Re: Re: Re: Monetary deflation

[jdevine]

> Of course, the Fed could have tried to slow the bubble by raising margin 
>requirements. 
It's not clear this would have  worked, but then again, the Fed never tried it.<

right, but the officially-"independent" Fed isn't independent of pressure from the
financial interests, who hate that kind of thing. It's only independent from democratic
control.




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Re: Re: Re: Monetary deflation

[Ellen Frank]

Of course, the Fed could have tried to slow the bubble by 
raising margin requirements.  It's not clear this would have
worked, but then again, the Fed never tried it.

Jim wrote:
>
>I didn't finish my thought here. The Fed had a hard job in this
>situation, 
>which involved a private-sector-led speculative bubble which included not 
>just financial and other asset markets but also "high tech" industries,
>all 
>financed with inflows of foreign funds (corresponding to the current 
>account deficit and increasing US indebtedness to the rest of the world). 
>If it had kept interest rates low, it might have encouraged the bubble 
>economy to keep on growing. It instead raised rates, encouraged the
>popping 
>of the bubble, with possible Japan-type effects (a decade of stagnation)
>or 
>worse. Ironically, raising US rates encouraged the inflow of funds (along 
>with the safe-haven effect), fueling the bubble. In these terms, 
>Greenspan's job is really difficult.
>
>

Re: Re: RE: Re: Monetary deflation

[Ellen Frank]

[EMAIL PROTECTED] writes:
>At 11:56 AM 3/19/01 -0800, you wrote:
>>If you could explain to me how monetary deflation can arise from private
>>market relations and not the actions of a central bank(s), I would be
>very
>>interested.
>
How could a monetary deflation not arise from "private market relations"
in the absence of a central bank?  What exactly would a monetary system
founded
on "private market relations" look like?  Presumably, without a central
bank
or other issuer of fiat money, private bank notes would circulate as money.
A few nasty bankruptcies and, bam, debt-deflation.  This happened all the
time
in the US in the 1800s.  

A fundamental fallacy of neo-classical economics and its poltical
corollary, 
libertarianism, is that in a state of nature, markets and property
relations
would spring up, but governments would not.  In fact, any reading of
history suggests the opposite.  Governments of all types precede
markets.  Further, the expansion of markets since the 1800s has been
accompanied every step of the way by the expansion of government
activity.  Why do you think central banks were created anyway?


Ellen Frank
>
>

Re: RE: Re: Monetary deflation

[Jim Devine]

At 11:56 AM 3/19/01 -0800, you wrote:
>If you could explain to me how monetary deflation can arise from private
>market relations and not the actions of a central bank(s), I would be very
>interested.

There is no such thing as "private market relations." Without the Fed and 
other government agencies, private market relations -- which encourage 
opportunistic greed of the worst kind -- would degenerate into a Hobbesian 
war of each against all.

Further, though the Fed and similar government agencies clearly make 
mistakes, they do so under the profound influence of those engaged in 
"private market relations," since the latter have the most political power 
on issues economic unless there is a movement of labor, etc., to counteract 
that influence.

An historical illustration: In the early 1930s, for example, the Fed 
allowed the U.S. money supply to fall drastically. Milton Friedman and 
similar MFs lambaste the Fed for this, basically saying that "if I, Milton 
Friedman, had been running the show, the 'great contraction' of the money 
supply would never have happened, so there wouldn't have been a great 
depression and the resultant rise in statism."

But this is nonsense. At the time, those in "private market relations," 
i.e., business, had tremendous amounts of political power. It was a very 
conservative _pro-business_ position to tie the dollar to gold. In fact, 
many laissez-faire-oriented "supply-siders" think that the gold standard 
should be re-established -- even though the clinging to the gold standard 
was a major reason for the Fed's deflationary policies. Further, it was a 
_pro-business_ position to "liquidate labor, liquidate stocks, liquidate 
the farmers, liquidate real estate" (Treasury Secretary Andrew Mellon), 
i.e., to encourage recession. It was also the _pro-business_ position to 
push the income distribution toward greater and greater degrees of 
inequality during the 1920s, including big "supply-side" tax cuts which 
reinforced the trend toward inequality and high profits. It was also the 
_pro-business_ position to push the government to raise taxes in the early 
1930s, since it was the pro-business position that the government should 
never, ever, run deficits. Those in "private market relations" were running 
the show, suffered from _hubris_, and blew it. Of course, they then 
struggled to make sure that the working people paid the cost of their blunders.

Finally, the money supply and the cost of credit do not simply respond to 
Fed policy. When the pro-business policies led to the collapse of the US 
banking system, that led to a shrinkage of the money supply (and a rise in 
the cost of financial services) beyond what the Fed was trying to do.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

Re: RE: Re: Monetary deflation

[michael perelman]

David, I tried to give an explanation in a book, The Natural Instability
of Markets.

David Shemano wrote:

> 
> If you could explain to me how monetary deflation can arise from private
> market relations and not the actions of a central bank(s), I would be very
> interested.
> 
> David Shemano

-- 

Michael Perelman
Economics Department
California State University
Chico, CA 95929
 
Tel. 530-898-5321
E-Mail [EMAIL PROTECTED]

Re: RE: Re: Monetary deflation

[Doug Henwood]

David Shemano wrote:

>Doug Henwood wrote:
>
>--
>>For those interested, my supply-side gurus are taking the position that the
>>world economy is suffering a severe monetary deflation, mainly caused by
>>errors at the Fed.
>
>...because, as every supply-sider knows (and every monetarist too -
>this is one point they agree on), problems in capitalism only emerge
>from bad state policy, never from within private market relations.
>
>-
>
>If you could explain to me how monetary deflation can arise from private
>market relations and not the actions of a central bank(s), I would be very
>interested.

Well, just to take one convenient example, in recent years the U.S. 
enjoyed one of the great speculative manias in human history, with 
wild stock valuations leading to the squandering of billions on 
ludicrous IPOs, innocent civilians trusting their retirement 
portfolios to utterly inappropriate mutual funds, corps and 
households borrowing recklessly (partly emboldened by the vigorous 
stock market and the ludicrous New Economy discourse), etc. You could 
argue that the "Greenspan put" laid a public sector foundation under 
the bubble, but generally, blaming the central bankers conveniently 
gets the private actors off the hook.

Doug

RE: RE: Re: Monetary deflation

[Lisa & Ian Murray]

> If you could explain to me how monetary deflation can arise from private
> market relations and not the actions of a central bank(s), I would be very
> interested.
> 
> David Shemano
***



Ian