In Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle I stated: “It’s no mystery why central bankers are mystified: Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.”
Reader Jon wants to know what I do believe and if I have any links.
Specifically, Jon asked: “Mish, if you are not a Keynesian nor a monetarist, what theories do you believe and do you have links or references about them?”
I subscribe to the Austrian school of economics covered in points 1-4 and 8 below.
Reading List
- Economics for Real People by Gene Callahan
- Economics in One Lesson by Henry Hazlitt
- What Has Government Done With Our Money? by Murray N. Rothbard
- Case Against the Fed: Murray N. Rothbard
- Tomorrow’s Gold Marc Faber
- Capitalism For Kids: Growing Up To Be Your Own Boss by Carl Hess
- Debunking Modern Monetary Theory (MMT) & Understanding it First by Erik Zimerman
- An Introduction to Austrian Economics by Thomas C. Taylor
Items two, three, four, and eight are free downloads at mises.org. Item seven is a free website article.
Links 1, 5, and 6 go to Amazon. I get a tiny cut of the action out of Amazon’s pocket. If you prefer Amazon gets the full price, then remove my reference.
Tomorrow’s Gold is an investment book by Marc Faber, one of the best ever, but it is not about the question asked. The book appears to be out of print. The best option may be to buy a used copy.
MMT, Keynesian, Monetarism Fatal Flaws
MMT, Keynesian, and Monetarism all suffer from the same fatal flaw: They promise something for nothing, in various ways.
Brief Keynesian Rebuttal
The average 6th grader would immediately understand how absurd it is to pay people to dig ditches and other to fill the holes, but the average Keynesian believes such silliness.
The chief proponent of Keynesianism today is Paul Krugman. He believes that if you “prime the pump” economic activity feeds on itself and it becomes self-sustaining. Japan proves otherwise so do trillions of dollars in piled up US debt.
Neither Krugman, nor anyone else, has ever bothered to explain what happens when you stop paying people to dig ditches, but the result is obvious.
Brief Monetarist Rebuttal
The Monetarists believe if you cheapen money by flooding the world with it, there is a benefit. History shows that by the time access to money is readily available to the masses, major problems are at hand.
Ben Bernake and Janet Yellen, the former and current Fed chairs, are monetarists.
The results of 2000 and 2007 are in. The benefit was to the banks, the wealthy, and the political class first in line to get cheap money, at the expense of everyone else. Few people see today’s problem because the bubbles have not yet popped.
Brief MMT Rebuttal
MMT says government is different. It owes the money to itself and the debt can be canceled at will. in MMT theory, a benevolent government would spend the money wisely, cancel all the debt or pay interest to itself, and everyone will essentially live happily ever after.
I believe Ellen Brown falls into the MMT camp. So do many of those who propose a “free” guaranteed standard of living for everyone.
Erik Zimerman does a beautiful job in debunking MMT in the link provided above.
Greenspan on Free Handouts
Former Fed chairman Alan Greenspan offered a pertinent comment in January on free handouts and growth.
Alan Greenspan: “You can’t get growth going so long as entitlement expansion is anywhere near where it’s been recently. It’s eating up the sources of investment and the sources of growth and you can’t have it both ways. You cannot fund all of the entitlements that everybody wants and expect that you are going to get GDP growth out of that at three percent or more.”
Also in January, Greenspan said there was no stock market bubble. Just this week, Greenspan commented about bond bubbles. I offered this insight into Greenspan:
When Greenspan is widely ignored, as in his warning about entitlement spending, he is quite often correct.
Greenspan now says there is a bond bubble. Here is my complete reply: Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bub
Something for Nothing
Any economic theory that proposes paying people to do nothing, debt is not a problem because we owe it to ourselves, and/or there is some sort of overall economic benefit to rising prices is charlatan economics.
The average sixth grader understands it’s better to get two candy bars for a dollar instead of one, but the average Keynesian and Monetarist doesn’t.
Falling prices and higher standards of living go hand in hand as do higher productivity and falling prices.
It takes years of training to get someone to believe total economic nonsense, and that is precisely what academia provides.
Related Articles
- How Twisted Minds Function
- “Idiosyncratic and Transitory Factors” Holding Down Inflation: New Definition of Transitory
- Ellen Brown’s Certified Nutcase Proposal to “Save Illinois”
On deck is another round of destructive asset price deflation, brought about by Central banks who sponsor complete economic foolishness.
Addendum: Teacher Response
Excellent post, one of your best, Mish! I have only one correction: In my experience as a teacher, even 2d graders understand the absurdity of digging holes and filling them up! More proof that young kids are smarter than adults.
Mike “Mish” Shedlock
It’s all about easy and cheap prosperity and buying votes.
Instead of hard work, savings and sacrifice.
It’s has been tried all through out history.
It always end in misery, ruin, bankruptcy, a change in government and war.
And for those who are really serious about learning Austrian Economics,,,,,
https://mises.org/sites/default/files/Human%20Action_3.pdf
No charge,,,,,you’re welcome 😉
YO !! 952 pages of teeny tiny letters with no pictures……….
Professor…..any way you can condense that into a couple of sentences with no comma’s….?
🙂 🙂
Monetarism is a focus on the money supply. Keynesian is a focus on spending. Dent focuses on demographics. Laffer focused on taxes. Austrians focus on credit expansion and contraction. All of them are right, within the areas that they focus on, but they also have limitations. Monetarism gives you no guidance how to fix things, and can produce errant predictions if velocity changes. To actually use Keynesian principles, in addition to spending more during contractions, you have to spend less during expansions, something that our political system doesn’t allow. Focus on demographics leads you to general truths, but fails when it comes to short range predictions. Focus on tax rates is useful in only narrow circumstances. And, finally, focus on the credit cycle tends to overlook it’s cause, which of course is the demographic cycle (credit expansions are initiated when a baby boom starts buying and furnishing homes, and contracts as they retire).
Very good, Carl —- THANX !!
Y E P !!!
Nice. And hard-hitting Mish. It’s good to tell it like it is, but you know politicians.
Excellent post, one of your best, Mish! I have only one correction…in my experience as a teacher, even 2d graders understand the absurdity of digging holes and filling them up! More proof that young kids are smarter than adults…
Thanks, I added this addendum
Addendum: Teacher Response
Excellent post, one of your best, Mish! I have only one correction: In my experience as a teacher, even 2d graders understand the absurdity of digging holes and filling them up! More proof that young kids are smarter than adults.
thanks mish
Mish, I clicked on the link to Tomorrow’s Gold, but the edition on Amazon is very costly, as it must be out of print. There also appears to be many editions, but Amazon is not clear on which is which. Can you clarify which edition is the one you’d recommend? (I would assume the most recent, but again, Amazon doesn’t clearly label them as such). Many thanks.
Tomorrow’s Gold appears to be out of print.
The best option may be to buy a used copy. I changed the link to point to new and used versions of the most recent edition. I read the original version.
Tomorrow’s Gold: Asia’s age of discovery Paperback – March 12, 2010
by Marc Faber (Author)
4.3 out of 5 stars 51 customer reviews
See all 5 formats and editions
Paperback
$49.95
9 Used from $15.94
5 New from $28.40
https://www.amazon.com/Tomorrows-Gold-Asias-age-discovery/dp/9889894254
The United States is ranked number one in the top ten industrialized nations for obesity, at 33.9%…In this matter, the Keynesians may be found correct that it is better to pay a sawbuck for one candy bar instead of two…Sorry Kids.
But it is so easy to get the horses to chase the carrot on the string… it works every tome. TINA.
Very nicely stated position! Simple, succinct and even a sixth grader can understand it!
Economic theory’s can be Brocken down into 3 catetegories, the idealist, the materialist and those in between, I have read them all but be prepared to spend a lifetime, it is not easy reading, no school has the monopoly on reality but it is fascinating,this is self learning and you make up your own mind.
+1
lots a readin an none of it’l teach ya ta make a dollah.
Well, Tryst…..maybe, instead of working for a dollah….you could just be an academic professor – and spout your feelings about how stuff works( according to you…) …for that same dollah……:-)
funny thing is I once gave a few lectures at a University at the request of a girl I was sleeping with. Then wound up sleeping with another girl in the class I lectured to. Didn’t make a dollah, but realized then that maybe academia wasn’t so bad. 🙂
So I WAS right about the tryst vs. trust……:-) 🙂
Yep. Unfortunately no trust. Parents live in a house i bought ’em. Probably for the best. if I had been one of those kids Im sure I would have done even less with my life than I have.
I’m an inflationista. I should note that I am referring to inflation of the U.S. dollar and the prices of things expressed in dollars. Since wages have not kept pace with inflation since 2008, there has been deflation there, I will agree.
Post 2008, they printed to save the economy. The banks were bailed out. The mortgage market was taken over by the FHA. Auto and airlines bailed out, etc.
The result is a dollar that is worth less today than in 2008. The printed up money is not all sitting in bank vaults, some of it has made its way into the economy, especially via government spending.
During the Great Depression, banks failed. They actually had to sell their assets to cover their losses (imagine the banks doing this today?) There was widespread deflation in the 1930s as a result.
The next bust will also be papered over. It will be exactly the same game plan as post 2008.
Devaluing everyone’s money to keep a predefined structure intact is political, after that you take your pick.
A more fundamental, maybe the most fundamental, question is :
Should people be obliged to present their offer of goods and services in a given (national) currency, so facilitating complex business structure and taxation as well as mis/management by finance, monetary policy, and government policy?
The answer will depend, for most people, on how the day looks, which is not a very reliable metric. There is no surprise therefore, that these complex systems eventually fail, usually after much trial and error, when the picture looks unacceptable to enough people at once. The way societies tend to work, complex systems tend to work, leads to concentration of dependency, where facets such as sentiment , or worth, develop a highly contagious nature. Where all is reduced to a faceless interdependence that relies on belief and promise that has no real transparency, where even questioning it is enough to cause it to reset in time.
The Austrians say hyperinflation is always a political event.
In the sense of an officially imposed currency, which is a policy, rapidly losing value across the board, it has to be political, and this can only happen because everything is forcefully marked in that currency. If I were sat on a farm, not dependent on the surrounding economy or money, I should think that society had gone mad if I saw everyone reacting to “hyperinflation” – it would just not make sense.
There are other kinds of hyperinflation that are not monetary, say the tulip mania in Holland, so they kind of demonstrate how human sentiment, which can be very volatile and contagious, might combine with policy choices, that on the surface seem straightforward even if misguided somehow, to tip events into chaos.
Some say more control solves it, others say less control avoids it, but people will be people…. at least if people were more decentralised events would be more contained and learning/responsibility more accessible. It seems unjust that everyone gets herded into any stampede , but the system really is designed to encourage everyone onto the same track, so you have to be expected to be labelled a bit “contrarian” just to keep some independence, as opposed to just enjoying that while on “official leave” occasionally.
For God’s sake, the tulips didn’t get bigger they just increased in price. How is that not monetary inflation?
the next bust will not be bailed out as governments themselves will lose the ability to cheaply borrow money as the market over comes the central banks.
The next bust will be the big one, and banks will be bailed-in, not out.
Well, Mish, your quoted article does not debunk MMT. It mostly agrees with it with some quibbles about detail as he points out in Warren Mosler’s ideas. Debunking MMT is only possible in some details as its an explanation of reality. You may as well debunk the theory of gravity, where there will also be quibbles at some level.
I suggest you take up some of your time to study it in more detail for your conclusions are erroneous.
Thinking you get something for nothing is stupid, MMT doesn’t say that. The currency comes from thin air alright, just as the Constitution and laws do, but the government spends by BUYING DEBT. It has debts because it instigates work, which may be a Mexican wall or a fighter jet or a schooling system, healthcare system etc. The private sector cannot do this although it can contribute.
Anyway write up some specific objections and I will explain them to you.
Just rebut the rebuttal. He wrote an excellent point-by-point rebuttal of the nonsense of MMT. I could not do it better.
The idea that debt does not matter because it can be printed away out of thin air is preposterous: something for nothing.
It distorts prices, one of the things the article mentions.
This sentence of yours easily explains the stupidity of of it all
“It has debts because it instigates work, which may be a Mexican wall or a fighter jet or a schooling system, healthcare system etc. The private sector cannot do this although it can contribute.”
So we can get free walls, free fighter jets, free healthcare systems.
Get real.
“get real”indeed. Like all laws and the constitution etc, thin air is the source. The constitution gives the Federal Government the monopoly to create the currency. In today’s fiat money there is no backing except the state itself, via coercion if necessary but usually the Full Faith and Credit of the government.
You are badly misinformed if you think the government gets its finances by borrowing or from taxes. It is a logical impossibility. You earn money in order to pay taxes and to know how much the tax is. Therefore spending has to PRECEDE tax. The government has to spend first so it can ‘borrow’, which it being monetary sovereign has no need.
Treasury gets its currency into the economy by INSTRUCTING the Fed to mark up the numbers in the customer banks’ reserve accounts held at the Fed. From there the numbers are transferred to the high street banks and are then available to spend.
So for the wall, the fighter jet, etc the customer charged with building the wall or the jet get their invoices paid. The money comes from instructions to the fed etc but no account is debited. Why? because the money was created by an instruction to pay. No taxpayer is involved.
The “nonsense” is totally in your mind. It’s not something for nothing. It’s something for a debt incurred. Money is created to BUY DEBT. So at any time the fed can pay for its debts and it has no need to borrow or to save.
Zimerman’s piece if it agrees with your opinion is a nonsense. Here are fifty lies about the economy you need to understand. Stop being a patsy for the wealthy who don’t want you or us to know how the economy really works. MMT is the antidote to the mainstream rubbish.
https://mythfighter.com/2017/08/06/fifty-lies-you-have-been-told-about-our-economy-do-you-believe-any/
“Treasury gets its currency into the economy by INSTRUCTING the Fed to mark up the numbers in the customer banks’ reserve accounts held at the Fed. From there the numbers are transferred to the high street banks and are then available to spend.”
No, Treasury has a demand deposit (checking) account in the Federal Reserve System. It acts like our demand deposit accounts (the Treasury cuts checks and transfers money electronically) except it is not part of the commercial banking system and the money supply and reserves are temporarily affected as money moves into an out of Treasury’s account and the commercial banking deposit account associated with the other party in the transaction. There are accounting changes to the Treasury account as the FRS clears the transaction. They don’t just tell the Fed to put money in someone’s account and that’s that.
“You are badly misinformed if you think the government gets its finances by borrowing or from taxes. It is a logical impossibility. You earn money in order to pay taxes and to know how much the tax is. Therefore spending has to PRECEDE tax. The government has to spend first so it can ‘borrow’, which it being monetary sovereign has no need.”
No, it is not a logical impossibility. Notes first got into the system as paper backed by gold deposits. The government did not have to spend those first notes into circulation. They were banking system substitutes for private gold deposits.
The existence of money preceded the issuing of notes, not other way around. The breaking of the link to gold seems to have confused many about this.
No again. The demand deposit is just the way the operation is conducted. [yours is the longhand version]. The funds come electronically via instructions from thin air. It changes nothing that it passes through this account or that.That’s just record keeping
.
It HAS to be that when the dollar was created it preceded taxes, by definition. This doesn’t change just because there is a lot of money in the system. The pre-existence of metal money does not alter that. Every dollar eventually ends up back with the government and new money takes its place. The Fed only spends new money. It does not recycle it. Tax money “dies” in Treasury accounts. It gets used in T&L accounts on its way to Treasury, for monetary purpose.
Treasury only issues instructions as I said before.
MMT considers governments can spend money exactly for the greater good……this has only ever been done in very few instances.
Politicians spending money wisely with no special interest pressure?
And then there’s the absurd stance that ANY money spent[printed] is good.
Who are these angels to deftly spin the economic knobs to defy the natural economic cycle?
Belief in these ‘angels’ and ignorance of basic human nature is also the basis for communism……how did that work out?
like the waves on the water, the cyclical heat output of the sun [not to be confused with manmade CO2] and the changing of the seasons, the business cycle will eventually overcome all attempts to control it.
The main issue is are prices transparent and how are they minimizing sub-optimal investment? Credit viability depends upon the residence the economy can have recessions. Recession can be from economic forces or from market forces. Economic recessions are typically inventory overshoots (flow) but the more nefarious are market originated recessions (stock). A market based system has to be able to withstand both types of shocks to be enduring (i.e. prevent a default from sub-optimal investment so large that the sovereign defaults). The sovereign credit is the ultimate impact attenuator for the overall economy. How pervasive is sub-optimal investment in the US economy and the global economy now given the path of leverage we have been on?
The current sovereign – CB leverage cycle is not aimed at preventing sub-optimal investment it aims to cause and extend it and distort prices. There is no going back from this cycle. Policy makers are simply doubling down against demographics, technology and their previous leverage. They simply are bailing out previous bailouts. While the expansion of current is a record and they may feel they have “saved the day” imbalances have never been greater. Our society is rife the idea of things being “fake” these days. Its a symptom of our culture being too “me” centric not “we” centric. Its ironic that the greatest capitalist system in the world is completely dependent on a socialist/communistic monetary and credit base. Which tells me its not a capitalist system at all.
There is simply no end to the current policy path. When the CB balance sheets can’t absorb the needed debt issuance monetization will ensue. The biggest risk to the economy is not inventory cycles but how it is funded. Without the centrally planned funding, prices would be at much different levels. Hyper asset inflation and extreme wealth and income inequality with booming deficits is the trend that is not only in place but cannot stop or reverse without significant disruption.
Is the sovereign at risk from the current policy path? imho the answer is undoubtedly yes.
In other words all the King’s horses and minions cannot replace market discovered rates, prices and wages.
*** emphasis is mine. Note that the following is not just applicable to climate models.:
Verification, Validation, and Confirmation of Numerical Models in the Earth Sciences
Naomi Oreskes, Kristin Shrader-Frechette, Kenneth Belitz
SCIENCE * VOL. 263 * 4 FEBRUARY 1994
Abstract: Verification and validation of numerical models of natural systems is impossible. This is because natural systems are never closed and because model results are always non-unique. Models can be confirmed by the demonstration of agreement between observation and prediction, but confirmation is inherently partial. Complete confirmation is logically precluded by the fallacy of affirming the consequent and by incomplete access to natural phenomena. Models can only be evaluated in relative terms, and their predictive value is always open to question. The primary value of models is heuristic.
https://pdfs.semanticscholar.org/c75d/9457985303b84d3726440151a46d7135a428.pdf
Excerpt:
Numerical Models and Public Policy
Testing hypotheses is normal scientific practice, but model evaluation takes on an added dimension when public policy is at stake. Numerical models are increasingly being used in the public arena, in some cases to justify highly controversial decisions. Therefore, the implication of truth is a serious matter. The terms verification and validation are now being used by scientists in ways that are contradictory and misleading. In the earth sciences-hydrology, geochemistry, meteorology, and oceanography
***numerical models always represent complex open systems in which the operative processes are incompletely understood and the required empirical input data are incompletely known. Such models can never be verified. No doubt the same may be said of many biological, ***economic***, and artificial intelligence models.***
Tomorrow’s Gold appears to be out of print.
The best option may be to buy a used copy. I changed the link to point to new and used versions of the most recent edition. I read the original version.
Thank you sir. Wanted to make sure you get your tiny piece (nano-slice?) of the Amazon pie.
@Mish. Commentator Shamim only copies excerpts of other people’s comments…could he/she at least use quotes.
>
Mish I can not tell you how much I appreciate you and love reading your articles. It helps me to stay on the right side of sanity when most of what I see in the news or hear from “experts” is crazy. But when everyone around me is constantly saying the same mantras such as debt is good or does not really matter at all it gets hard to recognize the crap put out by some of the people you mention above. Anyhow thanks, you are greatly appreciated. Well probably not by Krugman.
I agree that rampant, financed government spending saps the “real economy ” . I also agree that entitlements have burgeoned those costs. ( i have heard A. Greenspan mention this on other occasions.) . But it seems we should also lay blame on our massive defense spending.
Is this a sacred cow?
I would slash defense spending by 2/3 if it was up to me.
But heck, we could quadruple it under MMT theory
You nailed the fallacy of the MMT argument when you said “benevolent” govt. That is probably the greatest absurdity of all, the belief that those in charge of the purse will somehow do the right thing when no one else is looking. Human nature suggests otherwise, thus the MMT dream is just that…a magical work of fiction! You just end up replacing one set of crooks for another.
Ordinary plain vanilla capitalism works pretty darn good under very specific conditions. If total private debt is around half of GDP and public debt is low enough that other countries will trade with us and buy our sovereign debt then it’s safe to predict good times. If total private debt reaches 150% of GDP there is likely a crack up boom coming and if private debt grows 10% or more ahead of GDP simultaneously that’s your crack up boom happening. This part the Austrians get conceptually right but without the specific trigger numbers given above. Those are from Steve Keen and Richard Vague. The Austrians argue the only practical path forward after a crack up boom is bankruptcy of many firms who borrowed too much and massive debt default and restructuring. Some claim there are better paths forward after a crack up boom and financial crisis. Steve Keen suggests that fiscal deficit money printing and per capita distribution with the proviso that debtors must use this to pay down debt can return total private debt to .5 of GDP while simultaneously saving firms from bankruptcy by creating new demand for goods and services largely from the poor who are among the few who are not in debt and so will spend their Jubilee money. Keen’s plan is a one off debt Jubilee like in the Bible, not a permanent ongoing wealth transfer. No doubt both paths; Austrian bankruptcy and default and restructuring or Keen’s debt Jubilee can return us to low total private debt to GDP and freedom from oppressive debt. The question is which is the best choice.?
Krugman says banks and private debt don’t matter because banks simply move money from savers to borrowers. This is wrong and is a bastardization of Keynes.
MMT ignores the role of bank private credit creation in expanding the money supply but correctly points out the unimportance of public debt issuance in dealing with common predictable consequences of private debt expansion driven crises which is a weird disconnect. MMT neglects or minimizes the problems like inflation and reluctance by trading partners to exchange real goods for printed money. These are related of course.
I believe when you are recovering from a crack up boom decisions are complicated because your economy is likely in deep trouble and politics can interfere with paths forward you thought were the best choice. The French Revolution and Bolshevik revolutions are good examples of how the wheels come off the economic wagon when politics intrudes.
“Steve Keen suggests that fiscal deficit money printing and per capita distribution with the proviso that debtors must use this to pay down debt can return total private debt to .5 of GDP while simultaneously saving firms from bankruptcy by creating new demand for goods and services largely from the poor who are among the few who are not in debt and so will spend their Jubilee money.”
Is the rule that debtors must pay down debt apply to the others in that they have to spend? What happens if debtors don’t pay down debt but spend it? What happens if the poor want to save? How do you pull this off without a few bankruptcies.
I feel the problem with this solution is we are probably too far ahead on the debt road to be able to pull this off.
According to Keen we can try this incrementally and see if the needle is moving to increased growth. He thinks it should work incrementally and on the margin. The political will to ignore and suppress this quite reasonable experiment suggests powerful interests have no intention of letting this start to work.
“What happens if the poor want to save?”
HR departments are automatically signing up new employees for 401(k) plan participation. If you are in your 20’s it is a slam dunk financial opportunity. I expect more folks will wake up to tax deferred savings and the magic of compounding interest. Notice I don’t extend the qualifier of labeling them poor. Passive strategies with automatic enrollment. The markets are upward biased. Is that a good thing? If you are young it damn sure is.
http://www.businessinsider.com/millennials-are-actually-some-of-the-best-money-savers-in-the-country-2016-3
“The markets are upward biased.”
Except that the Nikkei has still not returned to 39,000 in nearly 28 years.
but nonetheless, it happens to be technically correct.
Pray tell, how did it ever get to 39,000?
Again, it is for the young, something Japan is running out of.
401k accounts may be a very BAD deal if there’s a blowup and a bail-in.
If you want to free people of debt, a jubilee will only encourage more due to it being forgiven.
Those in debt will keep the assets they staked but did not buy, those that did not buy and have no debt will be rewarded with paper.
We are not in a biblical system of hard money, we are in a fiat system of consumer and state finance.
The Jubilee won’t last forever. If it works and growth resumes we would then need to restructure banking and finance to avoid a repeat. Guess who hates the idea of trying a small Jubilee experiment?
I understand that would be the aim, but it would set a precedent.
There are always reasons to be found for centralized intervention, personally I don’t like the idea of being a non voluntary subject of anyone else’s experiments.
“Neither Krugman, nor anyone else, has ever bothered to explain what happens when you stop paying people to dig ditches, but the result is obvious.”
Moreover, if it does not work, it is because YOU HAVE NOT DONE ENOUGH and you have to do MORE OF IT (Money Pumping). Ask them to name a figure or time, then there will be no answer. ($4.5T and 8 years later, the Fed trembles to raise interest rates by a measly 25basis points)
Also if the asset bubble bursts, you cannot see it coming, so they are not to blame and if it bursts, screw savers, retirees, prudent people, pension funds, get accolades (for a bubble created by them), prizes for saving the world and go about creating the next bubble and get more accolades. A perpetual cycle if you will.
Unfortunately presently in this world they are ruling the roost! Hopefully soon the world will see the Fed will get its the Marie Antoinette moment.
With a very small correction MMT can become Austrian Economics. http://howfiatdies.blogspot.com/2013/09/cmmt-cates-modern-monetary-theory.html
I feel the problem with this solution is we are probably too far ahead on the debt road to be able to pull this off
Reblogged this on Tom Luongo's — Gold Goats 'n Guns and commented:
Mish is exactly right here. Mises said, “money is the commodity where the production of which provides no net benefit.” All modern economic theories ignore this basic tenet of money.
Why we are headed for a crash is the fact that each of them are wrong because there is a limit to which:
1) Keynesians can pay people to dig ditches and fill them in
2) You can print spending by printing more Monetarist money.
3) Investors believe the Monetarist lie that ‘we owe the debt to ourselves.” Otherwise why not issue debt ourselves and cut out the government middle man, and pay ourselves the coupon?
This is why GDP is a fundamentally flawed statistic. It talks about the quantity of spending not the quality of it. Eventually, the economy, like Mises’ Master Builder runs out of real bricks to build with and the whole thing has to be torn down and started over, once it has been revealed that the pool of real savings is inadequate to support the economic activity.
Mish’s list is excellent. I’ve read the first four. To this I would add Mises’ Socialism and Hayek’s The Road to Serfdon to get an understanding of the sociological effects of these cancerous theories.
Keynes would blush at what central banks have done, with a recovery he wanted to ‘pay the money back’
We all know that too much is not enough for us collectively, the pressure to continue to print/stimulate even after a recovery will be unrelenting.
Homo Sapiens just cannot judiciously apply anything….FACT.
Krugman defies logic on a grand scale. He claims that New Deal spending lifted us out of the Great Depression, and ignores that when Congress ended that spending in 1939 the nation promptly slid back into recession. He then claims that World War Two spending brought the nation into prosperity, during which one could not buy gasoline, tires, meat, cigarettes, or sugar without rationing coupons. Some prosperity! He then claims that US post war prosperity had nothing to do with us having bombed our competition into rubble, claiming that in doing so we also destroyed our customer base.
I remember chatting to a guy at BZW about the value of money. As he pointed out the Pound Sterling on the day War was declared in 1914 had exactly the same value as on the day Napoleon surrendered his sword at Waterloo. Today that 1914/1815 Pound is worth a penny. Governments and Central Banks – and the Bank of England has been better than many – have so debased the coinage that it is effectively worthless.
Love the Waterloo reference.
It has been going on since the dawn of civilization. Like my namesake who back when Alexander the Great ruled the known world at the age of 32. Debasement of currency was taking place. No matter the status quo at the time or place, nor the type of currency in the realm. SOMEBODY was trying their best to debase it.
It’s fun just to watch the newest, latest spin the modern banker/politician puts on it.
i think Greenspan was got at / threatened after that speech in 1996 which was DEAD ! on. He seems an intelligent cove compared to dull Bernanke and over promoted DINER LADY Yellen BUT pray tell me how have joos been in charge of the Fed for at least THIRTY years when they represent 2 % of the population.
Never seen that commented on ever but I suppose we know why.
omg DINNER lady
The problem with most economists and bureaucrats are they lack real-world experience, and perspective. Like the gloBull warming alarmist who must believe the earth’s climate has existed less than 100 years, or investors that think linearly (if this, than that) and are US-centric, the Marxist and Austrian’s ignore the historical nature of the business cycle, or they think govt can manipulate it.
https://www.armstrongeconomics.com/uncategorized/austrian-economics-v-keynesian-economics/
The Spanish dollar was widely used by many countries as the first international currency because of its uniformity in standard and milling characteristics. Some countries countersigned the Spanish dollar so it could be used as their local currency.
The Spanish dollar was the coin upon which the original United States dollar was based, and it remained legal tender in the United States until the Coinage Act of 1857. Because it was widely used in Europe, the Americas, and the Far East, it became the first world currency by the late 18th century.[2][3] Aside from the U.S. dollar, several other currencies, such as the Canadian dollar, the Japanese yen, the Chinese yuan, the Philippine peso, and several currencies in the rest of the Americas, were initially based on the Spanish dollar and other 8-real coins.
https://en.wikipedia.org/wiki/Spanish_dollar
History repeats because the passions of man have never changed. Yet, either because economist don’t have the data, or the results provide inconvenient truths, these economists and pundits act like man was void of emotions before their selective perspective. Adam Smith’s Invisible Hand captured the passions of man by documenting that it was the culmination of individuals pursuing their individual self-interest that drove the economy.
In politics and economics, one theory has always survived – follow the money. Only one person that I know of has followed the money further back in time than anyone. Martin Armstrong has collected and validated the most economic historical data, which may explain why so many of his forecasts have been dead on. If govt ever gets out of the education business, Armstrong’s discoveries and models will one day be the standard of economic thought.
The fact that you didn’t even mention Smith or Armstrong explains alot, including why you can accurately identify problems, but misjudge the response of markets and voters. Hopefully, after the crash and burn economic reset, Armstrong’s models will be used to guide economies through the always changing business cycle, and short term-limits will be the law of the land.
https://www.armstrongeconomics.com/armstrongeconomics101/basic-concepts/mainstream-vs-austrian-economics/
I don’t pretend to be an economist but these economic theories were derived many years ago. With the new digital revolution, including digital currencies emerging, I believe a new theory must be formulated as all current models are severely outdated. The concept of fiat digital money which to most people is just simple plastic cards and just numbers on a computer screen to bankers begs one to wonder exactly how the concept of worth and money should be viewed.
Nothing is new under the sun, especially man’s passions.
None of the prevalent economic theories of the causes of depressions/recessions consider the most important, which is national budget surpluses. All of the significant recessions in US economic history have been immediately preceded by surpluses. The bigger the accumulated surplus, the bigger is the recession. The surpluses also produce bubbles, again the bigger the surplus the bigger the bubble. This is true of the depressions/recessions that followed the panics of 1809, 1819, 1837, 1857, 1874, 1884, 1893, 1929 and 2000. By 1929, 1/3 of the WWI debt had been paid off. The 2000 recession was preceded by surpluses in the late 1990s and the legendary dot-com bubble. The 2008 panic was not immediately preceded by a surplus, but was caused by the extremely easy money used to fight the 2000 recession. This concept is explained in more detail in my Kindle book “Monetary Drivers of Business Cycles,” https://www.amazon.com/kindle/dp/B01F1IGDHY/ref=rdr_kindle_ext_eos_detail
“The bigger the accumulated surplus, the bigger is the recession.”
The bigger the boom, the bigger the bust. The math on bubbles is that they tend to deflate back to where they began. Any government surplus is coincidental not causational. The Social Security surplus is huge, but the government borrowed and spent all that surplus. It isn’t sitting in a drawer somewhere, being hoarded.
In October, 1998, Greenspan dropped the Fed rate 3/4% and the Clinton era boom followed, as well as well as the blow off top in the Nasdaq.
The Nasdaq then collapsed 75%. The recession was mild, lasting only 6 months, as Greenspan dropped the rate to 1% and held it there, to foster a massive housing bubble. That boom went bust, dramatically dropping home ownership rates.
Hazlitt’s Economics in One Lesson is a free download also from Mises Institute:
https://mises.org/library/economics-one-lesson
“…charlatan economics.”
Sums it up nicely.
“MMT, Keynesian, Monetarism Fatal Flaws”
The fatal flaw is the laws of math. 1+1 still always equals 2, regardless of anyone’s anti intellectual theories, that gain public acceptance.
“The chief proponent of Keynesianism today is Paul Krugman. He believes that if you “prime the pump” economic activity feeds on itself and it becomes self-sustaining.”
Keynsianism isn’t needed. Recessions create pent up demand, which primes the pump.
“Whilst workers will usually resist a reduction of money-wages, it is not their practice to withdraw their labor whenever there is a rise in the price of wage-goods.”
Keynes, John Maynard. The General Theory of Employment, Interest and Money (p. 7). Signalman Publishing. Kindle Edition.
This to me is the primary reason for intentionally inflating currency. If your boss comes in one day and says you have to take a pay cut you’ll spend the rest of your time at the job searching for another one. But if the year end review includes a token pay raise you’ll probably feel a little better about your job, your employer and think you’re getting ahead. Meanwhile at best you’re just getting by.
Governments like Keynes because he was able to convince economists government spending is only good no matter what. Merchants like Keynes because he says saving is bad and consumption is good. Industry likes Keynes because they can screw employees out of labor and put employers into a “benefactor” status with retirement and other benefits instead of straight pay (which can be saved without penalty under a specie standard). Banks love Keynes because they get money before everyone else. Economists love Keynes because he was able to produce a lot of equations and make economics look like a hard science instead of a social science.
I got the same feeling watching economic indicators as I did when a friend started showing me his fancy new stock charting tools in the 1990s and how the patterns would reveal when the right time to trade was going to happen. Because enough people believed in the chart, it came to pass. Because enough people think that the FED has immense power over markets they have immense power over markets. In reality if we all stopped using dollars there’s not much the government can really do. Sure they can go after one or two guys who pay their employees in gold coins, but if we all started demanding it, the dollar would be gone.
Actually, for someone who is such a progressive thinker when it comes to future trends and technological change, I am surprised that our host subscribes to such arcane economic theories. Keynes, MMT, Austrian theories: all becoming less useful with each passing year. The world is changing so quickly that economic theory is being turned on its head. And just when you think you have something figured out, it changes.
People who desire simple solutions to complex problems are bound to be continuously disappointed.
Having said that, humans desire and need some theories to help them predict the future with “some” degree of certainty in order to plan for that future. So I do not fault people for trying to develop economic theories that can help forecast the future.
Just remember that all the conventional economic theories are about as useful as today’s weather forecasts. They simply can’t account for an infinite number of variables. That is why I am surprised to see anyone say that their favourite theory is THE theory to follow.
Nonsense.
By the way I am in New York State this week. I am enjoying NY hospitality. Everyone I have met has been wonderful! I haven’t met an angry American in 4 days. So I guess the blog participants are not a representative sample.
Realist……I think you came REALLY close to hitting it smack on the head….
(and maybe you even DID…?)
Realist, my above comment was pertaining to your comment on theories……
…but being from The Republic down here, I ain’t agreeing to nothing like that about those damn yankees in New Yoarke Ceety……
BillyBob, he says he is in New York State, not NYC.
For my two cents worth , I’m encouraging Realist (after four days!) to go on ahead and venture out beyond his hotel lobby.
Lol. Thanks to you both. Actually, I just enjoyed the best burger I ever had at a place called “Texas Roadhouse”. Amazing.
Try the “Roadkill” next time you go there. Large ground sirloin with masses of sautéed mushrooms, onions, cheeses. Yet, I digress. I assume there is a more or most correct theory, but they are never implemented in pure enough form to know if they are THE answer. Of course some will oppose any practice which doesn’t involve them telling every one what to do and how.
Hey Jake. I actually took a close look at that item on the menu. However, after I had some of their fresh baked buns, with cinnamon laced butter(!) I didn’t think I could handle it. As it was, I could barely finish the burger!
Technically selected private and public entities can issue bonds with infinite duration paying zero coupon and the Fed can buy them. This is a gift of free money to that issuer. So new money creation can bypass Treasury. This is what those 100 year duration Europe sovereign bonds are about.
Added point 8 – a free download
Change point one to Mises free download
– Read Harry S. Dent work/books on the relationship between demographics and the economy. Think: spending patterns. Yes, Dent is a keynesian.
– Read Steve Keen’s “Debunking Economics”. in which Keen (a Keynesian) makes mince meat out of the Austrians and Monetarists.
– The MMT folks also got it wrong. They think that the government can print endless amounts of money/credit without causing “Inflation”. But the MMT folks forget that inflation is defined as an increase of money & credit.
– Krugman is absolutely right about the fact that spending drives an economy. But he completely fails to understand how debt/credit has an impact on the economy.
– Keynes advocated that a governement should stimulate the economy in a recession but ALSO should withdraw that stimulus when the economy is recovering again. The problem is that since say 1980 e.g. the US government kept running budget deficits and therefore kept stimulating the economy, kept running budget deficits even when the US economy was booming (e.g. in the late 1990s). The stimulus was never removed.
– The Austrians conveniently overlook a number of things and by doing so they fail to see the entire picture. A good example of how the austrians fail to grasp a number of things is Murray Rothbard’s book “What has government done with our money?”.
– The Austrians conveniently overlook a number of things to make their narrative fit their views. And by doing so they fail to see the entire picture. A good example of how the austrians fail to grasp a number of things is Murray Rothbard’s book “What has government done with our money?”.
RE: In Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle
Could it be there is real inflation lower than the statistics and a headline like that is a denial and distraction. “Why are they puzzled?” is a distracting question. Also, if it is lower since 2009 it still could be high.
When I was in 6th grade I could get 4 chocolate bars for a dollar. How many of the same size can you get now?