12 thoughts on “No One Can Fail?

  1. Scott Pelley should have had the stones to ask Bernanke if we really even need a Fed, and whether the Fed had a direct role in the creation of the bubble. All in all, Bernanke doesn’t seem like a bad guy, but he’s in over his head and doesn’t (or doesn’t want to) realize that his institution is the biggest part of the problem.

  2. Ken-

    Considering that the worst financial episode in the country’s history (the depression) and our current situation (which could be even worse) both occured on the Fed’s watch, at what point would you think that maybe the Fed is actually hurting more than its helping?

    Similarly, Ken, you’re going to have to explain something to me. You purport to be a free-market guy. I don’t think you’d support the government setting commodity prices? Would we be all better off if the government said oil is going to trade at $25 per barrel and would intervene in the market to keep it there? If you agree that government price controls are lunacy, how can you possibly support a government price control on the price of capital (interest rates)?? And worse than setting the price of a physical commodity like oil or cotton, the price of capital affects EVERY business in the country, and therefore tampering with it can (will) cause gigantic distortions in the entire economy (for further reading, please see Economy, the present state of).

  3. Would you rather have a banking crisis every 15 yrs (like we did before the Fed existed) or one every 80yrs (like we do now)? We’ve also had our best financial episodes in this country on the Feds watch. I agree that the Fed powers to adjust interest rates needs to be minimized, but I don’t think completely eliminating the Fed is the answer. That’s sort of like abandoning a trading system just because it has a drawdown.

  4. Ken, this is not a run of the mill drawdown, buddy. This is system failure. This is account balance zero. The fed is on life support. Also, we’ve seen the fed reduce the value of the dollar by over 98%. Is this another triumph of monetary success?

  5. I don’t consider a $12T-$14T economy an account balance of zero. So what if the dollar has dropped 98%? The economy has grown 35,700% since the Fed was created. So overall its been a net positive. Why are you so obsessed with the downside of everything? Like a good trader, you need to look at the upside too, the overall risk/reward ratio.

  6. Your argument assumes that the existence of the Fed was a necessary condition for that economic growth. What if the fed actually inhibited growth compared to a sound-money system? The united states went from nothing to the world’s most powerful economy before the fed was created. Who’s to say that growth wouldn’t have been as good or better?

    I agree that right now we’re not at account balance zero, but we could be in a couple months. Our leaders seem to think that we can solve all our economic problems by letting the Fed buy bad assets (as yesterday’s fed announcement makes completely clear.) Unfortunately, you cannot make a society richer by printing currency. “Account balance zero” will happen when the dollar completely collapses. I certainly have no guarentee that that will happen, but it looks like everything washington is doing (both sides) is pushing us towards that point.

    If I seem overly negative (I’m not in real life), I appologize. However, our government is making huge mistakes every day that are going to make everyone worse off. I’m not so worried about myself personally, because A- I’m relatively young; B- I’m well-positioned for the inevitable inflation; and C- I have the resources and infrastructure to leave the country if I really don’t like how things are going. That said, I have plenty of friends and family who are not as fortunate. It breaks my heart to think that they have worked their entire lives to only have everything stolen by the fed’s printing press to fund some politician’s vote-buying machine. It troubles me that the younger people are going to have to live under the oppressive burdens of high income taxes, high property taxes, and the constant inflation (that you don’t seem to mind) that makes saving, investing, and planning for the future basically impossible. It also strikes me as incredibly unjust and immoral to let certain actors in our society bet the ranch and force the population at large to cover the losses.

    If you don’t share any of these concerns, we can again agree to disagree. If I seem obsessive about the downside, I guess that is just my nature as a trader. I’m the type to worry (sometimes compulsively) about what can go wrong, and let the upside take care of itself.

  7. The united states went from nothing to the world’s most powerful economy before the fed was created

    Not true, in 1913 (when the Fed was created) Brittain was the most powerful economy. We didn’t become number one until after WWII I think.

    you cannot make a society richer by printing currency

    It depends what you do with the money. If you create more economic value than you destroy, then of course you make society richer. For example, if you increase money supply and that causes the dollar to drop by 1%, but it also creates a 10% increase in economic growth then you have indeed made society richer. We’ve dropped the dollar by 98% but we grew the economy by 35,700%, so we are richer.

    I understand your concerns, but I just don’t think you are looking at the big picture.

  8. You ignored the point. If the USA was not number one in 1914, it was certainly a close second. How did we go from nothing to second place (or maybe even first) without the Fed if the Fed is necessary for growth?

  9. Stability? Are you looking at the same graph? How would you compare the variance of the line before 1914 and after? The Fed creates massive INSTABILITY. I agree that there are less recessions, but the recessions are much milder pre-1914. Also, while the growth is certainly more gradual, if you look at the line its certainly trending higher and looks like it would have been just as high (if not higher) had the fed not been created. Also note that this graph is only current up till Feb 2008. What would it look like as of March ’09?

    Looking at this graph, it seems like the Fed is pretty good as “stuffing risk into the tails.” I would liken their strategy to a trader who sells puts for a living. Things are really good for periods of time (hence the fewer recessions) but when things turn bad, they are really really bad.

    I think having more frequent, but much milder recessions is far healthier for the economy and society. When we have the dramatic, destabilizing slides like we have now (thanks to the fed-created booms), politicians want to change all the rules and do things that may temporarily relieve some pain, but will make things much worse over the long run.

  10. I said it added stability to the banking system. You sound like a trader who confuses volatility with risk. The volatility (you call it variance) has been on the upside. Just like in trading, that’s a good thing. That’s a good Sharpe ratio.

    I know the Fed isnt perfect and things need to change like their unchecked powers to set interest rates.

Comments are closed.