'Austrians' At The Fed?

Tyler Durden's picture

Submitted by Jeff Deist via The Mises Institute,

Coverage of central banks and monetary policy in popular financial media outlets like Bloomberg, Financial Times, Forbes, Wall Street Journal, and The Economist is almost uniformly bad. The reporting and analysis are superficial, and the writers tend to assume facts not in evidence. The same myths repeat themselves ad nauseam: the Fed's vaunted "independence" must be kept sacrosanct; the obvious and proper purpose of monetary policy is monetary stimulus; Ph.D central bankers hold special technical knowledge which us average folks should not question; and central bank decisions are wholly unpolitical.

These myths are used to prop up trite and superficial conclusions, always with the implication that "everyone knows" X, Y, and Z are true about central banking. But many times those conclusions are not true, or at least not widely agreed upon. And when they are reported as gospel truth, the financial press effectively become cheerleaders for the Fed. While they may call for tinkering with interest rates or replacing one Governor with another, the presumption that central banks are ever and always benevolent goes unchallenged.  

For example, consider this recent article from Bloomberg fretting about "Austrians" taking over the Fed under a Trump administration:

Trump's characterization of the current economy as "false" suggests a sympathy for the Austrian school of economics, in which short-term monetary benefits are believed to come with longer-run costs. The "false" economy fosters asset price bubbles that pop and end in an even deeper recession than would otherwise be the case.

 

A Fed packed with Austrian economists would likely react slowly to a recession and resist extraordinary policies such as quantitative easing. They would also likely attempt to tighten policy soon after the recession ended. They would, in other words, tend toward a liquidationist approach that risks turning the Great Recession into another Great Depression.

I hate to break it to Bloomberg, but thanks to central bankers, liquidation and contraction are in fact the solutions to our economic issues, not problems to be avoided. And the economy is indeed a house of cards, starting at ground zero with the Fed's balance sheet and the Fed Funds Rate. But is the Fed really about to be packed with Austrians? Who knew that Trump's election means the Ivy League economists at the Eccles Building have been busy cramming Mises and Rothbard, or at least looking up Paul Volcker's wikipedia page? 

First of all, there is no indication whatsoever that Donald Trump employs or intends to employ economists who are sympathetic to the Austrian school. Even the appointment of Dr. Judy Shelton to his economic advisory team, which raised eyebrows simply because she advocates some level of gold backing for the US dollar, hardly portends a hard-money Fed. Dr. Shelton may be a breath of fresh air relative to the Greg Mankiws and Glenn Hubbards, but she is also a "King Dollar" Larry Kudlow type who thinks an international monetary system should stabilize currency exchange rates. She is hardly an Austrian. But in the strangely unquestioning world of monetary policy journalism, any suggested deviation from the Fed's current role as a Keynesian stimulus machine is alarming. Any measure towards tighter monetary policy is portrayed as Austrian-- even when nominal Fed hawks promoting it plainly are not.

Second, it's hard to imagine what a "real" Austrian could do as Fed Chair or Governor. First and foremost, economics is descriptive rather than prescriptive. But even if a Joe Salerno or a Jeffrey Herbener magically were appointed as Fed board members, the mechanics of the Open Market Committee require manipulation of the monetary base and interest rates. At most, an Austrian at the Fed could serve as an uber-hawk and urge the Committee to mimic a gold standard (as Alan Greenspan once claimed it did) to the extent possible. If there is such thing as an Austrian policy on money, it is this: money is a market commodity, it derives its initial value from some use independent of any exchange value, and the price of borrowing it-- interest rates-- should be determined by the relative time preferences of borrowers and lenders. That's it. But all of these views are conceptually at odds with central banking altogether, much less as it is practiced today.   

If monetary policy is misunderstood in the West, it is in some part because financial journalist have let us down. The world needs a new kind of financial reporting, one that dispenses with political agendas (Krugman, Sorkin) and resists hosting glorified infomercials for financial markets (Kudlow, Cramer). One that requires journalists to wear out shoe leather and actually talk to people in the financial world. One that hires journalists with actual knowledge of the areas they cover (especially when it comes to money and banking), not just a journalism degree.In fact, the greatest economics journalist of the 20th century-- Henry Hazlitt-- had no college degree at all.

This is not to say there are not good financial journalists out there. John Tamny (Forbes, RealClearMarkets) is one example of someone who understands various schools of thought and writes in a layman-friendly style. But most are not good, and in fact are wedded to a pro-Fed, pro-state ideology that subconsciously permeates everything they write. They are hopelessly unobjective, the naive products of their education and training The world needs real diversity of thought and opinion, not the fake kind being discussed at the Fed. Such diversity necessarily includes the view that money is something better left to markets altogether, rather than governments and their bankers.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
King Tut's picture
King Tut (not verified) Nov 27, 2016 5:05 PM

An Austrian painter?

letsit's picture
letsit (not verified) King Tut Nov 27, 2016 9:15 PM

"The world needs real diversity of thought... at the Fed."

Fat chance. The clique that controls it won't allow it.

http://biblicisminstitute.wordpress.com/2014/08/24/the-corrupt-federal-r...

JRobby's picture

50 years of FED stocked academia has brought us to the end.

It's over

Rabbi Chaim Cohen's picture

Indeed. The Fed members should stay exactly the way they are so when the reset finally happens our neo-Keynesian overlords are standing there ALONE when the sheeple are looking for who to blame. This was THEIR idiotic plan for monetary nirvana. IMO, discussing Austrians in the Fed is like asking the green party what strategy they would use when managing the NRA or Halliburton.

t_kAyk's picture

hopefully an Austrian demolitions team 

GeezerGeek's picture

Some 15 years ago they were practicing on cows. http://rense.com/general9/boom.htm

 

UnschooledAustrianEconomist's picture

Where did you find this piece of gold?

Makes me home sick.

GeezerGeek's picture

Those writers who are "wedded to a pro-Fed pro-state ideology" are not journalists, they are purveyors of propaganda. They serve the interests of their masters; they do not serve the truth.

King Tut's picture
King Tut (not verified) GeezerGeek Nov 27, 2016 5:30 PM

JC tried throwing them out of the temple,  it didn't turn out so well for Him.

scrappy's picture

I think you missed the 2nd part about usury in the graphic.

“You say that Marxism is the very antithesis of capitalism, which is equally sacred to us [The Money Power] It is precisely for this reason that they are direct opposites to one another, that they put into our hands the two poles of this planet and allow us to be its axis. These two contraries, like Bolshevism and ourselves, find their identity in the International.”
Otto Kahn, Investment Banker

How the Money Power created Libertarianism and Austrian Economics

https://realcurrencies.wordpress.com/2012/02/17/how-the-money-power-crea...

https://realcurrencies.wordpress.com/2012/01/25/top-ten-lies-and-mistake...

https://realcurrencies.wordpress.com/2013/10/11/the-difference-between-d...

A lot of you commenters seem to like Edward Griffin right?

Ed Griffin admits the Bankers own all the Gold and that Usury is the issue

https://realcurrencies.wordpress.com/2013/12/19/ed-griffin-admits-the-ba...

Seasmoke's picture

Perhaps. But over 2000 years later people still believe in him and his word. Can't think of a single Tribe member I would ever trust. 

In.Sip.ient's picture

Y'all are wide of the mark.

It doesn't matter who Trump foists on the FED.
Anybody who's game remotely implies a
rise in interest rates spells DOOM I Tell YOU!

OK, well we know better, but that has nothing
to do with the twits who are underwater
with NIRP... never mind a net positive
interest rate!

Darth Rayne's picture

Ending the Fed is difficult as it is the foundation of our current society. The Fed supports the grossly enlarged govt that seeks to increase its control over its own people.

Both the Fed and government need us to wilfully neglect our own eyes, ears and minds. Society will collapse under its own weight. I would rather the transition to an actual civilisation not include too much physical destruction and waste of human life. However, critical thought is apparently somewhat difficult for many. Society does not need, want or desire critical thinkers. A civilisation demands it.

https://davidwatkinson.blogspot.co.uk

wisehiney's picture

Ultimately, there will be HARD money.

Ohhhhhh, it feels so good.

DOGGONE's picture

The WSJ published this real price history JUST ONCE.
http://ShowRealHist.com/begun.gif
At a glance, you want to see it up to date!!

(Delete begun.gif from the URL)
Any wonder why they they keep it out of sight?
The public be suckered!

AlphaSeraph's picture

As an independent I'd love to see more of this type of article propagated by media outlets. I'm seeing a turning. The MSM and Elites have been dutifully exposed by independents over the last 30 or 40 years - many of whom have been labelled "kooks" and "conspiracy theorists". Now with the mass propagation of the internet and this destruction of trust in the corporate MSM, real information is being passed around and trust in these elites and their media is evaporating like water to a hot element.  

Liberty thought and reasoning have been left for people to find on their own and due to a variety of reasons most people simply do not get exposed to ideas that challenge the MSM narrative. Trusted media megoliths spew narratives and presprictions that are harmful to the average working class person (80% of people?).

This veil of darkness is quickly being lifted. 

We as liberty lovers and defenders of truth and the innocent have an opportunity unequalled since the imposition of the Fed was inflicted upon the people of America. Quite frankly all of my above reasoning applies to EVERY country in the West. 

Do not spoil the light that Wikileaks has shone upon the world.

 

 

 

 

 

Lonesome Crow's picture

If one wished to bring light into the sewer and observe rats in action, then simply televise all Fed meetings live at the instant in which they are being conducted.

Only then may the citizens desire that they scatter.

MEFOBILLS's picture

Austrian = junk economics.  Simply because neo-liberal junk economics leads to predictably bad outputs, does not automatically make Austrian theory correct.

Here is one small example of Austrian confusion:

 interest rates-- should be determined by the relative time preferences of borrowers and lenders. That's it

That's not it.  The school of Salamanca, populated by our Sephardic (((friends))), codified this idea of time preference.  

When you factor in money as credit, i.e. a money type that pops into being from nothing as keyboard entries, then please tell me where the time preference is?

Even floating money i.e. gold or sovereign debt free, can have episodes where there is no time preference.  If a rent seeker grabs much of the money supply though some sort of monopoly action - say something like Standard Oil, then in these cases rentier can charge what they want in interest terms.  There is no time preference, especially as they have cornered the money supply through parasitic action.

A real money supply would have a component of debt free that fluxes to allow exchange value, and also become savings.

Another component of money supply should be loaned into existence as sovereign credit, to then channel into the commons, to then leave behind improved productivity and infrastructure.  When that loan is paid down, this form of credit money disappears.  Any interest in this case is easily paid back with improved productivity, and further goes on to lower taxes.  Money is available in the supply to pay this interest.

Somebody who has saved "wealth" money, requires the right kind of money in the supply, and that in turn can have a time preference.  Somebody who labored and painfully saved, they forgave wants - and they should get some interest in return.

It requires an Sovereign to issue money "types" into channels, to then have an output.  Markets are not Magick, and are not God - they also are of the law and a human creation.

Below is a chart of Canada's debt position when they had a sovereign money system, 1938-1974.  This was most emphatically not an Austrian type "everything is elastic market (LoL)" economy:

http://qualicuminstitute.ca/wp-content/uploads/2011/12/fedebt1.png

Note the 1974 takeoff of debt after BIS convinced Canadian's that "markets are magic" and money creation belongs to the private sector.


AlphaSeraph's picture

Notice how that spike in debt occurs very soon after Nixon dissolved the gold standard?

Check that chart for every Western country. You'll see the same thing.

Everyone on the planet had to revise the way they issued currency and credit

 

MEFOBILLS's picture

Nixon dissolved the gold standard.

 

The gold standard from Bretton Woods to 1971 was an international goods exchange standard.  Countries did not run on Gold internally.

This gold standard worked pretty well to balance trade between economies.  ALL TRADE IS ONLY BARTER.

During the Vietnam war, America deficit spent dollars.  Those dollars went overseas, especially to IndoChina.  They then stimulated the foreign economy, and then went on to be collected by central banks.  France, for example, would then turn around and spend their dollars to buy gold from the U.S., rather than buying mainstreet goods.

In this case then there was not an even goods exchange (barter) between economies.  France then drained gold from the U.S.  Ostensibly, U.S. should have lowered exchange rates to then bring goods into balance.  But, Nixon felt that U.S. was shouldering the burden of war, and then closed gold window.  The closing of the window was a dare for foreigners to buy American mainstreet goods.

This dare failed, because the world then transitioned to a TBill economy, where foreigners bought American debt rather than goods.  We are still in the TBill economy today.

Applying the external trading Gold Standard to Canada's sovereign "internal" system is not applicable.

adanata's picture

 

Although you may be downvoted here, it's interesting you should mention Austrian "confusion" since the 'theories' were funded by Rockefeller then Volker... It's always a set-up.

Austrian Economics was considered the right answer to communism, to maintain the dialectic the Money Power needs....

 

 

conraddobler's picture

In a debt based central banking system with fiat currency the interest rates will always plummet to zero because the rates are the price of the credit and since such a debt based system requires ever larger iterations of debt approaching infinity as the supply of debt reaches towards infinity the price of the debt goes towards....

Zero.

The negative rates imply something so alien as to constitute the most gigantic red flag posssible.

Negative rates beyond theroy imply that you have utterly left Kansas.

UnschooledAustrianEconomist's picture

I really do enjoy the byzantine blabber of the 'Austrians' and the 'Keynesians'.

But let's be honest, there's some new boys in town that will run the show soon. Malthus and Gsell.

rahrog's picture

The Ruling Class doesn't believe in any particular "school" of economics. They worship the gods of power & greed. Destroying entire countries (Libya for instance) means nothing to TRC.

 

Switching a few heads in the federal reserve system will not change the fact that hundreds of trillions of debt have been dumped on the world by a very small percentage of the population. THE FED MUST END.

 

SECEDE from the governments that are owned by central banks and let the banksters eat debt certificates.

VWAndy's picture

 its a cult built to rule

DjangoCat's picture

Jubilee time.  Don't pay the debt.

True Blue's picture

What debt? I didn't contract it, you didn't contract it -this is the Fed and the Treasury jerking eachother off and forcing the taxpayers to act as fluffers, lubricant and post-fiscal-coital tongue bathers. The Constitution has no provisions that allow either Congress or the Treasury to delegate power to a third party; much less an unelected and privately owned entity like the "Federal Reserve."

If debt there is, it is the Fed's debt or the Treasury department's -let them eat it. Maybe they can have a garage sale, or sell their private little preserves like Jackson's Hole (how apt, considering Jackson was the Patriot that killed the first central 'bank' trying to enslave this nation.)

VWAndy's picture

  Alen Greenspan knew better up until there was a big payday in it for him.

bluskyes's picture

The fed needs to have its charter repealed.

I Write Code's picture

The hills are alive, with the sound of money.

hedgiex's picture

The establishment (academia, CBs, Try, etc) operates/promotes the ideology of neo classical economics. This ideology has failed and prying it loose is good enough for an infusion of fresh thoughts. Also, if CBs become more of referees than players and understand that they are tinkering with a dynamic complex system with consequences that their funky models cannot predict. They should only act when few critical metrics like unemployment inflation, etc exist. 

Economies will be more robust in understanding them as complex systems in perpetual state of disequilibria that you prevent from spiining into chaos rather than to be brought to constant equiibrium under whatever economic ideologies. Economies will be safer with less "economisses" meddling with their vanities. 

Example: In the here and now with a peak debt economy, you play with one magic wand of just a monetary policy that dispense a mere 25 bp change in Fed fund rate to constrain a dubious "inflation" fear. Are you sure that this is a panacea for the critical elimination fo the debt overhang ? Where is the credibility that undegirds such jerks when their ponitifications that zero and negative interest rates with QEs had not delvered the trickles for consumption growth. 

outlaw.guru's picture

Two problems with Austrian's. First "If there is such thing as an Austrian policy on money, it is this: money is a market commodity, it derives its initial value from some use independent of any exchange value, and the price of borrowing it-- interest rates-- should be determined by the relative time preferences of borrowers and lenders." Money is not a market commodity from a standpoint of a physicist and Austrian economics as well as other economic schools of thought just do not want to break down what money is. Hence pejorative explanations like this are offered that pretty much describe the relative value of money without going into depth. Money is a floating representation of energy (in Joules/Calories/kWh) in the system. Of course it is a bit more complicated with adding the future/inexisting wealth (energy available and energy accumulated) into the same mix and floating against the sum. There is a science here, but it is left to human psychology and so it becomes an art. Break down the wealth and you can understand the true nature of money.

Second, there is a general problem with liquidation recession. Although this is a healthy way of dealing with bubbles and theoretical future wealth it is problematic to say the least. There are very rich and influential people who do not mind this happening to others as long as their wealth is not endangered. And boom, crony capitalism. You would need some type of a monarch, a keeper of the nation or similar who is not connected to capital to make this happen. The other problem is the general readiness of a country (or its elites) to see this happen in geopolical terms. Say that Chinese are in an upswing after their recession and US enters its own recession 1930s style. All of a sudden the geopolitical balance of the world changes and this creates all kinds of problems for those losing their power. Now the issue becomes one of national security. Especially the national security of an empire.

CatsPaw's picture

I always find it curious that people dont get the massive irony that it is to have more than ONE school of economics.

Here you cant have an opinion, you are either right or wrong. So either A) Economics is just like sociology and its utterly pointless to study or B) Economics is not a science but a tool to enrich yourself by spreading lies. Because if it was any form of science, we would use facts and evidence to to sustain theories, NOT PhDs.

But then again, in the age of political correcness, rageing feminism and refugees flooding europe... yep, everything is doing great.

At least I dont need to make plans for retirement, since Ill never get to it.