Wednesday, 20 September 2017

Blog

The contractionary, contradictory nature of negative interest rates

Posted by Jerry Jordan
October 12, 2016
in Blog

A negative interest rate imposed by a central bank on reserve balances of commercial banks is not an interest rate at all.  It is a tax.  As such, like all taxes, it transfers resources from the private sector to the government sector and has a contractionary effect on economic activity.  The European central banks and the […]

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Leonard Liggio lecture 2016: The classical liberal tradition of sound money

October 10, 2016
in Blog

By Dr. Lawrence White Let me welcome you all to the capital of Latin America. And when I say capital, I mean that much of the financial wealth of Latin America is held with banks and fund managers across the street, here in Miami. And therein lies a lesson in the results of unsound money. […]

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Disappointing estimates of the natural rate

Posted by William Luther
October 5, 2016
in Blog

At the recent Jackson Hole meetings, John Williams, president of the Federal Reserve Bank of San Francisco, argued there has been a  “significant decline in the natural rate of interest, or r* (r-star), over the past quarter-century to historically low levels.” Regular readers of this blog might recognize the view, as I have expressed it […]

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Enhance prosperity and improve health: Slash regulations, please

Posted by Steve H. Hanke
October 3, 2016
in Blog

This article appeared in Globe Asia. Productivity and economic growth continue to surprise on the downside in most countries. While there is a great deal of handwringing over the so-called productivity puzzle, little attention is given to the real elixir: freer markets and more competition. Indeed, the policy tide is moving in the opposite direction in […]

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Don’t blame central bankers for persistently low interest rates

August 23, 2016
in Blog

Many who are supportive of free markets blame central banks for the low interest rates that have prevailed since the end of the 2007-8 financial crisis.  This is a mistake. Central banks can, in the short run and all else being equal, lower market interest rates through expansionary open market operations.  But this ‘liquidity effect’ […]

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Natural rate of interest: Is it that low?

August 10, 2016
in Blog

One of the open questions since the subprime crisis is whether or not the natural rate of interest is as low as the federal funds rate. The natural interest rate is the rate that equilibrates production over time. However, this concept is more subtle than output being equal to potential output– it also implies that production is distributed […]

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On the Italian and eurozone doomsday scenario

Posted by Steve H. Hanke
July 27, 2016
in Blog

This article appeared in the June 2016 issue of Globe Asia. On June 23rd, the voters in the United Kingdom (UK) turned a collective thumbs-down on the European Union (EU). The Brexit advocates – the ones who had had enough of the EU’s mandates and regulations – won the day. But, this is only the first […]

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The monetary ripples of Brexit

Posted by admin
July 20, 2016
in Blog

June 23 will most likely be remembered as a turning point in Britain’s fate, as 17.4 million Britons expressed their desire to sever ties with the European Union (EU) in a historic referendum. The British, and global, economy is facing an imminent cloud of uncertainty. From the moment that the markets opened, and crashed, last […]

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Austerity isn’t failing, big government is

July 18, 2016
in Blog

Bill Emmott at Project Syndicate claims that austerity is failing—just look at the poor European recovery after the financial crisis and the weak Japanese economy. Austerity is not working and therefore it is time to turn fiscal and increase government spending. This is the core of Emmott’s argument. Don’t forget, however, that he considers the Eurozone […]

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Against monetary democracy

July 13, 2016
in Blog

Thanks in part to high-profile and controversial public policy since the financial crisis, and to a lesser extent politicians such as Ron and Rand Paul, the monetary and financial arrangements of the United States have become a surprising source of public indignation.  Monetary and financial policy, previously a subject that would put almost all voters […]

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On Brexit

July 6, 2016
in Blog

There has been a strong (and I’m inclined to say emotional) negative reaction to the Brexit. But really, it doesn’t have to be the end of the world for the British economy. Being a member to the European Union (EU) imposes two constraints.  First, there is an upper constraint on how much economic freedom a country may have […]

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Macro Musings Podcast

Posted by William Luther
June 27, 2016
in Blog

If you are a fan of podcasts, let me recommend this relatively new one hosted by David Beckworth at the Mercatus Center. David’s views on the Great Recession are quite similar to those expressed by me and others on this blog. His list of guests to date includes John Taylor, John Cochrane, George Selgin, Scott […]

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Venezuela vs. Ecuador (Chavismo vs. Chavismo Dolarizado)

Posted by Steve H. Hanke
June 24, 2016
in Blog

This article appeared in the July 2016 issue of Globe Asia. With the arrival of President Hugo Chávez in 1999, Venezuela embraced Chavismo, a form of Andean socialism. In 2013, Chávez met the Grim Reaper and Nicolás Maduro assumed Chávez’ mantle. Chavismo has not been confined to Venezuela, however. A form of it has been adopted by […]

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The Fed’s policies and their consequences for Mexico

June 21, 2016
in Blog

This piece originally appeared in Market Trends By Edgar Ortiz As mentioned in a previous article, on December 16 of 2015 the Fed announced a rate hike of 0.25 percentage points and Mexico’s central bank followed suit the very next day. The decision seemed logical considering that the peso was not ceasing to depreciate and a […]

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The Fed and its dual mandate

June 20, 2016
in Blog

This piece originally appeared in Economics21 By Mickey D. Levy For over a decade, the Bernanke- and Yellen-led Federal Reserve have talked incessantly about conducting monetary policy to achieve the Fed’s dual mandate.  The unemployment rate is now 4.7%, at the Fed’s estimate of full employment.  When inflation rises to 2% by year-end, the Fed’s dual […]

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Op-ed: The age-old problem of low interest rates

Posted by Jerry Jordan
June 16, 2016
in Blog

This piece originally appeared in Forbes Earlier this year, Michael Walker of the Fraser Institute in Vancouver, Canada released a paper that deserves the attention of everyone interested in the subjects of central banking, inflation and interest rates. In it, he makes a claim that could fundamentally change our understanding of monetary economics: An aging population (think of […]

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Is gift exchange necessarily kinder, gentler?

Posted by William Luther
June 14, 2016
in Blog

In a recent Alt-M post, George Selgin calls attention to a post at The Atlantic discussing David Graeber’s gift exchange hypothesis. For those of you unfamiliar with Graeber’s book, Debt: The First 5,000 Years, the basic idea of the gift exchange hypothesis is as follows. Prior to monetary exchange economies, many societies relied on gift […]

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On the price of oil

Posted by Steve H. Hanke
June 8, 2016
in Blog

This article appeared in the June 2016 issue of Globe Asia. Since its high of almost $108/bbl in June of 2014, we have witnessed a stunning collapse in the price of oil. Indeed, in February 2016, a barrel of West Texas Intermediate (WTI) was trading at $26/bbl, a 76 percent plunge from the June 2014 highs. […]

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Op-ed: Trump’s problem with the Fed

June 6, 2016
in Blog

This piece originally appeared in The Hill  By Judy Shelton Donald Trump has a problem with the Federal Reserve. You could call it a love/hate relationship. He loves low-interest rates because, as a builder, low-cost financing enables him to develop new projects that add value to the economy. But he also thinks the zero interest rate policies […]

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IMF economists criticize “neoliberalism”

June 1, 2016
in Blog

In a recent Finance & Development piece, several IMF economists came together to criticize neoliberal reforms made by governments across the globe. Their main argument is that, “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.” More specifically, they criticize “capital account liberalization” and austerity reforms. These measures can […]

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Decline in the volatility of bitcoin

Posted by William Luther
May 25, 2016
in Blog

Bitcoin is widely considered a highly volatile asset. Both the Consumer Financial Protection Bureau and National Association of Attorneys General have cited volatility as a significant risk of holding bitcoin. One might debate the extent to which volatility is a problem for routine users, but there is no denying that volatility has declined significantly. Eli […]

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Should Italians be crucified on a cross of euros?

Posted by Jerry Jordan
May 18, 2016
in Blog

There is no doubt that ordinary Greeks feel that they have been financially crushed by the foreign-creditor-mandated austerity policies in recent years. The nation’s real output has been declining for several years and the rate of decline understates the contraction of real after-tax incomes of many Greek households. Nevertheless, even a left-wing Greek government has […]

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Monetary policies misunderstood

Posted by Steve H. Hanke
May 6, 2016
in Blog

Ever since the U.S. Federal Reserve (Fed) began to consider raising the federal funds rate, which it eventually did in December 2015, a cottage industry has grown up around ­­­taper talk. Will the Fed raise rates, or won’t it? Each time a consensus congeals around the answer to that question, all the world’s markets either […]

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Polycentric banking and financial resilience

May 4, 2016
in Blog

In my previous post, I argued that the institutions underlying laissez-faire banking systems, as approximated by historical cases in Scotland, Canada, and Sweden (among others) provided market actors the incentives and information necessary to maintain aggregate demand stability.  This also means a laissez-faire banking system does a good job of maintaining short-run macroeconomic stability, although this […]

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Austrian business cycle theory and the marginal entrepreneur

April 21, 2016
in Blog

A few days ago Alexander W. Salter wrote an interesting post on the problem of optimal resource allocation during an Austrian business cycle. His argument is that the Austrian business cycle theory (ABCT) can be understood within “a framework of rational expectations and ‘equilibrium always’ modeling conventions.” The argument against the ABCT based on rational expectations is that if […]

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Helicopter money: dropping money from the sky?

Posted by Jerry Jordan
April 19, 2016
in Blog

In the past few years, most major central banks have failed to achieve the higher rates of inflation they claim to want. They tried both “quantitative easing” and “zero-interest-rate policies” with no success. Now there are press reports that in Europe and Japan they are considering “helicopter money.” It is not as easy to give […]

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The monetary challenges of bitcoin

Posted by William Luther
April 14, 2016
in Blog

On Tuesday, the Cato Institute hosted an excellent conference on Cryptocurrency: The Policy Challenges of a Decentralized Revolution. I had the pleasure of discussing the monetary challenges of cryptocurrencies in general and bitcoin in particular with George Selgin, Director of the Center for Monetary and Financial Alternatives at the Cato Institute, Perianne M. Boring, Founder […]

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Polycentric banking?

April 11, 2016
in Blog

One of the most interesting areas within the analysis of governance regimes is the literature on polycentricity.  Polycentric governance systems are characterized by fractured and concurrent authority.  In other words, in polycentric systems, power is decentralized, and there is no final authority that possesses what is typically thought of as sovereignty—the right to make final decisions, beyond which there is no […]

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The money supply and the price level: a broken link?

April 7, 2016
in Blog

This past week, The Association of Private Enterprise Education (APEE) held its annual conference in Las Vegas, Nevada. As always, it was a very interesting event and I would like to take this opportunity to encourage young scholars who are serious about academic research and interested in promoting economic freedom to attend. At the first monetary policy […]

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Central bank independence and monetary reform

Posted by William Luther
April 4, 2016
in Blog

Most modern economists believe we’d be better off with an independent central bank. If the monetary authority were beholden to the fiscal authority, the latter could cover its expenditures via the inflation tax. But, in doing so, it would subject the economy to costly price hikes with no offsetting benefits in the long run. Experiences […]

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Austrian business cycle theory and optimal resource reallocation

March 30, 2016
in Blog

Last time, I argued that the two chief components of Austrian business cycle theory (ABCT)—inconsistent consumption and investment plans engendered by faulty interest rate signals, and reallocation of resources during the bust—could be understood even within a tight framework of rational expectations and ‘equilibrium always’ modeling conventions. I will now tackle the second of these […]

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Why sound money?

March 28, 2016
in Blog

In recent posts, George Selgin (here and here) criticizes anthropologist David Graeber for sustaining that anthropological discoveries debunk long standing core economic beliefs. A superficial reading of economics might suggest that this discipline upholds that transactions occur either in the form of barter or with the aid of money. The reason for this dichotomy is not to reject the […]

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Tall Paul Volcker

Posted by William Luther
March 21, 2016
in Blog

The Institute for Economic Education at East Texas Baptist University has produced a funny music video titled The Legend of Tall Paul. Paul Volcker, of course, is widely credited with getting monetary policy under control in the 1980s, ushering in a period in US economic history known as the Great Moderation. Enjoy!

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The never-ending Argentine fiscal business cycle

March 16, 2016
in Blog

15 years after carrying out the biggest sovereign default in its history, Argentina finally reached a debt accord with its holdouts. The agreement between Mauricio Macri’s administration and the holdout litigants in the U.S. Court of Law has finally been reached. This is good news for the country. The government can resort, if needed, to […]

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On ‘Reimagining Money’

Posted by William Luther
March 14, 2016
in Blog

In a recent article at The Atlantic, Douglass Rushkoff waxes romantically about local currencies and time banks. He thinks both will shift the focus from wealth to trust. I disagree. As I explain below, both local currencies and time bank coupons are worse monies than those we commonly use. Moreover, they do not “encourage admirable […]

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More quantitative easing?!

Posted by William Luther
March 2, 2016
in Blog

I am often met with astonishment when I express what seems to me the rather obvious point that monetary policy was effectively tight beginning in 2008, transforming what might have been a rather routine recession into the Great Recession. “What about quantitative easing?” they ask. “Yes, the Fed expanded its balance sheet,” I reply. “But […]

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The Hong Kong dollar, rock solid

Posted by Steve H. Hanke
February 29, 2016
in Blog

The currency speculators are restless, again. Many, like George Soros and Kyle Bass, are reportedly taking aim at the Hong Kong dollar (HKD). HKD bear circles think China’s renmimbi (RMB) will lose value against the U.S. dollar (USD) as China’s economy slows down and capital flight from China continues. This, it is asserted, will put pressure […]

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Op-ed: Global monetary turmoil is hurting economic growth

February 25, 2016
in Blog

For the first time in recent memory, politicians and candidates alike are talking about the importance of rules-based monetary reform and the public is shifting its attention (and ire) from the bankers on Wall Street to the central bankers at the Federal Reserve. But is monetary reform– even coupled with fiscal and regulatory reform– the cure […]

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Austrian business cycle theory and rational expectations

February 24, 2016
in Blog

Although Austrian business cycle theory (ABCT) is a powerful price-theoretic explanation for monetary-induced booms and busts, it is not without critics.  Indeed, many find ABCT implausible for two reasons.  The first is that it seems to rely on individuals making systematic and economy-wide errors.  This seems inconsistent with rational decision making, especially the theory of rational expectations.  The second […]

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13 Things Bernanke Believes (That I Don’t)

Posted by William Luther
February 22, 2016
in Blog

Ben Bernanke is obviously a very intelligent guy. And I am inclined to believe he is a good person (i.e., honest, well-intentioned, etc.). So it is a bit unsettling to find that we seem to disagree on so many fundamental issues. In what follows, I will list several. Some of our disagreements are about the […]

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Nicolas Cachanosky interviewed at Reinvent.Money

February 17, 2016
in Blog

This week, Sound Money Project fellow Nicolas Cachanosky appeared in an episode of Reinvent.Money and discusses free banking vs. central banking, competing currencies, property rights and his involvement with the Sound Money Project. Watch the interview below:  

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Expectations under growth and level targeting regimes

Posted by William Luther
February 9, 2016
in Blog

In general, I prefer a rules-based monetary policy to discretion, but not all rules are created equally. Today, I want to consider two types of nominal income targeting rules in the hopes of identifying their relative merits for anchoring long run expectations, enabling long run  and thereby promoting long run economic growth. 1) Nominal Income […]

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Steve Forbes speaks out on the Presidential race, Fed recklessness, and gold

February 4, 2016
in Blog

The following is an exclusive interview with Mike Gleason, Director of Money Metals Exchange and originally appeared on the Money Metals Exchange page. To listen to the interview, click here.  Mike Gleason, Director, Money Metals Exchange: Today we have a tremendous treat in store for our listeners as we welcome in none other than Steve Forbes. I had the honor […]

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Austrian business cycle theory and monetary equilibrium

February 3, 2016
in Blog

As Steve Horwitz has shown, the insights of Austrian macroeconomics and monetary disequilibrium theory can be combined to yield a powerful paradigm for understanding how monetary policy affects the economy.  Crucial to this synthesis is the neutrality of money.  Remember that money is neutral when it facilitates exchange, but does not distort the terms of exchange.  […]

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Central banks and foreign exchange markets

Posted by Jerry Jordan
February 1, 2016
in Blog

In addition to turmoil in common stock markets around the world, the early weeks of the new year have been characterized by changes in—and much hand wringing about—exchange rates between currencies. Prospects for changes in currency exchange rates were also much in the financial news a year ago, with considerable confusion about what was happening […]

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Economic headwinds: Big players, regime uncertainty and the Misery Index

Posted by Steve H. Hanke
January 29, 2016
in Blog

Before we delve into the economic prospects for 2016, let’s take a look at the economies in the Americas, Asia, Europe and the Middle East/Africa to see how they fared in the 2014-15 period. A clear metric for doing this is the misery index. For any country, a misery index score is simply the sum […]

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Sound money isn’t what you think it is

January 28, 2016
in Blog

Many people define sound money as being when a currency’s purchasing power is not declining, but stable. This isn’t quite right, so let’s drill down. Consider two relentless processes occurring in the economy. They are both happening at all times, but it will be easier to look at them separately. One is good, and one […]

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What Austrian business cycle theory does not predict

January 13, 2016
in Blog

Many economists who have broadly free market views on money are sympathetic to the Austrian theory of the business cycle (ABCT).  As developed in the early part of the 20th century by Ludwig von Mises and Friedrich Hayek, and further refined in recent years by Steven Horwitz and Roger Garrison, ABCT links the business cycle to […]

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Juan C. Cachanosky (1953 – 2015): See you on our next morning walk

January 11, 2016
in Blog

These are likely the most difficult lines that I have had to write in a very long time, if not ever. Juan Carlos Cachanosky, my dad, passed prematurely on December 31st, 2015, at the young age of 62. Frank Sinatra was probably his favorite singer, and his version of “May Way” was probably his favorite song. He […]

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Taylor, Sumner and Selgin at the Cato Monetary Conference

January 7, 2016
in Blog

In this post I want to briefly comment on three points raised by J. B. Taylor, George Selgin, and Scott Sumner. Though these points have been raised before in the literature, they are certainly worth reviewing. J. B. Taylor delivered his lecture on the challenges of monetary policy in an international context. The first challenge, […]

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