| > I have several clues about what I am talking about, and I haven't needed to impugn your knowledge of this subject to do it. Please do me the courtesy of arguing with facts, rather than dismissing my claims with the rhetoric of ad hominems and appeals to authority. Sure. That is because you don't. > Most of the time, an unqualified "deflation" means "a trend of declining retail prices, as measured by non-adjusted currency." And I know why economists in the employ of monetary authorities hate it. It means that there was a missed opportunity for that authority to steal more from the economy by inflating the money supply at a faster rate. > This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%. This has transformed global commerce from an ever-rising tide that floats all boats, into one where only the yachts float higher as the canoes, coracles, skiffs, and dinghies get swamped. https://www.cibcwg.com/c/document_library/get_file?uuid=1308... 7.7% according to this one is "real returns" from 1913-2012. http://efinance.org.cn/cn/fm/The%20Equity%20Premium%20Stock%... > Over the period from 1802
through 1990, equity has
provided returns superior
to those on fixed income
investments, gold or commodities.
Most strikingly,
the real rate of return on
equity held remarkably
constant over this period,
while the real return on
fixed income assets declined
dramatically. Over
the subperiods 1802-70,
1871-1925 and 1926-90,
the real compound annual
returns on equity were 5.7,
6.6 and 6.4 per cent, but
the real returns on shortterm
government bonds
dropped from 5.1 to 3.1
and, finally, 0.5 per cent. Real returns are basically the same before and after the Federal Reserve and sure as hell hasn't had a 1.5% change to the negative in real returns. Real returns were higher after the Federal Reserve was created over an extended period of time. You can't really go earlier than 1802 because there just isn't enough records available. So where is this magical 1.5% real return loss coming from? So please, provide a 50+ year period that doesn't include the Federal Reserve, in which your statement beats the market under the Federal Reserve. I'm willing to even eat the Great Depression since you think its caused by the Federal Reserve. I'm even willing to let you pick a period about half the size! So all you need is to show a 9.2% return in the US for 51+ years. Can you do it? [Hint: You can't.] > I am claiming that the problems caused by central banking are worse than the those supposedly solved by central banking. Some people that are far more knowledgeable about economics than I have claimed that the greatest single cause of the Great Depression was the monetary policy of the Federal Reserve. Okay, well I'm willing to eat the Great Depression in either of the time periods I offered you. Hell, I'm willing to start in 1926, during the run up to the Great Depression, and let you cherry pick a period that is over a decade smaller than mine. http://www.merrilledge.com/Publish/Content/application/pdf/G... > 1879: US stocks record their best year ever, returning 57%* Hell, take Jan 1 1871 to Dec 31st 1912 http://www.moneychimp.com/features/market_cagr.htm 7.64% / 8.59%; real returns Jan 1926 to Dec 31st 2009 [hell, lets take near a market top to near a market bottom over 80 years!] 6.63% / 8.72%; real returns. That is a 1.01% gap, not a 1.5% gap. So I really have no clue what time periods you use to get a 1.5% gap and I'm super curious. Hell, I took the worst possible timeframe I could think of and gave you the best year on record. So please enlighten me to this special time frame where you find this 1.5% gap. http://fee.org/freeman/the-great-depression-according-to-mil... > The Great Depression created a widespread misconception that market economies are inherently unstable and must be managed by the government to avoid large macreconomic fluctuations, that is, business cycles. This view persists to this day despite the more than 40 years since Milton Friedman and Anna Jacobson Schwartz showed convincingly that the Federal Reserve’s monetary policies were largely to blame for the severity of the Great Depression. In 2002 Ben Bernanke (then a Federal Reserve governor, today the chairman of the Board of Governors) made this startling admission in a speech given in honor of Friedman’s 90th birthday: “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry.” Yeah, that is what you mean? > Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. The Fed could have offset the decrease created by bank failures by engaging in bond purchases, but it did not. As Milton and Rose Friedman wrote in Free to Choose: > The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money. Unfortunately, the Fed’s actions were hesitant and small. In the main, it stood idly by and let the crisis take its course—a pattern of behavior that was to be repeated again and again during the next two years. The problem with using that as part of argument is that. Yes, the single greatest cause of the Great Depression was the monetary policy of the Federal Reserve precisely because they do what you advise and let nature take its course. |
The taking by inflation does not impact investment returns that are adjusted by inflation. That's the whole point of adjusting for monetary inflation. When you take out that inflation, you are comparing the equities against all the other uses of that money that are also adjusted for inflation. The loss from inflation becomes invisible, because everyone is affected by the same amount of it. The impact can still be seen in the change of ownership, from those who held real assets and old money to those who printed and spent the new money.
The 1.5% is the increase in total productivity. It comes from every laborer on the planet using, on average, slightly better tools every year than were available the previous year. That's an estimated average over a very long period of time--about 500 years. The average worker today can produce about more of whatever it is they make than the average worker in 1500, and there are a lot more workers to do it all. The rate of productivity increase has itself been increasing, thanks to universally useful inventions like steam engines, modern steel, and computers. So in the last century, the average annual increase in productivity has been closer to 4%.
The Bank of England was founded in 1694, as the first national central bank. Others followed. But it wasn't until around 1870 that it, and other national central banks, decided that they could lend in excess of commodity reserves in response to financial crises. This expanded the monetary power of central banks. It wasn't really until Bretton Woods that they started to really break free of the gold standard (coincidentally increasing in total global supply at about 1.5% per year). Had countries remained on the gold standard, the money supply could only increase by 1.5% while national productivity was increasing at 0% to 10%. Monetary crises where the amount of new money did not match the increase in available goods and services would have become increasingly common. So they started fudging the numbers, and the Fed was the lucky one that got to issue the reserve currency, so they could cheat more than any other central bank.
This all fell apart in 1971, when Nixon ended redemption in gold. The Fed had abused its dominant position from Bretton Woods too much, and other banks were calling them on it. So Nixon gave them the finger, and told them to sit on it. Nice guy. After the gold window closed for good, central banks were now free to inflate their money supplies at a greater rate, with the only check being how fast the other central banks were inflating, rather than how fast new gold could be mined and vaulted. And not coincidentally, this is when incomes started stagnating for the middle class.
Those historical returns on investments in equities are completely orthogonal to what I am talking about. The productivity dividend should, for the most part, be distributed to those who invest in research and development, and those who buy capital goods based on new technology. So, pretty much everyone, in a wide variety of businesses, across all industries. Everybody gets x% more stuff for the same amount of work. The central banks, by inflating the money supply by y%, takes some of those gains. They are not destroying the additional production. They are taking it. That percentage is not being subtracted. It is going to a different recipient. When y equals x, everyone who works labors just as hard for the same amount of stuff, and some people get a lot of stuff for no work at all. Free lunch.
But monetary inflation is a large and unwieldy hammer. You can't fine tune it for different industries. Businesses that can gain more productivity than x% can actually come out ahead. Those that cannot find it more difficult to stay in business. Tech companies often manage to pull off greater gains.
That's all this is. The power to control the money supply is the power to take a percentage of the entire economy circulating your currency. If you believe that central banks and their bank clients do not exercise that power for their own gains, at the expense of everyone else, you are a fool.
Persistent inflation of a fiat currency monetary base puts everyone on a technology treadmill, where if you do not increase your productivity faster than everyone else, you fall off. And the whole time, the spinning wheels are powering some banker's margarita mixer.