A First Lesson in Econometrics (1970) [pdf]

Honestly, the first lesson in economics should be that there is no such thing as endless exponential growth.

This is a nice video that gets the point across: https://youtu.be/UI2Zs3QfzEI

Fair enough hahaha. I do think there's some room for common ground here.

1. Yes, absolutely. It would be due to a change in supply. Price controls, taxes, regulation, etc affect the price only insomuch as they affect supply and demand. It's a matter of definition: it's just as true in a market economy as it is in a non-market economy, or under market failure. Whether it's a useful framework is a different matter!

2a. So, interest rates are indeed determined by the market, with respect to open market operations right? The Fed buys and sells with a target in mind, but they certainly can, as you point out, fail to hit their target.

2b. This was a bit of unfortunate jargon: demand for "money" specifically means cash/cash equivalents relative to other assets like stocks/gold/real estate. It's not referring to wealth, although I do think the desire there isn't infinite: biological limits/post scarcity.

2c. And "demand" for money refers to the whole of the demand curve (and shifts in the whole of the curve). That is, how much of your portfolio do you want to hold in cash/equivalents at a given interest rate?

2d. Fed open market operations do target the whole of the economy: it's a ham fisted approach. Inflation affects groceries and gas, just as much as bank liquidity and such.

3. So, relative price change isn't inflation by definition, and market expectations of the interest rate path are priced in. Of course, there are plenty of relative price changes alongside inflation, but there's a lot more to the economy beyond open market operations. The Fed isn't able to specifically target say apples over oranges, hence ham fisted.

4. Sure, broad aggregates like NGDP don't include inequality or climate change, but that's a good thing because the Fed's job is limited to keeping aggregate demand (NGDP) on track. Of course there's a lot more to the economy, but that's beyond the realm of Fed open market operations. That is, I don't think the Fed is the right place to look for solutions.

5a. So money neutrality only says: a permanent 1 time increase to the money supply doesn't affect real GDP.

5b. Again, more jargon: "long run" is however long it takes for thing(s) to adjust (whatever it is: wages, rates, output, etc), and "short run" is just short of that. So as a unit of time, it depends on the good as well as real world conditions. The short run can go forever, market failure maybe. The short run can be zero, when things go according to market expectations and everything's already been priced in.

Sorry, a lot of that's non sequitur. But that's my point: I think the mainstream is a coherent and useful story, but it's not relevant in this context, hence total nonsense. To the extent that there's an upward trend in inefficient businesses or 'rich get richer, poor get poorer', I don't see how open market operations can be the culprit.

But yeah, I don't necessarily disagree with your overall impression of the Fed hahaha.

Austerity does not work with the current money system because any deflationary effect of paying debts back leads to currency speculation.

Every dollar is like a capillary in your body. Taking money out of circulating is equivalent to blocking the capillary.

When you do austerity it's like getting multiple simultaneous heart attacks. The Austrian economists say just deal with the pain but I have a fairer proposal. Tax cash at 6%, then you can pay off debts. Anyone who wants to save can go to a bank and lend out their money at 0% or above.

>2. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks?

The unsettling answer is that you would lose your job if they didn't do that and I don't mean because the chaos a bank collapse causes. No, I just mean that the money in circulation would dry up so fast, your employer won't have any money to pay you.

>4. A mockery of a feudal economy in a way. And this is where we are heading.

It's a feudal economy from the start, it's just that early on, most of the money is circulating in the hands of workers and once it stops it has to be borrowed from those that take it out of circulation.

>5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision.

Thanks, you are absolutely right. The problem, however, aren't the politicians, they have inherited a system designed to collapse on its own. It shouldn't be possible to take money out of circulation. Hyperinflation is effectively a problem of forced indebtedness. If the politicians had the option of refusing debt they would have taken it a long time ago.

As I said before, cash guarantees you a 0% yield on your investment, therefore money can be taken out of circulation with no loss to yourself but huge losses to people who are dependent on circulating money. They (including politicians) need the circulating money now, so they accept loan conditions that are not compatible with current market conditions.

The system will collapse one day, so why not let it collapse a few years later? It's only logical. Meanwhile anyone who wants interest rates to go up wants the system to collapse earlier than necessary.

>It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day.

As I already said, that money too will be taken out of circulation one day.

>By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation.

If you think the Fed is intervening, why are you not complaining about the people taking money out of circulation that force the Fed to do stupid things? Why does that not count as massive market intervention? If you had a 6% annual tax on cash the interest rate would have dropped to 0% in 2000 and the money supply wouldn't have to grow as much.

The problem with economics is that people make the assumption that money is primarily or even exclusively a medium of exchange. It's only since Keynes that everyone understood that it's not really true. However, if you were to tax cash with a 6% annual tax then the old classical period of economics would be quite relevant again.