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Showing posts from 2008

On this day, December 23

Most Fed students are aware of the significance of this day. As one of many government Days of Infamy, December 23 ranks at or near the top because on this day in 1913 Woodrow Wilson signed the Federal Reserve Act into law. It's always interesting how quietly this day passes in the MSM. Wikipedia mentions it as worthy of note in their "On this day" page for December 23, but readers in 2008 will not see it listed on Wikipedia's main page. It does list the December 23, 1972 earthquake in Nicaragua that killed over 10,000 people, but the birth of the Fed, which has funded millions of deaths by making war easy to finance, while reducing the value of the dollar to roughly five cents since its inception, is just another event. It reminds me of Bastiat's famous Broken Window Fallacy, in the significance given to "what is seen over what is not seen."

Where's the trust? (revised)

As reported here, the monetary base, or M0 measure of the money supply, soared to $630 billion as of December 3 -- a 74% increase from September 3, according to a Celent report. It normally takes a central bank a decade to accomplish such a feat.

The rationale for the increase would seem to be the faulty logic of increasing bank reserves to increase lending -- such logic made faulty, in this case, because it's not a lack of reserves that's curtailing lending, it's a lack of trust. In the credit world, no one believes anyone anymore. The Fed realizes this, so on October 9, it began paying interest on bank reserves. Consequently, banks have shifted more of their funds into reserves, rather than lending them out. This is called "sterilizing" the reserves. It's also a free lunch for the banks.

Banks make money by charging interest on loans. With lending activity depressed, interest on loans is depressed, and the solvency of the banking system is threatened. …


Orwell said, "Orthodoxy means not thinking -- not needing to think. Orthodoxy is unconsciousness." Chris Matthews' comment about Obama comes to mind: Hands off the state. Let it do its thing and hope for the best. If Bernanke's latest rate cut doesn't propel us to prosperity, then he'll come up with something else. Give him time, have patience, don't judge -- at least not where the Thought Police might hear you.

Fed cuts rates again but . . .

According to a CNN poll, two out of three respondents think the Fed's rate cuts have not helped the economy, from a total of 32,304 responses to the poll. I realize this doesn't require anything more than attentiveness to the economy and what the Fed has done, but it is a good sign. Now, if only those two-thirds will graduate to the view that the Fed is hurting the economy by manipulating interest rates our descendants might have a bright future.

As mentioned in this blog on October 31, Frank Shostak said if the Fed cut rates to zero it
would underscore the reality that the Fed is incapable of producing wealth from its printing press. It would show that the Fed is completely powerless, except to produce mis-signals that generate malinvestment. The only thing that might temporarily move is the stock market.The rate cut was not quite to zero. A target rate of zero would be admitting utter futility, so Bernanke and his gang will keep the Fed Funds Rate between 0 - 0.25, which i…

Go, Iceland!

Thanks to a post this morning on Strike-the-Root, I've learned that Icelanders have roared their disapproval of the country's central bankers and government:
Thousands of Icelanders marked the 90th anniversary of their nation's sovereignty with angry protest Monday, and several hundred stormed the central bank to demand the ouster of bankers they blame for the country's spectacular economic meltdown.Americans are increasingly aware of the harm fostered by the Fed, but can you see them storming the central bank?

In time, yes. Not the Obama-worshippers. Not the neo-con Republicans. Not the establishment media. Not the tenured academic economists at state universities. But the young libertarians, who are not merely protesting the central bankers, but the institution of central banking itself. The End the Fed movement is growing.

Myths of the Great Depression

Andrew B. Wilson debunks the prevailing views on the Depression in the November 4, 2008 edition of WSJ online.

The five myths he explodes are:

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting.

- The stock market crash in October 1929 precipitated the Great Depression.

- Where the market had failed, the government stepped in to protect ordinary people.

- Greed caused the stock market to overshoot and then crash.

And the most disastrous myth of all:

- Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight.

Paul Volcker back on the scene

NEW YORK ( -- President-elect Barack Obama on Wednesday named former Federal Reserve Chairman Paul Volcker as the head of a special economic advisory board.

The group, which will include another 8 to 16 members, will provide the new administration with advice on dealing with the nation's financial crisis. It will exist for two years and will meet roughly once a month.It's hard to say what the Paul Volcker of 2008 can do in his new role, but Obama's selection of him is a good start. As Fed chairman, Volcker saved the country from becoming another Brazil. Is it too much to hope that Volcker will soon replace Bernanke?

Of course, the only lasting solution is to get rid of the Fed.

Why rate cuts are failing

An interview with Frank Shostak six years ago provides some answers. At that time the Fed had just lowered the Federal Funds rate to 1.25 percent. This week, the Fed cut the same rate to 1 percent.

While the Fed is going to do its best to inflate the money, it can happen that money supply won’t increase - depending on the behavior of banks. If banks stop lending, due to tighter credit standards or fewer borrowers, the money supply will not respond. This is what happened in the 1930s.And why doesn't the Fed reduce rates to zero? Shostak:
The worry is that this would produce panic. It would underscore the reality that the Fed is incapable of producing wealth from its printing press. It would show that the Fed is completely powerless, except to produce mis-signals that generate malinvestment. The only thing that might temporarily move is the stock market. Yet some people say the Fed chairman is the most powerful man in the world. Isn't he supposed to have the ability to…

Where has Bernanke gone wrong?

Where? "In the area of fundamental economics. Bernanke does not understand what money is. He and his countless watchers in the financial press talk about “liquidity,” not money. Bernanke can create all the “liquidity” he wants, but he will not create one cent of real money. He can’t because real money emerges on the market, not from FOMC policy decisions.

"To be sure, what comes out of the Fed’s powwows is something that functions like money, and therein lies a big error. For at least the last three centuries economists have had ample evidence that fiat money -- another name for the paper government orders us to use in exchange for real goods and services -- has a short lifespan."

From my article, "Bernanke and the Holy Grail."

Recommended reading for the crisis

The government, led by the Fed and Treasury, is intervening massively to avoid a necessary correction. The implicit premise of its actions is that a correction would ruin us economically. It wouldn't. It would be painful for awhile, but market mechanisms would put the economy on a path to a sound recovery. Interventionism invariably begets more interventionism until the economy becomes a completely state-run bureacracy.

The fundamental issues of the financial crisis are money and banking. And the best primer I know of for understanding these issues is Murray Rothbard's What Has Government Done to Our Money?

In addition, permit me to recommend my own work, The Flight of the Barbarous Relic, which treats the issues in fictional form.

Headlines tell the story

These headlines from CNNMoney struck me as revealing. The standard line is we are a capitalist country. Not true. Under capitalism, there is no central bank, and Wall Street would only be waiting for trading to begin rather than the latest Fed announcement. Under capitalism, there is no such thing as a firm, or three firms, or ten firms, too powerful not to save. The powerful can fall as well as the weak. Not letting the market work hurts our well-being. But letting the market work is capitalism.

We are not a capitalist economy. Corporatism, crony capitalism, state capitalism, neo-mercantilism, interventionism -- one of these terms is more fitting for the kind of economy we have. The state rules, not the market. The state doesn't rule absolutely, not yet, but that's the end-game.

Nazi parallel

Thomas J. DiLorenzo has this post today:
"The most serious financial problem for the Nazi State is not the danger of a breakdown of the currency and banking system, but the growing illiquidity of banks, insurance companies, saving institutions, etc. . . . Germany's financial organizations are again in a situation where their assets which should be kept liquid have become 'frozen'. . . . But the totalitarian State can tighten its control over the whole financial system and appropriate for itself all private funds which are essential for the further existence of a private economy. Yet the institutions which still exist as private enterprises are not allowed to go bankrupt. For an artificial belief in credits and financial obligations has to be maintained in open conflict with realities."
From Gunter Reimann, The Vampire Economy: Doing Business Under Fascism (1939), p. 174, about German economic policy under Hitler.We must remember, though, that FDR was a proponent of…

Market bounces, Iceland raises, Fed inflates

According to Reuters, stocks have jumped 4 percent in early trading today, following Japan's rally where stocks closed at 6.4 percent higher - after hitting a 26-year low. But as at least one strategist remarked, "the fundamental weakness is still there," so even if you're a-theoretical don't expect this to be a sign of a lasting recovery. According to an Oct. 9th commentary in The Economist,
This is a time to put dogma and politics to one side and concentrate on pragmatic answers. That means more government intervention and co-operation in the short term than taxpayers, politicians or indeed free-market newspapers would normally like.FDR's Brain Trust couldn't have said it better. If you understand Austrian economics, which is virtually ignored in the MSM, you know that "more government intervention" merely augments the policies that brought us to this point. The Federal Reserve boosted Total Fed Credit by another $245.4 billion last week, w…

New posts on BRC

There have been some outstanding articles written about the current market debacle, some of which I've posted on In particular, you'll find one on the welcome page and about two dozen more under the What's New heading. Since BRC is devoted to monetary and banking issues, all of the articles and videos should be helpful.

They "had nowhere to go but up"

Reuters this morning filed a report saying the lawmakers in Washington "were set to sign off on a deal to create a $700 billion government fund to buy bad debt from ailing banks in a bid to stem a credit crisis threatening the global economy." They had worked late into the night Saturday night to arrive at a compromise on Paulson's original package, which, the article said,
would keep credit markets from grinding to a halt under the burden of bad mortgage-backed bonds created by banks at a time when it looked like home prices had nowhere to go but up.Yes, it will look that way as long as the Fed keeps lenders awash in cheap credit.

Mises Institute's Mark Thorton explains what happened to housing in four easy steps.

How bad is inflation rate?

According to Morningstar writer Bill Bergman says it's "bad and getting worse," both the BLS consumer and producer rates. For the last six months, "the average annualized change in the PPI has been 13%--and the highest rate for any such six-month interval since mid-1980," Bergman says. The annualized rate for the CPI is "also coming in north of 10%."

Libertarian novelist - journalist Vin Suprynowicz, basing his calculations on the coin collector's guide the Krause, estimates "the Fed has been creating new 'dollars' at an annualized rate of 15 to 17 percent all year."

We'd have a better idea, of course, if the Fed still published M3, which they discontinued in 2006.

Why does government consistently report inflation low? In other words, why does government lie to us about inflation?

First, they’re locked into all kinds of “Cost of Living Adjustments” for government workers, Social Security recipients, etc. If they ad…

Prices up, economy down

If the Fed raises interest rates, the economy will get worse. There's an election ahead, so raising rates is not a choice. If the Fed doesn't raise interest rates, it will sit and watch prices rise.

What are we faced with now? According to a Reuters report,
Wholesale prices shot up in July at the fastest year-on-year rate since 1981, while home builders cut back on construction as they worked through a glut of unsold homes, government data showed on Tuesday.The reports offered little solace to the U.S. Federal Reserve, which is hoping that a slowing economy will cool inflation so that the central bank can hold off on raising interest rates.Stefan Molyneux has written:
Many times throughout human history, certain societies have come to the valid conclusion that an institution can no longer be reformed, but must instead be abolished. The most notable example is slavery, but we can think of others as well . . .Yes, we can.

Gold Plunges

Five months ago gold broke the $1,000 mark. Last week gold bullion declined more than it has in 25 years, plunging as low as $777. Oil and silver also declined sharply on Friday, driven by a 5 1/2 month high in the U.S. dollar against the Euro and what many believe is a coming global recession. As reports:
Gold is down nearly 5 per cent so far this year, on track for its first annual decline in seven years. New York Mercantile Exchange gold futures dropped 8.4 per cent for the week, the biggest retreat since 1983.

"The debacle was so swift that conventional terms like 'oversold' no longer apply," said precious metals analyst John Nadler at bullion dealer Kitco in Montreal. He said the rout will not likely end until the metal's price drops to "between $680 and $730."

What has happened is that speculative institutional funds that had flooded into gold, and particularly into exchange-traded funds for the metal, have decided to take the m…

Headlines at a glance

As seen on Saturday, August 2, 2008:

From the WSJ:

GM Swings to Loss
Auto Sales Continue to Slide
Jobless Rate Hits Four-Year High

From Kiplinger personal finance:

Growing economy continues to struggle

And at MarketWatch:

U.S. Stocks Look to Fed for Direction

Quoting from the latter:
As the first anniversary of the crisis arrives this coming week, the Dow Jones Industrial Average is down 14%, U.S. economic growth has more than halved, financial institutions have suffered $350 billion in write-downs and fired chief executives and thousands of workers, while house prices have slumped as much as 40% in some areas.And the solutions?

Experts are looking to The Fed, the institution responsible for the crisis.

Or they're giving serious consideration to Obama's planned attack on the oil companies:
Sen. Barack Obama has proposed a revised, speeded-up version of his $50 billion economic stimulus plan, saying a tax on oil companies’ profits should be levied to fund rebates of up to $1,000 for familie…

Commodity money good for blind and sighted

Ron Paul, in a statement before the Subcommittee on Domestic & International Monetary Policy, Hearing on Examining Issues Related to Tactilely Distinguishable Currency, July 30, 2008, pointed out that
Anyone who has ever felt the heft of a gold or silver coin, noticed the variation in size and design among different denominations of precious metal coins, or examined the different types of reeding, incusing, and other edge designs, recognizes that coins are far superior to paper bills in terms of their ability to be distinguishable solely by touch.Furthermore,
If we had a truly free market in currency, private currency producers could produce coins or bills that are tactilely distinguishable, with bills incorporating different sizes, shapes, raised geometric patterns, etc.What prevents us from establishing a distinguishable money? Guess.
Through a multifaceted legal barrier consisting of legal tender laws, anti-counterfeiting statutes worded to prevent the private issue of notes and …

Ron Paul on neo-con economics

The Fed is the government's Great Provider, and what it provides is a tree from which government spenders can pick off the funds they need without bothering to increase the heist taken through the tax collection system.

This method of providing, also known as inflation, appeals to statists of all stripes. For generations the left has used it to help fund welfare programs, combining it with their soak-the-rich tax agenda. But the right has caught on, too. Neo-cons find they can rhapsodize about limited government and lower taxes while using inflation to bolster foreign adventures and a domestic police state.

As Ron Paul writes:
The fiat monetary policy we now follow is the most significant factor contributing to our economic peril, and it is central to the neo-con agenda. As we hear new calls to empower the Federal Reserve Board, we should be aware that underlying all neo-conservative policies is the idea of monetary inflation. Inflation is the technique used to pay for the regu…

High prices and unemployment

As various writers have pointed out, the high unemployment of the Great Depression was ameliorated somewhat by low prices. Government and the Fed have been at war with falling prices ever since, and so far they're winning gloriously. They've succeeded in depreciating the dollar so much that, with the exception of the computer industry, not even the ingenuity of market participants can keep prices from rising.

As Bill Bergman at Morningstar reports:
In the Fed's overall "beige book" review of economic conditions, price pressures were reported as "elevated or increasing" by all 12 of the Federal Reserve's district banks in the latest survey. This may be one of the bleaker inflation assessments in the beige book in recent years.And meanwhile,
The only "official" report directly relating to U.S. labor markets released last week was the weekly unemployment insurance claims report, released Thursday. Initial claims were up significantly, to 400,0…

Ron Paul on Inflation

In a statement before the House Committee on Financial Services, Ron Paul pointed out the error of blaming higher oil and food prices for the increase in inflation. "The pundits have causation backwards: it is inflation that leads to rising prices of oil and food, and not vice versa." Though the Fed no longer reports on M3, M2 and MZM are still around as approximations of the money supply, and both of these measures have increased significantly, Paul added.

"Until the cause of inflation is understood, no effective strategy can be undertaken to combat it," he said.

But is it the case that most policymakers and pundits have flawed ideas about inflation? It doesn't look like it. As Paul admits,
. . . the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and polit…

Demystifying Depressions

From Rothbard's 1969 minibook:
Fortunately, a correct theory of depression and of the business cycle does exist, even though it is universally neglected in present-day economics. It, too, has a long tradition in economic thought. This theory began with the eighteenth century Scottish philosopher and economist David Hume, and with the eminent early nineteenth century English classical economist David Ricardo. Essentially, these theorists saw that another crucial institution had developed in the mid-eighteenth century, alongside the industrial system. This was the institution of banking, with its capacity to expand credit and the money supply . . . It was the operations of these commercial banks which, these economists saw, held the key to the mysterious recurrent cycles of expansion and contraction, of boom and bust, that had puzzled observers since the mid-eighteenth century.

Hoover, the Great Interventionist

Rothbard on Hoover, the anti-free market man:
And so, President Herbert Hoover, on the eve of the Great Depression, stood ready to meet any storm warnings on the business horizon.[44] Hoover, the "great engineer," stood now armed on many fronts with the mighty weapons and blueprints of a "new economic science." Unfettered by outworn laissez-faire creeds, he would use his "scientific" weapons boldly, if need be, to bring the business cycle under governmental control.

Hoover did not fail to employ promptly and vigorously his "modern" political principles, or the new "tools" provided him by "modern" economists. And, as a direct consequence, America was brought to her knees as never before. Yet, by an ironic twist of fate, the shambles that Hoover abandoned when he left office was attributed, by Democratic critics, to his devotion to the outworn tenets of laissez-faire.

Fannie, Freddy Models of Corruption

Lisa Lerer writes on July 16:
If you want to know how Fannie Mae and Freddie Mac have survived scandal and crisis, consider this: Over the past decade, they have spent nearly $200 million on lobbying and campaign contributions.

But the political tentacles of the mortgage giants extend far beyond their checkbooks.

The two government-chartered companies run a highly sophisticated lobbying operation, with deep-pocketed lobbyists in Washington and scores of local Fannie- and Freddie-sponsored homeowner groups ready to pressure lawmakers back home.

They’ve stacked their payrolls with top Washington power brokers of all political stripes, including Republican John McCain’s presidential campaign manager, Rick Davis; Democrat Barack Obama’s original vice presidential vetter, Jim Johnson; and scores of others now working for the two rivals for the White House.This is interventionism at work, not capitalism.

Unsafe Safety Deposit Boxes

In my posting of June 30 (Primer on gold coins) I referred to a statement in Failsafe Investing by Harry Browne in which he said safety deposit boxes are okay for storing gold coins. Perhaps that was once true (say, in the 19th century), but not anymore, as this report confirms (thanks to Rob Moody, Strike-the-Root):
Not-So-Safe-Deposit Boxes: States Seize Citizens' Property to Balance Their Budgets

I had misgivings about Harry's published recommendation for two reasons. For one, I recall him saying on his old radio show that he advised burying your gold coins in your backyard, or generally, some location not likely to be discovered by state confiscators. That would rule out anything to do with a bank. Secondly, since Roosevelt's confiscation order of April 5, 1933, no property is safe in any institution. If you want it safeguarded, you'll have to take that responsibility alone.

Poole admits Fed inflates

It's not often one sees an open admission of wrong-doing from one of the wrong-doers, but former St Louis Fed president, William Poole, has done precisely that during an interview in a German newspaper. Jörg Guido Hülsmann provided an English translation of Poole's statements on the Mises blog, along with commentary. Poole said:
In historical perspective inflation is a means to diminish the stress felt by debtors. The policy of the US central bank is construed to create inflation to alleviate that stress. Its monetary policy was, is, and will be "lax" until the economic situation, and the situation of financial firms, will be improved. All in all this will entail an inflationary tendency, even if the latter will entail a bundle of new problems in another three or four more years.
Poole here confirms the Austrian interpretation of what central banking is all about: special-interest policy in the short run, with harmful aggregate consequences in the medium an…

Primer on gold coins

Want to buy gold? The late Harry Browne recommended purchasing "bullion coins" -- coins whose price represents the gold content.

From Wikipedia:

A bullion coin is a coin struck from precious metal and kept as a store of value or an investment, rather than used in day-to-day commerce. Examples include Krugerrands, British sovereigns, the American Eagle series and the Canadian Maple Leaf series.The American Gold Eagle is a bullion coin first issued in 1986 under the Gold Bullion Coin Act of 1985. Most of the coins are produced from the West Point Mint in West Point, NY, and by law all gold used in the coins must come from "newly mined domestic sources." They carry the mint's mark ("W") beneath the date and are offered in 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz denominations. They are alloyed with silver and copper for better wear-resistance.

As legal tender, these coins have a face value of $5, $10, $25, and $50, respectively. For example, the reverse side …

Of War and Inflation - 1969

Time Magazine reported on Nixon's efforts to deal with soaring prices during his first days in office in 1969. Already the number of Vietnam war dead (33,641 Americans) had surpassed the Korean War total by 12, making it the fourth deadliest war in U.S. history. Aware that even with conscription a depreciating dollar was touching more people than an overseas bloodbath - "a family that had an income of $10,000 in 1965 would need $11,330 [in 1969] just to stay in place" - Nixon made controlling prices his administration's top priority.

Is War Good for the Economy?

As always, war benefits some while it impoverishes the rest of us, argues Justin Raimondo.
The false prosperity induced by the speeding up of the printing presses over at the Federal Reserve led to what Alan Greenspan once called "irrational exuberance," a delusion created by the very easy money policies he carried out as head of the Fed. No sooner had certain Beltway sages declared that the age of permanent abundance was upon us – and that this rendered the struggle against the Welfare-Warfare State irrelevant – than their economic cornucopia of limitless wealth went empty. As banks are bailed out while ordinary Americans are turned out into the streets, the manic hubris of Fukuyama's historical "endism" and prophecies of universal prosperity via "globalization" stand revealed in all their silliness.This is one of his best articles.

Greenspan says recession likely

According to a Reuters article yesterday:The U.S. economy has been hit by a credit crisis which began in the sub-prime mortgage market, prompting a series of interest rate cuts to help boost the economy. But price pressures are growing, making more rate cuts unlikely.Isn't this a forbidden scenario, according to the More-Money-Will-Always-Save-Us outlook?
Greenspan said he did not believe arguments that the housing problems in the U.S. were due to interest rates being too low during his tenure. "As far as I'm concerned, the data do not support it (that argument). The housing bubble is clearly an international phenomenon."Let's see, Greenspan inflated here, other central banks inflated there. A bousing bubble developed here, housing bubbles developed there. But according to Greenspan's logic, the Fed is not at fault because we had housing bubbles here and there, making it an "international phenomenon."

The author of Gold and Economic Freedom contin…

Don't count on the Fed

"Stocks will limp into the next week at levels not seen since the Bear Stearns debacle, with no hope of a boost from the Federal Reserve."So reads the opening paragraph of a column by Nat Worden.

Don't count on the Fed. No boost from Bernanke.

And the Bear Stearns debacle? Was that in any way related to past Fed "boosts"?

Wages must not rise!

In an interview on Bloomberg Television on June 17, former St. Louis Fed president William Poole warned "that the Fed must prevent higher inflation expectations from feeding through to a surge in wages." Do I understand him correctly? The helicopter that flew over Wall Street shouldn't be allowed to fly over Main Street? Let the little guys pay for the orgy the Fed sponsored for the big guys?

CNNMoney's 18 Ways to Beat Inflation

With a little thought you could come up with at least 18 ways to fight higher prices, as CNNMoney did. They call it fighting inflation, but that's misleading. If they were really suggesting ways to beat inflation wouldn't they encourage their readers to tell the Fed to stop inflating? Or better yet, get their readers to call for the abolition of the Fed and the restoration of sound money?

Nowhere in their little click-and-see article do they mention where all these higher prices come from. Nowhere do they suggest putting a dagger in the Fed and its "monetary policy" of "accommodation."

Central banking threatens Asia

Central banking has infected almost every nation on earth, so it's a matter of logic that every nation prone to their bank's misallocation of resources will go through the illusory phase of good times followed by disaster. And given that more inflation is seen as the cure for past inflation, it's hardly surprising to see headlines such as "Inflation dangers 'threaten Asia.'"

Recession culprit? No surprise

More specifically, the government's printing press, the paymaster of its unconstitutional wars, the institution dedicated to devaluing the dollar, the Federal Reserve.
Ben Beranke had a brilliant academic record. An almost-perfect SAT score, graduation from Harvard, then MIT. Teaching at Stanford, then on to Princeton where he chaired the economics department. Does his current job represent yet another step up in a brilliant career?
No, because the Fed is a scam, one of the oldest known to man.
So, what to do about the current downturn? Lew Rockwell has a sound recommendation: What is the right response to a recession? The first rule must be to do no harm. When it comes to government, that is asking a lot and enough. Beyond that, in an ideal world, we would shut down the Fed, reduce the cost of employment, reduce taxes, zap environmental controls on exploring for and refining oil – this would be a good beginning. We could expect the recession to last less than a year u…

Gee, the Fed has such a tough job

An article by Money Magazine called "Inflation: 3 Big Questions" talks about price increases, the BLS' unrealistic CPI, and -- what's this? -- where inflation comes from:
When there are too many dollars chasing too few goods and services, you get inflation. And it's the Federal Reserve's job to get that balance right. When the Fed lowers rates, it pumps more cash into the economy; when it raises rates, it pulls the money back in."When inflation first shows up, people are always wanting to blame other things than Federal Reserve policy," says Brian Wesbury, chief economist at First Trust Advisors. "In the 1970s it was OPEC, today it's China. But in reality, our inflation is coming from easy money."So why does the article not condemn the idea of centrally-planned monetary policy? Why isn't it calling for the abolition of the Fed and the establishment of sound money? All it does is throw some figures at us -- if inflation continues a…

Harvard Class Day Speaker

Ben Bernake spoke to graduating Harvard seniors at Class Day on Thursday, telling them things aren't as bad now as they were when he was in the audience back in 1975. True, we had rising oil and food prices, and slow economic growth then as now, but there are grounds for optimism, Bernanke insisted.

Government is economically wiser since the mid-70s, he claims. Given that government has created a debacle similar to the one in the 70s, what does that say about its ability to learn from its "mistakes"?

He brought up the subject of lessons central bankers have allegedly learned since the high inflation days of the mid-70s, the most crucial of which are (1) "high inflation can seriously destabilize the economy," and (2) "the central bank must take responsibility for achieving price stability over the medium term."

And audience members complained that Bernanke wasn't entertaining?

Let's see, government contributions to our economic well-being in recen…

Kissing . . . something

Somewhat old news now, but on May 19, Forbes ran this bit about the Columbia Business School's tribute to Fed chairman Ben Bernanke:

Kissing The Ring?Think the Federal Reserve could be doing a better job? Don’t tell that to Columbia Business School. The prestigious Ivy League graduate unit just named the 32nd recipient of its annual Distinguished Leadership in Government Award: Fed Chairman Ben S. Bernanke. He was set to get the honor this month as a big draw at a school fundraising dinner at the Waldorf-Astoria in New York. Previous recipients include Bernanke’s four immediate predecessors back to 1970, including the now controversial Alan Greenspan. Columbia declined to answer our written query asking how “distinguished leadership” differed from “mere leadership.” Noteworthy since the Fed’s recent bailout of Bear Stearns: Many of the $1,500 meal tickets have been bought by large banks and other financial entities that are subject to Bernanke’s policies. —William P. BarrettThe onl…

How to cheat the middle classes

For institutionalized cheating, nothing beats a central bank and fiat money. Setting up the institution takes time, but the tools are right at hand.

Promote a central bank as the solution to fractional reserve banking's periodic economic crises, though without blaming or even mentioning the fractional reserve nature of banking. Instead, blame the crises on a lack of an "inelastic" currency, i.e., one that can be created by a central authority at the touch of a finger on the government's printing press. Get the country's leaders to talk up a central bank, then when most of the country isn't watching, say, around Christmas, ram the bill creating the central bank through the national legislature. After the bill is signed into law, have your pundits continue to reassure the public their financial worries are over.

Later, when the public starts to grumble that their currency doesn't buy as much as it used to, tell them speculators are ripping them off. Pass…

Cash drop over Indonesia

In a real-life scene similar to the one in my novel, Flight of the Barbarous Relic, an Indonesian businessman "scattered 100 million rupiah ($10,700; £5,406) in banknotes from a plane to promote his new motivational book," BBC News reported today. Tung Desem Waringin, 42, flew over Serang city, about 40 miles west of the capital city, Jakarta, "dropping four loads of bills of small denomination."

Entrepreneurship lives!

‘Pervasive inflation psychology’ developing?

“Consumers and some on Wall Street are expecting price rises to accelerate, a hint that a pervasive inflation psychology could be developing and posing a serious challenge to the Federal Reserve,” Kelly Evans of the WSJ writes.

What is so serious about this development?

On the welcome page of this blog there’s a quote from Ludwig von Mises’ Economic Freedom and Interventionism, 1951:

“What makes it possible for a government to increase its funds by inflation is the ignorance of the public.”

What relevance does this have to the Fed’s “challenge”? Here’s Mises’ statement in context:

“What makes it possible for a government to increase its funds by inflation is the ignorance of the public. The people must ignore the fact that the government has chosen inflation as a fiscal system and plans to go on with inflation endlessly. It must ascribe the general rise in prices to other causes than to the policy of the government and must assume that prices will drop again in a not-too-distant future. I…