Saturday, 18 November 2017

Author Archives Nicolas Cachanosky

Labor Unrest in Spain

April 6, 2012
in Blog

Well, they do still have to honor siesta… The recent manifestations in Spain against a labor reform are just another symptom of the precarious situation in Europe. Even though Spain is not in the same situation as Greece (yet?), it does have a higher unemployment rate. Manifestations took place in 57 cities in Spain. But […]

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There Are Two Ways to Fix Monetary Policy: the Fast Way, and the Right Way

April 4, 2012
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…and the government way. The expectations of modest growth in January by the Fed deflated to moderate growth in mid-March. The monetary policy that the Fed and the Treasury have followed have failed to have the desired effects. But that doesn’t stop policy makers from trying the same medicine – even if the name for […]

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Digging Up and Digging Down Gold

March 30, 2012
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The Gold Standard is the worst standard, except for all the others. In a recent post at Nada es Gratis (Nothing is Free), Jesús Fernández-Villaverde discusses a visit to the vault where gold is stored at the New York Fed. The post and subsequent comments evolve into some criticisms of the gold standard. I won’t […]

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Unexpected Expectations

March 27, 2012
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Expectations are a key concept in economics. If expectations are coordinated, then the economy is equilibrated and no accumulation of imbalances take place. Rational expectations, more particularly, sustain that even though errors are possible, they shouldn’t be systematic. Namely, a given agent does nos systematically repeat his mistake, and all agents cannot be fooled on […]

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Recovery or Unsustainable Boom?

March 21, 2012
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When you can’t be sure, remember that whatever the government tells you… it’s the opposite. The Economist reports that: “THERE are tantalising signs of good news in the world economy. In America firms are hiring more and consumers are spending more. The euro zone’s recession is proving milder than expected. Greece’s debt restructuring, the first […]

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Would the Real Gold Standard Please Stand Up?

March 5, 2012
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“Bears are animals. Animals have four legs. Chairs have four legs. Therefore, chairs love honey.” What’s wrong with this logic? Don’t ask opponents of the Classical Gold Standard… The gold standard debate has seen a spike recently in different blogs (Bruce Bartlett, David Beckworth, David Glasner, Blake Johnson, Kurt Schuller, Scott Sumner, David Glasner, George […]

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Should Lawmaking Be Against the Law?

February 29, 2012
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The short answer is “yes,” with a “but”; the long answer is “no,” with an “if.” For a market to work and grow, certain rules should prevail and be protected, like private property, enforcement of contracts, civil and economic liberties, etc. But the lawmaking process can be a tricky and dangerous path.  What seems to […]

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Taxes: The Seen and the Unseen

February 27, 2012
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If an inflation tax falls in the forest, and not one in a million understand it, does it make a sound?[1] According to a recent news report by Reuters, “President Barack Obama called on Monday for new spending to boost growth and higher taxes on the rich, laying out an election-year vision for America in […]

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Monetary Equilibrium and Relative Prices

February 13, 2012
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There’s long been debate on the role of an elastic money supply in achieving monetary equilibrium in a free market. Namely, should the money supply follow a 100-percent reserve requirement on banks or should banks be allowed to make use of fractional reserves. The debate offers two lines of reasoning. An ethical argument in favor […]

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What Does Regime Uncertainty Look Like?

February 1, 2012
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To follow the development of the Euro crisis it sometimes feels like watching a slow motion movie where we know the final result, but we don’t know how is it going to be played out. News and uncertainty, again, about the future of the Euro and a potential default by Greece is like following the […]

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What Does it Really Mean to “Peg” Money?

January 24, 2012
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For economics, money seems to be the exception to the rule, the thing that the market cannot provide by itself.  Therefore, it is said, the economist and the government must step into the market (in the form of a central banks and regulators) to manage the money supply and regulate the banking sector more skillfully […]

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European Budget Pact: Right Diagnosis but Wrong Tool?

January 4, 2012
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Other than Germany and France the European countries seem to be in a holding pattern following the agreements between Germany and France. These two countries seem to be driving the crisis and the future of the Euro. After saving the Euro more than once, the last summit made clearer the two paths that Europe may […]

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Rajoy’s Plan for Spain: Conviction or Necessity?

December 28, 2011
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The election of Spain’s new President of Government, Mariano Rajoy, has produced quite a few expectations. His plan seems to go against the tide on some focal points regarding the problems of the European Crisis. Rajoy’s government has been described as the only government in Europe that will not increase taxes to cut the budget […]

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China’s Hard Landing and Hayek

December 28, 2011
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A few days ago, Paul Krugman defended the position that “Friedrich Hayek is not an important figure in the history of macroeconomics.” This triggered quite a few reactions (here, here, here, here and here). Anyone familiar with the general aspects on the history of economic thought will find Krugman’s defense odd. To deny the relevance […]

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Rules versus Solidarity

December 22, 2011
in Blog

A recent news item in The  Washington Times describes the political situation among European countries. In the article two opposite suggestions of how to deal with the crisis can be clearly seen among European policy makers. Take, for instance, the following paragraph: When it was launched in 1999, the euro came with a set of […]

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Three Comments on the Gold Standard

December 12, 2011
in Blog

The financial crisis in 2008, the uncertainty about the future of the Euro and the doubts on the efficiency of monetary policy has brought some renewed interest in the gold standard as an alternative monetary system; or, at least, as a benchmark to evaluate if central banks did actually performed better or worse. This interest, […]

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Gold bugs and Paper bugs

December 9, 2011
in Blog

At Free Banking blog, Kurt Schuller points to Ralph Benko’s reply to Roubini’s statements that “this idea of a gold standard is pushed every other day by these gold bugs [and] is not even a theory it’s a theology,” and that the return to the Gold Standard after WWI was a major cause of the […]

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The First International Financial Crisis: Free Banking Failure or Regulatory Failure?

December 2, 2011
in Blog

The Baring Crisis of 1890 is pointed out as the first modern international emerging financial crisis. The collapse of the banking system in Argentina came very close to triggering a financial crisis in London, the major international financial center. Banks in the United Kingdom were highly exposed to Argentinean debt, especially the Baring Brothers & […]

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Financial Crisis in Europe and Regime Uncertainty

November 28, 2011
in Blog

In recent days, Europe has seen two governments fall: the Prime Ministers from Greece and Italy. New governments where formed. Besides these important changes, the financial markets did not calm down; volatility and uncertainty did not go away as former governments did. This points to the fact that the problems in Europe are not political, […]

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The Lenders of Hazard

November 25, 2011
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The following passage in a note at The Economist points out to the well-known problem of moral hazard with lenders of last resort. But the moral hazard problem affects more than just the financial institutions: The European Central Bank (ECB) rejects the idea of acting as a lender of last resort to embattled, but solvent, […]

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Uncertainty and the Fed’s Job: More Hard Times Ahead

November 23, 2011
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In an exclusive interview with Reuters, Richard Fisher (President of Dallas’ Fed) said that the Fed has done its job: Fisher said, as he has repeatedly, that the Fed has done its job, keeping rates near zero for nearly three years and buying more than $2 trillion in long-term securities to send borrowing costs down still […]

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Europe and the Euro: Attacking the Problem or Dealing with the Symptoms?

November 20, 2011
in Blog

The recent political events in Europe, especially the situation in Greece and in Italy, brought new concerns about the situation in Europe and the future of the Euro. If countries do not honor their debts, how hard will their economy be hit? What happens if any country decides to leave the Euro; will it be […]

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It is that easy to cook up new money?

November 16, 2011
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The financial, and fiscal, crisis in Europe has brought doubt to the future of the Euro. Can it persist, or are we witnessing the end of the Euro? But, if the Euro is to be abandoned, how will the transition play out? In this respect, a latest post in the The Economist’s blog Free Exchange […]

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Business Cycles, Open Economies and Wandering Bubbles

November 7, 2011
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In a previous post we commented on some aspects that are relevant for business cycles in the context of open economies. We also showed that in not a few cases the Mises-Hayek theory of business cycles is offered as an explanation of what went wrong. Even though business cycles have multiple causes and issues going […]

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The Gold Standard Mentality and the Great Depression

October 29, 2011
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It is a common argument that the gold standard was one of the reasons of the Great Depression. The Federal Reserve, it is argued, was unable to follow an optimal monetary policy, with its hands tied with the gold standard regime. However, as Timberlake (2008, p. 304) argues, the gold standard “ended forever at the […]

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The Austrian Business Cycle Theory, Foreign Exchange and Business Cycles

October 21, 2011
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The Financial Crisis of 2008 brought attention, once more, to the problem of business cycles. There are different approaches to study the phenomenon of business cycles. Some of them rest on shocks to the real economy (i.e. productivity of government spending); this is the area of Real Business Cycle Theory (RBC). Other theories rely on […]

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Checkmate?

August 10, 2011
in Blog

The turmoils affecting the economics and financial markets in the United States and Europe do not seem to go away as fast as anyone would want to. Those who warned that this may be a crisis with a “W” shape may well be right. The recent downgrade in from AAA to AA- in the short […]

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Where Is the U.S. Going?

August 3, 2011
in Blog

This week was of high political voltage because of the debt ceiling debate. Could the most important economy in the world default its debt? And in such case, what would happen, not only to the United States, but to the worldwide economy, given that we are in the midst of a financial crisis? The recent […]

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Saving, Hoarding and Fractional Reserve Banking

July 28, 2011
in Blog

Fractional reserves is an important component of financial stability. Most of the financial regulation is aimed to control this aspect of banking practice such that banks do not become insolvent and a contagious set of bank runs gets into the financial markets. It is as if banks were unable to control themselves and regulation coming […]

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Germany and the Financial Crisis

July 20, 2011
in Blog

Lately, a lot has been said about Greece, Spain and Italy in the financial crisis affecting Europe. The fear is that these economies can affect the performance of bigger economies, like Germany, one of the largest economies in the world and the second worldwide exporter. Germany, as well, is in a precarious situation given the […]

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Budget Reform in Italy

July 14, 2011
in Blog

Italy’s senate approved today a plan to cut government spending for the period 2011-2014. Italy’s public debt is more than 100% of GDP and the fiscal deficit was between 3% to 5.9% of GDP for last year. Similar situation is shared by other European countries like Greece, Spain, Germany, Portugal, Ireland and France. Europe, in […]

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Sovereign Debt Pressure

July 6, 2011
in Blog

The European countries seem to be facing a road with no easy exit. One on side they are facing fiscal deficits. On other side they are already dealing with an important debt amount that can hardly be sustained, as the case of Greece is showing these days. On even another front, governments are facing strong […]

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What is Bitcoin?

June 29, 2011
in Blog

The bitcoin phenomenon has attracted quite a lot of attention lately. It has been discussed in many blogs and media websites. But what are they? Are they really money? Can they replace actual monetary institutions? Who issues and manages the bitcoins? Does the regression theorem hold, and if so how? What the bitcoins are, and […]

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Greece and the Lost Opportunity of the Euro

June 23, 2011
in Blog

With the financial crisis affecting the United States and Europe, here and there are comments and concerns on what could happen with the dollar, the euro and even the international monetary order. With politicians and economists warning that the financial crisis can become the worst economic situation since the Great Depression, this concerns comes with […]

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Two Problems with Price Level Stability

June 16, 2011
in Blog

Price stability has become the main concern of central banks around the world. Both, inflation and deflation, are considered bad outcomes. But because deflation is considered to be worst than inflation, it became practice to prefer to err to the side of inflation to be sure we avoid deflation. If price stability (low inflation) is […]

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The Effect of Deposit Insurance on the Good Bank and the Bad Bank

June 9, 2011
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Deposit insurance, it is argued, is needed to cope with inherent fragility of banking and money market. To avoid panics, or financial crisis, a safety net on the system is required. Of course, such safety, is not free. There are not only direct economic costs, there are also indirect economic costs associated with the problem […]

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Private Clearing House Associations versus Central Banks

June 2, 2011
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A relevant figure in a free banking scenario is that of the private clearing house association (CHA). The CHA facilitates clearing services among its members, supplies some regulation to the market and eventually it may become a lender of last resort. Isn’t the case, then, that the invisible hand that operates under free banking will […]

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Stateless Money: The Example of Somalia

May 26, 2011
in Blog

It is a common belief that money and the financial markets are inherently unstable; or that a financial crisis is an easy outcome in the case of a random event (sometimes referred as sunspots). A central bank, along with proper regulation, is what is needed to guarantee the stability of the market. It is true […]

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Neutral Money?

April 28, 2011
in Blog

The idea of money neutrality is a cornerstone in formal monetary theory. It is not free, however, of some controversy. If there are changes in money supply, why will the economy converge to the same equilibrium and not to a different one? If changes in money have a neutral effect in the long run, then […]

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Are Bank Runs a Problem for laissez-faire Banking?

April 21, 2011
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The problem of bank runs is probably the most serious concern in monetary economics. It is clear that if all clients claim back their depositors together the bank will fail. This situation, it is argued, puts the banks in an unstable position where their clients may try to run each other to get their deposits […]

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Why Study Free Banking?

April 15, 2011
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Last Tuesday ATLAS’ Sound Money Project held a panel with the title of “Making the Case for Sound Money” at the 2011 APEE Conference. Jorge Borlandelli from The Nassau Institute, myself from Suffolk University, Tom Duncan from GMU/Sound Money Project and Gerald O’Driscoll from The Cato Institute as discussant were in the panel. I tried […]

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Was There a Saving Glut or a Credit Expansion Glut?

April 7, 2011
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The Greenspan-Bernanke explanation on the cause of the financial bubble rests on the theory of the saving glut. According to this explanation, the problem was not that the Fed mismanaged the monetary policy, but that a saving glut that took place outside the scope of the Fed’s jurisdiction was the cause of the financial boom […]

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Where Did the Free Banking Debate Go?

March 31, 2011
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The discussion in monetary institutions is becoming increasingly relevant in economics. How to deal and avoid financial crisis is an important issue. The recent financial crisis showed that economics might not be as suited to foresee and deal with these problems as the theory seems to suggest. This analysis requires a benchmark in the same […]

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Is the Supply of Money a Natural Monopoly?

March 24, 2011
in Blog

In conventional microeconomics the monopoly is associated with inefficiency. Under perfect competition there are no deadweight losses. This means that resources are efficiently allocated. The monopoly, on the other hand, provokes inefficient production by choosing a low level of production. This inefficiency could be reduced by the involvement of the government; that is, by regulation. […]

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Recovery versus Growth: The Broken Window Fallacy and the GDP Fixation

March 17, 2011
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Extreme events sometimes cause big shifts in the economic point of view of the market process. The recent financial crisis brought back into scene Keynesian economics as a way to cope with the depression and make the economy recover. The recent tragic events in Japan seems to have brought to surface once more the “Broken […]

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Was there a free banking experience in the United States?

March 10, 2011
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An important aspect of the study of sound money is to correctly identify historical cases of free markets in money and banking versus regulated markets in money and banking. If we cannot correctly separate one from another then our conclusions will inevitably be biased. The period known in the U.S. as the “free banking era” […]

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Was Gold Standard too Expensive?

March 3, 2011
in Blog

There are two main reasons usually mentioned to prefer fiat money over gold standard. One is that fiat money offers more flexibility to do fine tuning on the economy and also central banks will have their hand free if they need to go into a monetary stimulus. The other reason is that a regime of […]

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Say’s Law and Keynesian Economics

February 24, 2011
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It is reflected in Keynesian economics that the solution to a crisis is to expand aggregate demand. The economy is not producing at its maximum capacity; it is located inside its production possibilities frontier (PPF). Thus, the solution consists in the government making the economy take off again through fiscal spending or stimulus. This approach, […]

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Is Money a Public Good?

February 17, 2011
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It is a common position in welfare economics that government should let the market work except in those situations where it fails to deliver efficient results. One of those situations is the case of public goods, which are non-excludable in its provision and non-rival in its consumption. Clean air and national security are two common […]

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Dollar Based Free Banking: A Possible Road to Sound Money?

February 10, 2011
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In The Theory of Free Banking (1988), George Selgin offers a monetary reform proposal to go from the actual monetary system based on a monopolistic control of money to a competitive banking system (pp. 164-172). There are different reasons (economic, institutional, political, psychological, etc.) why the return to banking based in a commodity like gold […]

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