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Austrian Economists Understand Why There Is A Commodity Glut
In response to The Wall Street Journal's article on confused policymakers dealing with a glut of capital, Mises Canada' Patrick Barron briefly summarizes their errors...
The worldwide commodity glut is not a surprise to Austrian school economists.
It is a wonderful example of the adverse consequences of monetary repression to drive the interest rate below the natural rate.
Longer term projects, such as expansion of mineral extraction, appear to become profitable. But such is not the case for the simple reason that printing money does not represent an increase in real, saved resources.
Eventually it will be clear that capital has been wasted, what Austrian school economists call “malinvested”.
No amount of further monetary repression can cure this problem, although I am certain that the Keynesian school economists in charge of central banks and governments all over the world will give it a good try. Akin to bleeding the patient until he recovers, we may not survive this Keynesian medicine.
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Simply out - Austrian economists understand full well why there is a commodity glut but what they don't understand won't stop them...
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As we concluded previously, in the end, central banks will continue to keep conditions loose, seemingly oblivious (or perhaps willfully ignorant) to the fact that low rates and booming equity markets are contributing to the supply glut without effectuating a concomitant increase in demand. Meanwhile, producers — such as heavily indebted US shale companies — are forced to keep producing in order to keep what little revenue is still coming in flowing, a dynamic which is exacerbated when companies take on debt (and thus more interest expense) to stay alive:
Even if governments have the capacity for more fiscal stimulus, few have the political will to unleash it. That has left central banks to step into the void. The Federal Reserve and Bank of England have both expanded their balance sheets to nearly 25% of annual gross domestic product from around 6% in 2008. The European Central Bank’s has climbed to 23% from 14% and the Bank of Japan to nearly 66% from 22%...
Producers have their own share of the blame. In a lower commodity price environment, producers typically are reluctant to cut production in an effort to maintain their market shares.
In some cases, producers even increase their output to make up for the revenue losses due to lower prices, exacerbating the problem of oversupply.
Here is the vicious cycle visualized:
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For those wondering how this will play out, consider that sooner or later, in order to avoid liquidation and stave off severe disinflationary pressures, someone will have to call in "Helicopter Janet" and once the cash paradropping begins well, we'll see you in the Weimar Republic.
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Central banksters are grifters.
Liberty is a demand. Tyranny is submission.
Media
/ \
Financial <--> Political
Malinvestment Backed Securities to the rescue!
And where modern austrians fall short is that they are not clearly identifying the terms that identify their science. Thus, they are not (cannot) identify the machinations of the grift.
Factually, fractional reserve organizations print counterfeit, not money.
Only after the thieves introduction of the new currency is the same currency then used as money.
Overlooking this fact gives the thieves a free pass by the very ones who would otherwise appear to not condone that action.
If printing [money] does not represent an increase in saved resources, then what exactly does it represent? Does it represent a decrease, a theft, of saved resources? What then is the purpose of counterfeiting? If it does represent a theft of saved resources, then how can it act toward any investment at all, whether good or bad (mal)?
Funny how that same phrase of "falling short" keeps appearing around here in regards to AE only to introduce an alleged fact that is never true.
Rothbard alone has written hundreds of pages on the subject, and I'm quite sure that the simplest search on Mises.org would confirm this.
This article is not about Rothbard.
This article says that money is being printed.
To say that money is being printed is not factual.
The term "printing money" is a euphemism for credit creation. The credit extended to borrowers in the form of ledger entries from the bank to the borrower is then spent into existence by the borrower. Not really printing money but it does increase total debt in the economy and an increase in the supply of "money".
The creation of credit by spending into existence ledger entries is counterfeiting.
Ledger entries are no longer represented by money.
The introduction of the currency then as counterfeit represents theft, not investment.
True. But that theft is considered investment by the owners of conterfeiting system. And the vast majority of debt does not have currency to represent it.
All debt represents currency.
To obtain the currency, 100% of the principal amount of the bonds and notes, is the purpose of issuing the debt.
The vast majority of debt does not have money to represent it. The vast majority of debt is represented by counterfeit.
From that perspective there is no debt represented by currency. Gold and silver certificates went the way of the dodo bird.
Almost. The debt is not represented by existing money but instead future product.
US govt debt is no longer represented by existing collateral.
We no longer have a Treasury Department because there is no treasure left to manage.
What was the Treasury is now the Slave Master's Quarters since the collateral pledged is the expected direct tax on a citizens income.
Not only do the thieves swindle product and labor but then they command that the victims replenish it too.
zzzzzzz, the wheels on the bus go round and round, round and round, round and round.........this is probably too deep for you to fathom, but it nicely encapsulates everything in the world in one formula....and your welcome:) :).
Debt is currency when it's being used to give value to the assets it represents. As in debt that is leveraged to create more debt to acquire real assets or to devalue current debt.
OC sure is not understanding that credit and debt are two words for the same exact thing. In a world when you can buy whatever you want if you have that special privilage of leverage or free money through credit, debt is a currency.
Can't fault him, by his posting style he's one of the "educated" ones. Some people should not go to college, as they become a detriment to the rest of society once they are convinced that they know what they are talking about without actually understanding that college teaches mostly abstractions outside of the hard sciences and engineering. Abstractions do not necessarily apply to the real world, no matter how you twist the terminology to make them appear to.
Exactly correct.
Not just Rothbard, but also Mises, Hayek, Murphy, Schiff, etc.
But then common sense informs that printing claims on other's production that are then traded for that production is theft, and like all theft, destructive. I.e. Printing counterfeit claims and then trading for and consuming other's production turns an economy from a non zero-sum game, into a zero-sum game.
Liberty is a demand. Tyranny is submission.
I have studied and learned all so-called economic "schools" since about fourteen. Started with Marx and Engels, then Smith, then Keynesian, a detour into Paul Kennedy, then Monetarism (form of Keynesian), then Keynesian again in college, then Krugman Keynesian, and then I discovered Rothabrd and the AE school and the darkness lifted and clarity was found. AE is the only school that explains all that has, is, and will happen economically. Hayek, in Road to Serfdom, then ties it all together with politics and explains all that has, is, and will happen politically.
I stumbled on to RTS in a bookstore and bought it just for the title. You are right it is quite enlightening.
I agree. A great many people making critical remarks about the Austrian School have neither read anything by the School's authors (this is after all an effort, unless you have a strong interest in economic theory and actually find it suspenseful), nor the works of authors of any other schools. I also notice this often when remarks about Keynes or Marx are made. For instance, the seminal critique of socialism (first by explaining the calculation problem and then by critically examining all forms of socialism in detail in a sociological study) penned by Mises and the many references he makes in his articles and books to the preeminent sociological and economic authors of his time (whether he critizices or lauds them) force one to eventually bite the bullet and take a look at these authors as well, including Marx (I will go on the record here w.r.t. Keynes: just as Rothbard once said, Keynes was indeed a Keynesian. He was not "sadly misunderstood" by his followers. His main work is chockfull with contradictions and fallacies, most of which were not even his inventions - he copied numerous economic cranks that predated him).
There are some disagreements between modern-day followers of the Austrian School, but they are mainly political/ideological in nature, while there is essentially broad agreement on economic theory (there are the occasional exceptions, which tend to lead to very interesting debates - as an aside to this, imo de Soto is very good at bridging the alleged differences between the views of Mises and Hayek, I find his book on socialism absolutely brilliant). Moreover, the School isn't standing still. There is a constant stream of innovative thought based on Austrian theory (which one is only aware of if one reads the journals as well).
Anyway, I'm overdue for catching up on my beauty sleep, so I apologize for rambling. The point remains though that in order to criticize something, one must first know and understand it. It is not enough to just read the odd posting or article. It really does take some effort and perseverance (as an example, the verbal equilibrium theorizing abstracting from money in Hayek's Pure Theory of Capital surely stumps most readers when they come across it for the first time, and how many of them will be aware that he aligned his views on interest ten years later with those of Mises?). It is often quite tedious to be forced to reply to criticisms that merely reveal the critic's lack of knowledge. Krugman, de Long and Roubini are famous for criticizing Austrian theory without having read one word the Austrians ever wrote. This is quite normal for Keynesians though: As Gottfried Haberler once related, Keynes himself wrote a negative critique of Mises' "Theory of Money and Credit" without ever having laid eyes on the book.
If it does represent a theft of saved resources, then how can it act toward any investment at all, whether good or bad (mal)?
Because the government enforces the malinvestment with legal tender laws.
There seems to be a statist/establishment infection of certain "Austrian" mouthpieces lately (Mises Canada) that disregards all the important things you brought up. Instead they talk about the immorality of poor people, the value of the Protestant Work Ethic to solving the problem of poverty, and other such garbage.
And as we know, these monetary shenanigans are addressed by the classical Austrian economists one way or another by careful reading of the original texts. You would think that those currently calling themselves Austrians would be hammering these points and shouting in triumph. If you look into what people like Walter Block are saying the things you question are more or less answered, but in a far too understated way.
It's time to break out the trumpets and do a victory dance, not try to be above the fray and act superior through quiet dignity. Sometimes jackassery is the right answer to getting a message out that has been suppressed.
That Canadians even know who Mises was is a iracle in itself. That country is a mess.
Most "Americans" don't even know where Canada is. The mess in Canada is the contamination from the U.S., Canada's borrowing from private banks, and Neo Liberalism unchained. "Americans" who know and respect Mises and Ayn Rand should be required to dig both of them up and be deported with them to the Libertarian Paradise of Honduras.
Austrian critics such as yourself fall short in conflating Mengerism, Misesian Austrianism, Hayekian Austrianism, the Rothbardian School, the Konkinian disciples, et. al. as ideologically identical. They're not at all, especially in relation to Mengerism (i.e. before the Rockefellers got their dirty mitts in on the action). In fact, so do most who call themselves "Austrians."
It's like ripping on Keynes for the destruction his Neo-Keynesian descendants have wrought; Keynes was a dupe of the Anglo-American Establishment and a goon, certainly, but even he warned against monetizing debt at the rate we do today.
and the banks are broke anyway. Every month of these low rates sinks them further into oblivion.
That will be obvious soon enough.
The Declaration of Independence and Constitution were written with the PRESUMPTION OF LIBERTY that is the inalienable right of each citizen
Government acts with the presumption of total power over each citizen. It is easy for one branch of government to give other branches permission to expand or maintain their power. It is difficult, for one branch to reign in the power of another branch. This is made even more difficult when a common, power-oriented, ideology pervades members of each branch.
The primary limit on government power is the limited money it can spend. When government gives itself power to create near-infinite amounts of money through an “independent” central bank, then there is very little to limit near-infinite amounts of government in all forms, particularly the groups that it will give subsidies to and the bureaucrats it will employ.
Every day more people are coming to the judgment that a carefully organized effort to repair the constitution via the States’ power to propose and ratify amendments has less risk to our liberty and prosperity than the present trajectory of the federal government and especially the federal bureaucracy.
The first order of business of an Article V Convention must be to limit government’s ability to spend and create near-infinite amounts of money.
You can bet your last penny that any convention will be rigged by the centralizers. Just like the last coup masquerading as one was.
So if you don't think that we can use the Constitutional tools available to improve our situation, are you building up your cache of arms and ammunition and doing the training that will be necessary to do it the hard way?
You may need to have that cache and training anyway because the Feds would likely ignore any amendments that severely limit them and choose to become a rogue government which the citizens would have to be prepared to terminate with extreme prejudice.
I prefer to start with the peaceful method and then move to the guillotine stage if necessary.
I am personally prepared for either eventuality.
first you have to show me where the dividing line is between "independent" central bank and "independent" government. Where does one stop and the other begin or does one simple dominate the whole, and if so the discussion then takes on a whole different dimension.
Didn't I read this yesterday?
Cotton everywhere. More cotton than ever, yet three crap Hanes shirts are $14. Lower thread count and smaller patterns, but three times more expensive than they used to be. Sorry buy I'm not paying $14 for crap.
If prices were allowed to drop or quality was allowed to increase then maybe I'd buy them. I have pants from ten years ago that I paid $20 for that have outlasted pants bought over the past few years for $50. I don't know what fabric they think they made the pants from, but grocery store paper bags would be stronger.
The quest for higher stock prices has made consumption impossible because what is worth buying is too expensive and what is affordable isn't worth buying.
Fuck you moneychangers.
+100 for this memorable noteworthy line: The quest for higher stock prices has made consumption impossible because what is worth buying is too expensive and what is affordable isn't worth buying. says it all.
I'd claim the quest is "financial stability" for the parasites. Higher stock prices just happen to be a nice ruse to provide cover (read: improving economy) for their theft of wealth.
Peak suicide is just around the corner....
Will the ones not by their own-hands count in that demographic?
Only if they were discouraged from suicide for 18 months or more, then I believe they are counted.
If the fed raises interest rates then their debt explodes. If they do not raise the interst rates then market distortions and mis-allocation of resources increases. The war of oposing exponentional trends.
It's only opposing if you believe the rhetoric. In their circles it's pure win-win.
For the inner circle with advance knowledge it is win win. For outsiders, like all of us, not so good.
It's ok we just need to blow another bubble. You'll see. Did I ever explain? Your savings are my debt and if I don't keep spending you wont be able to work.. or something. Paul? Paul! Where are ya Paul? Can you explain that to me again please? He's a nobel prize winner ladies and gentlemen. We'll be ok, you'll see.
The Federal Reserve has a pre-order of JP8 (helicopter fuel) for delivery in September 2015. There is a similar requisition for pilots.
Perhaps set to unleash the memorial Bernakopters?
Until things get so bad in the home of the brave, that the brave finally wake up and or get off the couch, nothing will change. Meanwhile the land of the free is the land of the ME. Me being the .0000000001%. Did I leave out some 0's?
No Fiat currency has ever worked except to send money to the rich. All fiat currency has ended at ZERO along with everyone else. What is incredible is how people let the next one start up. Why don't people get it? We are being cleaned out and people just sit around and argue. Printing money out of thin air is theft! And our environment is being destroyed far faster than most think. It is time to get out of paper and into real things before history wipes us out again. It is time for some common sense and reality. Arguing on and on and doing nothing about it doesn't make sense. The Fed can't raise interest rates or stop QE and we can't pay the debt and our economy is not growing and we are at Greece and the crash is near.
from a pure Austrian School perspective, your comment is only half right
as such, a fiat currency is only an IOU. and freedom of contract implies the freedom of issuing IOUs
Austrian School as such is not against that. As such, it only points out that a credit-fuelled boom is followed by it's bust
so from that perspective, it's irrelevant if it's a fiat currency or not. what is really relevant is if credit is created in excess to the real economy or not
ergo the functioning of the banking systems is more relevant then the functioning of the central banks. but for several reasons it's much easier to blame the doctor then the lifestyle of the patient, and so Austrian School degenerates from a criticism of banking to the criticism of central banking
even more interestingly, Austrian School implies a slight but radical criticism of free markets, but hey, I don't want to blow anybody's head off, here
zzzzzz, the wheels on the bus go round and round, round and round, round and round.........this nicely encapsulates everything in the world in one formula....and your welcome:) :).
Incorrect, the pure Austrian view states that an IOU can only have value between direct exchange by the immediate participants for it to be a valid valuation of the IOU. In a pure Austrian view, when that IOU has it's value determined by a third party, it's considered an magnification of counter-party risk, and a distortion of the price finding mechanism which promotes malinvestment and economic fallacies.
It has nothing to do with whether it's a bank, a central bank, or a government using the point of guns to set the value of the currency through fiat. It has no bearing on the discussion or the results of the inquiries into the topic.
You seem to think that watering it down to the boom/bust terminology negates the actual explanation that a pure Austrian persepctive gives, however you are simply ignoring reality and the actual Austrian explanation by doing so. Perhaps you should have actually spent the time reading Austrian school material
The Central Bankers do not live in the real world. They themselves are insulated from the impacts of their own decision making.
Pensions, high salaries, and cost of living adjustments...are all the insulating factors.
They live in a bubble, they create bubbles. Oh, and they are so smart, just ask them.
Question for Ms. Yellen: "Do you believe in free markets?"
When that is asked and answered we will finally get the blunt answer..."No".
And thus the conclusion can only be that there is NO FREE MARKET anymore, removed by unelected people with self expanding powers, rewriting their mission statement ... and no one cares because their stock portfolios, their blind trusts (Congressmen) are doing just fine.
The sad thing is that they do not understand reality well enough to comment on free-markets. If they did, they would know that the free-market will always exist, even if it's illegal.