#8: MILTON FRIEDMAN'S BIG MISTAKE

In this video segment Mr. Fed describes the historic rise to prominence of the Kansas City Branch of the Federal Reserve due to the failure of Milton Friedman's work to accurately predict the consequences of banking deregulation. The most prominent Kansas City exponent of this rebuttal to Friedman was Wayne Angell who became Vice Chairman of the FOMC under Paul Volcker.




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[marcusgrimmm]

I'm speaking of the present situation, you would agree this is not 1982? My position is that I hate economics but in light of this crisis I hate not knowing whats going on even more, so I'm trying to hear all sides of this debate to see if its going to be hyperinflation or deflation. Ive been watching a fellow by the name of Peter Schiff and he's opposite your position. Your making some good points as well

[Crashof2008]

You need to look at the track record of the clowns predicting imminent hyperinflation. Why do they refuse to discuss the 1982 monetary base explosion which still has had ZERO inflationary effect 26 years later?

Japan's monetary expansion in the last 15 years has been staggering. Yet they will soon fall off a cliff, perhaps into hyperDEflation.

Why aren't these absysmal failures discussed?

Don't read the WSJ or the NYT or watch CNBC. Read the FT.

[marcusgrimmm]

Unfortunately it looks like we will all find out who is right

[Crashof2008]

So your position is that we still face a massive hyperinflationary risk today because of the surge in the aggregates that occurred in 1982, precisely as Friedman shouted was imminent at the time?

Your position is that the jury is still out as to whether that 1982 surge in the aggregates was sufficient to guarantee IMMINENT hyperinflation, as Friedman shouted in 1982 and 1983?

Friedman claimed it would take one year max. It has been 26 years.

I want to be sure I understand your position.

[lorax2013]

I disagree that the gold bugs are "losing money right and left" - they have done better than basically any other asset class over the last 5 or 10 yrs. Sure, the Fed doesn't want hyperinflation, they seem to want an average of about 10% true inflation per year (growth in M3). If they had any less inflation, I imagine we'd be unable to service our growing massive debt as the rest of the world catches onto our scam. The danger is that everyone will wake up and realize their currency is just paper.

[Crashof2008]

You need to understand what you are writing. Let's say the world "wakes up" wants to get out of the dollar.

What would they do? Think it through. Ponder. Stop speaking from scripts.

They would sell government bonds en masse. Yes?

Say the Chinese dump 300 billion in one day. An all out attack.

What happens?

Interest rates SOAR.

If Interest rates shot up to 15% tomorrow morning, would that encourage spending?

Of course not. It would make the Depression worse. It is DEFLATIONARY.

[lorax2013]

It is an interesting question, what would happen if the Chinese dumped half their bonds tomorrow. If you think it would be deflationary, then I ask you, why don't the Chinese do it? Dump maybe 20% of their US bonds and the remaining 80% is suddenly worth a lot more according to the script you are reading. The reality is that it would not be deflationary, it would risk a dollar collapse and the Chinese know it.

[jmborchers1974]

There's very few people who have it right that we are likely to see hyper-deflation. You are one of them.

[bosshoggett]

Might be a Fed expert, but not an economist, and neither are the feds.

[Porojukaha]

I hate to wake you from your delusion. But the only way you can have deflatin is if the economy begins growing faster than the supply of money. Since the economy is in decline, a reduction in the money supply would not cause deflation. It would simply bring prices back down where they should be. The difference with the great depression is that it was the contraction of the money supply that caused the depression. Government intevention then, as now, made the problem worse.

[AroundSun]

Boo. You remind me of a member of the Businessmen's Monetary Reform League. Keep believing in Messiahs and Angels. I am glad that you don't mind unelected private bankers playing god with the economy and world's reserve currency Are you a Krugmanite? Just curious.

[chimetrooper]

Actually these ones are the only chips that are still the same quantity today that they were in 1988. You are so right about most products getting more expensive and their quantity by weight declining. Amazing how many people didn't seem to notice this happening and still don't. I do agree with Prof Friedman that inflation is largely a monetary phenomenon. The exception to this seems to be oil for various reasons. Any comments on this one? This one has me stumped.

[passantgardant]

@chimetrooper Not only is the package of potato chips 3x more expensive, it's also 30% smaller.

[passantgardant]

You think the Fed has any control over it? It's a foregone conclusion. The fiscal situation ensures it (passantgardant/blog/59-mandat­ory-spending-exceeds-income). Nothing is different this time. It's the same as every other fiat currency in history. The 10-year gold trend (passantgardant/blog/62-gold-h­ugs-exponential-trend) is not about to change because it is tied directly to monetary expansion, which continues and is accelerating. The helicopters are flying!

[chimetrooper]

@Crashof2008 in the end inflation can be observed directly at the store, eg in 1988 the price of a certain packet of potato chips in my supermarket was $0.50 cents, it's now $1.40 in 2011. I personally have no faith in official inflation or unemployment stats because bureacrats `update' they way they are calculated. In Australia we no longer have `inflation' as a measure, we have`headline inflation' and `underlying inflation' You will be counted as employed if you have 1 hour of work per week!

[MsZeitgeist85]

@Crashof2008 I have heard from alot of Friedman followers that always talk about the crash of 1920 and how we came out of that quickley with no intervention. They say it was proof that the free maket is self regulatory and it always knows best.

I can't find out much about the crash ot 1920. How do you explain that crash?

[punchyR]

Inflation is up over 20% since 2005. Fuck the Fed, why dont we audit?