Zolpidem fedex. Zolpidem. Ppurchase zolpidem….

All who identify themselves as libertarian. I think that describes many who post here.
I don't usually think about "Gil".

The fault was still entirely that of public policy, whether of the Fed or of some other public agencies.

It would have been so given a completely free market in America. But, with American public policy channelling the Chinese money to our housing market, there is some truth to saying that the Chinese money contributed to the fueling of the housing bubble.

But that is a half-truth. Saying that by itself implies that the Chinese money by itself was to blame. It wasn't the Chinese money that was to blame but its misallocation by American public policy.

The fault was still with public policy, not with the free market.

The Chinese money does not represent the time preferences of the market, but of a poltical authority, and is as apt to fuel bubbles as the Fed money.

Good point, Daniel, but still not right.

The Chinese money is still real money, and its availability for investment still represents a real time preference, whether of public or private individuals.

In the meantime, hope this makes it a little clearer:

The money that the Chinese make available for investment represents a real time preference in the market, for future over present consumption, and therefore for more capital than consumer goods.

The money that the Fed makes availaable for investment does not represent a real time preference in the market, and therefore allocates resources away from what the market wants to what it doesn't want.

Since the Chinese money is allocated to what the market wants, it fuels sustainable growth.

Since the Fed money is allocated to what it doesn't want, it just fuels bubbles that must burst.

Thanx for pointing out that link. Unfortunately, it was more economic history than economics proper, and would have left me as confused as before, without the pure economic insight of Mises and Rothbard.

Who's the 'we', Sam?

"Into the smoothly functioning and harmonious market economy comes the expansion of bank credit and bank money, encouraged and promoted by the government and its central bank. As the banks expand the supply of money…and lend the new money to business, they push the interest rate below…the free market rate which reflects the voluntary proportions of consumption and investment by the public. As the interest rate is artificially lowered, the businesses take the new money and expand the structure of production, adding to capital investment, especially…in lengthy projects…The new money is used to bid up wages and other costs and to transfer resources into these…'higher' orders of investment. Then, when the workers and other producers receive the new money, their time preferences having remain unchanged, they spend it in the old proportions. But this means that the public will not be saving enough to purchase the new high order investments, and a collapse of those businesses and investments becomes inevitable."

In other words, "The inflationary expansion of money by the governmentally run banking system creates over-investment in the capital goods industries and under-investment in consumer goods."

The Chinese money doesn't do that, for it is the money of real actors in the market implementing their real time preferences.

About redistribution, you wrote:

"I guess I would just say I've pretty much closed my argument, unless you bring something new to the table."

You didn't close my argument. You just slunked away from it. Answer my last question, and then we'll see if I need to bring anything new.

The author you linked us to referred to “the brutal dangers of accepting capital from foreigners (Mexico in 94, SE Asia in 97-98, Russia in 98, Brazil in 99, Argentina 2001-02).”

Here was what I thought of that notion:

The Curative Global Money Market

Blaming Argentina's economic collapse on the global money market is like blaming the woes of a wastrel on a rich uncle's refusal to go on supporting him.

According to the anti-market jeremiad, it was not Argentina's own profligacy but an ill wind from abroad blowing down its house of cards. But for rising interest rates in the United States, draining Argentina of its vital monetary reserves, there would have been no day of reckoning. Wild public spending and inflation could have gone on indefinitely.

There would have been no monetary shock for a completely free market Argentina. It would have been as attractive to investors as any other part of the world. The anti-market choices making it less so were not the fault of the market. Steering capital away from wastrels is what the market is supposed to do; and, condemning it for that, shooting the doctor.

Flight from weak currencies is not the cause of the problem; inflating and weakening them is the cause, and, flight, the solution. Inflation is like drug addiction: the pleasure of the artificial boom today must be paid for by the pain of depression tomorrow; and, the sooner the depression, the lesser the pain. Withdrawal from the squandering malinvestments and overconsumption of the boom period is an essential step on the road to recovery; and blaming the market for the pain of it blaming the cure rather than the disease.

See Mises, Human Action, P 575

It was not the market's fault that politicians embarked upon a policy of inflation, and the cycle of boom and bust, nor that their continuing interference with the market made recovery more difficult than necessary. But it was to the market's credit that it brought the process to a halt before it could lead to an even harder fall, and its discredit only that it didn't do so sooner, and ever invested at all in the currencies and promises of politicians.

Rather than wantonly pulling the plug on them, the market bought additional time for them to put their houses in order. If they squandered the opportunity, why blame the market, and lock the squandering in and recovery out?

The difference between the Chinese money coming into the American economy and the Fed's money coming into it is the difference between real and funny money coming it, money that represents genuine saving, and a real, market preference for deferred over present consumption, and money that falsely signals such a preference, and that the market will not sustain.

That, in a crude nutshell, is the Austrian Theory of the Business Cycle, and explains why the Chinese money fueld investment and only the Fed's money fueled the bubble.

As for fractional reserve banking, I would let the market decide for or against it.

Why?

Because it does so for political reasons, to manipulate, not to accommodate market demand (because it cannot).

Well that's what I'm trying to understand… that I completely get, but dg lesvic seems to be mad about something more fundamental – almost like he doesn't approve of fractional reserve banking or something, I can't tell – that's completely independent of state involvement in banking. But maybe it's just that.

This is a really good explanation of the role of global imbalances – better than I could provide. It mentions Sam's point about cheap goods as well.

Re: "In other words, how could any but its political "protectors" bring it down?"

You're right that the Chinese were paying more than they had to for US treasuries in the sense that their were higher returns possible from investing domestically. Their demand was based on export-oriented growth and the security of US treasuries. They "brought it down" (not sure if those are the words I would use, but good enough) because they fueled much of the asset bubble here.

RE: "If you would really like to continue the redistribution debate, why not where you left it, at the Keynesianism vs Coordination thread"

I've said all I can think of to say, unless you have other specific points you'd like to talk about. I don't want to keep going back to that post. I guess I would just say I've pretty much closed my argument, unless you bring something new to the table.

RE: "Before this Higgs matter becomes another of your black holes, I will sign off with one last thought. I understand that you don't care for him, am alright with it, and were I Higgs, would positively rejoice in it."

Not being convinced by someone is very different from not caring for them. I thought he was a fine writer – I just didn't quite buy it. If I had to be convinced by everything that I enjoy, I wouldn't be on here much at all

The prices of many products dropped more than the value of the dollar, perhaps leading many to think that the U.S. was experiencing significant gains in productivity and that the dollar was gaining rather than falling.

Yeah, it's their fault.

Assuming an American free market, without an American "government" to "protect" it, how could the Chinese bring it down?

In other words, how could any but its political "protectors" bring it down?

I don't know what you mean by the Chinese money coming back here under market price.

Do you mean the price of money? Do you mean the Chinese were paying more for US Treasuries than others were paying?

"Now watch the Bandini hit the fandini."

But it didn't. It just dumped on Higgs.