The federal funds rate and the interest on 3-month Treasury bills both just hit ZERO percent. This means banks and the government are borrowing money for free. Yet demand for the T-bills at auction was four times the available supply! Who is clamoring to buy the debt of the world’s most insolvent debtor for no return at all — and why?


53 Responses

  1. Dan,

    Your comments are based on a theory of economics that is sometimes called “The Chicago School.” Named after the University of Chicago, ie, Milton Friedman. His theories have dominated most economic debate, especially in the political arena, for the past two or three decades.

    However, his theories are simply wrong. They are now being proved wrong. We are in this mess because of his lopsided “supply side” theories. His theories work, sort of, on paper. They fail, however, because people, especially very greedy rich people, do not act like mathematical formulas. They cheat and steal. There is no real “invisable hand” because that invisable hand has been bought.

    Do a little of your own research. Read, for instance, Michael Hudson. You will soon learn there are highly educated, fully acredited economists that agree with Ellen.

  2. Dan,

    And, no, if my suggestions were actually implemented, we would not head into a depression. Far from it. The opposite would occur.

    There is no foundational reason for a depression, or recession. We have everything needed for a robust economy: plenty of natural resources, adequate labor supply, infratructure, superstructure, market, good weather, etc.

    What is the problem then? All the problems are man-made. We have a series of laws that benifit the already rich, ie mandatory insurance, liscensing requirements, capital restrictions, protected near monopolies, etc. And, the other problem, of course, is that the wealthy own some umpteen trillion of notes and mortgages and bonds that the massses cannot even maintain the interest on. Our economy is stymied because the average worker can pay only the interest on the debt he owes, and his taxes, which fo to pay more interest.

    If you want to study a mathematical formula, study the theory (fact) of “magical compound interest.” What that theory teaches is that our massive debt will not be repaid, not ever. It will be cancelled, one way or another. It will be forgiven, repudiated, or hyper-inflated away.

  3. Randall,

    When the debt will be hyper-inflated away, the game will be over anyway. look at zimbabwe.

    My comments are actually mostly based on Austrian Economics and not Chicago, Although there is really only good or bad economics. But economics is highly politicized.

    It is true that most of my comments to you, Milton Friedman would agree with. I certainly don’t think that any of the “micro” economics of Chicago/friedman is or will be proven wrong, however some of the monetary theories of friedman I think are wrong. It is a tragedy what politics has done to the field of economics.

    If the “invisible hand” is not at work, it is only because of Government intervention not allowing it to work. All of the problems you are describing are the result of interfering with the free market. A free market is based on pure voluntary exchange. In such an exchange, both parties alwasy expect ot make a gain, otherwise the exchange would not have taken place sicne the market is “free”. Anything else(non-voluntary) requires the use of physical force, that is, for one to gain at the expense of others, one has to force another into a non-voluntary exchange. Government holds the legal monopoly on the use of physical force. One needs government then, in order to achieve the kind of things you describe. And that is Government intervention! Once you understand what a free market is, you will see the absurdity of the claims to regulate it, or intervene in order to make it more fair, or to protect consumers, etc… When in fact, all of the unfairness is a direct result of Government.
    All that you are describing is the result of the harmful effects of Government. My responses to you were brief because I wanted to make a point, but believe me, they are based on sound economic theory.

  4. Dan
    All of your so called laws are based on assumptions from your side and they aren´t proved just by stating that they are laws. They are based on assumption such that the human being always is a rational selfish person that act in order to maximize his own profit. It has this strange concept that there´s always perfect information. It´s based on assumptions that humans naturauly compete and see eachother as competitors (in order to maximize their own profit) and not social beings striving to see individualism as something good that complement each each other: that humans have this unique ability to cooperate even though differences – that this is our greatest evolutionary advantage. But your “free market” (based on the above false assumptions among others ) is nothing but reducing humans to reptiles fighting for survival by killing it´s neighbor. Those at the top don´t have this naïve concept of how the market works, they don´t see each other as competitors, they see each other as highly social beings and they sit on the information (and control of) most of the markets, making the base assumption regarding perfect information totally ridiculous. This group preaches competition among those below in order to divide and conquer but stick together internally because they know how flawed and naïve the Austrian school is – they know that those who cooperates get´s an upper hand . Gold has been one this groups main tools in manipulating the so called “ free market”. The little thing called empiric proofs shows that this is the case (the tendency to throw out the reality when empirical evidence disprove the model is one of the economists most amusing behavior – there nothing wrong with the model, it´s something wrong the reality! – trow out the reality! Keep on discussing the platonic model even though it´s been proved having nothing to do with reality )

    So economy is strictly a social construct that human being set the rules and regulate and not some sort of quasi-natural law driven science. And that makes it far more bigger and any natural science since human beings can´t be reduced by the reductionist aproach economists use in their inferiority complex attempt to become a natural science. The rules of economy is either formed by and for the people or for and by the top that knows all about the advantages of cooperation – theres no magical “natural laws” working.

  5. It is the act of voluntary cooperations among free individuals, engaged in a mutual beneficial voluntary exchange, that gives rise to a “free market”.
    Yet, this is what you condemn?

    Anything else is not a free market! Anything else requires the use of physical force. To force one into an involutnary exchange requires compulsion, and the only way to achieve it is by physical force. In a free market, the use of physical force is prohibited, there fore every individual is free to choose and engage in trade according to his best judgement and ability. If an exchange takes place between two individuals in a free marekt, both expect to make a gain, or the exchange would not take place. Once you understand this, the inner contridictions of your comment become obvious. It is actually the free market that is based on voluntary cooperation, and the hampered market that forces one’s benefit at the expense of another.

    So it is not clear to me what exactly are you condemning or critisizing?
    Do you claim that a man engages in voluntary trade despite knowing he will be worst off after the trade? Is this what you refer to being irrational? Do you think a man , given the choice between two identical goods but different in price, may arbitrarily choose to pay higher price? Or do you think that such behavior is subject to arbitrary rules set by some elected body?

    I think that you have misunderstood “free markets”. Most people do. But you certainly misunderstand Austrian economics because unlike some of the mainstream “macro” economic theorists, Austrians do not believe “man” can fit equations. I mentione to you in the preious post, that I do not see modern “macro” theory as scientific.

    The “group that preaches competition among those below in order to divide and conquer” are not for free markets. If you are refering to the so called conservatives, they you are right. But just because they talk “free markets” doesn’t mean they practice it or even understand it.

  6. And where are your proofs that this is a “free market” built on “voluntary cooperations”? It´s just another assumption in yet another platonic model building. I don´t mind that you have visions and Utopian ideas – I have them myself. But I do mind when these ideas are seen as “science” built on irrefutable “laws”that are impossible to altered and not seen as ways of setting up man made rules based on social contracts that can be altered.

    You don´t see the contradiction in “voluntary cooperations” and in the same instance promoting competition? (or are there´s no competition in your model?) I also have the vision of a economy based on “voluntary cooperations” but for me there are contradictions with competition, greed, selfishness, – that´s a contradiction I can´t avoid by throwing away these parts sin my model and disregard it, hoping that some mysterious “invisible hand” will solve them if we just let the market free, for me thats an illusion. There will have to be social contracts regulating this as well as the problem concerning “perfect information”, which is another platonic idea.

    A social contract that accept these contradictions and strives to democratically maximize the benefits to all is what I suggest. Economy is in my view something that the democracy should mold, regulating the inevitable contradictions and preventing misuse. The idea that there´s a platonic economy that can¨t and shouldn´t be altered is for me a religion. We can and we should alter things so most people benefit and not wait until some platonic haven come from above.
    And like almost all religions there´s almost always someone at the top, gaining on people having these ideas.

  7. Michael,

    I don’t need proof. I just defined it! WHEN individuals decide to engage in mutual exchange, that is when a free market forms. No proof necessary, I had defined the conditions! anything else is not a free market.

    You have a problem with greed, selfisheness, competion, ..etc. Greed and selfishness do not contradict “voluntary cooperations” , as long as physical force, coercion, extortion, etc. are not used. What do you care if one is greedy, if that greed is not translated into theft or exploitation. On the contrary, a free market is the only system that allows others to benefit from that greed and selfishness. How is your selfish, greedy person going to make a profit by not providing a wanted service for someone else? for in order to make the exchange and thus profit, the other party must also seek that service and make his own gain. (that is the non-zero sum game result of the free market)

    What exactly are you complaining about? the profit motive? I am trying to understand. I think your problem is not with “free markets” but with human nature.

  8. Dan,

    To comment on some of your points:

    It should not make a difference who gets the privilige to print the money because in any case, that “privilige” can only come from government.

    EC Riegel in his book Private Enterprise Moneymakes the interesting point that the natural right to issue money belongs to the purchaser willing to offer an honest IOU. The privilege of printing money belongs neither to the government nor the private banks.

    Printing money always dilutes the purchasing power of your money. I believe your statement amounts to the quantity theory of money in its simplest form. I believe there is another theory known as the ‘real bills doctrine’ which is a finance-it-yourself system that existed before banks. I would argue that the money I create in the form of an IOU to put goods on my store shelf enhances the purchasing power of your money simply because it gives you a greater choice of goods. The quantity theory of money is not linear. Antale Fekete, the gold money advocate, critiques at great length certain Austrian positions, especially the notion that bank money should at all times be gold backed, arguing instead that real bills, because they are connected to real goods, are non-inflationary. seeAntal Fekete

    He is also putting the correct blame on the Fed and monetary policy on the “business cycle” and every financial disaster to this day. Ron Paul and the Austrians seem to focus on the inflationary aspect of fiat bank money and ignore the 900 pound gorilla of debt accumulation. Mike Montegne makes the point that the crisis is due to the fact that debt service is larger than money circulation. Inflation is undesirable but won’t collapse the economy like having overstressed debtors going under will.

    Ellen’s greenback dollar solution is not ideal butwould be a great improvement over the current piracy.

  9. Dan, the laissez-faire, Ayn Rand approach to economics is simply to simple of a theory to explain the actions of human beings. Most who believe in that approach do not believe in God. Is that true with you? That approach reduces the human to a collection of molecules that operates only in a cause and effect, determinist universe. That is simply wrong. There really is a God. We are far more complicated than your theory allows. We make choices. Sometimes bad choices. Choices not in our own best interest. Many of us are bad, and we have to be controlled. That is why we have governments, and laws.

  10. This conversation has nothing to do with God.

    No one is reducing anyone to anything. You justify control over people because they don’t always make the right choices for themselves. And who is going to make the right choice for them? Government? you gotta be kidding me.

    The individual has a right to his freedom! You seem to imply that you don’t believe in that. And you are willing to use force in order to get what you want.
    The consequences of your philosophy is a form of slavery. You do not believe in “voluntary exchange”, because people often miscalculate it’s outcome. But your alternative is what exactly? Arbitrary and collective rules for everyone by compulsion. Is that your idea of freedom? That sounds more like Orwellian “1984” freedom.

  11. Dan
    “I don’t need proof. I just defined it! WHEN individuals decide to engage in mutual exchange, that is when a free market forms. No proof necessary, I had defined the conditions! anything else is not a free market. “

    Which is Platonic thinking placed in a ideal world and hence more of a religious belief.

    “You have a problem with greed, selfisheness, competion, ..etc. Greed and selfishness do not contradict “voluntary cooperations” , as long as physical force, coercion, extortion, etc. are not used.”

    The same Platonic thinking as above. The belief that if greedy people meets and try to be as selfish as possible in a marketplace, only good things can be the result, benefiting all, is for me a rather naive way of thinking thats possible true in an Platonic ideal modell world.

    And on top of that you have the Platonic idea that theres always perfect information. All participants have equal and all information regarding all things concerning the transactions (and nobody would keep knowledge gaining their own cause for selfish reasons ).

    All of the above are religion and not science. And I have no problem with you having a religion but do have a problem with you thinking it’s science.

    My point is that economy is not a science but social constructs and rules that regulates how transactions are being made. For me that’s a god thing since we then can democratically influence the direction and content.

    But putting economic in a Platonic ideal room, pretending that theres nothing we can, should or could do, that the best thing we could do is leaving it into the mystical “invisible hand” carrying out wonders with economical “natural laws”, are as I already said, just religion.

  12. No one said anything about anything being “ideal”. You’ve offered nothing to contradict any of my claims, except lame excuses to continue to justify your ideology. You admit that you adhere to “subjective” analysis of human nature and specifically “economics”, yet you call me religious. How absurd, when it is evident that you have never made any effort to transcend any of your dogmatic beliefs. All your efforts to refute my claims have amounted to no more then: I just don’t accept it, it’s not a science…etc..
    We are going no where with this particular thread, so I suggest we both move on.

  13. Yes, I accept that economic is not a science but a belief system. For me economics is a part of the other social sciences (or should be at least). The good thing with social science is that it’s not stucked with rigid ideas but accept that humans are more then the total of his/hers parts – human activity can’t be reduced by the reductionist models that natural science use. I agree that there are good thoughts in Mises approach (as in anarchy , Mises left wing cousin) but by building an ideal world not dealing with contradictions and empirical evidents leads to a closed religious thinking. Not pretending they exist is very bothering in my point of view.

    How the economic economic belief system is built should be a part of a democratic process where people are able to change the rules and the social contract under pragmatic and democratic forms. By stating that economic is a ruled by “natural laws” and that we shouldn’t interfere with “nature” we close this democratic doors and let the same people as before rule behind those closed doors.

  14. What Dan has is not a scientific theory that can be tested by evidence and experiment but a belief system that the ability of the most aggressively self interested to control wealth and it concomitants of political and military power will naturally be balanced by other aggressors and free trade into the benign benefit of all. The whole thing is religious in the extreme and devoted to the notion that every “success” in the pursuit of wealth is a sign of divine or “natural law” favor. The truth is that there is and always has been a great many market activities that rely on murder , predation, and environmental degradation. If as Dan says, “all of the( market) unfairness is a direct result of Government.”, then all of the interventions of govt to protect health were unfair. Unfair to create protective laws to remedy black lung, asbestosis, radiation sickness, exploitation of children, unfair to free slaves, unfair to demand safe drugs, unfair to prevent toxic dumping, unfair to protect the safety of air and water.
    I am willing to admit that capitalist excesses are human excesses and governments can be monstrous, but the idea of some pure and perfect economic system that self regulates for everyone”s benefit is as credible as the idea that Christianity ends wars. One can always argue that Jesus teachings have never been tried, just as one can argue that free markets have never been tried. They won’t ever be. They are ideals that don’t translate into the human condition where people will kill for God or a dollar and people don’t often want free and open and competitive markets nearly as much as they want to win .

    What Ellen is talking about is not a negation of the benefits of free enterprise but an acknowledgment that its faults and benefits are a shared and politically negotiated contract that must be connected to the best working models of economic and social fairness where all have a good shot at life, liberty and happiness. Sunlight , they say, is the greatest disinfectant and transparency and accountability is certainly needed in our financial system now. The danger of Ellen’s ideas is that they would not be accompanied with a radical reform of government accountability and the corrupting power of Big business( the people opposed the bailout but Democrats and Republican lawmakers with direct ties to the financial institutions supported it), but her entire approach includes those issues and elucidates those dangers.

  15. I think “free markets” have been tried. They are called black markets.

    I have to agree with Soddy about the present state of economic “theory”. Before I heard of this man I was wondering if there was some sort of conservation of energy principal that drove the monetary system. At the present time it looks to me like a “perpetual motion machine” wet dream gone bad. It’s just a bunch of band aid mini solutions convoluted together. There is nothing coherent about it, perhaps by design.

    In “The Lost Science of Money” Zarlenga (sp?) sticks to a pratical approach: Use what has worked in the past. We have plenty of examples, especially in colonial America and elsewhere. Can these past systems overcome the exponentially growing greed in this country today? Hopefully a modified version like Ellen’s will.

  16. Josheph,

    “What Dan has is not a scientific theory that can be tested by evidence and experiment but a belief system ”

    I am as critical to the current system as anyone here!
    I am the first to point out that it is based on flawed “economics”, and that it benefits some at the expense of others. But it is not true that what I have to offer is a belief system. On the contrary, I have been trying to show you that there is a valid economic explanations to the chaos of our economy and particularly the monetary system. It is not a mathematical science such as physics or chemistry but it is based on scientific thought and logic that is consistent and coherent with real causal relationships.

    “system that the ability of the most aggressively self interested to control wealth”

    In a free society, wealth is created by individuals. It is not stolen or taken away from anyone. There is no wealth out there floating in the air that must be some how distributed fairly. There is no such thing. All wealth is created by someone, and therefore is owned by someone. There is nothing to control. The most able and self interested create the most wealth, but that is a good thing and not a bad thing, because that wealth is likely to be traded in the market, otherwise, there would be no incentive for the individual to create the wealth.

    I share your concern greatly, but I simply believe that you have it exactly backwards. It is the welfare and interventionist policies that make this evil reality come to life. Only when wealth is expropriated (taken away by force), it must be controlled and distributed, and that’s when the door opens for special interests, political greed, and corruption.

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