Austrian School of Economics

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Has Fractional-Reserve Banking Really Passed the Market Test?





The reasons given for the persistence of the mispricing of fractional-reserve debt (IOUs + RP) are unsustainable in the long run. The lack of legal protection for genuine money titles is no more than a technicality, for there is nothing in practice that can sustainably prevent the existence of full reserve banks. Awareness that “deposits” are not actually money being held for safekeeping is a matter of educating the public, as is awareness that government’s deposit “guarantees” are not actually credible in the event of a systemic run.  If we assume, then, that fractional-reserve banking will come to its logical ending, there is good reason to believe that the shock will herald the endgame for fiat money. It is in fact the case that all fiat money is the liability of the central bank, which also carries the risk of non-repayment (default risk). This, again, means an arbitrage opportunity for market participants to withdraw the fiat money from the fiat money banking system. This confirms that the original basis for fiat money is destroyed, for its repayment to the central bank is not credible.

 
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"Planned Chaos" - Why Fiat Money Is "A Large-Scale Fraud System"





"The state-controlled fiat money system is the main cause of the international financial and economic crisis." This system, Thorsten Polleit warns, is based on the ability of banks to create money literally out of nothing. It is, in principle, a “large-scale fraud system” because today’s money is “intrinsically worthless and not redeemable”. This has damaging consequences for the overall economic development.

 
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Austrian Economics Vs Clueless Trolls





"First they ignore you, then they ridicule you, then they fight you, and then you win." Mahatma Gandhi

"It is no crime to be ignorant of economics... but it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance." - Murray Rothbard

 
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"The Gold Cartel" And The Giant Credit Bubble





The following outlines a solid statistical analysis of every aspect of the gold market, a thoroughly researched and well-presented account of the history of the modern monetary system and a highly original perspective of the growing bubble in debt and credit claims we have experienced since adopting today's system of credit-based money.

 
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"Weaning The Stock Market Off Casino Capitalism Will Be Anything But Pain-Free"





The still-dominant consensus view that America’s economy is poised to single-handedly yank the world out of its lethargy is likely to be disappointed once again with the odds high that our economy will remain burdened by growth-inhibiting monetary policies. In addition, it will continue to be negatively impacted by various other impediments, including a populace that is increasingly under-employed, an unwieldy and inscrutable tax code, a Rube Goldberg-like healthcare system, an increasingly ossified infrastructure, and a regulatory apparatus that congests the lungs of our economy, small businesses... weaning the stock market off of casino capitalism promises to be anything but pain-free. But did any responsible adult really believe there would be no pay-back for all these years of the Fed’s force-fed gains? If you do, you probably also believe foie gras grows on trees.

 
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Deflating the Deflation Myth





The fear of deflation serves as the theoretical justification of every inflationary action taken by the Federal Reserve and central banks around the world. It is why the Federal Reserve targets a price inflation rate of 2 percent, and not 0 percent. It is in large part why the Federal Reserve has more than quadrupled the money supply since August 2008. And it is, remarkably, a great myth, for there is nothing inherently dangerous or damaging about deflation. Now unmoored from any gold standard constraints and burdened with massive government debt, in any possible scenario pitting the spectre of deflation against the ravages of inflation, the biases and phobias of central bankers will choose the latter. This choice is as inevitable as it will be devastating.

 
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Overstock CEO On Bitcoins, Gold, Austrian Economics, And... Zombies





Patrick Byrne, the embattled CEO of Overstock.com, had plenty to say in a recent Fortune interview. The outspoken CEO, whose company recently became the first US retailer to accept Bitcoin (beginning later next year) aligns his beliefs with Ron Paul, holds enough gold that if "zombies walked the Earth," he'd be taken care of. Byrne believes "the long-run value of all fiat money is zero," adding that,"we're not going to get rid of the Federal Reserve any time soon, so bitcoin is a step in the right direction."

 
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90 Years Ago: The End Of German Hyperinflation





How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing. Looking at the world today - in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.

 
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Mark Spitznagel Warns "Interventionist Policies Cause Of, Not Cure For, Busts"





Time is nearly up for Ben Bernanke, the chairman of the Federal Reserve who supposedly applied his scholarly knowledge of the Great Depression to steer the U.S. to safety after the financial crisis. In truth, Bernanke navigated a monetarist course that favored intensive intervention, following in the footsteps of many mainstream economists who grossly misunderstood the lessons of the Crash of 1929 and the ensuing malaise. That lesson is that when corrective crashes occur, intervention is far from the cure — it is the cause.

 
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Detroit - An "Austrian Moment" In The Making





As Detroit begins to sort through the ill-begotten public liabilities that have driven it to bankruptcy, an important opportunity is at hand to revitalize the city that was once the epicenter of American entrepreneurship and manufacturing, while setting an example for other municipal governments that appear to be headed toward a similar fate. Here is an “Austrian moment” in the making, a potential libertarian awakening guided by the market-oriented, non-interventionist principles of the Austrian school of economics. For years, Detroit’s expenditures vastly exceeded its revenues. But, as long as investors were willing to purchase risky bonds, neither politicians nor unions would admit how unsustainable Detroit’s situation was. Detroit’s bankruptcy is thus exactly what the financial system needs.

 
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Theory of Interest and Prices in Paper Currency Part III (Credit)





We discuss legitimate credit vs. counterfeit central bank credit, the concepts of marginal time preference and productivity, speculation, and finally resonance.

 
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Guest Post: Roubini Attacks The Gold Bugs





Earlier this month, in an article for “Project Syndicate” famous American economist Nouriel Roubini joined the chorus of those who declare that the multi-year run up in the gold price was just an almighty bubble, that that bubble has now popped and that it will continue to deflate. Gold is now in a bear market, a multi-year bear market, and Roubini gives six reasons (he himself helpfully counts them down for us) for why gold is a bad investment. His arguments for a continued bear market in gold range from the indisputably accurate to the questionable and contradictory to the simply false and outright bizarre. But what is most worrying, and most disturbing, is Roubini’s pathetic attempt to label gold bugs political extremists. It is evident from Roubini’s essay that he not only considers the gold bugs to be wrong and foolish, they also annoy him profoundly. They anger him. Why? – Because he thinks they also have a “political agenda”. Gold bugs are destructive. They are misguided and even dangerous people.

 
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Guest Post: Mark Carney's False Ideology





Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.

 
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Diablo 3: A Case Of Virtual Hyperinflation





As virtual fantasy worlds go, Blizzard Entertainment’s Diablo 3 is particularly foreboding. Within this fairly straightforward gaming framework, virtual “gold” is used as currency for purchasing weapons and repairing battle damage. Over time, virtual gold can be used to purchase ever-more resources for confronting ever-more dangerous foes. But in the last few months, various outposts in that world have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante’s Inferno. A culmination of a series of unanticipated circumstances has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation. Considering the level of planning that goes into designing and maintaining virtual gaming environments, if a small, straightforward economy generating detailed, timely economic data for its managers can careen so completely aslant in a matter of months, should anyone be surprised when the performance of central banks consistently breeds results which are either ineffective or destabilizing? The Austrian School has long warned of the arrogance and naïveté intrinsic to applying rigid, quantitative measures to the deductive study of human actions and the events of the last week provide a stark reminder of the power and inescapability of the laws of economics.

 
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