Originally posted by kmax87
I listened to Bernanke explain to a congress committee on C-Span recently how the greater proportion of leverage in the market is sourced outside of banks, well definitely outside of any consumer bank at least, the question then I suppose is if investment banks are not bogged down by rr requirements, what mechanisms are put in place to provide adequate feedback in the system? Economics being only a field of interest and not a speciality of mine has me stretching for analogies out of flight control simulation and systems control, in order to make sense of the dynamics in play.
I'm not entirely sure of what you mean by "feedback" in this case. If you are talking about the money multiplier (initial money being deposited and loaned out multiple times over), then I'd say that since investment banks aren't money creators, you don't have the same money multiplier effect in operation. I should add that it's not entirely true that they do not create money since in some cases you can write checks off of your investment accounts. Nevertheless, such money makes up very very little of the system for several reasons. First, only a small fraction of people have such accounts; two, those accounts are usually pretty illiquid (you can only write so many checks a month from your account); and three, people that have these accounts have other lower interest bearing accounts with commercial banks from which it is more desirable to write checks.
Now if you are asking about the dynamics of GDP in general that's much more difficult. You'd have to help me out on what sort of feedback you have in mind. If I may take a gander, I'd say that some control is going to come from the price system operating in the economy. As the supply of investment increases, all else equal, the return on it should decline. Just think of very promising projects being funded and now investment banks look for less promising or slightly more risky projects (like you talked about before) to put the remaining investment. At the margin the expected return from more investment is falling, so the incentive to invest falls. In a sense then there is a mechanism in place that tries to drive us back toward a "stable" path. Other safeguards are supposed to come from the government regulation of Wall Street, though obviously that didn't turn out to well this time around.
Now it seems to me the Fed tries to close the loop and it has certain indicators such as inflation and other such measures with which to determine the command inputs it should make. The point is if some parts of the system are not robustly controllable, then no amount of big lever pushing on their part could ever produce the desired output from their input commands.
Again I'll have to use my best interpretation of what you write. The Fed is trying to decrease the volatility of the system by controlling the parameters which influence markets. You're right that they cannot control everything and that their influence will vary across sectors. In the end, they can only do so much. We'll just have to live with business cycles.
What in your opinion are the loops of control that the Fed has at its disposal to command desired outputs from the system, and where does the system break down? Is it a lack of knowledge to be able to describe mathematically what in reality is a random chaotic process, that defies understanding, or is it a case of there being areas within the market that are so free of any external control or oversight, that no matter what the fed does if the system is shocked one too many times without settling, the dynamics within the poorly regulated sectors of the economy then present a bag of unknown unknowns to the Fed, that can destabilize the system so quickly, that it would be equivalent to sending a very stable aircraft into a spiral nosedive. The problem being that its very inherent longitudinal stability actually works against the plane in the spiral, such that its flight control surfaces are not large enough to generate the forces required to recover itself out of its death spiral. The question I suppose I really want to know is what are the states of the economy, and what controls are used to effect changes of those states?
LOL at the airplane analogy. 🙂 .
It is definitely the case that the system cannot be described as cleanly as a the mechanics of airplane flight. There are certainly many unknown unknowns. I'm wouldn't say with certainty the system is really chaotic at least in the sense of its stability. Despite the fact that most of the inputs in the system must be modeled as noise, large numbers washes quite a bit of that out, and I think prevents the sort of nosedive that you describe. Perhaps -- and I'm going out on a limb here -- it's a bit like flying a large jet into a storm. The pilot recognizes the oncoming turbulence (though the in economics the severity of the turbulence may be unknown) and has some instruments that should allow the plane to stay on course. But in the end, there is no way that he can predict when the plane will bounce or prevent the plane from shaking up and down.
By the way the main controls that a Fed regional bank has are bank auditing and the discount window (though discount rates end up lining up across regional banks in the end). The larger Fed system of course has loose control over the money supply and through this the Fed Funds Rate.
Originally posted by telerionWhat a long winded response to explain nothing. 3% is closer to nothing than 10%, Duh!
Man, you are absolutely crazy. You've stumbled on to one internet site and now you quote it as if it were the Bible. Money Masters has zero credibility within the academic economics and private financial fields. I mean the main guy behind the MM project is a painter by profession who in his own words made up his mind about debt and finance in high school ...[text shortened]... y along as if nothing had happened.
Oh how truly appropriate.[/b]
It is truly amazing how people pretend to know something is wrong when they can prove nothing of the sort. For a guy that used to work at a bank you sure have a poor knowledge of how the FRS operates. That is not your fault though, I'm sure you were taught no more than you needed to know to perform your duties. Your pretending to know more than you do is your fault, however. Criticizing a movie will not make it wrong. Only facts will do that, something you don't want to be confused by. You are very good at dodging the facts. You should be a politician.
You could try and find the answers to the questions and give us all a good debate, but that does not help you hide your ignorance. Now you have the nerve to say I am avoiding the truth. Nice try dork! I suppose you are going to blame me for your not being able to find the answers to some of the best questions you have been asked. You have blind faith in the government. You suffer from cognitive dissonance.
Keep on running like a coward. I know you will. You can't handle the truth.
Originally posted by Metal BrainNo answer to my initial criticism? Can't say that I'm surprised.
What a long winded response to explain nothing. 3% is closer to nothing than 10%, Duh!
It is truly amazing how people pretend to know something is wrong when they can prove nothing of the sort. For a guy that used to work at a bank you sure have a poor knowledge of how the FRS operates. That is not your fault though, I'm sure you were taught no more ve dissonance.
Keep on running like a coward. I know you will. You can't handle the truth.
Okay, here it is again just for you. Money as Debt claims that without debt there would be no money.* This is factually incorrect. Wrong. Completely untrue. Get it? One more time for you: There can still be money without debt.
Score: MM 0 me 1
If you prove me wrong on this, then we'll go forward with the next criticism. If not, then MM is wrong. End of story. I'll await (with low expectations) your defense.
BTW as for my credentials, I'm not going to give a laundry list, but suffice to say they are much better than those of the people at MM, especially that wacko Paul Grignon.
* - To make it easy on you, the exact time of the claim in Money as Debt is 22:14.
Originally posted by telerionI love the airplane analogy, because if its not one economic expert, or some treasury official talking about a soft landing, its another talking about navigating around turbulence or some other flight metaphor.😛
I'm not entirely sure of what you mean by "feedback" in this case. ... I'd say that some control is going to come from the price system operating in the economy....... The Fed is trying to decrease the volatility of the system.....In the end, they can only do so much. We'll just have to live with business cycles.....LOL at the airplane analogy. 🙂 .
In terms of feedback, I use it in a systems control sense where an open loop system is one where the output has no effect on the input signal, but in a closed loop system the output has an effect on the input to maintain the desired output value. Feedback in this model is a system element that allows a constant comparison between a function of the output signal with the reference input.
In essence the error between the desired output compared with the commanded input, is fed back into the system(some electronic analogue of the aircraft's dynamic response), which generates outputs which then control the actual physical flight control surfaces of the plane in order to effect a physical change in the plane's actual attitude.
The system therefore, is an electronic "model" of the planes inherent dynamic characteristics (how it responds to inputs), and the idea is to design a compensator that can influence this model such that the plane can reliably respond to all manner of inputs under all manner of flight conditions and achieve the desired output within a consistently short reference time frame without the airframe undergoing any undue oscillatory motions that may cause undue stresses to be generated through the aircraft, all of which have the potential to damage the structural integrity of said aircraft.
Whereas with aircraft flight control, there is a well defined flight path, a destination, an altitude and a timetable which tend to constrain the control strategies employed, in order that the most cost effective flight envelope is found, I think the problem with the Fed is that they dont seem to have a clear cut agenda other than some nebulous notion of keeping the system stable. What if any, are the desired outputs of monetary policy anyway? Is it just playing catchup and hoping to keep the system between safe upper and lower limits? We hear much about how one form of economic policy targets unemployment and uses deficit spending, increased taxes and public works to achieve its targets and on the other hand you have low inflation and economic growth as the goals and they seem to go hand in hand with tax cuts and deregulation and easing of fiscal policy to achieve these targets.
The question(s) I suppose are how useful are unemployment figures or CPI numbers to the determination of how the money supply should be adjusted. If there is no consensus as to what constitutes a healthy economy, surely while that "state" remains undefined, all policies are then simply reactive and it seems all regulatory activity centres around keeping the system from going to the extremes. To me there's your boom bust cycles. Because we are ideologically averse at determining what a healthy equilibrium state should look like, we never have enough benchmarked calibrated economic data to drive the system back towards a well defined condition. This is just my opinion but I think its because we dont like the idea of anything being fixed in the system, we sort of end up converging towards stability or diverging away into instability. While things are converging it seems its all 'make hay while the sun shines', but because there's no well defined stability equilibrium around which every regulatory agency attempts to keep driving the system towards, and because the market itself is not in the business of, nor indeed ever able to catch itself and regulate its activity back into that sweet spot of optimum return, when things diverge, it seems to be every man for themselves when things go belly up.
What are the range of levers at the Fed's disposal anyways? And how are their effectiveness measured?
Originally posted by telerionWe were talking about the Money Masters, not Money as Debt. It is not surprising that you want to digress by involving this other movie that is only 47 minutes long. No movie can do a good job explaining monetary policy in less than an hour, that is why the Money Masters is so long, it has to be. Now you want to limit the debate to a different movie. Not surprising. The Money Masters does not make the statement you refer to. Wrong film!
No answer to my initial criticism? Can't say that I'm surprised.
Okay, here it is again just for you. Money as Debt claims that without debt there would be no money.* This is factually incorrect. Wrong. Completely untrue. Get it? One more time for you: There can still be money without debt.
Score: MM 0 me 1
If you prove me wrong on t ...[text shortened]... gnon.
* - To make it easy on you, the exact time of the claim in Money as Debt is 22:14.
Your criticism is not directed to the Money Masters. Stop digressing. You are tying to avoid a debate about the Money Masters because it is the best film out there on the subject. I am still awaiting a valid criticism of the money masters, not other films that are not nearly as professional as the Money Masters.
The problem is that when debt is reduced, the money supply is reduced and can cause disinflation or deflation. That is what is happening right now because banks are reluctant to loan money. The Money Masters never claimed that would eliminate our money supply altogether. Wrong film! Stick to the film our debate started with.
I never claimed that without debt there could be no money. The Money Masters is the subject of our debate, not another film. Stop throwing in other films I did not quote. You act as if I control the information of all films on the subject and that I should be responsible for the content of all of them.
You are clearly having a hard time proving the information wrong in the Money Masters. Otherwise you would not be trying to confuse everybody by referring to a completely different film.
Should I expect you to defend the statements of every economist you mention? If you spoke favorably of Irving Fisher would it be fair of me to expect you to defend the comments of John Maynard Keynes as a result? Of course not, so why should I be held to such an unreasonable standard?
You sure are trying hard to avoid remaining on the subject of the Money Masters. Why? Is your case really that weak?
http://en.wikipedia.org/wiki/Executive_Order_11110
Notice that this reissue of Lincoln's greenback by Kennedy says United States Note and not Federal Reserve Note. The Fed does not like competition when it comes to the issuance of money.
http://dollardaze.org/blog/posts/2007/October/19/1/Kennedy2DollarLarge.jpg
Originally posted by kmax87Well, most central banks use several different models to assess the state of the economy and the quantitative effect of its instruments.
I love the airplane analogy, because if its not one economic expert, or some treasury official talking about a soft landing, its another talking about navigating around turbulence or some other flight metaphor.😛
In terms of feedback, I use it in a systems control sense where an open loop system is one where the output has no effect on the input signal, b ...[text shortened]... ge of levers at the Fed's disposal anyways? And how are their effectiveness measured?
The first type consists of purely structural (econometric) models. The idea is to put as much information as possible into a statistical model and try to make extensive use of statistic (econometric) techniques to "let the data speak". Of course, some minimal assumptions are required to be fed into the system (I can go into more detail if you have some statistical background), but the idea is to put as little of our preconceptions in it as possible.
The second type are usually theoretically-founded dynamic macro models, which make full use of optimal control theory (that you refer to). In these models, the structure goes from consumer and firms (micro-founded, i.e. at the individual level) decisions to macroeconomic dynamics. In these models, agents are optimizing, but they face a variety of possible constraints (that could range from information not being costless to borrowing limits, etc.). It's a common result of current models that the economy, left by itself, will not work optimally. In monetary models, notably, an almost unavoidable result is that if the economy is left by itself than there will be too much volatility. "Feedbacks" into the system arise from market imperfections, such as adjustment costs of investment for example. The models then feature rich dynamics, with persistence being an important feature.
The decision-makers then have to look at the results and predictions of both types of models and, if different, determine (subjectively, no escape there) which one fits better with current economic conditions. The problem with purely statistical models is that they tend to be very backward-looking and may perform very poorly when there are large shocks or the economic relationship between different variables changes. For example, these would do very poorly for a country which is experiencing rapid financial development. Theoretically-founded models are potentially able to take into account such considerations and be more forward-looking in many different ways, capturing the idea that people do not make their decisions irrespective of what they think the future will be. The catch is that such models are simplified versions of reality, so it limits the number of macroeconomic variables that can be used to predict and imposes a restriction on possibly useful information.
Because we are ideologically averse at determining what a healthy equilibrium state should look like, we never have enough benchmarked calibrated economic data to drive the system back towards a well defined condition.
This seems wrong, but I'm not sure I'm following. The state variables used in (modern) models are not distances from a benchmark ideal, but the actual values themselves. There is no "ideal" value that is invariant to policy.
Originally posted by Metal BrainI needed less than two minutes to find the first lie. 😵
We were talking about the Money Masters, not Money as Debt. It is not surprising that you want to digress by involving this other movie that is only 47 minutes long. No movie can do a good job explaining monetary policy in less than an hour, that is why the Money Masters is so long, it has to be. Now you want to limit the debate to a different movie. Not ...[text shortened]... hard to avoid remaining on the subject of the Money Masters. Why? Is your case really that weak?
Ok. Let's start with the start. At about 1min 30 secs in, some guy says:
We cannot extinguish government debt without extinguishing money supply
FALSE.
Open market operations can be done with many different securities and not necessarily with government bonds. Bonds are usually used because they are very liquid, (virtually) risk-free assets. Besides, the Fed could also use of the discount window more extensively if it needed so.
Originally posted by uzlessI agree. I think the best solution is to nationalize the monetary authority but provide it with operational independence from government (e.g like the Bank of England).
Some would suggest we don't want to privatize monetary policy either.
I don't know if this is a constitutional barrier for the US, but is not necessarily so that nationalizing the monetary authority requires it to be operationally controlled by the legislative bodies.
Originally posted by PalynkaNobody said extinguish the money supply. False quote!
I needed less than two minutes to find the first lie. 😵
Ok. Let's start with the start. At about 1min 30 secs in, some guy says:
We cannot extinguish government debt without extinguishing money supply
FALSE.
Open market operations can be done with many different securities and not necessarily with government bonds. Bonds are usually used be ...[text shortened]... ssets. Besides, the Fed could also use of the discount window more extensively if it needed so.
Money as Debt was put out by the same people. My original claim was that Money as Debt was wrong. There has been no bait and switch.
If you do not wish to defend your cult leader than I'll take that as one point for me.
BTW it's not just that the 47 minute cartoon doesn't do a good job explaining monetary policy. It flat out lies! They claim that money is equivalent to debt and that without debt there can be no money. That is absolutely, 100% wrong! That's not the only lie in the cartoon. I pick it because it comes early in the presentation and it undermines the very premise of everything that follows.
You are tying to avoid a debate about the Money Masters because it is the best film out there on the subject. I am still awaiting a valid criticism of the money masters, not other films that are not nearly as professional as the Money Masters.
That was great for a laugh. Okay, I guess we'll just pretend that the the Money Masters people didn't say all the factually incorrect stuff in Money as Debt. We'll just stick to Money Masters, the film. I suppose MasD was just their newbie attempt, and they fixed all the glitches for MM so it can be "the best film out there on [monetary policy]." How do you know that MM is the best when you clearly haven't seen anything else or done any other study of monetary policy? Your real name is Paul Grignon by any chance is it?
Well, I have much to do today so I'll have to wait until either this evening or tomorrow to give you the first MM falsehood.
Originally posted by telerionAll you do is babble without proving anything.
I'm looking at the actual Money Masters video now. It's ridiculously long and even worse than Money as Debt! If you can get past my first criticism, we could be here for weeks with all the crazy junk.