Thursday, February 28, 2013
Tuesday, February 26, 2013
In his final lecture Salerno presented the Austrian Business Cycle Theory and showed how, during a recession, the policy prescriptions of the Austrians differs from those of the Keynesians. The chart below summarizes and contrasts the policies.
What follows is my understanding of the chart, and any errors of interpretation are mine alone. In English, the chart reads as follows:
Fiscal policy, Austrians: Lower Taxes (down-arrow T), reduce government spending (down-arrow G), and balance the budget (Taxes minus government spending equals zero). Note: Paul Krugman would likely condemn this policy as “fiscal austerity,” and it is - for the government. But obviously not for the taxpayers.
Fiscal policy, Keynesians: Lower taxes, increase government spending, and run deficits (government should spend more than it collects in taxes). Note: Lowering taxes in a recession is the one area where Austrians and Keynesians agree, though President Obama, who in other ways follows the Keynesian playbook, has raised taxes.
Monetary policy, Austrians: Freeze the money supply M (delta M equals zero), let the interest rate adjust according to the time preference of market participants.
Monetary policy, Keynesians: Goose the money supply (up-arrow M), annihilate the interest rate (down-arrow i).
Microeconomic policy, Austrians: Repeal all laws keeping the market from clearing, including policies that prevent wages W and prices P from adjusting to supply and demand.
Microeconomic policy, Keynesians: Use the power of government to keep wages and prices from adjusting to market conditions.
Regulatory policy, Austrians: Remove government regulations and allow the market to perform its regulatory function instead.
Regulatory policy, Keynesians: More government regulations, especially in the financial sector.
No one in the seats of power saw the financial crisis coming because, we’re told, financial crises are a lot like “earthquakes and flu pandemics,” difficult to predict. Not coincidentally, none of those in power are Austrians. After five years of Keynesian and other anti-market “remedies,” Europe overall is in recession, while U.S. growth in the last quarter of 2012 declined by $4.9 billion even with a $165 billion “stimulus” behind it. Before the Fed and the government decided to “do something” about a floundering economy, crises lasted on average 18 months to two years. Although this last one was officially over in 2009 - see Robert Murphy's take on what this means - unemployment is still high, while optimism among consumers and small business owners remains very low.
I don't recall reading any restrictions that would've prevented central bankers and senior government officials from registering for Salerno's course. It's too bad for them but especially for us, because given their track record we can expect even bigger calamities down the road. If they found the registration fee too pricy but would otherwise be willing to take the course, I would be glad to empty my piggy bank on their behalf the next time it's offered.
We need to let the market breathe before the Keynesian maestros put us out of business.
Sunday, February 17, 2013
$1,728,477,000,000: Fed’s Holdings of U.S. Debt Hit Another Record
February 15, 2013
(CNSNews.com) - The Federal Reserve's holdings of U.S. government debt climbed to yet another record this week, hitting $1,728,477,000,000.00 by the close of business Wednesday, Feb. 13, according to data released late Thursday by the Fed.
That was an increase of $10,734,000,000.00 from the close of business on the previous Wednesday.
As of Wednesday, the total debt of the federal government was $16,524,304,599,079.04. That included $11,668,602,027,147.93 in debt held by the public and $4,855,702,571,931.11 in intragovernmental debt, which is money the Treasury has taken out of government trust funds—such as the Social Security Trust Fund—and spent on other government programs.
Since Jan. 2 of this year, the Federal Reserve has increased its holdings of U.S. government debt by $62,359,000,000.00 At the same time, the Treasury has increased the overall debt held by the public by $87,084,476,752.86. Thus, the Federal Reserve has bought up the equivalent of 71.6 percent of the publicly held debt that has been issued by the Treasury so far this calendar year, and 14.8 percent of all of the U.S. government's publicly held debt that is now extant.
On Jan. 30, the Fed said it intended to buy $45 billion in federal government debt per month with the aim of helping to insure economic growth at what it called a “moderate pace” as well as an unemployment rate that would “gradually decline.”
In the fourth quarter of 2012, the U.S. economy did not grow, according to the Bureau of Economic Analsysis. On the contrary real GDP declined by 0.1 percent. In January, according to the Bureau of Labor Statistics, unemployment did not decline. In fact, it ticked up from 7.8 percent in December to 7.9 percent in January.
Comment: We're beyond the point for a miracle to happen. We're only steps away from war and dictatorship.
Friday, February 8, 2013
What Is Key for the Price Formation of Gold?
Previously by Robert Blumen: Misunderstanding Gold Demand
Gold is just one of the many assets whose price formation is ill-understood.
Blumen explains the problem for gold.
A correct price analysis would come to the conclusion that gold is too cheap and bonds too expensive.