Mises Institute

We do not need “monetary policy” any more than we need a paintbrush policy, a baseball bat policy, or an automobile policy. We do not need a monopoly institution to create money for us. Money, like any good, is better produced on the market within the nexus of economic calculation. Money creation by government or its privileged central bank yields us business cycles, monetary debasement, and an increase in the power of government. It is desirable from neither an economic nor a libertarian standpoint. If we are going to utter monetary truths, this one is the most central and subversive of all.

It is not too early to ask how the present US business cycle expansion, already more than five years old, will end. The history of the last great US monetary experiment in “quantitative easing” (QE) from 1934-7 suggests that the end could be violent. Autumn 1937 featured one of the largest New York stock market crashes ever accompanied by the descent of the US economy into the notorious Roosevelt Recession. As we noted previously - it's never different this time...

The economic system in which we live today is a crony capitalist system or, we might say, a system of money socialism. And that’s Piketty’s greatest error: to blame capitalism for the negative effects of crony capitalism and money socialism. But perhaps it is no error. Perhaps, he only wants to be loved by politicians and the IMF. I think they love him already, though.

The most succinct statement about how governments get their people to support war came from Hermann Goering at the Nuremberg trials after World War II: "Naturally, the common people don’t want war; neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country." It is rather frightening that a convicted Nazi war criminal latched onto an eternal truth!

There is no shortage of theories or writings related to the rise of the Third Reich and the subsequent Holocaust. Students of history as well as Second Amendment enthusiasts will find this a fascinating book and will find parallels between gun prohibition in pre-Nazi and Nazi Germany, and attempts to prohibit types of gun ownership and implement other forms of gun prohibition in the United States today. Less government regulation and a tradition of rejecting tyranny could have led to a different outcome in Germany. Instead, systematic creation and manipulation of firearms registration and regulations, coupled with the decimation of individual citizen’s rights, enabled Hitler’s dictatorship and the slaughter of millions of innocent Jews and citizens of Nazi-occupied countries, as well as tens of thousands of Germans. It remains for all of us to wonder what might have been had people refused to register their firearms. Indeed, we should all take note and never forget.

UPDATE: Goldman folds on "J-Curve" - the pace of that improvement will be far more modest than in past periods of yen weakness.

Another month, another colossal miss for the "waiting-for-the-j-curve" Japanese trade balance. At 1.7tn, this month's adjusted trade balance is the 2nd largest on record, and is the 36th month in a row - the worst March deficit ever. Exports missed dramatically (+1.8% vs 6.5% expected) so, so much for devaluation driving competitiveness in a globally interdependent product development cycle - nearly the lowest YoY gain in exports since Abenomics began. Imports rose more than expected (+18.1% vs 16.2%) as the devalued JPY makes living standards more difficult to maintain. The result of this dismal data - JPY weakness which can mean only one thing - a 120 point rally in the Nikkei.

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.

Widening income disparity has been a feature of many advanced and developing economies for the past few years and has myriad investment implications. As we noted yesterday, the USA is at levels of income disparity not seen since the roaring 20s (and by some counts worse) but how does that stack up to the rest of the world? Fed fans will be proud to say that once again USA in Number 1... in global income inequality.

At the young age of 22 Henry Hazlitt figured out the future involves too many factors for anyone to predict, not to mention just knowing what the relevant factors are. Jim Grant admitted it took him 40 years in the business to finally realize he couldn’t understand the future, noting, however, unfortunately the folks working at the Eccles Building have not come to this realization. The PhDs believe they can depreciate the currency at the proper rate to cause everyone gainful employment and live happily ever after. Hazlitt also has a fan in Rich Santelli who notes that if government makes loans, that private lenders won’t make, to entities that can’t pay back, economic signals get destroyed, and chaos ensues. Chaos, indeed...

On account of the clear decline in the growth momentum of the US price index, many economists have concluded that this provides scope for the Fed to maintain its aggressive monetary stance. Some economists, such as Chicago Fed head Charles Evans, even argue that the declining trend in the growth momentum of the CPI makes it possible for the Fed to further strengthen monetary pumping. This, 'they' believe, will reverse the declining trend in price inflation and will bring the US economy onto a path of healthy economic growth. We suggest that contrary to Evans miracles, a strengthening in monetary pumping will only deepen economic impoverishment by allowing the emergence of new bubble activities and exacerbate existing bubble activities.

From a strictly empirical perspective, the Keynesian theory is a disaster. Positivism wise, it’s a smoldering train wreck. You would be hard-pressed to comb through historical data and find great instances where government intervention succeeded in lowering employment without creating the conditions for another downturn further down the line. No matter how you spin it, Keynesianism is nothing but snake oil sold to susceptible political figures. Its practitioners feign using the scientific method. But they are driven just as much by logical theory as those haughty Austrian school economists who deduce truth from self-evident axioms. The only difference is that one theory is correct. And if the Keynesians want to keep pulling up data to make their case, they are standing on awfully flimsy ground.

"Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending" - Ben Bernanke, 2010 But history suggests the opposite: it is higher savings rates which lead to economic prosperity. Examine any economic success story such as modern China, nineteenth century America, or post-World War II Japan and South Korea: did their economic rise derive from unbridled consumption, or strict frugality? The answer is self-evident: it is the savings from the curtailment of consumption, combined with minimal government involvement in economic affairs, which generates economic growth.

"It's the weather" That's all Abe has left to pretend that 'recovery' is right around the corner. Japan just printed its worst current account deficit on record and its worst GDP growth since Abenomics was unveiled - both missing by the proverbial garden mile and both confirming that all is not well in Asia. As for the perpetual hope of a J-curve (or miracle hockey-stick reversal)? There won't be one! As Patrick Barron noted, "monetary debasement does not result in an economic recovery, because no nation can force another to pay for its recovery."And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity? The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs. President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough.

"Hello there citizen! I hope you are enjoying your day. I also hope you are enjoying your freedom from oppression that our kind, benevolent government provides. As a former lead bureaucrat in the Obama Administration, let me assure you, Washington is working around the clock to protect you and add fulfillment to your life..."