Re: Re: Fed uses accounting gimmick to wipe away losses.

[Guest guest]

Good points. Most of them don't have a clue what's going on. In part they are also operating on the basis of two highly flawed economic theories, those proposed by Keynes and a man named Fisher. Fisher came up with the idea of tracking the economy through indexes of prices, but that hasn't worked out very well for many reasons, including the limited number of items tracked and how frequently the "basket" is changed. Right now the basket looking at inflation doesn't include food and energy costs but does include cars and electronics. In other words it is deliberately flawed because essentials for life have been removed and toys have been added instead.

Fisher had other terrible ideas and was also never right. For example, he said the economy and stock market were sound just before the Crash of 29. After the crash he was calling it a minor price movement and that new heights were just around the corner. Much like some talking heads in the last 10 years, Fisher was saying that the stock market had reached a new permanent high and would never drop below those levels again. Of course it did and he never changed his tune up until he died.

So the modern financial system is based on some very flawed ideas that came along in the early 1900's.

Also, the financial sector has grown far out of proportion as a share of the economy. It is, or was, a larger share of the economy than manufacturing was for most of US history, something over 20%. That's a large share for pushing imaginary numbers around. Its coming back to haunt us now.

In a message dated 1/22/2011 4:20:47 P.M. Eastern Standard Time, no_reply writes:

Having spent a good portion of my life in the financial sector, I can tell you that most of the other people in it don't have a comprehensive idea of how it works and operates. Admittedly, the financial sector is a complex one.

[Guest guest]

Re:

Fisher was saying that the stock market had reached a new permanent high and would never drop below those levels again. Of course it did and he never changed his tune up until he died.What does that mean — that he continued to say that the market would never drop that low, even after it had?

Kate Gladstone                 

[Guest guest]

Kate,

What I meant was that in the run up to the stock market collapse Fisher was saying the economy was sound and that stocks had reached a new price plateau. He was saying that the market would never fall below that level again. When the market did collapse, he said that it was just a minor hiccup and that in a few weeks it would be back to its previous high and then some. Fisher kept saying this even after the stock market lost over half of its value and stayed down. He was so wedded to his theory that even when reality was proving him terribly wrong he refused to admit it.

I've read some about him and there was a new article just recently. Actually managed to track it down again. Here's a link that has some information about Fisher and the financial legacy his ideas have left us with.

http://www.lewrockwell.com/north/north932.html

[Guest guest]

It's just a flesh wound...