Ludwig von Mises
Inflation is always somebody else’s fault. Ludwig von Mises called out finger pointing central bankers and politicians decades ago in his book, Economic Policy. “The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.” Don’t expect the printing to stop any time soon. Central bankers believe they are doing God’s work. “To ensure that my people survive, I had to print money,” Zimbabwe's Gideon Gono told Newsweek. “I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. The whole world is now practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”
Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet. Many critics have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. One of the odd (more farcical) points that people raise in Bernanke’s defense is the case of Japan... We do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To our knowledge, this has never actually worked anywhere in history...
Keynes will be remembered as "a man with a great many ideas that knew very little economics," Friedrich Hayek notes in this brief interview and when challenged on his 'parochial' knowledge of economic history he was "not sheepish in the least... he was much too self-assured." Hayek's perspective casts Keynes in a very different light than his fan's apostolic adoration might suggest, "he was utterly contemptuous of anything that had been done before." While Hayek describes Keynes as one of the most intelligent people he had known, he perhaps sums up the man's work in this brief phrase - "economics was just a side-line for him." As we note below, many describe Keynesian policy as 'dumb', however a more appropriate word would be 'foolish'.
Those campaigning for a substantial jump in the minimum wage all assert that the purpose is to help working families. Unfortunately, careful students of the evidence come to a different conclusion. As Mark Wilson summarized it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” Some workers lose jobs (high minimum-wage states have among the highest unemployment rates); others have hours cut. The least-skilled get competed out of the jobs that remain (e.g., the minimum wage hits teenage employment hardest). It crowds out on-the-job training, impeding workers’ ability to learn their way out of poverty. And those effects are worse in a recession. It also raises costs and prices that workers pay as consumers. How can we explain support for a policy that harms many of those supporters say they wish to help? We explain it by focusing not on low-income workers, but their substitutes.
U.S. foreign policy is aggressive, reckless, belligerent, and meddling. It sanctions the destabilization and overthrow of governments, the assassination of leaders, the destruction of industry and infrastructure, the backing of military coups, death squads, and drug traffickers, and imperialism under the guise of humanitarianism. It supports corrupt and tyrannical governments and brutal sanctions and embargoes. It results in discord, strife, hatred, and terrorism toward the United States. The question, then, is simply this: Can U.S. foreign policy be fixed? We propose a four-pronged solution from the following perspectives: Founding Fathers, military, congressional, libertarian.
Because the ultimate outcome of this monetary cycle hinges on how, when, or if the Fed can unwind its unwieldy balance sheet, without further damage to the economy; most likely continuing stagnation or a return to stagflation, or less likely, but possible hyper-inflation or even a deflationary depression, the Bernanke legacy will ultimately depend on a Bernanke-Yellen legacy. But what should be the main lesson of a Greenspan-Bernanke legacy? Clearly, if there was no pre-crisis credit boom, there would have been no large financial crisis and thus no need for Bernanke or other human to have done better during and after. While Austrian analysis has often been criticized, incorrectly, for not having policy recommendations on what to do during the crisis and recovery, it should be noted that if Austrian recommendations for eliminating central banks and allowing banking freedom had been followed, no such devastating crisis would have occurred and no heroic policy response would have been necessary in the resulting free and prosperous commonwealth.
The gap between the rich and poor continues to grow. The wealthiest 1% held 8% of the economic pie in 1975 but now hold over 20%. Most of the literature on income inequalities is written by professors from the sociology departments of universities. They have identified factors such as technology, the reduced role of labor unions, the decline in the real value of the minimum wage, and, everyone’s favorite scapegoat, the growing importance of China. Those factors may have played a role, but there are really two overriding factors that are the real cause of income differentials. One is desirable and justified while the other is the exact opposite.
"Today there is a tremendous amount of monetary distortion, on par with the 1929 stock market and certainly the peak of 2007, and many others," warns Universa's Mark Spitznagel. At these levels, he suggests (as The Dao of Capital author previously told Maria B, "subsequent large stock market losses and even crashes become perfectly expected events." Post-Bernanke it will be more of the same, he adds, and investors need to know how to navigate such a world full of "monetary distortions in the economy and the creation of malinvestments." The reality is, Spitznagel concludes that the 'recovery is a Fed distortion-driven mirage' and the only way out is to let the natural homeostasis take over - "the purge that occurs after massive distortion is painful, but ultimately, it’s far better and healthier for the system."
In economics the chicken must always come home to roost. Man can only live beyond his means for so long. Bernanke’s reputation hinges upon the market not tanking as his successors close up the spout of gushing currency. The endpoint is coming. When it happens, the house of cards will tumble down. And with it will come the livelihoods and hopes of many. With every boom there is a bust. It’s an immutable fact of government intervention into the economy. As Bill Bonner writes, articles full of lavishing praise for Bernanke will begin appearing in coming weeks. Writing puff pieces on state bureaucrats is often a high-paying gig. But they all reveal a particular trend: celebrating the wise achievements of someone empowered to govern society. When businessmen are praised in print, their accomplishments are chalked up as minor victories reserved for the few. When the selfless man of charity is given his due, the praise is mild. When a lord of government sees the pages of a major periodical, it’s the kind of brown-nosing that would make a teacher’s pet uncomfortable. For now, Bernanke will bask in exaltation. But his just deserts are coming. You can bet $4 trillion on it.
James Turk believes the time we live in now will be studied by future historians for generations to come. Just as we today marvel at the collective madness that resulted in the South Sea and Dutch tulip manias, our age will be known as the era when society lost sight of what money really is. And as result, the wrong kinds of wealth -- today, that's mostly financial assets -- are valued and pursued. And just like those bubbles from centuries ago, when the current asset boom goes bust, the value of paper wealth will vaporize. In contrast, those holding tangible productive assets or real money will fare much better on a relative basis..."Because when this bust is over, promises are going to be broken left and right."
A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt. This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government. We are now in a situation that looks like a dead end for the paper money system.
Supporters of warfare, welfare, and Wonder Woman cheered last week as Congress passed a one trillion dollar “omnibus” appropriation bill. This legislation funds the operations of government for the remainder of the fiscal year. Wonder Woman fans can cheer that buried in the bill was a $10,000 grant for a theater program to explore the comic book heroine. That is just one of the many outrageous projects buried in this 1,582-page bill. Fortunately, in recent years more Americans have recognized that a constant defense of liberty requires opposing both war and welfare. The question facing Americans is not whether Congress will ever cut spending. The question is will the spending be reduced in an orderly manner that avoids inflecting massive harm on those depending on government programs, or will spending be slashed in response to an economic crisis caused by ever-increasing levels of deficit spending. Because politicians are followers rather than leaders, it is ultimately up to the people what course we will take. This is why it is vital that those of us who understand the dangerous path we are currently on do all we can to expand the movement for liberty, peace, and prosperity.
Of the various flavors of government interventionism in our lives, the minimum wage is perhaps the most welcomed. It appeals not only to our innate sense of “fairness” but also to our self-interest. Its allure may erroneously lead us to the conclusion that because “it is popular,” ergo “it is right.” The more astute proponents of the minimum wage, however, immediately point to the obvious; namely, that an extreme minimum wage ($1,000 per hour) would be unequivocally detrimental. However, the proponents quickly turn to dismissing this fear by asserting that, empirically, no such job loss occurs when the minimum wage is slowly raised. This is akin to arguing that although fire can boil water, a small fire won’t heat it up.
Krugman frequently accuses his opponents of being stupid and/or evil, when they present a view that he himself advanced in other circumstances. His typical readers would have no idea that Krugman once worried about bond vigilantes, or that his books lay out the standard case for why generous government unemployment benefits might contribute to structural unemployment. No, Krugman has led such typical readers to believe that anyone espousing such views is either a complete idiot - immune to theory and evidence that we’ve had since the 1930s - or is a paid shill who hates poor people.