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Forum Post: bankers hate inflation becasue it redistributes wealth

Posted 1 year ago on Aug. 28, 2012, 10:43 a.m. EST by mayda (57)
This content is user submitted and not an official statement

The Fed is supposed to minimize unemployment as well as inflation, and before 1979, it tried to achieve some sort of balance between the two goals. But under Volcker and his successor, Alan Greenspan, it's simply aimed for low inflation, regardless of the effect that has on jobs. In fact, Greenspan has asked Congress to relieve the Fed of responsibility for keeping unemployment down. Inflation was high when Volcker took over-13% or so. To get it under control, he tightened the money supply. This brought on a monster recession, the biggest since World War II. Within a year, the prime rate shot up to the unheard-of level of 21.5% (compared to an average of 7.6% for the fourteen previous years). Unemployment peaked at just under 11%. According to author Robert Sherrill, Volcker stated, upon taking office, that "the standard of living for the average American has to decline." Sherrill says Volcker was recommended by David Rockefeller because "Wall Street and the international banking fraternity loved [Volcker]. They hated inflation-bankers don't like to be repaid in money that is softer than the money they lend, even if the softer money makes the economy hum-and they knew that Volcker was mean enough to destroy the economy to save the hardness of their dollars."

55 Comments

55 Comments


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[-] 3 points by kaiserw (211) 1 year ago

Your premise is completely wrong. Banks want inflation because they're levered 40-50 to 1. They need inflation to stay solvent. In addition the FED has the banks on an IV drip of direct monetary injections (reverse repos). QE 1 and 2 were all about INFLATION (increasing M1-M3) directly into the banks.

Volker in the 70s was fighting against the direct and immediate threat of hyperinflation. Velocity was tearing up, and he jacked rates to prevent a complete crash. That can't happen now. The government and every bank would implode. If you're a bank, inflation good, deflation - fatal.

[-] 2 points by mayda (57) 1 year ago

the history is accurate. bondholders and the wealthy hate inflation. this is still true today as you would now if you listen to the business channel. of course, the rich are not a monolithic block (as keynes and fdr prove) so there are many who are terrified of deflation. all you needed to do was to look at bernenke's face during the dark days. the qe's are certainly helping the banks but the fight over to inflate or deflaet is not much different than it was in the old days when mellon advised President Herbert Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." sounds like you have been listening to max keiser.

[-] 1 points by kaiserw (211) 1 year ago

You have absolutely no idea what you are talking about. Go to a library in the economics history department and pick ANY book off the shelf. I can't help you. Good luck.

Hoover was a dangerous idiot. He tried to engineer a recovery, further making things worse. FDR was even more insidious. Inflation is the illusion of a free lunch. Those that prosper from inflation and hyperinflation first and the most are always the bankers.

In a normalized system, banking is a dreary, marginally profitable endeavor. Banking becomes almost a zero sum game. Prosperity resides with the innovator, and the worker.

Why did people recommend liquidation? Well it worked in the 1890s, and every other time people are left to plan and act for themselves:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

[-] 1 points by TrevorMnemonic (5827) 1 year ago

Inflation is a scam.

The banks and corporations get more dollars and I get the same amount and they're worth less now.

What about that does this guy not understand?

[-] 1 points by kaiserw (211) 1 year ago

Another gem:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. – Ernest Hemingway

[-] 1 points by notaneoliberal (2269) 1 year ago

Hemingway was a good writer, and a drunk. An expert in economics? Not so much. Do you think that fame equates to expertise in all areas?

[-] 1 points by mayda (57) 1 year ago

not sure who you think you are but - "chill winston." you are not the only one who has read a book. if inflation is an illusion then explain how we have had huge inflation over the last 100 plus years and at the same time become a much richer country! read about the populists - they understood money and debt. read graeber "debt the first 5000 years" to get a head start on things. we agree that banking should be dreary but you know who helped to make it sexy. billy clinton and the same boys obama put in power. those dreary bankers of old hated inflation - you need to do some more reading - it is obvious - if you hold my 30 yr fixed rate mortgage i want inflation and you do not. you may be right that today goldman wants inflation but that is a whole new story don't you think? people did not recommend liquidation - mellon did - the ruling class did - those with huge piles of cash did. get a book and read about the populists - they understood that a growing population needed a growing money supply. why can't you? it worked well for whom??? are you kidding - why do you think those uneducated farmers almost led a successful revolution - one of the few real attempts at a 3rd party. because it was working well for them. wow - you are reading the wrong books. we agree that we are heading towards a final collapse but the currency system is the least of the problems - read michale hudson and mmt - educate yourself smart guy and lay off the max keiser - he is off base!

[-] 1 points by kaiserw (211) 1 year ago

Inflation at a steady, low rate (financial repression) can be worked around, and doesn't completely remove innovation and entrepreneurship. It's only when hyperinflation occurs, that the capital structure is wrecked, and everything comes to a screeching halt. So to answer your prosperity over the last 100 years- we did it in spite of the bad economic climate.

[-] 1 points by kaiserw (211) 1 year ago

I don't watch Max Keiser, his voice annoys me, and he's not as bright as he thinks he is.

Have you studied the historical processes of hyperinflation, and why it occurs? There's a good book "Monetary Regimes and Inflation" by Peter Bernholz - a Swiss. It's a great book on every recorded instance of hyperinflation, the seductiveness of inflation (all the effects in the beginning are good, all the bad effects are tail-loaded). Another awesome book, is Jen's O'Parsson's "Dying of Money". Dying of money was out of print for 30 years, but recently started a reprinting, but you can find both of them in PDF form on the interwebs for free if you search for about 1 minute.

The dreary bankers of old were principled in a way and we had a pseudo gold standard up till 71. I'd be interested to hear your criticism of Bernholz or Parsson. They lay it out very empirically, very logically, no BS.

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[-] 1 points by notaneoliberal (2269) 1 year ago

If you take look at history, and this article you will find that your statement is not accurate. During the post WW2 era, through the early 70s real wages increased for working people increased much faster than the moderate level of inflation. The standard of living was on the rise, Income was much less unequal. Then came Reagan. Volker tightened the money supply, at Reagans behest, and an immediate recession ensued, setting new post war records for unemployment. (10.8%, Dec 1982). Then the deregulation and the out sourcing began. Income disparity began to rise. The national debt tripled and for the first time since 1950, it increased as a % of GDP. http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#Postwar_prosperity:_1945.E2.80.931973

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[-] 1 points by notaneoliberal (2269) 1 year ago

Well it is true that wages are not keeping up now. In fact they are in decline.

[-] 1 points by mayda (57) 1 year ago

check in with alan greenspan, he will explain to you about worker insecurity

[-] 1 points by notaneoliberal (2269) 1 year ago

Yes, we can thank the Neolibs for that. And now we have Obama pushing the TPP. The Mother of All Free Trade Agreements.

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[-] 0 points by mayda (57) 1 year ago

never? - read some history - find out what a pizza cost in 1935 - we are a much richer country now. seems wages have kept up and then some - do you know the zen expression - "the wise boldly pick up a truth when they hear it - be quick or you will lose your head!"

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[-] -1 points by electron (-492) 1 year ago

We are richer now, but your argument does not show that this is because of inflation.

[-] 0 points by mayda (57) 1 year ago

no, of course not but it puts the lie to the idea that - "Wages never keep pace with inflation." it also makes it very hard for someone to agrue that inflation steals wealth. unless they are talking about the wealth of the rich. there are those here arguing that inflation is bad for the working class. those ideas were hammered out more than 100 years ago by the populists. they understood that a growing population needed a growing money supply, not one tied to gold. google "the cross of gold" and check it out. then you might want to read about the meaning behind the "wizard of oz." very interesting stuff!

[-] 1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

You are making a flaccid argument. Pun intended. Inflation steals wealth from the working class when wages do not keep pace with inflation by increased prices and devaluing of the dollar.

Inflation

[-] 1 points by mayda (57) 1 year ago

you must not have read the original post. an assertion is not an argument. you will need to try to counter what is said above to show where it is incorrect. did volker do what he set out to do. that is to bring down the standard of living of working americans in order to bring down inflation? seems to me that the reagan revolution was very successful in doing that because of volker. it is an interesting period of our history and very much misunderstood. "secrets of the temple" is the best book on the subject that i have read.

[-] 1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

did volker do what he set out to do. that is to bring down the standard of living of working americans in order to bring down inflation?

You're attempting to leap from deflation to depression again. You're also attempting to supplant another event in place of our current situation.

I guess what you are saying is that you support devaluing the dollar by going ahead with QE and printing more money.

Inflation

QE3

Related reading

[-] 1 points by mayda (57) 1 year ago

i am tempted to copy and paste what i wrote above but why waste the time. i have to go prepare dinner. you seem to be a one trick pony.

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

The problem can't be attributed to individuals. Personal attacks are childish. The problem of immature minds is the inability to perceive systemic faults. You must try to fix the problems, instead of the blame.

[-] 1 points by mayda (57) 1 year ago

true the system is the problem but individuals run the system. if fdr was in office instead of obama we might be looking at a very different world. i imagine that if i was complaining about hitler you would not say the same thing - would you?

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

The cons weren't ready for FDR. Obama has suggested many of the same things but the repucrats won't allow/support them. Calling on the name of the devil is just another distraction from the fact that individuals don't run the system. The system runs the individuals.

[-] 2 points by mayda (57) 1 year ago

get serious, obama was bought and paid for by wall street. anyone paying attention during the primaries knew how he would shake out. check out what nader said in 2008, or chomsky or many others. he was standing between the bankers and the pitchforks! as to the system we mostly agree - it is the problem. the country runs as it was designed to by madison. as john jay said, "those who own the country should govern it."

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

FDR saved capitalism, even if the rulers are too stupid to know it. It gets down to: shall we make it worse in the hope it will awaken the fools or settle for the little help we might get from the other fools. Who are the greater fools. I say the cons. The dems aren't very good but they are a little better than the cons.

[-] 1 points by mayda (57) 1 year ago

yes exactly - keynes also said he wanted to save capitalism. the sad truth is that it is a bad system but i would love to have those ruling class guys around today. i would vote for eisenhower today - even nixon knew how to govern a country. we are in trouble for sure. if the dems are the hope then.....

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

The bankers and finance in general take a percentage of almost every transaction. The greater the inflation the bigger their share gets. And their wealth grows exponentially as ours shrinks, even without inflation. That's why Moses banned usury 3500 years ago. That was the consensus among ruling elites of that day.

How Does That Work? https://www.createspace.com/3852916

[-] 1 points by mayda (57) 1 year ago

do you think i am arguing for bankers?

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

No, I think you don't see that interest, the profit on debt or investment, adds cost to everything and is the primary cause of inflation. The bankers don't hate inflation. It doesn't redistribute wealth. It helps to concentrate it with bankers and the rest of finance.

[-] 1 points by mayda (57) 1 year ago

well, wait until oil is in short supply and see if your satement holds up! that does not mean that i disagree about interest and profit but if you expect to get rid of those twin devils anytime soon then i want what you are smoking!

[-] 1 points by agkaiser (1213) from Fredericksburg, TX 1 year ago

A problem must be truly known, before you get distracted by another, if you really want to solve it.

[-] 1 points by mayda (57) 1 year ago

just because you cannot hold two thing in your mind at once doesn't mean i can't. your statement will be very much incorrect soon (by that i mean the next few years unless the wrold economy implodes). we have huge problems coming and we need to be aware of them or we have no chance. it is doubtful we have a chance anyway. read jeremy grantham and open your eyes!

[-] 1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Yes

[-] 1 points by mayda (57) 1 year ago

that is very sad for you. i wonder why you feel that way? the conversation started over this statement - " Wages never keep pace with inflation." i thought i proved that it was not in line with an understanding of the history of the last 80 years or so.

[-] 1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Lets start with your graphs or whatever evidence you have to support that claim. Show your work.

[-] 1 points by mayda (57) 1 year ago

the history posted above is common knowledge. there is nothing controversial about it. volker raised interest rates in order to wring inflation out of the system. reagan launched an attack on unions at the same time and thus the standard of living of the working americans was brought under control. the stock market rejoiced and a long bull market (20 yrs) ensued. the stock market follows profits and when wages are lowered profit will be greater. it follows that the markets will go up. the ruling class helped to put volker in place to do what he did and he is a hero for it. among the rulers anyway. now what graph should i put up. and maybe you can tell me where this is incorrect.

[-] 1 points by poindexter (8) 1 year ago

I'd rather bread be 10 dollars a loaf and have the 10 dollars than to be 1 dollar and not have the dollar.

[-] 1 points by mayda (57) 1 year ago

on the money - pun intended - seems there is much misunderstanding of this issue and it is crucial to our problems today. i lived and worked through the inflation of the 70's - i raised my prices every year (and people had the jobs and money to pay higher prices) - my house increased in value and my mortgage was paid in cheaper dollars - life was good! we have had huge inflation over the past 100 years and more and yet we are a much richer country - that should put the lie to inflation stealing the wealth of hard working people

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

There is much misunderstanding here, especially your own. Put 100 dollars in a bank account earning .1% interest and tell me how much that 100 dollars will be worth in 10 years if the inflation rate is 3%? I can guarantee that it will be a loss.

Now tell me where did the lost value of that $100 go?

[-] 1 points by notaneoliberal (2269) 1 year ago

Most working people don't rely on bank interest to make a living.

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

Most banks rely on underpaying interest to make a living. After 10 years that $100 would only be worth $79.40.

[-] 1 points by notaneoliberal (2269) 1 year ago

So you lost $3 a year on that deal but gained a few hundred on your mortgage payments by paying with cheaper dollars.

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

The loss was 20%. If you had $50,000 in savings the loss would be $10,000.

[-] 1 points by notaneoliberal (2269) 1 year ago

So find a better investment.

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

Grandma doesn't want to risk money in the stock market. She's on a fixed income that barely keeps up with inflation. She trusts the major bank to look out for her interest. They oblige by not paying her any and take a fair share of the principle with it.

http://www.bankofamerica.com/deposits/checksave/index.cfm?template=ecommDepRates

[-] 1 points by notaneoliberal (2269) 1 year ago

A lot of people don't want to risk money in the stock markets. Thus the rush to treasuries, in spite of low interest. Perhaps Grandma should consider precious metals.

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

She says gold lost nearly 20% of it's value in the last year. Way too risky. She's decided to keep her money in that big nationwide bank with the really nice tellers. At least she can pretend that the illusion of safety exists.

[-] 1 points by notaneoliberal (2269) 1 year ago

See my edit.

[-] 1 points by mayda (57) 1 year ago

and what is my house worth and how much has my mortgage payment decreased in that same time period? most people have their wealth in their house

[-] 1 points by jrhirsch (4714) from Sun City, CA 1 year ago

Your house adjusted for inflation has barely increased in value. A house worth $150K in 1970 is worth just $170K today.

http://www.jparsons.net/housingbubble/

[-] 1 points by mayda (57) 1 year ago

now we are talking about todays economy and not historical inflation. yes this is a new day because of the masters of the universe on wall street. you are pointing out why we have entered a "new normal"