by Jerry O’Driscoll I recently read Money, Markets and Sovereignty by Benn Steil and Manuel Hinds. I highly recommend it. The jacket blurb accurately summarizes the book’s importance: “Benn Steil and Manuel Hinds offer the most powerful defense of economic liberalism since F. A. Hayek published The Road to Serfdom more than sixty years ago.” … Continue reading Monetary Nationalism
by Andreas Hoffmann This is good news for inflationists. I am shocked that Jürgen Stark quit his job at the European Central Bank. Usually it is a good thing when central bankers quit their job - or at least it does not make a difference. But Jürgen Stark is known as an inflation hawk. Jürgen Stark - … Continue reading Stark quits ECB
by Mario Rizzo In today's Wall Street Journal frequent contributor to ThinkMarkets, Jerry O'Driscoll, has an important opinion piece, "Why the Fed Is Not Independent." There has been much discussion recently of the importance of "preserving" Fed independence. But is the Fed independent? Independent of what? Jerry concentrates on the link between the Fed's monetary … Continue reading Is the Fed Independent?
by Jerry O’Driscoll The monetary analysis of the housing bubble focuses on the impact of low – even negative – real rates of interest on housing demand. That theory suggests the Fed must be inflating new bubbles with its continued policy of a near-zero federal funds rate. Skeptics ask where are the bubbles? In today’s … Continue reading Where is the Bubble?
by Jerry O'Driscoll "The Weekend Interview" in the Wall Street Journal (A11) is with James Grant. A financial and monetary iconoclast, Grant favors gold over "faith-based" fiat money. He is a trenchant critic of the Fed's low interest-rate policies for "suppressing the proper functioning of the price system." There is an Austrian flavor to Grant's … Continue reading “Faith-Based” Money
by Mario Rizzo I read with interest Peter A. Diamond’s opinion piece in The New York Times, “When a Nobel Prize Isn’t Enough.” Professor Diamond, by all accounts a very competent economist at MIT, is complaining that he really IS qualified to be a member of the Board of Governors of the Federal Reserve System. … Continue reading What Peter Diamond Doesn’t Understand
by Andreas Hoffmann and Mario Rizzo We know from Wicksell’s (1898) Interest and Prices, there is something important about the interest rate that balances saving and investment in an economy over time. This equilibrium interest rate is called the “natural rate of interest”. When market interest rates are below the natural rate, an unsustainable credit … Continue reading Are market rates below the natural rate again?
by Andreas Hoffmann In a recent article in the WSJ, David Wessel sees a “fundamental problem” in the euro zone's one-size-fits-all policy. We know from Mundell (1961) that a one-size-fits-all monetary policy cannot guarantee low inflation and unemployment in all members of a heterogeneous currency area, given e.g. labor markets are not fully flexible as … Continue reading Does one size fit all?
by Andreas Hoffmann and Gunther Schnabl While most advanced economies continue to suffer from high unemployment and record debt levels, monetary expansions in the advanced economies feed a tsunami of carry trades, hiking asset and raw material prices and accelerating growth rates in emerging markets from Brazil over the Middle East to China. While capital … Continue reading Easy Money, Emerging Market Miracles and the Revival of Industrial Policies
by Jerry O’Driscoll In today’s Wall Street Journal, David Wessel (“Capital” column, A5) revisits the question of whether current Fed policy is inflationary. He correctly states the Fed’s position is that inflation is caused by expectations. Inflation will stay low if people expect it to stay low. He quotes Fed Chairman Bernanke: “The state of … Continue reading Let Them Eat Chips
by Mario Rizzo Chairman Ben Bernanke says don’t blame the Fed for rapidly increasing commodity prices and probable bubbles forming in many investment markets throughout the world. I am just doing what is necessary for a recovery in the US and that is in the interests of the world. (See “Bernanke Defends US Policies” Wall … Continue reading Sand Castle Monetary Policy
by Andreas Hoffmann While the US, Japan and Europe slashed interest rates to unprecedented low levels, growth remains sluggish. Dealing with debt problems and supporting the recovery, the ECB provided money to quasi-finance the euro area problem children. Similarly the Federal Reserve is trying to jump start the economy and has been flooding markets with … Continue reading Trouble ahead? Easy money vs. Turkey 1:0
by Andreas Hoffmann Currently there is an interesting discussion in the blogosphere on how it is possible that in Hayek’s Prices and Production framework consumption and investment can increase at the same time. In my opinion they cannot, or only very slightly, but this is not a problem! Because, 1) the explanation is not one of the … Continue reading Hayekian Credit Booms
by Jerry O’Driscoll Philadelphia Fed President Charles Plosser gave a major speech on Monday at the Central Bank of Chile. In the polite language of central bankers, the speech constitutes a systematic criticism of not only current Fed policy but of the Fed’s entire response to the financial crisis. Plosser’s speech updates Milton Friedman’s 1967 … Continue reading The Fed Has No Clothes
by Chidem Kurdas In two substantial New York Review of Books articles, Paul Krugman and Robin Wells offer their views on various explanations of the property bubble and ways to get out of the slump. On the latter front, they advocate aggressive deficit spending by the federal government and quantitative easing by the Federal Reserve— … Continue reading Taylor, Krugman and Quantitative Easing
by Andreas Hoffmann* Most economists agree that the latest crisis was caused by risk-taking incentives (competition for profits, wrong ratings, false policies, moral hazard) along with financial innovations that allowed banks to lend excessively. While monetary policy prevented, for better or worse, a collapse of the financial system, an increasing number of economists also agree … Continue reading Reform the Monetary System?
by Bill Butos Federal Reserve Chairman Ben Bernanke is pushing for another significant round of “quantitative easing” – now dubbed “QE2” by Fed observers – on the grounds that the economy’s response to simulative macro policies since 2008 has been anemic. What the economy needs, this thinking goes, is some inflation. While much of the … Continue reading Up, Up and Away (Again)
by Mario Rizzo This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal. We are now witnessing many important … Continue reading The Second Austrian Moment
by Jerry O’Driscoll Today’s Wall Street Journal features a major op ed, “Principles for Economic Revival,” co-authored by George P. Schultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor. It begins by noting that the “deep recession and anemic recovery have largely been driven by economic policies that have deviated … Continue reading Principled Economic Policy
by Mario Rizzo Professor and Fed Chairman Ben Bernanke did not predict the financial mess and subsequent "Great Recession" -- at all, never mind the extent of each. So now he is charged with predicting where the economy is going and how to prevent or ameliorate further deterioration of the lackluster "jobless" recovery by the … Continue reading A VERY SIMPLE QUESTION
by Jerry O’Driscoll The AP reports today that sales of existing homes plunged 27 percent, despite the lowest mortgage interest rates in history. How could this happen? Part of the Obama stimulus package was a tax credit for homeowners who purchased homes within a stated time frame. The credit has now expired. Economic theory predicted … Continue reading Econ. 101
by Mario Rizzo What has been disappointing about the recent stimulus vs. austerity debate is the recycling of arguments that have been gone over many times before in many newspapers and blogs. The debate has become tiresome and unenlightening. The major feature of the debate that is responsible for the lack of enlightenment is, well, … Continue reading Ending Austerity in the Austerity Debate
by Mario Rizzo Recently, there have been reports in the Wall Street Journal and the Financial Times that Ben Bernanke and others are concerned that banks have not been lending “enough” to small businesses. The accusation is that lending standards are too strict. As Jack Hopkins, the director of the Independent Community Bankers of America, … Continue reading Just Lend And Be Done With It!
By Chidem Kurdas There are enough books about the events of 2008-2009 to fill a library. Nevertheless, there is no coherent framework that integrates the various factors in the dramatic boom-and-bust cycle that goes back to the late 1990s and may still be with us yet. Bruce Yandle offers a welcome synthesis in the Independent … Continue reading Connecting Dots to Financial Crisis
By Chidem Kurdas Headline topics like derivatives are part of the larger issue of how markets function. About this big question there’s been profound confusion in the past two years. Peter Boettke's article in the Winter 2010 issue of the Independent Review clarifies the muddle. A particular mathematical interpretation of what an efficient market is … Continue reading Understanding Efficient Markets