The Great Unraveling Looms - Blame The 'Austrians'?
Submitted by Alasdair Macleod via GoldMoney.com,
Well, well: who would have believed it. First the Bank for International Settlements comes out with a paper that links credit booms to the boom-bust business cycle, then Britain's Adam Smith Institute publishes a paper by Anthony Evans that recommends the Bank of England should ditch its powers over monetary policy and move towards free banking.
Admittedly, the BIS paper hides its argument behind a mixture of statistical and mathematical analysis, and seems unaware of Austrian Business Cycle Theory, there being no mention of it, or even of Hayek. Is this ignorance, or a reluctance to be associated with loony free-marketeers? Not being a conspiracy theorist, I suspect ignorance.
The Adam Smith Institute's paper is not so shy, and includes both "sound money" and "Austrian" in the title, though the first comment on the web version of the press release says talking about "Austrian" proposals is unhelpful. So prejudice against Austrian economics is still unfortunately alive and well, even though its conclusions are becoming less so. The Adam Smith Institute actually does some very good work debunking the mainstream neo-classical economics prevalent today, and is to be congratulated for publishing Evans's paper.
The BIS paper will be the more influential of the two in policy circles, and this is not the first time the BIS has questioned the macroeconomic assumptions behind the actions of the major central banks. The BIS is regarded as the central bankers' central bank, so just as we lesser mortals look up to the Fed, ECB, BoE or BoJ in the hope they know what they are doing, they presumably take note of the BIS. One wonders if the Fed's new policy of raising interest rates was influenced by the BIS's view that zero rates are not delivering a Keynesian recovery, and might only intensify the boom-bust syndrome.
These are straws in the wind perhaps, but surely central bankers are now beginning to suspect that conventional monetary policy is not all it's cracked up to be. For a possible alternative they could turn to the article by Anthony Evans, published by the Adam Smith Institute. Their hearts will sink, because Evans makes it clear that central banks are best as minimal operations, supplying money through open market operations (OMOs) on a punitive instead of a liberal basis. Instead of targeting inflation, Evans recommends targeting nominal GDP. Evans's approach is deliberately sound-money-light, on the basis that it is more likely to be accepted than a raw sound-money approach. But he does hold out the hope it will be an interim measure towards sound money proper: initially a Hayekian rather than a Misesian approach.
Targeting nominal GDP is not a perfect answer. As Evans points out, changes in government spending distort it, and by targeting output, there may be less control over inflation, if control was ever the right word. However, my own researches are generally supportive of Evans's approach to managing the money supply. This is because, logically, nominal GDP, which is impossible to measure accurately by the way, is simply the total amount of money deployed in the part of the economy included in GDP. The reason this must be so is Say's law, the law of the markets, tells us that we produce to consume, and production is balanced by the sum of consumption and savings. Therefore, if new money or bank credit is introduced into the economy, it will temporarily increase both demand and supply for goods, until the spread of rising prices for the goods affected negates the impact.
In managing the total money supply, a central bank would have to take into account fluctuations in bank credit, and adjust its own operations accordingly. No MPC, no FOMC, and no convoluted analysis of inflation prospects are required. The true Austrian approach is to welcome a corrective crisis as the most efficient and rapid way to unwind malinvestments. Nominal GDP targeting of a few per cent can be expected to soften this process without unduly discouraging it.
While I support the concept of targeting nominal GDP, Evans's paper is necessarily complicated, written for an audience that denies Say's law. He argues his case on a modified equation of exchange, M+V = P+Y, where M is the growth rate of the money supply, V is the change in its velocity, P is the inflation rate, and Y is the growth rate of output.
My worry is that the faintest suggestion of sound money policies will be blamed for a developing economic crisis, without being adopted at all. Within one month of the Fed raising the Fed Funds rate by a miniscule 0.25%, it seems the whole world is falling apart. The usual market cheerleaders are now on record of expecting a global crisis to develop, the signs being too obvious to ignore. Markets are over-valued relative to deteriorating economic prospects. Collapsed energy and commodity prices tell their own story. Shipping rates and the share prices of US utilities (including rails and freight) are falling. The days of blaming China for a contraction of world trade are over: the downturn is now far larger and more widespread.
Decades of accumulated market distortions appear to be on the brink of a great unwind, most of which can be blamed on expansionary monetary policies. If so, the banking crisis of 2008 was a prelude, rather than the crisis itself. The Fed will almost certainly reduce interest rates back to zero, and reluctantly will have to consider imposing negative rates.
The Keynesians will blame the Fed for a complete policy failure. They will argue in retrospect, as they did following the banking crisis, that the financial and economic crisis of 2016 was made immeasurably worse by the Fed raising the Fed funds rate and not pumping yet more money into the economy at such a crucial time. It's like saying alcoholics must drink more to be cured. The monetarists will simply say that the Fed got it wrong, and that monetarism was not to blame. They will both blame advocates of inflexible sound money.
The reality is, that by implementing conventional policies on the recommendation of group-thinking macroeconomists, the central banks have dug a hole too deep to escape. Recognition of the merits of Austrian sound money theory will simply expose this reality sooner than later.
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With geographically challenged Americans, Melbourne/Sydney will be bombed back to the stone age.
not necessarily Australia is in the 'here be dragons' part of American maps
Since there is no Keynesland to bomb back to Stone Age I guess they will have to settle for Austria.
Queensland is close enough!
Exactly! And because of a mix up of Austria and Australia bombs will rain on Melbourne.
The BIS has been blaming the central banks policies for a while now to gain credibility.
When the crash comes, they can call for central banks to be put under "their" control. The NWO is complete.
ALL HAIL THE ONE BANK. BOW BEFORE THE SUPREME BANK.
They want a new FED, a global FED.
When the market crashed 777 points Greenspan from a giant TV screen (because he was being confronted in public before) said "We need a whole new global banking system) They will do exactly that for the New World Order.
This FED was slated to die along with America.
http://i.telegraph.co.uk/multimedia/archive/01014/alan_greenspan_1014477...
Blame CAnaDA!
Right, the same logic that we used when there was an outbreak of bird flu, and so we bombed the Canary Islands.
No don't blame the Austrians ; blame Friedman and American hubirs.
But the Austrians don't have the solution to the reset!
Dogma is not Empiricism.
Austrian economic theory is simply economic theory. Neo Keynsian Control Freakism is a recipe for controlling people en masse.
Economics is not supposed to be a weapon of social engineering.
Economics is POWER ever since commercial capitalism was born.
Don't emasculate it by cutting off its NUTS like we see today being expressed by TBTF/FED hubris. ITS ALL ABOUT POWER; NEVER ABOUT BEING NEUTRAL.
All the Crusades achieved was to OPEN up the trade routes from OPULENT Asia to batshit retarded Europe in 1100 AD.
THe collapse of Roman Empire created a huge obscurantist vacuum in West that the Renaissance and Enlightenment filled up; thanks to the Arabs who retaught us Aristotle; having lost his wisdom around 1100 -1200 AD themselves. The East never recovered that torch.
ITS ALL ABOUT POWER; NEVER ABOUT BEING NEUTRAL.
So what! It's built into our nature as aggression. So is selfishness as a survival instinct.
The point you are missing is that in general, different behaviors yield different results. Cooperation yields better results than aggression.
Agreed and cooperation leads to the collaborative commons away from manipulated markets.
Balance yields the best results, an appropriate amount of aggessive greed with a responsible ethos. We have had neither. And if that is your actual photo, you certainly brighten up this dreary abode, and contribute affirmatively.
Falak Pema - You get a lot of down-votes here. Just remember... another rule of fight-club is: Never ever give Islam any credit for anything, however factually sound.
Never mention Saladin's chivalry (admitedly a Kurd), nor anything to do with the flowering of culture in Moorish Spain. All muslims are just riff-raff who try to pinch German girl's bums and hate us for our freedoms. If you stick to this, you will go far here.
Haha ! Brad Pitt and the american dream of candy floss!
Reality always has a tough time fighting prejudice and the chimera it generates.
From The Godfather pt III
Vincent Mancini: Don Lucchesi, you are a man of finance and politics. These things I don't understand.
Don Lucchesi: You understand guns?
Vincent Mancini: Yes.
Don Lucchesi: Finance is a gun. Politics is knowing when to pull the trigger.
But the Austrians don't have the solution to the reset!
Not so. The Austrian solution is to do nothing so the market can correct itself. Anything else only makes matters worse. Which explains why matters can't get any worse.
Get one thing in your Casino minded head: the market is only ONE aspect of civilization.
Civilization and the power meme; the race to the top to define the End is more important than the means : be it market or be it government regulation or be it altruism.
Our value systems are what is "civilization" and that don't be "me first"...
That cry is in essence the market 's role. And "we the people" is at the other end of that fulcrum of the eternal seesaw.
there has to be balance or else "the cake" will collapse; thats history.
And we begin all over again.
You need to either get back on your meds or off them. Can't tell which.
The "market" is simply a subset of the free and voluntary cooperation whereby Hayekian "spontaneous order" creates what we call civilization.
Everything opposed to this natural process — most notably the State — can kiss my ass.
you think you are bigger than history?
Think again. History rhymes 'cos human nature farts for power.
Like I said . . . about your meds.
Not kidding.
oh you mean my glass of bubbly!
Hey, when you have no argument do you always use ad hominem?
haha! I don't rile easy.
Not trying to rile you (OK, a little), just trying to get you to explain yourself.
So far, you make no sense whatever.
Care to try again?
listen, I post here quite often.. I have copiously done so today.
So read and cogitate. We may differ on opinions, interpretation of facts, but I like to think I make my points clear as I always substantiate with historical perspective and factual examples my line of argument.
Given the fact I run against the libertarian grain I don't think that playing the superior game of "you talk nonsense" is the right attitude. I stand by my values and my time line of Pax Americana's morph especially since 1981.
I won't repeat what I have already written.
You guys only spout DOGMA about what is a theoretical spiel about an economic system that got junked after the 1929 debacle, because it was totaly inappropriate to correcting manipulated markets; which is why 1929 occurred. Now we have the same situation for the same reasons since 1981 cycle; only worse.
Aside from our only spouting "DOGMA" about libertarianism (please explain), you make some sense about the correlation between 1929 and now (which we share). You just don't make any sense with fractured thinking like the foregoing.
You need to explain yourself better, that's all.
Get one thing in your Casino minded head: the market is only ONE aspect of civilization.
There you go again. Changing the topic.
Without a free market, civilization could not exist.
And don't tell me free markets don't exist. They exist wherever two parties exchange of their own free will. That's just about everywhere.
So a "free market" is an aggregate of all free transactions ?
This raises some interesting questions.
Do all such exchanges/transactions require money as part of the exchange ? If yes, that excludes barter; if no, (is not all exchanges require money) how do you draw a line to exclude such as this: "if you grab the milk, I'll make the coffee" ?
Secondly, how free must a "free" exchange be ? ALL transactions take place within power relations: how much power imbalance is allowable before people would question it's "freedom" ?
Can a market dominated by a monopoly ever be called free" ?
If aggregate transactions are the market why not speak of many markets ? Say, an oil market, a second Hand car market, a stock market ?
I find the idea of a market questionable, let alone a "free market"
Do all such exchanges/transactions require money as part of the exchange ?
In a society this complex, money is indispensable because it provides a standard of accounting as much as a medium of exchange.
Secondly, how free must a "free" exchange be ?
Ideally, 100%. Because government regulations and taxes are inherently coercive, they distort free market prices.
If aggregate transactions are the market why not speak of many markets ?
It's a question of semantics. There are many markets in the sense that there are many market sectors. But they do not exist in isolation. They affect each other in ways we can't know. The singular "market" could mean one sector or the aggregate. At least that's how I see the word used.
I find the idea of a market questionable, let alone a "free market"
It's like gravity. You don't have to believe in it or know of its existence. The key word is "free". There are countless free exchanges every day that constitute the free market.
"But the Austrians don't have the solution to the reset!"
Mises himself did quite well on post-war Austria!
Repeating that would qualify as a good enough start.
Money supply should grow at the rate of nominal gdp and interest rates like the Federal funds rate should be a market set rate. Nominal GDP could be defined as population growth plus the actual GDP growth rate in the economy. It can be that simple and equilabrium can be reached without the asinine boom and bust cycles. Secondarily, the FRA7A dividends and payments on excess reserves to the financial system are nothing more than irrational conflict of interest kickbacks that distorts the the true motivation of the financial institutions. Maybe you thought this was the answer?
https://research.stlouisfed.org/fred2/series/EXCSRESNS
Good questions, still love your pic.
Money supply should grow at the rate of nominal gdp and interest rates like the Federal funds rate should be a market set rate.
That's an argument for central planning which has always failed and would continue to fail as it is now. Such an agency can never know what amount of money and what interest rate satisfies market participants. It leads to cumulative miscalculations and eventual collapse. The question of money supply is also fraught with fraud if left to non-government sources. Whatever authorities dream of next, it'll work until it fails. Wash, rinse, repeat.
It can be that simple and equilabrium can be reached without the asinine boom and bust cycles.
Cycles serve a natural process to correct malspending. While they can't be eliminated, central planning excerbates the highs and the lows. The collapse we are in now, promises to be the mother of them all.
The solution is simple ..
1) Return to constitutional money ..
http://www.veteranstoday.com/2014/07/30/the-coming-return-of-the-real-us...
a) Reinstate the spirit of Roger Sherman
http://tuppersaussy.com/museum/html/writings/constitution/caveatagainst....
b) If this is not good enough, go to step 2)
2) Call for Article V Convention
a) propose amendment(s) to modify Sherman's intent
b) If not good enough, go to step 3)
3) Revert back to Articles of Confederation
I suppose this could be a book, if I continue in further detail ..
This is not an Austrian or Classical -- thang. This is just pure common sense ..
Perhaps a new school should be formed to combine the best of Austrian (Mises) and Classical (Smith) thought .. (they both call for ending the FED [though Classicals do not wish to abandon all central banking {i.e. Wanta is more Classical vs. Austrian. BTW, Wanta is a true Austrian citizen.}])
Background research to consider:
From Sea to Shining Sea
Conversation with Mike Harris and Ben Fulford
Utopian Perversion with Mike Heiser
Pop Culture as Priests with Mike Heiser
* the above is some 12 hours of lecture and discussion. Do you really want more than this? I can accommodate if you want more abuse of your NFL/NBA/NCAA or Dancing With the Stars quality time. (i.e. to give further [background] context to Sea2Sea, I could easily add 40 hours alone with little thought and effort.)
* Yes, I have already viewed all the above (and then some). Multiple times, over a course of years. Including personal discussions with the authors via email and phone. I'm not just an arm-chair analyst proposing pure [abstract] theory. I do get off my butt, and away from my keyboard from time to time ..
"But the Austrians don't have the solution to the reset!"
The Austrians say that there is no solution except for the currency to collapse.
They explain what happens from following the fraud of fiat money and fractional reserve banking.
Not being a conspiracy theorist, I suspect ignorance.
This is one of those simple minded attempts at a statement against interest that needs to be chucked overboard. People need to stop apologizing for using their minds to examine facts and come to conclusions. Stop being a shithead who is worried that some idiot might try to label you with a slur from a past era.
Lol I tested the waters on that leftist, statist, shithole that is reddit today. They specifically accused me of being someone from a conspiracy site like zerohedge and held my claims to a higher standard of proof than their own. Then I saw an article about how Panasonic is going to invest $1.6B in a battery factory here in America. I asked them to show me when Tesla has ever made a profit, they didn't. They changed the subject to the economies of scale that are guaranteed to make electric cars catch on rapidly, tomorrow. The numbers illustrating this were elusive, however. That was about when I left.
Economics exists to make astrology respectable
The Austrian School is a school of economic thought that is based on the concept of methodological individualism – that social phenomena result from the motivations and actions of individuals.
https://en.wikipedia.org/wiki/Austrian_School
Economist Mark Blaug has criticized over-reliance on methodological individualism: "it is helpful to note what methodological individualism strictly interpreted ... would imply for economics. In effect, it would rule out all macroeconomic propositions that cannot be reduced to microeconomic ones ... this amounts to saying goodbye to almost the whole of received macroeconomics. There must be something wrong with a methodological principle that has such devastating implications."
https://en.wikipedia.org/wiki/Methodological_individualism
The Austrian School is just as corrupt as the Keynesians given that they do not account for drug money corrupting 'sound money policy'. In brief, Narco Ponzi Casino Crony Capitalism Climate Change is anything but 'sound money', ArianBoy.
The Austrian School is just as corrupt as the Keynesians given that they do not account for drug money corrupting 'sound money policy'.
WTF? There would be no drug money if drugs were legal. I can't imagine a time within the past hundred years when the feds had a sound money policy.
but, but, but, contraband drug money is laundered through banks, and it has always been laundered through banks, but the Austrian Economists don't account for that in their overarching policy whatsoever. This means that they are hypocrites when it comes to 'sound money policy' IMHO.
Whatever you think you know about Austrian Economics, you must have learned in comic books.
Austrians argue government should stay completely out of commerce and finance. If you want a policy, it's a policy of non-intervention.
I just want all the illicit drug money appropriately accounted for in commerce & finance so that fraud is eliminated in the mix of accounting fraud that Austrian Economists sweep under the rug.
Austrian Economists sweep under the rug.
You are arguing a special case. In a broader sweep from the Austrian view, black markets distort prices and cause economic dislocations.
While I appreciate your defense of the Austrian school, you have this one wrong.
Black markets do not cause economic dislocations--they are the result of such dislocations. As such, black markets have the truest pricing of any system--despite being under duress of State violence.
Yes, intervention in market conditions such as prohibition CREATE the monopoly prices charged by drug dealers, same as they do for "legitimate" interference in utility pricing now.
Stop wanking about theory : Reagan and Thatcher put it into practice behind the Nixon Kissinger BW revoke; subsequent petrodollar dictat.
And now we have the reality of blowback.
And don't wank in denial : "this isn't capitalism."
IT IS... the only one that exists since France the statist lost at Waterloo!
The world went full blast into the East India Company template of Imperial capitalism based on Industrial revolution and gunboat diplomacy.
And we are still on that route as the FED and the TBTF "cut and pasted" the private Bank of England model and the old East India Company colonial hegemonial monopoly into PRIVATE OLIgArCHY dominated WS and Pax Americana post WW2 !
QED.
And now we have the reality of blowback.
Without a theory, one has no basis of understanding. Any attempt by government to interfere in the market always induces blowback.
And don't wank in denial : "this isn't capitalism."
Sorry man. Government is not a capitalist institution by any stretch of imagination. It is as anti-capitalist as it is predatory and parasitic. The free in "free market" means no government interference. You fail to distinguish that difference.
What you percieve as capitalism is a theoretical Austrian school system that has never materialised. It is a very good system in theory, probably the best.
What I percieve as capitalism however is a very real system lasting for about 2 centuries. BTW causing 2 WW and a few european wars starting with Napoleon. As my avatar hints, Marx's critique of capitalism (with minor exceptions) is valid today more than ever. It is not a critique of a theretical system, but of what is actualy happening. Blaming capitalism hence is fair game. An asterix next to capitalism might be good to explain it as Keynisian capitalism.
The reason why Austrian capitalism cannot work is that during a recession, very rich people do not want to lose their wealth. They would rather pay off anyone who can prolong their wealth. Hence the bad debt/wealth is not purged and the basic imbalances cause more and more friction in the system.
What causes friction is inequality. If everyone had the exact same amount of wealth (theoretical extreme), trading anything as of that point would bring in record returns on capital (no friction). Demand would be at a higher point. The opposite causes deflation (poor people are bad consumers). On the other side supply would be haulted if everyone has to be equal.
The reason I am harping on inequality is debt. Debt is the primary way of increasing equality over short term as it provides a more equal amount of resources per person leading to greater aggregate demand in the beginning. But then comes paying of the debt which drains demand per person. On the other side debt is wealth. There is only so much actual wealth in the world and the resulting inequality. Providing debt however allows inequality to rise as a time function is added to earnings, turning earnings into wealth. That means that even more wealth can be accumulated. As wealth at this point becomes a theoretical mathematical construct it just turns into a measure of inequality. Max inequality=max debt=max wealth. This is where keynesians win temporarily because keyneisan capitalism allows increasing inequality/wealth over a longer time period than Austrians.