Central banks bought $1.5T of assets in first 4 months of 2017

[loveshiscountry]

Beanie Babies. Something becomes popular so everybody thinks the want one. People think "hey, I can make money on that too!" so they start buying them up so they can sell them for more in the future. Eventually everybody who might want a Beanie Baby has one. Bubbles are more emotional things. http://fortune.com/2015/03/11/beanie...ilure-lessons/

Or the Tulip Bubble.

Can government fiscal actions cause bubbles? Yes. Are they the only cause? No. Do government actions always lead to bubbles? If so, then why are bubbles constrained to certain sectors- not the entire economy? Like the housing bubble or the stock market bubble or the gold bubbles?

Can I get a bank loan for beanie babies even though I dont normally qualify? I qualify for $200 but can we make it $20000? It's just a couple of zeros and zeros dont mean anything.

[nikcers]

Beanie Babies. Something becomes popular so everybody thinks the want one. People think "hey, I can make money on that too!" so they start buying them up so they can sell them for more in the future. Eventually everybody who might want a Beanie Baby has one. Bubbles are more emotional things. http://fortune.com/2015/03/11/beanie...ilure-lessons/

Or the Tulip Bubble.

Can government fiscal actions cause bubbles? Yes. Are they the only cause? No. Do government actions always lead to bubbles? If so, then why are bubbles constrained to certain sectors- not the entire economy? Like the housing bubble or the stock market bubble or the gold bubbles?

You think the wars our government starts have nothing to do with the economy? You think PTSD and the cost of war isn't a drain on the economy?

[r3volution 3.0]

Or the Tulip Bubble.

https://mises.org/library/truth-about-tulipmania

Can government fiscal actions cause bubbles? Yes. Are they the only cause? No. Do government actions always lead to bubbles? If so, then why are bubbles constrained to certain sectors- not the entire economy? Like the housing bubble or the stock market bubble or the gold bubbles?

Bubbles are necessarily "constrained to certain sectors." That's the whole point.

The state cannot will new resources into existence.

Resources are redirected from one sector (that which better satisfies consumer demand) to another (that which profits politicians/lobbies).

[Dr.No.]

Spending was quite flat, except during wartime. A number of boom-bust cycles were a result of increased and then decreased war spending. Others were a result of monetary expansion. A central bank existed in the US from 1781 to 1811, then again from 1816 to 1836. The National Banking System existed from the end of the civil war until the creation of the Fed in 1913. The money supply was more rigid in the 19th century than the 20th, thanks to the gold standard, but not as rigid as you might think. Monetary expansions (followed by the inevitable contraction) occurred regularly, with government frequently suspending specie payments to help the banks. Rothbard actually wrote his doctoral dissertation on the Panic of 1819, available online. I would also recommend his History of Money and Banking in the United States, for a thorough overview of 19th century banking history.

The thing is, isn't the requirement that banks pay specie payments itself a regulation? That's a part of Rothbard's argument that doesn't make sense to me. He had this concept of contractual rights of depositors that banks were allowed to violate because the federal government didn't enforce those rights. But wouldn't the government forcing banks to maintain some arbitrary rights of depositors itself a manipulation of the market?

Moreover, the effective money supply is controlled by the banks. Government's can, of course, put policies into place that encourage certain activity, but it is the banks that expand the money supply through offering credit; if anything, governments cap expansion. Indeed, from 1929 to 2007, other than for two brief periods in the 70s and 90s, banks had expanded credit to the maximum amount that regulations would allow. Again, no one was forcing the banks to expand credit this much; they were just being prevented from expanding it even more.

Lets say all of that is not true and government banking and fiscal policy caused the expansions and inevitable contractions. Wouldn't a rational market have seen it coming? Wouldn't they have anticipated how the War of 1812 would have affected monetary policy, and hence the markets? Wouldn't rational markets factor in "artificial" expansions and contractions?

That's still true, always and everywhere. I don't know how you think the state can magically conjure up resources.

All wealth it consumes or redistributes must come from the private sector.

Terminology is important.

Neither the private sector nor the public sector can really create resources. Resources are just there...human resources, natural resources, which are combined together to create manufactured resources, which are then used to create wealth. The public sector can do that, the private sector can do that. The private sector just tends to be much more efficient at doing it...except in a few well-established cases.

But, given that the private sector is not always rational, and will not always use the resources available (for example, when their balance sheets are hurting and they can't take any more projects), the public sector can step in and utilize those resources. The US government has no financial constraints and is only constrained by the resources they can purchase without causing inflation (as I've mentioned above).

To clarify, any resources the public sector uses, the private sector cannot. But, in terms of financial wealth, the US government does not need to get it from the private sector. The Federal government is the issuer of the currency. They control the printing press. Unless they tie themselves in knots, the US government can never go bankrupt. The only constraint, again, is a real constraint....as they print money and buy resources, there will be fewer resources available to the private sector. To the extent that the private sector and public sector bid over resources, you will get inflation, which the government can only extinguish via taxation, which reduces the private sector's ability to bid on resources.

The Fed did very little. The US money supply shrank in 1920-21, barely rose 1921-1922, and did not reach pre-recession levels until a year after the recession had ended. Meanwhile, from 1920 to 1922, spending was cut 40%. That taxes were slightly increased is unimportant (the real burden is spending; by increasing taxes, all the the government was doing was shifting the [much reduced] burden from bond investors or dollars holders to taxpayers).

You cannot, on one hand, complain about how banking affected the economy in the 1800s and then say that such huge ships in interest rates had no effect on the situations in the 1920s...

Firstly, the Federal Reserve was the lender of last resort. That alone had an effect. The number of bills discounted by the central bank soared until the end of 1920:
http://www.freebanking.org/wp-conten...920sassets.jpg

Secondly, M2 (best supply of money we have for the time), fell about 6% between 1920-21 and rose by about 7% between 1921-1922. In 1921, the funds rate went from 7% to 4.5-5% by the end of the year. The recovery started around July of 1921, so the rate cuts did precede recovery. Not to mention that the Federal Reserve did proto-QE when it tripled its holding of US bonds between 1921-1922.

I think I've already explained the problem with this line of reasoning.

No, you'd see different demand. Resources being appropriated by the state and misspent would be returned to their owners.

The transition process would involve frictional unemployment (i.e. a brief, steep, recession/depression ala 1921).

I think we just disagree on how perfect the market us. Plus, I don't think you understand how in the current system, the federal government is a source of net financial wealth and the domestic private sector is not.

Let me stop you there. Once again, there would be no idle resources in the first place but for the state preventing markets from clearing.

Take the English situation in the 20s, which was Keynes' laboratory.

Why was there chronic unemployment? Certain industries were engorged from wartime spending, which was naturally cut upon the return of peace. Normally, in an unfettered market, there would have been a short, sharp depression liquidating those industries and reallocating their resources (e.g. guns --> shoes), as occurred in the US. But in Britain, the labor market was extremely rigid thanks to state-sponsored labor unions and an elaborate unemployment insurance program. On top of that, after 1925, Britain tried to go back to gold at the old pre-war par without allowing a deflation and while actually printing more money! Naturally, wages barely dropped, and so unemployment ensued. Keynes took "wages sticky downward" as an article of faith, rather than an effect of the British government's policies of that era, and proposed solving the problem by lowering real wages through inflation. It was a bad solution to an easily avoidable problem, as it remains today.

I don't think we can come to an agreement. I (as Zippy has) can point you to the many times markets have failed, and you'll just always blame the government. No matter how tiny or large, it is always the government's fault. Reversely, anything positive that happens is always due to markets, and never the government.

Even if one doesn't understand the technical arguments you guys are making, all you need to know is that it defies basic logic that you can print and borrow your way to prosperity. If there was no downside every country would be rich.

1) Not every country has fiat currency with a floating exchange rate
2) Not every country has the productive capacity of the United States.

For example, India has a fiat currency with a floating exchange rate (although not a risk-free rate; we will ignore that). But its people just aren't productive enough. India doesn't have enough productive resources to be "rich" yet. As they run larger and larger deficits, they will just get inflation as the private sector "runs out" of available productive assets.