He may even become a
significant player.  What is to be done?

I repeat: I get nervous knowing that the 1930s fascist message was not met
with an effective enough counter-message, even as I know we are in another
century.

Paul Z.


(Vol.23) THE HIDDEN HISTORY OF 9-11-2001  "a benchmark in 9/11 research"
  video summary from Snowshoe Films at http://snowshoefilms.com
(Vol.24) TRANSITIONS IN LATIN AMERICA AND IN POLAND AND SYRIA
* http://ourworld.compuserve.com/homepages/PZarembka


Date:Wed, 14 Nov 2007 15:27:05 -0500
From:Peter Hollings <[EMAIL PROTECTED]>
Subject: Re: Libertarians on the Central Banks

raghu wrote:

One last criticism can be made that the Fed is very far from being a
representative government agency. Fed governors are not elected and

they are

almost invariably wealthy white men and they are accountable to no

one.

Jim D wrote:

worse, the FOMC includes a bunch of Reserve Bank Presidents, and those
Banks are in effect owned by private banks. Despite some circulation
through the committee, New York Fed -- the center of finance capital
-- is _always_ represented in the FOMC.


There are yet some additional criticisms not mentioned here, to wit,
that the Federal Reserve Act is unconstitutional, that its monetary
policies have been actually damaging to our interests (causing the Great
Depression, etc.), that the FR Act was passed in a highly secretive and
devious manner, etc. See Mullins, "Secrets of the Federal Reserve" and
Griffin's "The Creature from Jekyll Island".

Peter Hollings

Re: [PEN-L] Libertarians on the Central Banks

[Peter Hollings]

raghu wrote:
> One last criticism can be made that the Fed is very far from being a
> representative government agency. Fed governors are not elected and
they are
> almost invariably wealthy white men and they are accountable to no
one.

Jim D wrote:
>worse, the FOMC includes a bunch of Reserve Bank Presidents, and those
>Banks are in effect owned by private banks. Despite some circulation
>through the committee, New York Fed -- the center of finance capital
>-- is _always_ represented in the FOMC.

There are yet some additional criticisms not mentioned here, to wit,
that the Federal Reserve Act is unconstitutional, that its monetary
policies have been actually damaging to our interests (causing the Great
Depression, etc.), that the FR Act was passed in a highly secretive and
devious manner, etc. See Mullins, "Secrets of the Federal Reserve" and
Griffin's "The Creature from Jekyll Island".

Peter Hollings

Re: [PEN-L] Libertarians on the Central Banks

[raghu]

On Nov 14, 2007 10:14 AM, Charles Brown <[EMAIL PROTECTED]>
wrote:

> What is the role of  investment _banks_ that are part of a stock market
> system ?  Do investment banks guide management and organize ownership in
> the US system today ?.


You ask two separate questions. As I understand it the traditional function
of investment banks is to intermediate capital investments. For instance
they might appraise and underwrite stock and bond issues, and provide
advisory services for M&A transactions. These days I believe these
activities are mainly considered as 'loss leaders' i.e. the fees they
receive for underwriting IPOs may be small compared to the previlege of
getting their own stock allocations and also establishing insider
relationships with the top executives. And securitization (i.e. creating and
selling CLOs and CDSs) seems to be the most profitable part of M&A activity
rather than advisory fees.


Financial institutions, other than the stock market, and financial
> instruments , such as hedge funds, seem very important in the US system
> today. They seem to have a lot of power and control  that impact management
> and ownership in the US system
>

Legally the holders of financial securities have very little power over
productive assets. Hedge funds and private equity firms are allowed to
borrow so much money with so little risk to themselves that their influence
is magnified. It is fundamentally a failure (or sabotage) of regulation.
-raghu.

Re: [PEN-L] Libertarians on the Central Banks

[Charles Brown]

> Is the current US system a combination Central Bank/Stock Market
> one ?

You've brought this up before. I think you're confusing central bank
and bank-centered. Everybody has a central bank, even Cuba. It's the
institution at the center of a country's financial system, and is
part of the government (though usually independent of it to some
degree). Examples: the Federal Reserve, the Bank of Sweden (the
world's oldest), the Bank of England (the second-oldest). A bank-
centered system is once in which banks provide the major outside
finance to private firms, and often hold controlling blocks of stock;
the stock market is relatively unimportant. Leading example: Germany,
and to a lesser degree Japan. Bank-centered systems are giving way to
the Anglo-American model in which the stock market is crucial - not
for providing outside finance, but for guiding management (low stock
price = trouble, do something!) and for organizing ownership (buy up
the stock and you own it).

Doug

^^^
CB: Yes, I believe you brought it up a few years ago , and then I keep
asking questions about it over the years.


What is the role of  investment _banks_ that are part of a stock market
system ?  Do investment banks guide management and organize ownership in
the US system today ?. Financial institutions, other than the stock
market, and financial instruments , such as hedge funds, seem very
important in the US system today. They seem to have a lot of power and
control  that impact management and ownership in the US system

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

raghu wrote:
> One last criticism can be made that the Fed is very far from being a
> representative government agency. Fed governors are not elected and they are
> almost invariably wealthy white men and they are accountable to no one.

worse, the FOMC includes a bunch of Reserve Bank Presidents, and those
Banks are in effect owned by private banks. Despite some circulation
through the committee, New York Fed -- the center of finance capital
-- is _always_ represented in the FOMC.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[raghu]

On Nov 13, 2007 5:34 AM, Paul Zarembka <[EMAIL PROTECTED]> wrote:

> There was an article in the NYTimes on Sunday describing Ron Paul and
> mentioning that he wants to dump the Federal Reserve and return to the
> gold
> standard.  The basis of the justification seems to be along the lines I
> mentioned -- that Central Bank control the economy through the continual
> expansion of debt, made necessary by the Central Bank earning interest on
> money they create and control.
>

A lot of criticisms can be made against the central bank but it not a
particularly relevant whether it earns interest or not. Many libertarians
also make a big deal of the claim that the US Fed is a private bank to which
the Treasury is highly indebted. This is a mere technicality of no
importance whatsoever.

A much better criticism can be made about the close relationship between the
Fed and commercial and investment banks on Wall St. There is a growing
perception (accurate?) that the Fed acts largely in the interests of finance
capitalists even to the exclusion of industrial capitalists who would
probably prefer a tighter rein on debt expansions.

A more socialist criticism would be that the Fed cares nothing about the
poor not even on paper. Their official mandate is to maximize GDP *growth*
irrespective of income distribution and inequality, and they more or less
singlemindedly pursue that goal - with some biases towards the financial
sector as mentioned above.

One last criticism can be made that the Fed is very far from being a
representative government agency. Fed governors are not elected and they
are almost invariably wealthy white men and they are accountable to no one.

-raghu.

Re: [PEN-L] Libertarians on the Central Banks

[Doug Henwood]

On Nov 13, 2007, at 2:20 PM, Charles Brown wrote:


Is the current US system a combination Central Bank/Stock Market
one ?


You've brought this up before. I think you're confusing central bank
and bank-centered. Everybody has a central bank, even Cuba. It's the
institution at the center of a country's financial system, and is
part of the government (though usually independent of it to some
degree). Examples: the Federal Reserve, the Bank of Sweden (the
world's oldest), the Bank of England (the second-oldest). A bank-
centered system is once in which banks provide the major outside
finance to private firms, and often hold controlling blocks of stock;
the stock market is relatively unimportant. Leading example: Germany,
and to a lesser degree Japan. Bank-centered systems are giving way to
the Anglo-American model in which the stock market is crucial - not
for providing outside finance, but for guiding management (low stock
price = trouble, do something!) and for organizing ownership (buy up
the stock and you own it).

Doug

Re: [PEN-L] Libertarians on the Central Banks

[Charles Brown]

>>> Doug Henwood
On Nov 13, 2007, at 8:34 AM, Paul Zarembka wrote:

> There was an article in the NYTimes on Sunday describing Ron Paul
and
> mentioning that he wants to dump the Federal Reserve and return to
> the gold
> standard.  The basis of the justification seems to be along the
> lines I
> mentioned -- that Central Bank control the economy through the
> continual
> expansion of debt, made necessary by the Central Bank earning
> interest on
> money they create and control.
>
> It seems to me that we on the left ought to have a cogent rebuttal
> to Ron
> Paul (unless we think he is correct).  In many ways, Paul is VERY
> conservative (e.g., on women's control of their bodies), but some
> of his
> statements about Iraq/Iran are great.

Interesting. It seems like it's a short step from conspiracism to
goldbuggery.

Ever read about the 19th century? There were lots of violent booms
followed by busts. The busts were often horrendous. The U.S. spent
about half of the last three decades of the 19th century in recession
or depression. Central banks are supposed to mitigate that sort of
thing, and they've mostly done a decent job of it. In the U.S., the
Fed was in part an appropriation of the populist proposal for an
elastic currency system. Gold is horrendously austere - part of the
apparatus of conservatism, as Keynes put it. Hayek understood that,
and Paul does too. It seems pretty strange that some PEN-Lers don't.


^^^
CB: Is the current US system a combination Central Bank/Stock Market
one ?

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

Doug Henwood wrote:
> Interesting. It seems like it's a short step from conspiracism to
> goldbuggery.

I like that last word.

> Ever read about the 19th century? There were lots of violent booms
> followed by busts. The busts were often horrendous. The U.S. spent
> about half of the last three decades of the 19th century in recession
> or depression. Central banks are supposed to mitigate that sort of
> thing, and they've mostly done a decent job of it. In the U.S., the
> Fed was in part an appropriation of the populist proposal for an
> elastic currency system. Gold is horrendously austere - part of the
> apparatus of conservatism, as Keynes put it. Hayek understood that,
> and [Ron] Paul does too. It seems pretty strange that some PEN-Lers don't.

on top of that, the gold standard implied deflation, which steadily
increased the debt load of farmers. Nowadays, debt problems are more
general, so that increasing real debts and thus debt-deflation are
more likely.

Also, allegiance to the gold standard is one reason why the Fed
encouraged the US economic collapse of the early 1930s, complete with
a large debt deflation (cf. Irving Fisher).



--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[Doug Henwood]

On Nov 13, 2007, at 8:34 AM, Paul Zarembka wrote:


There was an article in the NYTimes on Sunday describing Ron Paul and
mentioning that he wants to dump the Federal Reserve and return to
the gold
standard.  The basis of the justification seems to be along the
lines I
mentioned -- that Central Bank control the economy through the
continual
expansion of debt, made necessary by the Central Bank earning
interest on
money they create and control.

It seems to me that we on the left ought to have a cogent rebuttal
to Ron
Paul (unless we think he is correct).  In many ways, Paul is VERY
conservative (e.g., on women's control of their bodies), but some
of his
statements about Iraq/Iran are great.


Interesting. It seems like it's a short step from conspiracism to
goldbuggery.

Ever read about the 19th century? There were lots of violent booms
followed by busts. The busts were often horrendous. The U.S. spent
about half of the last three decades of the 19th century in recession
or depression. Central banks are supposed to mitigate that sort of
thing, and they've mostly done a decent job of it. In the U.S., the
Fed was in part an appropriation of the populist proposal for an
elastic currency system. Gold is horrendously austere - part of the
apparatus of conservatism, as Keynes put it. Hayek understood that,
and Paul does too. It seems pretty strange that some PEN-Lers don't.

Re: [PEN-L] Libertarians on the Central Banks

[Paul Zarembka]

Laurent and others,

I don't feel that we have gotten to the bottom of the question of the role
of Central Banks.

There was an article in the NYTimes on Sunday describing Ron Paul and
mentioning that he wants to dump the Federal Reserve and return to the gold
standard.  The basis of the justification seems to be along the lines I
mentioned -- that Central Bank control the economy through the continual
expansion of debt, made necessary by the Central Bank earning interest on
money they create and control.

It seems to me that we on the left ought to have a cogent rebuttal to Ron
Paul (unless we think he is correct).  In many ways, Paul is VERY
conservative (e.g., on women's control of their bodies), but some of his
statements about Iraq/Iran are great.

Paul

--On 11/13/2007 12:00 AM -0800 Automatic digest processor wrote:


Household debt: went from 6.4 trillions in 1999 to 13.3 trillions
in Q2 2007 (all nominal - I assume), 75% of it is mortgage debt and
the remaining 25% consumer debt (Z1 report page 8).

BEA published current dollar GDP for 2007 is 13.8 trillions (Q2 yearly /
seasonally adjusted, table 3 of Q3 release) which makes household debt
96% of GDP in the USA.

The average yearly household debt increase over the last eight years was
0.86 trillions per year or about 6.2% of 2007 GDP or about 8.8% of 2007
personal consuption expenditure. Truly enormous numbers.

I wonder why no one adjust growth by debt variations (debt is just
betting on future GDP after all), any taker?

Laurent




(Vol.23) THE HIDDEN HISTORY OF 9-11-2001  "a benchmark in 9/11 research"
  video summary from Snowshoe Films at http://snowshoefilms.com
(Vol.24) TRANSITIONS IN LATIN AMERICA AND IN POLAND AND SYRIA
* http://ourworld.compuserve.com/homepages/PZarembka

Re: [PEN-L] Libertarians on the Central Banks

[Laurent GUERBY]

On Sun, 2007-11-11 at 15:35 -0800, Jim Devine wrote:
> > > Laurent writes:
> > PS: the astute reader will have noticed that USA fed/gov debt makes
> > 99.9% of the headlines and papers but count for less than 20% of
> > total USA debt, the other 80% is unknown to MSN and most economists.
> > One sector debt has (nominally) doubled in the last 8 years and just
> > reached 100% of GDP without "anyone" noticing.
>
> "One sector debt" = ??

Household debt: went from 6.4 trillions in 1999 to 13.3 trillions
in Q2 2007 (all nominal - I assume), 75% of it is mortgage debt and
the remaining 25% consumer debt (Z1 report page 8).

BEA published current dollar GDP for 2007 is 13.8 trillions (Q2 yearly /
seasonally adjusted, table 3 of Q3 release) which makes household debt
96% of GDP in the USA.

The average yearly household debt increase over the last eight years was
0.86 trillions per year or about 6.2% of 2007 GDP or about 8.8% of 2007
personal consuption expenditure. Truly enormous numbers.

I wonder why no one adjust growth by debt variations (debt is just
betting on future GDP after all), any taker?

Laurent

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

> > Laurent writes:
> > > The fed does not create new money: only private banks do create money
> > > each time they make a loan and they have this right in exchange for
> > > following bank regulations.

me:
> > Laurent, that's only according to a narrow interpretation of "money
> > creation." The Fed does not create money (i.e., currency) as in
> > "printing it" and droppng it from its Milton Friedman Memorial fleet
> > of helicopters. (Ben Bernanke once suggested that it could, BTW.)
> > However, it does create -- or rather, increase or decrease -- the
> > monetary base (the stock of high-powered money). That magnitude refers
> > to the monetary liabilities of the Fed, i.e., bank reserves and
> > currency. The Fed can and does increase those, which almost always has
> > the impact of increasing the money supply.
> >
> > And when banks want to convert the bookkeeping entries called bank
> > reserves into currency, the Fed _will_ print it. This converts one
> > kind of Fed IOU into another.

Laurent:
> To put things into perspective: the Z1 of Q2 2007 says that Fed assets
> and liabilities are around 0.9 trillions (page 68) and that
> total outstanding debt is 45 trillions including 7.2 trillions
> of federal and local government debt the rest being private (page 8).
>
> Of course you can label the 2% base "high powered" money but for all
> practical purposes the remaining 98% are money too and they've been
> printed by private banks not the Fed :).

Wait! you switched from talking about money (as conventionally
defined: M1, M2 or whatever) to talking about total debt. Now you can
argue about definitions, but I meant the standard definition of the
money supply, as most economists do when they don't add
qualifications.

Note that I don't think that the Fed has much if any control over the
money supply, however defined. Rather, it has a lot of impact on
short-term interest rates. And I agree that the total debt is more
important to determining the dynamics of the economy than M1, M2 or
whatever is.

> PS: the astute reader will have noticed that USA fed/gov debt makes
> 99.9% of the headlines and papers but count for less than 20% of
> total USA debt, the other 80% is unknown to MSN and most economists.
> One sector debt has (nominally) doubled in the last 8 years and just
> reached 100% of GDP without "anyone" noticing.

"One sector debt" = ??

in any event, private debt is much much more serious than the
government's debt, since the US government is not going to go bankrupt
in the foreseeable future. I totally agree that the government's debt
gets much too much airplay and print.



--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[Laurent GUERBY]

On Sun, 2007-11-11 at 08:04 -0800, Jim Devine wrote:
> Paul Zarembka wrote:
> > >   It is true that the
> > > Federal Reserve, after printing money, places it on the market at interest
> > > (if it is more than the replacement of worn-out currency).
>
> Laurent writes:
> > The fed does not create new money: only private banks do create money
> > each time they make a loan and they have this right in exchange for
> > following bank regulations.
>
> Laurent, that's only according to a narrow interpretation of "money
> creation." The Fed does not create money (i.e., currency) as in
> "printing it" and droppng it from its Milton Friedman Memorial fleet
> of helicopters. (Ben Bernanke once suggested that it could, BTW.)
> However, it does create -- or rather, increase or decrease -- the
> monetary base (the stock of high-powered money). That magnitude refers
> to the monetary liabilities of the Fed, i.e., bank reserves and
> currency. The Fed can and does increase those, which almost always has
> the impact of increasing the money supply.
>
> And when banks want to convert the bookkeeping entries called bank
> reserves into currency, the Fed _will_ print it. This converts one
> kind of Fed IOU into another.

To put things into perspective: the Z1 of Q2 2007 says that Fed assets
and liabilities are around 0.9 trillions (page 68) and that
total outstanding debt is 45 trillions including 7.2 trillions
of federal and local government debt the rest being private (page 8).

Of course you can label the 2% base "high powered" money but for all
practical purposes the remaining 98% are money too and they've been
printed by private banks not the Fed :).

Laurent

PS: the astute reader will have noticed that USA fed/gov debt makes
99.9% of the headlines and papers but count for less than 20% of
total USA debt, the other 80% is unknown to MSN and most economists.
One sector debt has (nominally) doubled in the last 8 years and just
reached 100% of GDP without "anyone" noticing.

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

Paul Zarembka wrote:
> >   It is true that the
> > Federal Reserve, after printing money, places it on the market at interest
> > (if it is more than the replacement of worn-out currency).

Laurent writes:
> The fed does not create new money: only private banks do create money
> each time they make a loan and they have this right in exchange for
> following bank regulations.

Laurent, that's only according to a narrow interpretation of "money
creation." The Fed does not create money (i.e., currency) as in
"printing it" and droppng it from its Milton Friedman Memorial fleet
of helicopters. (Ben Bernanke once suggested that it could, BTW.)
However, it does create -- or rather, increase or decrease -- the
monetary base (the stock of high-powered money). That magnitude refers
to the monetary liabilities of the Fed, i.e., bank reserves and
currency. The Fed can and does increase those, which almost always has
the impact of increasing the money supply.

And when banks want to convert the bookkeeping entries called bank
reserves into currency, the Fed _will_ print it. This converts one
kind of Fed IOU into another.

--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.

Re: [PEN-L] Libertarians on the Central Banks

[Laurent GUERBY]

On Sat, 2007-11-10 at 12:57 -0500, Paul Zarembka wrote:
>   It is true that the
> Federal Reserve, after printing money, places it on the market at interest
> (if it is more than the replacement of worn-out currency).

The fed does not create new money: only private banks do create money
each time they make a loan and they have this right in exchange for
following bank regulations.

Laurent

Re: [PEN-L] Libertarians on the Central Banks

[Michael Nuwer]

Jim Devine wrote:


The libertarians are right that Central Banks replace the gold
standard or a pure specie-based economy with fiat money. This, I
think, is what the libertarians are pissed about: they'd prefer a
system where the entire economy was guided by the invisible hand of
the market.


Back in September, Terry Gross, a radio interviewer in the US, had a
show with Greenspan. Greenspan considers himself a libertarian, and
Gross asked him how he could reconcile this view with being the most
powerful regulator in the world. Greenspan's reply was that the interest
rate regulation that most central banks have carried out in the last
twenty years has been an attempt to replicate the rules that were
governing under a gold standard. He then suggested that he may not have
been a regulator of interest rates at all.

Starts at about the 35 minute mark:
http://www.npr.org/templates/story/story.php?storyId=14500893

Re: [PEN-L] Libertarians on the Central Banks

[Michael Perelman]

The Fed can "control" labor by slowing the economy supposedly w/o a strong
government.
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com

Re: [PEN-L] Libertarians on the Central Banks

[Jim Devine]

Paul Zarembka wrote:
> Libertarians make a case the controllers of economies are the Central Banks
> which becomes the sole source of making money payments, that they create
> money and lend AT INTEREST, that the requirements to paying debt with
> interest creates the need for more money, more debt and even more control
> of the economy by the Central Bank.  The magnifying debt enslaves the
> economy to the Central Bank's desires. ...
>
> Has anyone seen a good analysis of such an argument?  It is true that the
> Federal Reserve, after printing money, places it on the market at interest
> (if it is more than the replacement of worn-out currency).

I don't know of a good analysis, but here's an attempt.

The Fed increases the country's (and world's) supply of money in two
main ways. First, it lends money to banks at the "discount window." It
earns interest on these loans (at the discount rate). Second, it buys
government bonds from the banks (as part of an open market operation),
replacing them in the banks' coffers with bank reserves. Less
commonly, it can increase the money supply by reducing the amount of
reserves that banks are required to hold to back up their deposits.
Then, the banks can create more money in circulation.

Both of the first two tools increase the banks' reserves, which are
essentially entries in the banks' books (on the asset side). (Discount
loans also add to the banks' liability side, while the banks' sales of
government bonds reduce the asset side at the same time that the
reserves add to it.) It's only when these reserves are lent to people
and companies that money will be "printed." Bank reserves represent
liabilities of the Fed and banks can cash them in, turning them into
currency. The Fed isn't required to balance its check-book, so it can
just print money if the banks do a lot of this cashing.

The Fed earns income mostly from its ownership of government bonds and
(to a lesser extent) its discount loans. These earnings are lavish (or
at least they told me they were when I worked -- as a clerk! -- at the
Chicago Fed). A big chunk of that interest is then paid to _the
Federal government_. I don't have the data here, but I'm sure the
Fed's web-site has them.

The libertarians are right that Central Banks replace the gold
standard or a pure specie-based economy with fiat money. This, I
think, is what the libertarians are pissed about: they'd prefer a
system where the entire economy was guided by the invisible hand of
the market.

Do the CBs "create money and lend AT INTEREST"?  some of the money
creation involves lending in return for interest, but not all.

Do "the requirements to paying debt with interest creates the need for
more money, more debt and even more control of the economy by the
Central Bank"?  Having a growing economy with a financial system of
any sort requires borrowing and payment of interest (unless we switch
over to "Islamic banking," under which bankers are supposed to get
ownership of part of the equity of their clients and thus receive
dividends). Any growth of production requires the issuance of more
fiat money unless (1) we want to have deflation or (2) the velocity of
money is increasing fast enough (due to financial innovation).

The last part of the quote tells us that the Fed is getting more and
more control over the economy (as the "magnifying debt enslaves the
economy to the Central Bank's desires"). But the Fed doesn't really
control the economy. Instead, it controls short-term interest rates,
which have an indirect effect on the economy, being better at fighting
inflation than at ending recessions.

and what are the Central Bank's desires? my impression is that it
responds to the wants and needs of the biggest financial capitalists
and to smaller financiers when they are well-organized, and even to
the working class when they are militant. The financial capitalists
are quite opposed to inflation. (It's only a small group who profit
from inflation and want it to be increased or extended.) So the
libertarians should be quite happy: the folks in power share one of
their goals.

I am sorry if the above seems a tad patronizing. As usual, I aim my
missives at the general reader rather than at professonal economists.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) --  Karl, paraphrasing Dante.