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money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman tuesday july 28 2009 the western peril recently i ve been reading the mises daily email the mises daily expresses the view called austrian economics i subscribed to the daily to learn a bit about that branch of the subject the austrian school is highly concerned about the possibility of inflation the school objects to government interference in the economy favoring laissez faire and judging by the daily they re an opinionated bunch that s what i ve picked up so far but then the 7 21 09 post by thomas j dilorenzo caught my eye i recently received in the mail the 2008 annual report of the federal reserve bank of minneapolis the title of the report is the current economic crisis what should we learn from the great depressions of the 20th century now that s my kind of report reputable source fascinating topic so i took a gander at the fed report the thing that most struck me was well here s how it opens the current financial crisis has prompted these questions could the world economy enter a great depression like that of the 1930s if so what can governments do to avoid it really now they re gonna think about the possibility of economic depression now that it s upon us now that all sorts of bizarre policies to skirt depression are being put to the test what have they been doing for the past 30 years the fact of the matter is in observations like this i find an explanation for how things went so terribly wrong incompetence dogma and ego but i wander the mises post expresses displeasure with the fed report no mention at all is made of central bank monetary policy as possibly introducing economic instability having ignored the role of central banks in generating boom and bust cycles the lesson the minneapolis fed economists claim to have learned from their study of past depressions is that the cure is even more central bank inflation g overnments need to focus on providing liquidity they solemnly intone following alan greenspan they blame the current depression in the united states on a new version of the yellow peril impoverished asians who have a penchant for saving a large percentage of their income over the past decade lending by china and other countries in east asia has kept world interest rates low this is what fueled the real estate boom they say ignoring altogether the role of fed policy as well as the policy of every arm of the federal government that is involved in housing from hud to congress to the fed itself to force mortgage lenders to make bad loans to unqualified borrowers to achieve its goal of making housing more affordable in reality worldwide savings rates during the 2001 2008 period were actually lower than they were during the previous 15 year period i m not quoting this for its criticism of government the quote is important i think because it exposes a topic about which too little has been said the idea that the western boom was fueled by the lending of eastern nations the new yellow peril dilorenzo calls it i assume that wording is his i think it unlikely alan greenspan used the phrase dilorenzo s observation of the low savings rate in this decade presents an interesting objection to the yellow peril view if global saving is less in the current decade than it was between 1985 and 2000 the notion of excessive asian saving as a driving force behind recent events does come into question on the other hand it s common knowledge that our government borrowing has been largely funded by chinese lending we worry about that so it s easy to believe that eastern lending fueled the western boom i should point out that my post here contains no facts whatsoever i m gathering opinion and widespread belief i m feeling my way around the edges of a concept at present i have only one other source of information on the yellow peril view that is a review of martin wolf s book fixing global finance the review is by john mason i ve only seen wolf a few times on tv but he strikes me as an exceptional mind perhaps because he so often agrees with me in any event i recognized wolf s name in the book review and made note of the article and remembered it now when i needed it after six months here is a relevant excerpt from mr mason s review it s also a worthwhile read because of the story wolf weaves to explain the development of the imbalances in world markets that resulted in the current financial and economic crisis the author puts forth the savings glut theory to describe how the world evolved through the early 2000s it is important to understand this theory because it is the one that was developed by and acted upon by the current federal reserve chairman ben bernanke the theory absolves the federal reserve actions of the past eight years of blame for the current financial difficulties first note that the savings glut theory describes the same trend as dilorenzo s new yellow peril the basic idea is this emerging economies like china began to establish macroeconomic policies along with exchange rate management techniques aimed at fueling export led balance of trade surpluses savings soared in these countries and the governments started accumulating enormous international reserves two thirds of all the foreign currency reserves accumulated since the beginning were piled up within less than seven and a half years of the new millennium that is between december 1999 and march 2007 next note the dates according to mason the new macroeconomic policies observed by the savings glut theory began emerging during or after 1998 and evolved through the early 2000s and the bulk of asian foreign currency reserves accumulated since those policies were put in place now if savings and foreign currency reserves travel in tandem in these emerging economies as mason implies then most of their saving occurred in the current decade if that is true then dilorenzo s observation is irrelevant or false if dilorenzo is right and relevant then martin wolf is wrong i am disappointed my technique for learning is to find two sources on a topic and compare them i figure if the two fit together and make sense then i understand the topic in this case either i misunderstand or at least one of the sources is junk it s time to move on john mason the book reviewer writes i tend to lean more to what wolf calls the money glut theory of the world s financial imbalances in this theory these world imbalances came about from a central bank that underwrote negative real rates of interest and served as a bubble machine that helped distort asset markets within the context of the bubble the credit expansion was associated with what was in retrospect unsound lending of a particularly innovative kind money glut yes savings glut no my gut reaction is to agree with mr mason on this point mr dilorenzo seems to feel the same way so you have on the one hand the weight of mason and dilorenzo and me and on the other bernanke and greenspan for what that s worth i checked out mason s blog to see if he s in the austrian school the view he shares with dilorenzo has a wider base if they re not of the same school mason looks not to be austrian a search of his blog for the word austrian turns up no result our federal reserve system establishes a reserve requirement for member bank funds this determines how much each bank must keep in reserve since 1990 or so the reserve requirement on money in checking has been 10 and on money in savings has been zero there is more money in savings than in checking in the u s so the zero rate predominates in addition the thing works like an electrical circuit check money has a resistance of 10 ohms and savings have a resistance of zero a short circuit all the electrons that cannot pass thru the 10 ohm circuit can easily pass thru the short our effective reserve requirement is zero what does this mean well you divide one dollar by the reserve requirement rr and that tells you how much money can be created from one dollar under our system of fractional reserve banking if the rr is 25 one dollar can become 1 0 25 or 4 if the rr is 10 one dollar can become 1 0 10 or 10 if it is 1 one dollar can become a hundred as the rr approaches zero the amount of money that can be created from one dollar approaches infinity our effective reserve requirement is zero and the amount of money banks can create from the existing money supply is effectively unlimited for this reason i agree with mason and dilorenzo that our economic problems have been created not by a savings glut in asia but by a money glut here at home one final point the u s is not responsible for the economic policy of asia we are only responsible for our own policy if the asians do something that messes us up i m not saying that they have we are responsible for tweaking our own policy to improve our position in the world for us to blame the chinese for greenspan and bernanke to blame the chinese is to avoid our own responsibility to ourselves posted by the arthurian at 3 41 am 0 comments saturday july 25 2009 how to avoid the inflation dated 18 may 09 here s an item i was putting together back before i started this blog it was for my google site but this was just when i was starting to figure out the difference between a website and a blog anyway i knew this post wasn t meant for the website and i just left it as litter on my desktop til i found it this morning read more posted by the arthurian at 4 27 am 1 comments labels inflation thursday july 23 2009 an arthurian future could you reiterate that again i commented on aquinum s okay say your proposal had been set up 20 or 30 years ago say it was in place and working but vince batted that back to me say your proposal had been set up 20 or 30 years ago oh well i put an answer together a satisfying answer you know how it is anyway i thought my economic proposal ought to be on this blog so here it is read more posted by the arthurian at 2 54 am 1 comments labels accelerated repayment of debt new tools of policy wednesday july 8 2009 it s not a stimulus it s not a stimulus it ain t a stimulus read more posted by the arthurian at 9 58 pm 0 comments labels artish stimulus tuesday july 7 2009 time is money fiddling while rome burns 7 july 09 today s alerts from seeking alpha include this gem krugman vs bartlett a tale of two charts by kurt brouwer the post is a mish mosh of brouwer quoting krugman quoting bartlett with some brouwer quoting bartlett in the mix and now i m skimming that soup brouwer opens with an interesting observation despite the fact that most of the existing economic stimulus program has not yet been implemented a nobel laureate economist and new york times columnist and blogger has been advocating a second government stimulus program yeah the existing stimulus plan has hardly been implemented at all as of today 140 days since president obama signed the stimulus bill into law only about 7 2 of the 787b has been allocated on the little stimulus watch gadget my son jerry created for me we say 7 2 has been spent perhaps that s not quite right our number comes from vp joe biden s recovery gov site where he lists it as the total paid out however that site identifies 10 october 09 as the day that recipient reporting begins so i m thinking the paid out number counts money distributed from the big bureaucracy in d c to smaller bureaucracies in d c and elsewhere government offices that have been drawing up lists of shovel ready projects i m doubting that any of that 7 2 has found its way to people with shovels so yeah as brauwer says it s a fact that most of the existing economic stimulus program has not yet been implemented and it is obvious to me that this could be the reason we ve seen little effect from the stimulus brauwer however completely misses the obvious he has flies in his eyes paul krugman s comments on bruce bartlett s article bartlett says obama was much too optimistic about effects of the stimulus package he says obama s economists expected results almost immediately and krugman says that s totally false krugman s evidence is a graph you ve likely seen before showing projected unemployment with and without the stimulus now what i see in that graph is a reduction of unemployment projected to begin in the second quarter of 2009 i would call that an almost immediate effect of first quarter activity so i would say krugman s evidence shows bartlett s statement to be true not false but what do i know brouwer says krugman is quibbling and then he says wouldn t it have made sense for krugman to update the chart to see how much of a positive effect the stimulus program has had well no krugman didn t post the chart so we could see the most current situation he posted the chart to prove bartlett wrong it didn t work but that s another matter looks to me like brouwer is im ing krugman brauwer has his own agenda he wants to see the most current results of the stimulus he wants to see the most current unemployment situation so does it make sense for him to post the update well idunno because it is as brauwer says fact that most of the existing economic stimulus program has not yet been implemented but then it might be interesting to look at the results of not implementing the stimulus so brauwer presents his update it shows unemployment skyrocketing obviously this recession or depression is a lot worse than we thought worse than obama thought worse than the january predictions and then brauwer says at this point it is clear that the economic stimulus program has not delivered as promised and he quotes bartlett another stimulus would be a grave mistake the first one was justified by extraordinary circumstances but it must be given time to work people should not allow their impatience to lead to the adoption of policies impatience give it time to work really unemployment is much worse than expected worse than we anticipated when congress settled on the 787b number the recession is worse than we thought when we thought a 787b stimulus would fix it so the 787b must be too small to fix this recession if a stimulus package is the answer then it must be sufficient to address the problem or there is no bang for the buck and the money is truly wasted the economic stimulus program has not d...
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