April 20, 2016

Stable Exchange Rates - a Panacea?

The international currency stability of a gold-standard, without the impediment to economic growth of a gold-standard. That is how I read the proposal of two authors of this WSJ editorial.

Neither tax, nor regulatory, nor budget reforms, however desirable, will eliminate currency wars. To restore America's competitive position in production, manufacturing and world trade, stable exchange rates are the only solution tested in the laboratory of U.S. history - from President Washington in 1789 until 1971. Stable exchange rates have proven throughout history to establish the most reliable level playing field for free and fair world trade.

There are no perfect solutions in human affairs. But the history of the past three centuries suggests that stable exchange rates, resulting from adoption of currencies mutually convertible to gold at statutory fixed parities, are the least imperfect solution to avoid currency and trade wars.

Not Donald Trump's protectionist tariffs, nor Ted Cruz' "tax on imports but not exports" (read: tariff) but an agreement with other nations to exchange their national currencies at fixed rates. Could it work?

Posted by JohnGalt at 3:39 PM | Comments (2)
But jk thinks:

Stability is good and indeed facilitates peace. As Speaker Reed said "we could do worse and probably will." But I have two negative responses.

One, I consider an exporting country's devaluation of its currency by the popular name "having a sale." Presumptive Nominee Trump may think it's a problem that China sells us stuff for too cheap; I truly do not.

Two, Bretton Woods was swell and all (Benn Steil's Battle of Bretton Woods [Review Corner] is awesome). But it failed for a reason. Stability is always good but things change for a reason -- sometimes devaluation makes sense (cf, Greece).

Three (I thought you said "two?"), I'm not a Gold bug. Sorry, Austrians, deflationary shocks are both real and real bad. I much prefer a Taylor-rule, Friedmanite monetary policy. An international agreement that tied our hands is not one I'd vote for.

Four, Just kidding, there's no four.

Posted by: jk at April 20, 2016 5:06 PM
But johngalt thinks:

It seemed that currencies could still follow the Friedmanite monetary policy, they would all just have to do so in unison. I see the threat of a de-facto "One-World Currency" there too though.

Okay, never mind. Case made in four, err, three points.

Posted by: johngalt at April 21, 2016 3:38 PM

January 20, 2015

All Hail Taranto!

A segue for ThreeSourcers if there ever was one:


Posted by John Kranz at 5:19 PM | Comments (0)

January 16, 2015

Core CPI

I teased my Facebook friends that "nobody blames the eeevil speculators when oil prices go down!" (Don't worry, none of them got it.)

But I might let a salvo loose here. A corollary is "nobody bitches about energy's non-inclusion in the core CPI when oil prices go down!" Am I wrong? When gas is $4, I am assured it's incontrovertible evidence of inflation. At $1.859, nobody's asking Janet Yellen to cry havoc and let slip the dogs of liquidity.

U.S. consumers are seeing prices rise at the slowest annual pace in more than five years, largely thanks to a global plunge in oil prices, presenting a potential complication for the Federal Reserve as it looks to raise interest rates this year.

The consumer-price index, which measures what Americans pay for everything from coffee to airline tickets, rose 0.8% in December from the same month a year earlier, the Labor Department said Friday. December’s 0.8% annual rise was the smallest since October 2009, when prices fell 0.2% on the year.

(Yes, that is $1.859 and yes that is a 10 gallon tank.)

Posted by John Kranz at 12:27 PM | Comments (1)
But johngalt thinks:

No no no, you've got it all wrong. We're merely in a Stealtflationary pause.


(And this a comedic pause.)


Fair cop. And I probably deserve it for not restricting the scope of my new economic measure to fiscal, rather than monetary, causes. I'm sure I have described it differently in the past but I think my original concept was that the cost of things was going up for reasons other than monetary inflation. Things like tax policy, regulation, mandates and other government distortions of the market.

So with apologies to Uncle Milton, "Inflation is everywhere and always a monetary phenomenon, while stealthflation is everywhere and always caused by one of the many other idiotic things government does."

What we're seeing in today's fuel prices is the result of private competition succeeding faster than government had expected, and thus outstripping the (non-inflationary) price raising power of government. But the bureaucrats are trying their damnedness to catch up.

Posted by: johngalt at January 16, 2015 2:47 PM

November 17, 2014


Monetary Policy and ISIS. Gotta love the WSJ Ed Page.

ISIS is swimming in capital--more than $1 billion in cash and reserves, by conservative estimates--and has established sprawling taxation in Iraq and Syria. In practice, however, the ISIS economy is notable only for generating large flows of refugees. That probably doesn't bother its leaders too much. But armies won't march on propaganda alone, and operational overhead adds up.

Forget weapons and ammo: ISIS's 20,000-plus fighters also require square meals, secure transport, lodging and first-aid. Oil production in Syria has fallen by 70% since the start of the U.S.-led bombing campaign, and the United Arab Emirates on Saturday formally designated ISIS a terror group.

The ISIS treasury--Bayt al-mal, or house of money--had the foresight not to respond to its liquidity woes by issuing paper currency. If the group had forged better relations with Muslims worldwide, it might be laundering cash through hawala--a global money-transfer system that relies on Islamic honor-codes instead of promissory notes. To put it mildly, though, most Muslims wouldn't wipe their feet with ISIS's "honor." Hence the terror group's decision, "by the grace of Allah, to mint a currency based on the inherent value of the metals gold and silver."

Trouble is, the market value of gold and silver is not "inherent" but dictated by supply and demand. Citizens in ISIS territory can now be expected to hoard gold and silver to trade for whatever foreign goods and currency they can find. Friedrich Hayek in 1977 aptly described "the gold standard" as "the only method we have yet found to place a discipline on government." What ISIS has failed to understand is that metal-backed currency helps protect ordinary people from money-minting despots--not the other way around.

Say what you will about FOMC Chief Janet Yellen -- she does not generally open the Jackson Hole meetings with a beheading.

Posted by John Kranz at 4:52 PM | Comments (1)
But johngalt thinks:

On those grounds, Yellen is indeed a "moderate."

Posted by: johngalt at November 17, 2014 5:59 PM

November 14, 2014


Professor John Cochrane ("If the exchange rate tanks, you cannot acquit the central banks!") from the University of Chicago asks "Who's Afraid of a Little Deflation?"

With European inflation declining to 0.3%, and U.S. inflation slowing, a specter now haunts the Western world. Deflation, the Economist recently proclaimed, is a "pernicious threat" and "the world’s biggest economic problem." Christine Lagarde, managing director of the International Monetary Fund, called deflation an "ogre" that could "prove disastrous for the recovery."

True, a sudden, large and sharp collapse in prices, such as occurred in the early 1920s and 1930s, would be a problem: Debtors might fail, some prices and wages might not adjust quickly enough. But these deflations resulted directly from financial panics, when central banks couldn't or didn't accommodate a sudden demand for money.

I salute Cochrane for the direct question. I greatly appreciate the Austrian school for their contributions to liberty theory, and am even graced by some Österreicher ancestors with Austrian features. But I cannot call myself of the Austrian School, because I retain a fear of deflation.

And now, I am being tempted to join by someone -- literally -- from the Chicago School; it's almost too meta to bear.

The case is compelling. But there is a maddening strawman argument of Paulites, Austrians, and gold bugs that says if you fear deflation, you must want an activist central bank with top-down management of the economy. Cochrane does not disappoint:

The weight you put on this argument depends on how much good rather than mischief you think the Fed has achieved by raising and lowering interest rates, and to what extent other measures like quantitative easing can substitute when rates are stuck at zero. In any case, establishing some headroom for stimulation in the next recession is not a big problem today.

I suspect Professor Cochrane could find a Milton Friedman book in the University of Chicago library. I'm not claiming to be more knowledgeable, but I would like to hear him contradict a rules-based currency regime. We can agree on dangers of "fiat money," but I hold a target based on nominal GDP or price -- Friedman's Central Bank Computer -- addresses deflation feras without handing oversized authority to central bankers.

Posted by John Kranz at 10:03 AM | Comments (1)
But johngalt thinks:

The Hawaiian Tropic Effect: Why the Fed's Quantitative Easing Isn't Over

But quantitative easing is the gift that keeps on giving. Even after the purchases end, its effects will persist. How could that be? The Fed will still own all those bonds it bought, and according to the agency itself, it’s the level of its holdings that affects the bond market, not the rate of addition to those holdings. Having reduced the supply of bonds available on the market, the Fed has raised their price. Yields (i.e. market interest rates) go down when prices go up. So the effect of quantitative easing is to lower interest rates for things Americans actually care about, such as 30-year fixed-rate mortgages.

I did not know that.

Posted by: johngalt at November 14, 2014 4:01 PM

October 21, 2014

Wealth "ex nihilo" - for the Rich

Scott S. Powell, senior fellow at Discovery Institute in Seattle and managing partner at RemingtonRand LLC, has an IBD editorial today to explain How Washington Widens Gap Between The Rich And Poor. He cites the same study that Rich Karlgaard told us about in JK's post yesterday, and then extends the unintended - or not - effects.

Three basics about regulation, politics and the economy must be understood.

First, politicians perceive crises as opportunities to grandstand with supposed legislative fixes. But since new laws rarely fix the purported problems, politicians shift responsibility of their laws' rulemaking to unelected, unaccountable agency bureaucrats.

Second, regulatory costs are more burdensome for small firms than large enterprises.

Third, small companies create most new jobs.

Segue now to monetary policy, and its misguided application to paper over the recession caused by government:

Fed-engineered money creation and low interest rates have helped create a stock market casino, prompting more and more companies to go all in with enlarged stock buyback programs to goose per-share earnings and elevate stock prices -- wealth through financial engineering rather than increased productivity.

Artificially low interest rates have been equally beneficial for real estate investors, providing leverage to propel prices and transactions in an upward trajectory.

While the Fed says its policies have kept consumer prices in check for the working class, the real benefit has been inflating asset prices in the portfolios of the rich. Call them the 1% or the 2%, the rich are getting richer, courtesy of the ruling class in Washington, elected in large part by voters who have been fooled and left behind.

And who absorbs one hundred percent of the blame for both the recession, with its attendant job slump, and the rise of the rich at expense of the poor? You guessed it - Wall Street.

Posted by JohnGalt at 2:57 PM | Comments (0)

September 5, 2014

Is Monetary Policy Stagnating Hourly Wages?

The "Inequality Sucks" crowd harps on the low wages paid to unskilled workers almost as much as they envy the wealth of the 1%ers (the only group to see it's overall wealth rise under President Obama). I've been defending the property rights of the evil rich bastards by claiming that less government overhead holding back private industry will, all things being equal, create new jobs (i.e. labor demand) and move labor wages up the demand-supply curve. It's basic economics - everything except the "all things being equal" part.

The trader's tool site Econoday is explaining the relationship between unemployment rate and annual earnings growth thusly:

When the economy is operating at full throttle, a falling unemployment rate worries policymakers as they anticipate that rapidly rising wages will turn into runaway inflation. In fact, wage growth did accelerate in 2005 and over most of 2006 as the jobless rate headed lower. But the reverse has been true during the past recession and early recovery. A rising jobless rate often alleviates wage pressures but is typically associated with economic recession. Federal Reserve policymakers aim for balanced growth with very low inflation.


(Note that under Bush, wage growth was generally above 2.5% yearly, while under Obama it has generally been less than 2.5%.)

I had believed that economic growth was accidentally retarded by confiscatory taxation and abusive industrial regulation but it appears there is more to it than that - economic growth is "balanced" because the fiat bankers at the FED want it that way, as a check on inflation. Somebody smart is gonna have to explain to me why this is good. I'm not about to defend it.

Posted by JohnGalt at 2:46 AM | Comments (3)
But jk thinks:

The relation of unemployment to inflation is called The Phillips Curve and it has a rejuvenation capacity that Freddy Krueger would envy. It should have been discredited by the Volker Fed's slaying the stagflation beast with a strong dollar.

But but but but -- is my blog brother campaigning for looser money or accusing the Fed of driving up unemployment by tightening too quickly? Is gravity still 9.8 m/sec2?

Posted by: jk at September 5, 2014 9:53 AM
But johngalt thinks:

I'm not advocating anything yet, since I don't really understand what's going on. But in principle, if the FED has to rig the money supply such that the economy can't grow as much as it would otherwise do, that is objectionable. If their fiat currency "inflates" because too many goods are being produced too fast then find some other way to regulate the stupid currency. You're smart guys, right? You think your smart enough to manage the whole freakin' economy.

What I'm after is so much job growth that workers can pick and choose from more good options, with higher wages. Sort of a "We're all North Dakota now" strategy, without the funny accent and nine months of winter. So many jobs that nobody will object to more immigration. What's wrong with this idea? Who wants to keep it the way things are? Unions? Simpleton central bankers? Politicians who want to keep the country polarized?

Posted by: johngalt at September 5, 2014 12:29 PM
But Alan Reynolds thinks:

Changes in hourly wages have to be adjusted for inflation. Real wages fell 1% in 2011 because inflation was still 3%, but the same hourly change in nominal wages became a 0.7% rise in real wages in 2013 and 2014.

Posted by: Alan Reynolds at March 16, 2015 8:00 AM

August 26, 2014

Okay, Now jk is Scared

I've been deferential to the Fed -- incredibly so for a libertarian -- and have quietly acquiesced to loose money policies. I've had underlying concern but the lack of monetary inflation has kept me off the "OMG we're all gonna die" bandwagon.

But this is disturbing. George Melloan asks "How Would the Fed Raise Rates?"

A question mostly unasked at Jackson Hole is a crucial part of today's when-will-it-happen guessing game: Exactly how would the Fed go about draining liquidity if a burst of inflation urgently presented that necessity. The traditional mechanism used by the Fed no longer looks to be serviceable.

Before the "zirp" binge began in 2008, the Fed's primary monetary policy tool was the federal-funds market, overnight lending among banks to balance their reserves in compliance with the Fed's required minimums. The Fed withdrew liquidity by selling Treasurys to the banks and increased it by buying Treasurys. Fed-funds rates moved accordingly, becoming the benchmark for short-term lending rates throughout the economy.

But thanks to the Fed's massive purchases of government and mortgage-backed securities from the banks over six years of "quantitative easing," the banks no longer need to worry about meeting the minimum reserve requirement. They're chock full of excess reserves, to the tune of $2.9 trillion. For all practical purposes, the federal-funds market no longer exists.

The rest of the column speculates about different mechanisms which might be employed; these range from the ineffective to the downright coercive. "Mopping up liquidity" was always a concern, and I accepted that it would be done a little too late -- certainly with Janet Yellen as FOMC Chair. But at first glance, Melloan makes me question not so much how as whether it could be done.

Look at the bright side, we'll have probably nationalized the banks by then.

UPDATE: Fixed Freudian typo "have quietly acquiesced to lose money policies" to "have quietly acquiesced to loose money policies." Even my bad typing cracks me up.

Posted by John Kranz at 10:43 AM | Comments (1)
But johngalt thinks:

Buy rubles!

Posted by: johngalt at August 26, 2014 1:53 PM

August 2, 2014

Waiting for the ECB meeting next week.

A French Euro-critic makes some incredibly interesting points. Todd lumps the "individualistic" French and Anglo-Saxon cultures versus the hierarchical German culture.

Hat-tip: Blog friend tgreer.

Posted by John Kranz at 12:33 PM | Comments (0)

July 24, 2014

Better than Milhouse

Hat-tip: Mankiw

Obtuse Milhouse allusion: Review Corner

Posted by John Kranz at 6:13 PM | Comments (0)

April 7, 2014

Facebook has the "Poke" button...

And ThreeSources, the Monetary Policy Category.

AEI: Now is the time to preempt deflation

Anyone taking painkillers knows that it is important to ingest the medicine before the pain intensifies. You must be preemptive. If you delay taking that pill until you feel pain, you are in for some real discomfort before you feel relief.

The same is true with deflation. It is necessary to be preemptive. Deflation is self-reinforcing, so if you wait to offset it until prices are actually falling, you risk losing control. The resulting pain can be more substantial than the physical pain that results from delaying ingestion of painkillers, since those will eventually quell discomfort, and deflation's appearance suggests that it will intensify before you can get control of it.

Posted by John Kranz at 5:33 PM | Comments (4)
But johngalt thinks:

Huh? What?

Oh yeah.

Can we agree that price deflation is possible in some items while there is simultaneous price inflation in others?

Posted by: johngalt at April 7, 2014 7:14 PM
But jk thinks:

No. Sorry, Uncle Miltie says "Everywhere and always a monetary phenomenon." That's our fundamental disconnect: the basket-of-goods measure is a proxy.

Posted by: jk at April 8, 2014 10:05 AM
But johngalt thinks:

Yeahbut, isn't that "proxy" what the author uses to conclude, "Inflation is falling in the United States, Europe, and China, suggesting a real threat of impending deflation that could cripple the global economy?"

Inflation may be "everywhere and always a monetary phenomenon" but economists always use consumer prices to measure it. So why are we supposed to pay any attention to them? Why is CPI valid when they cite it and not when I do? Argumentum ab auctoritate?

Posted by: johngalt at April 8, 2014 5:47 PM
But johngalt thinks:

My premise that prices on discretionary items are falling while essential items, with their inelastic demand curves, continue to rise was to be followed with a suggested cause. Namely, that income insecurity increases savings rates and reduces demand for discretionary items, thus reducing prices. 'People not buying stuff' is not a symptom or a cause of deflation. Further, it is certainly not a "monetary phenomenon."

Also notice that two of those essential items, food and energy, are explicitly omitted from the CPI basket. If we mean for the basket to be an inflation/deflation proxy, how can such omissions be justified?

Posted by: johngalt at April 9, 2014 12:55 PM

March 19, 2014

Stealthflation Update

I was argumentative with blog friend sc yesterday on Facebook (continued grousing on my part at Pope-onomics). I don't want to give ThreeSources short shift on my bellicosity and general bad temper.

Insty linked this piece. And I was prepared to magnanimously present it as intelligent commentary bolstering blog brother jg's position.

Inflation is starting to really mean something when it comes to food and energy. The government stats on inflation conveniently omit food and energy when reporting things like the Consumer Price Index (CPI). Let's see what Janet Yellen has to say this week. I bet she isn't worried about inflation in the least.

I agree that she, whom Kudlow calls "Queen of the Doves," is not worried about inflation. But, nor am I.

What about food jk? Not like you're a dainty eater! Well, I quote -- the very same blog post. This is clearly NOT a monetary phenomenon.

The recent farm bill that passed was chock full of subsidies for corporate farmers. A goody bag of money from the government that influences what farmers plant, and how much of each crop gets produced. An economist once told me that every jar of peanut butter we buy is .50 higher than it should be because of farm subsidies.

Grain crop prices ($ZC_F, $ZW_F, $ZS_F) have gone higher in past years because of rising demand, but also because of drought. No rain, no grain. Farmers are planting fencepost to fencepost. Still, a lot of land is idle because of CRP. The cost to farm has gone up with the cost of energy. Successful farmers look at cost/benefit analysis just like a factory. Innovations like Farmlogs help them manage their cropland better.

Meat ($LC_F) has seen a tremendous upsurge in prices. Part of that has been scare. Remember the pink slime scare over a year ago? Because of it, beef prices have to go up because not using pink slime decreases supply. The cost of feed has gone up too (drought) so cattle ranchers thinned their herds. Animal gestation isn't automatic, and the cost to bring a steer to market hasn't gone down, so the nation's cattle herd isn't being rebuilt on higher prices.

Hogs ($HE_F) have seen an exponential price move higher in recent weeks. A virus, PEDv hit the nation's hog herd last May. At first, it was controlled. Since the spread, US pig farmers have seen 5,000,000 pigs die, mostly piglets. The crisis is so severe, the largest hog processing plant in the country, Tarheel in North Carolina, is shutting down a few days during the week because it cannot source enough pork to butcher. Oh, and yes, the price of bacon is going to skyrocket.

Poor government policy, drought, junk science, a virus. None of those are monetary. Bacon in Bitcoin is going to go up when five million pigs die.

Posted by John Kranz at 11:08 AM | Comments (2)
But johngalt thinks:

This does feel like familiar territory: I posit that government policies, including but not limited to increasing the money supply, cause the cost of everything to rise. In return, you lecture, yeahbut, it's not because of the money supply.

Without conceding the last point I fulsomely agree that other government policies cause prices to rise artificially. Is there an economist's name for that phenomenon? I can only call it what it is - theft.

Perhaps you can help me construct an illustrative scheme to show consumers how badly they are being ripped off? I solicited the President of the Tax Foundation with my idea, prompted by the California restaurant that added a "health care surcharge" to diner's checks, where retailers might show how the actual prices they charge are made up of a long list of government-caused surcharges added to a hidden "free-market cost" for the item. The *ahem* "inflators" listed in your post contribute new line items to the "cost of government surcharge," i.e. the Farm Subsidy surcharge, the Junk Science surcharge, etc. (Drought and virus are natural causes, usually, and simply cause natural price fluctuation affecting the entire market equally.) But there is another - the "drought because government shut off the water to protect insignificant critters" surcharge.

I put all of this in terms to which the Tax Foundation could relate: Tax Freedom Day.

"If it may be fairly estimated that the average income could be higher by a factor of 365/Tax Freedom Day, may it also be fairly estimated that the average price of a good or service could be lower by a factor of 365/Corporate Tax Freedom Day?"
Posted by: johngalt at March 19, 2014 2:35 PM
But jk thinks:

Perhaps our ploughs have crossed this verdant field in the past, but it is because I find the distinction incredibly important.

The Ron Paulites of the world will want to attack the Fed when bacon prices rise. I would like them to consider a nominal ire distribution among the EPA, FDA, USDA, US Fish & Game, Jenny McCarthy and the Designated Hitter.

If you will not specifically name the problem, you are not likely to solve it. I appeal to your substantial reservoir of reason to see this.

For this same reason I am hooked on books about "the Panic of oh-eight." You can say "it's the goddam gub'mint!" to both the housing and bacon crises and be correct. I think it worthwhile to be more specific. And, contra the Paul crowd, I think over the last decade or so, the Federal Reserve deserves less obloquy and some others more.

Posted by: jk at March 19, 2014 3:12 PM

March 18, 2014

Stealthflation Update

(Remaining stealthy, at 1.1%) WSJ:


Tuesday's report on U.S. inflation is expected to show modest price increases. Economists polled by the Journal expect February data to show an annual increase of just 1.1%. But thanks to drought conditions in various regions, food prices are surging.

The Journal reports that "in California, the biggest U.S. producer of agricultural products, about 95% of the state is suffering from drought conditions, according to data from the U.S. Drought Monitor. This has led to water shortages that are hampering crop and livestock production."

But don't give Mother Nature all the blame. Allysia Finley recently explained in these pages how environmental regulations allegedly intended to protect fish like the tiny smelt are diverting water from California agriculture.

Now the federal government expects U.S. retail food prices to rise up to 3.5% this year. This would be the largest annual increase in three years, and would continue a decade-long trend of food prices rising faster than general inflation. Sounds like a war on the middle class.

Drill, baby drill -- and (potentially) irrigate, baby, irrigate. And soi-disant inflation suddenly disappears.

Posted by John Kranz at 10:24 AM | Comments (4)
But johngalt thinks:

"in core prices, which exclude food and energy..."

And it's not a news flash that the official measure of inflation is gerrymandered to the low side.

Posted by: johngalt at March 18, 2014 2:36 PM
But jk thinks:

I consider that "basket-of-goods" deflators skew to the overestimate inflation as a 2014 Toyota Camry is considered the equivalent of a 1972 Pinto and Google and GPS outside of calculations.

Excluding food (prices higher due to government irrigation policy) and energy (basically a public utility for pricing purposes).

Carry on...

Posted by: jk at March 18, 2014 3:16 PM
But jk thinks:

But I am glad I can still pick comment bait. :)

Posted by: jk at March 18, 2014 3:18 PM
But johngalt thinks:

And today's hamburger is as delicious as yesteryear's steak too, I suppose?

Your logic appears to be: It is appropriate to eliminate one-fourth of the consumer budget from the government gerrymandered statistic because the prices of those items are, gerrymandered by government.

No wonder it's called "the dismal science."

I understand - you post these in lieu of sending a St. Bernard to check my welfare.

Posted by: johngalt at March 18, 2014 4:52 PM

December 20, 2013

Merry Christmas!!

Posted by John Kranz at 4:35 PM | Comments (1)
But johngalt thinks:


In fairness to the Bernank, reasons and causes aside, the fact that a reduction was enacted without causing market panic, or even decline, is praiseworthy. And it even came with the name "taper" suggesting it will continue. Maybe IBD Ed is right after all.

Posted by: johngalt at December 20, 2013 4:58 PM

December 19, 2013

Explaining the Taper Rally II

Yesterday I offered my explanation for the market spike on the Taper announcement. Today the IBD Ed page offers theirs:

Yet stock and bond markets rallied sharply Wednesday after the taper was announced. Why? Here's one possibility: Along with gridlock in Congress, maybe the Fed's taper suggests that Washington's grip is finally being pried from the economy's throat.

If so, we hope Obama, Congress and the Fed all get the markets' message: The grand Keynesian experiment in economic meddling is over. Give the American people their economy back, and get out of the way.

The optimist in me hopes they are righter than I.

Posted by JohnGalt at 4:51 PM | Comments (0)

December 18, 2013

When is $10Bn Mere Pocket Change?

When it is the amount of new money the Federal Reserve decides to stop printing every month, effective at some future date.

The news report I heard said that markets rallied over 100 points on the news that QE would "taper" beginning in January. Hmmm. Why the positive response to less liquidity? Because they'll still be printing $75Bn per month ad infinitem. Oh, and
"strengthened its commitment to record-low short-term rates." "It said it plans to hold its key short-term rate near zero 'well past' the time when unemployment falls below 6.5 per cent."

Posted by JohnGalt at 3:00 PM | Comments (5)
But jk thinks:

Blog Fed Defender here -- riding to the rescue! It's okay, Ben, I got this one!

Please accept my apologies on behalf of the FOMC that you're not getting the deflationary shock and liquidity freeze you seek. Yes, Gold at $35/oz. was good enough for Eisenhower...

The markets have gyrated wildly in recent weeks on whispers, rumors, emanations and penumbras of "taper." So I would say a lot of any move was baked in and awaiting confirmation. Perhaps a little bit of buying the rumor and selling the news in reverse.

Besides being naturally argumentative, I actually like this move. Start to rein in QEx but telegraph a commitment to low rates.

I will concede that I trust Chair Bernanke more than Chair Yellen to begin the difficult step of applying the brake. But a little less on the accelerator in the wake of modest good news seems about right.

Posted by: jk at December 18, 2013 4:13 PM
But johngalt thinks:

I intended no editorial message. I merely interpreted how the market saw the "reduction" i.e. "whew, they could have cut it by $20Bn." Or 30, or 40, or [skipping ahead so as not to bore the reader] or eighty five billion dollars per month.

But hey, I'm not worried about Stealthflation, even though it is "one factor of concern for some members." The Committee seems to anticipate that "inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2% [using the Committee's preferred index] longer-run goal, and longer-term inflation expectations continue to be well anchored."

As for the editorial on the taper strategy I'll defer to former St. Louis Fed President William Poole: His complaint seems to be of a more philosophical nature, however.

Posted by: johngalt at December 18, 2013 4:38 PM
But Keith Arnold thinks:

Gentlemen, no argument between friends is needed here! The issue is moot.

How is the issue moot, you ask? Easy - you fail to take note of the disclaimer. "... 'well past' the time when unemployment falls below 6.5 per cent." The way things are going, we're not going to see the low side of 6.5% any any point during the remainder of out natural lifespans. They might just as well have said "... 'well past' the time when they're selling lift tickets in Hell."

There's no point in arguing this issue until the conditional clause is met; otherwise, there's no way to test the plan.

The fine print taketh away.

Posted by: Keith Arnold at December 19, 2013 1:10 AM
But jk thinks:

Sadly, the condition of exit cements the Phillips Curve in the national monetary psyche. I do not accept that inflation is inversely proportional to inflation. I lived through the 70s and have the battle scars and leisure suit photos to prove it.

We can all agree on Bill Poole's superb Editorial.

Monetary policy has gone as far as it can in creating conditions that partially offset these impediments to higher economic growth.

The FED has done all it could to offset abysmal fiscal policy. Perhaps too much. Let us reel it in for certain.

I have a cadre of Austrian friends on Facebook. If I grouse at brother jg it is because he is a good proxy and I know him to be good-hearted enough to take it. But I think protecting us from the full brunt of Obamalosireed-onomics was angel's work. That bell you hear is Chairman Ben trading in his helicopter for wings.

Posted by: jk at December 19, 2013 10:22 AM
But johngalt thinks:

Eschew exhuberant sanguinity brother Keith. Fair Chairman speaketh not of actual unemployment, rather the unemployment index which counts getting a job and giving up looking for a job with equal merit. How else could they now claim even 7 percent? Consider the discouraged and the underemployed and the "real" (versus "official") unemployment rate is 13.2 percent of able bodied persons.

Posted by: johngalt at December 19, 2013 11:54 AM

November 16, 2013

And The Discussion Continues...

The part of jg will be played by former Federal Reserve trader Andrew Huszar, jk will be represented by Jeapordy! champion and AEI Scholar, James Pethokoukis.

I found it enjoyable and was glad to find video online. As far as our local discussion, I am squishier than JimiP. Q-E-One-and-done is somewhat compelling, yet so is Pethokoukis's reference to the contractionary policies of an overly-tight ECB.

Posted by John Kranz at 10:12 AM | Comments (2)
But jk thinks:

In real life jg is he one with great hair. But I am doing the casting today: Bwaa haaa haa!

Posted by: jk at November 16, 2013 10:40 AM
But johngalt thinks:

"Every time we've had a QE program, something good has happened."

"Stocks have gone up"
More cash seeking fewer shares of something tangible.

"Job growth is better this year than last year"
The same was true in 1930.

Yes, when you eat desert you feel good. How long can you live and how happy will you be eating only desert?

But more important than this, both practically and morally, how long can you eat desert when the only place it comes from is your "rich neighbor's" plate?

Posted by: johngalt at November 17, 2013 10:25 AM

November 12, 2013

"My Name is Andrew, and I am a Redistributaholic"

Or, as he entitled his own WSJ piece, "Confessions of a Quantatative Easer."

You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

There's more criticism from this first-hand witness to said largest intervention in world history if you can bear to click through. I'll leave you with this line though, referring to QE1:

We were working feverishly to preserve the impression that the Fed knew what it was doing.
Posted by JohnGalt at 3:12 PM | Comments (8)
But jk thinks:

Twist away, brother. I am wildly uncomfortable with both sides of the equation. But but but...

The creek's rizz above its banks and water is pouring into your basement. Your nephew brings over a couple of sump pumps and they seem to be keeping up while you both pedal furiously on generators.

This is clearly not sustainable -- but you and Huszar are mad at the pump.

Posted by: jk at November 13, 2013 4:08 PM
But johngalt thinks:

Not quite - I am resigned that it's time to let this house flood and build another one further from the creek. Or more specifically, stop empowering my evil neighbor's repeated actions to divert the creek toward said metaphorical house.

Equating the consequences of self-serving government functionaries with natural events is a tenuous analogy.

Posted by: johngalt at November 13, 2013 4:17 PM
But jk thinks:

If You are Going to Criticize QE...

Hat-tip: James Pethokoukis

Posted by: jk at November 13, 2013 7:24 PM
But johngalt thinks:

Very well, let us now be "nuanced."

QE1 - To the extent it prevented a run on banks by increasing liquidity, I'm in. I'm a Friedmanite more often than not.

QE2 - "Drift into deflationary territory?" Please. If you want to increase Personal Consumption Expenditures using federal jack, a far more efficent tactic would have been a federal tax holiday for taxpayers.

QE3 - Re-read Huszar:

By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.

The problem with fixing every economic problem via monetary policy, contra-cylically or not, is that not every problem is a nail that needs re-seating with the Fed's "hammer." A lot of privately owned china ends up broken in the process.

Posted by: johngalt at November 14, 2013 3:06 PM
But jk thinks:

Surprised we're as close as we are.

QE1 (& general Friedmanite Prosperitarianism) -- Yay!

QE2 -- Of course, good fiscal policy would have been 1000 times better than monetary policy. The heart of my argument (at least the spleen) is that I assume terrible, anti-growth fiscal policy. Pelosi, Reid and Obama have set up shop and repatriation, tax cuts, holidays are off the table. Does Chairman Bernanke say "sucks to be us" or does he try to fix it with a little excess liquidity?

QE Infinty (as Kudlow calls it) -- consider me queasy. It will be difficult to schedule and almost impossible to unwind the Fed's wieldy balance sheet. or will a Chairperson Yellen be predisposed to choose hard medicine. El Erian's estimate seems pessimistic but I have no illusion that it is effective.

In Bernanke's position, I too would wield the hammer, wishing that fiscal policy had not broken things so badly.

Posted by: jk at November 14, 2013 6:23 PM
But johngalt thinks:

Yet I would be wary of the moral hazard of compensating for idiotic fiscal policy. If a central bank is always and everywhere compelled to bail out self-dealing politicians then that for me is enough, in itself, never to have a central bank. Pragmatically I would suggest that at least some amount of principled judgment is required of said Fed head.

Posted by: johngalt at November 15, 2013 4:00 PM

August 16, 2013

Merle Hazard -- the Great Unwind

Hat-tip: Prof Mankiw

Posted by John Kranz at 2:00 PM | Comments (0)

July 31, 2013

Under President Obama, "Income Gap" gets ... Wider

Investors Editorial Page:

Research by University of California economist Emmanuel Saez shows that since the Obama recovery started in June 2009, the average income of the top 1% grew 11.2% in real terms through 2011.

The bottom 99%, in contrast, saw their incomes shrink by 0.4%.

As a result, 121% of the gains in real income during Obama's recovery have gone to the top 1%. By comparison, the top 1% captured 65% of income gains during the Bush expansion of 2002-07, and 45% of the gains under Clinton's expansion in the 1990s.

The Census Bureau's official measure of income inequality — called the Gini index — shows similar results. During the Bush years, the index was flat overall — finishing in 2008 exactly where it started in 2001.

It's gone up each year since Obama has been president and now stands at all-time highs.

Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/073013-665705-income-gap-grew-sharply-under-obama.htm#ixzz2aeUovkfz
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook

The editorial blames "Obama's historically weak economic recovery, which has left the rest of the country falling behind while the wealthy have managed to make gains." That is surely a factor, but the bigger reason is, I think, Stealthflation. Hear me out - I left the following comment on the IBD article:

The non-recovery recovery is one explanation for the growing gap between rich and poor under President "spread the wealth around." The other, perhaps more powerful effect, is the roughly 10 percent per year that working people's purchasing power declines each year as a result of monetary inflation - inflation that is carefully excluded from government CPI data but that exists nontheless as illustrated by the Chapwood Index (dot com) of real consumer commodity costs. Inflation hurts most those with less disposable income, but barely affects the so-called "one-percent" since so much of their income comes from stock market investments, which actually increase with higher inflation. I like to call this intentionally hidden yet fully real inflation "stealthflation." But I wasn't the first.
Posted by JohnGalt at 3:12 PM | Comments (8)
But johngalt thinks:

It's not about choosing what's in the basket, it's about tracking the prices of the SAME ITEMS rather than changing the basket to keep the total cost as low as you can manage.

Just as gold is not a good monetary base, it is not a good inflation index. It reflects fear, uncertainty and doubt (thanks JC!) more than supply and demand, as our friendly wager demonstrated.

Your list of ways government screws people is precisely correct, but whatever made you think there's any limit to said screwing? Each of them represents a special interest profiting over the diffuse interest of the consumer. Inflation is the profit of the special interest called "central bankers" or FED.

I don't care what's in an indexing basket, as long as it includes two of the three top expenses for nearly every working family: food and energy, and just as important - does not get revised from year to year.

Every 'merican has a natural right to drive his own car to work five days a week, eat fast food half of the time and tv dinners the other half, and watch WWE or American Idol on an HD flat screen measured in feet rather than inches. The cost of doing all of this will ALWAYS increase (as long as there are central bankers pulling the strings) so it shouldn't be such a mystery to figure out how MUCH more it costs every year. Saying that "hamburger can replace steak, if needed, to stay on budget" doesn't account for the guy who could already afford only hamburger.

Let me propose a new diet I'll name "The M2 Diet." Eat only M2 and your budget and your waistline will both shrink precipitously.

Apologies for the thinly-veiled snark but I'm as frustrated by those who ignore price inflation as you are by my insistence it is real.

Posted by: johngalt at August 2, 2013 2:20 PM
But johngalt thinks:
"Every six months, we take the precise price for the same item quarter by quarter and calculate the increase or decrease, then developed a weighted index based on price. These items include basically everything that most Americans consumer during the course of their lives."


So yeah, go ahead and criticize the lonely financial planner who created this thing in his garage on weekends. It still gives a better indication of "the true cost of maintaining a constant standard of living."

"It is universally assumed that the government’s rate of inflation is accurate. It simply isn’t… This blind acceptance is one of the main reasons people are reliant on the government entitlement programs that are bankrupting our country."
Posted by: johngalt at August 2, 2013 4:35 PM
But jk thinks:

I read all they had on the site the first time you mentioned it. I'll start with small quibbles: he wants a higher index so that inflation adjusted entitlements pay more. I think one of the greatest mistakes of Social Security has been to index to wage growth instead of inflation -- I want to grow them less.

He was looking for a model that reported higher increases because of Mom's alimony, and coincidentally it helps his primary business because he can tell a fixed income investor beating the PCE or CPI that they should not be content. Doesn't make him wrong, just convenient.

The larger quibble is that this is not an abstruse, understudied branch of economics: this is well studied academically, and hotly debated on CNBC on days that end with 'y.'

Any basket of goods measurement is at best a proxy for monetary inflation. I don't think anyone blindly accepts the CPI -- that is a strawman. It is written into contracts and legislation because a simple value is needed. Its biggest failing is that you change the basket and you change the results. Chapwood found a basket that helps Mom. And you found Chapwood.

It's a better bad estimation because he took a poll? I respect both crowdsourcing and Starbucks. But the recent increase in my grande breve cappuccino is not a monetary phenomenon -- it is a corporate pricing decision of a cartelized commodity based on market share and the perceived elasticity of my addiction.

You're by no means alone. Stand-Up Economist II Peter Schiff was arguing with Kudlow last week. Were I a nicer guy, I'd've found and posted a clip. But I'm in Michael Mann's shoes here: the great preponderance of mainstream credentialed economists reject out of hand a suggestion of 7-10% inflation. I'll need a Dr. William Gray or Richard Lindzen-class argument to change sides. not a guy who mistakes a proxy for the measure.

Posted by: jk at August 2, 2013 5:24 PM
But johngalt thinks:

Great rebuttal brother, but let me give a slightly different explanation for your cappuccino price hike:

It is a corporate pricing decision in a highly competitive market based on maximizing profit on top of rising input costs - costs that rise because fuel cost has doubled since 2009, and taxes and fees have had upward pressure. These costs affect every business that sells to Starbucks, so their increases are passed along and added together. (Rising pension and health care costs fit in there too, somewhere, everywhere.)

You are right to bring up the technological advances that combine a phone, computer, calculator and metronome in a single device for a fraction of the cost, but when was the last time that happened in coffee? Or food? Or energy?

I'll answer the last one: A few years ago, in North Dakota and Colorado. Something called "fracking" that is opposed, at least publicly, by governments from sea to shining sea, constituting yet another unseen regulatory cost.

I won't die on the hill saying inflation is 7-10%, but if the official government measure of this monetary phenomenon is DOUBLED it is still below that range. Butowsky's greater point (and I'll thank you for not naming him in order to underscore your implication that he's a crank) is that "manipulation by the government on the CPI is the single greatest reason why people are becoming increasingly reliant on government entitlement programs." I don't read him as wanting the entitlements to rise more, he wants fewer people to have to resort to them.

Posted by: johngalt at August 3, 2013 11:24 AM
But jk thinks:

I suggest a disconnect in the quote you pulled. Mom is less likely to request food stamps if the COLA on her alimony is applied at Chapwoodian levels (reader exercise: is the inflation adjustment on alimony "earned income?" Discuss...) Yet the real world effect would be buckets and buckets more gub'mint money out the door as the bulk of CPI-adjusted payments are likely public.

Your Starbucks counterexample isn't really what I'd call inflation. You can argue that the oil component of "energy" is denominated in dollars and subject to inflationary pressure, same with coffee beans maybe but I'd like to see more data; like oil it is cartelized. But rising taxes and fees and its suppliers' health care benefits are most definitely not monetary phenomena. As they say in Animal House: "I'm not going to sit still while you bash Milton Friedman!"

Coffee benefits from technological advances in shipping as well as better financial instruments to hedge risk. Agriculture? I read something somewhere.... Plenty of innovation to go around if the Luddites are held in check.

(The Everyday Economist used to criticize me for my suggestion that innovation was disinflationary for most of the same reasons I'm using on you...)

Posted by: jk at August 3, 2013 2:03 PM
But johngalt thinks:

If inflation is "always and everywere" a monetary phenomon, then disinflation surely must be as well. So how is innovation a monetary phenomon?

If the resulting rise in prices from government (mis)management, (over)regulation and (over)taxation may not be called inflation then what may I call it? I'm happy to use the right word for "everything costs more than it used to" if someone will just enlighten me.

[I'll give your disconnect citation more thought.]

Posted by: johngalt at August 5, 2013 2:20 PM

July 30, 2013

Annual rise in cost of living? Roughly 10 percent

Let's pause the battle for the soul of the Republican Party long enough to examine more proof of the existence of Stealtflation (R). This Fox Business article dates to last summer, but except for the Bing or Google page caches it may be the closest you can get to the chapwood index site, which is either swamped after their FNC mention this morning or blocked by the Secret Service.

Wait, what's that sound? whup whup whup whup...

UPDATE: This guy stole my term, Stealthflation, before I even coined it! (And we need to work on our SEO 'cause the first Threesources hit for the term didn't come until the third page.)

Posted by JohnGalt at 11:08 AM | Comments (1)
But johngalt thinks:

The Chapwood Index creator said he came up with it to show how working folk are getting robbed every year by their government through devaluation of their earnings. (Also the reason I keep harping on it, by the way.) As I look into our company parking lot I must credit the amazing production effiencies and technologies that allow sub-$15k cars to be produced in the uber-regulation era. Cars without which an ever growing segment of the working class would be living in the pre-automobile past.

Posted by: johngalt at July 31, 2013 12:07 PM

June 26, 2013

Cheap Money and its Critics

We have a family joke that originated with former Oakland Raiders quarterback Rich Gannon, explaining why his team had lost a particular game, saying, "I can't run the ball, I can't catch the ball, I can only throw the ball. I can't do everything." So now, to "Richie can't DO everything" we can add, "Cheap money can't DO everything."

Robert Samuelson, a man I don't recall agreeing with ever before, explains on the IBD Ed page:

Cheap credit addresses none of these problems directly and, indirectly, does so only weakly. It can't erase the memories of the financial crisis. It can't create new technologies. It can't make older people younger.

At best, cheap money aided the housing recovery; at worst, it became a stock-market narcotic that can't be withdrawn painlessly.

Many countries face obstacles to growth that cheap money won't magically remove.

This raises a larger issue. Economists have been taught in graduate school that advances in their discipline make it possible to stabilize and, within broad boundaries, control economic activity. But what if that's not so? The ferocious debates among economists indicate that the consensus has broken down.

Who says there ever was a consensus? Ah yes, "The economics is settled."

Posted by JohnGalt at 3:44 PM | Comments (0)

May 31, 2013


A hero of mine offers a contrary point which is hard for me to wrap my head around.

I've always accepted his "good deflation" as "disinflation" and an excuse to follow a Brenanke-ish line to avoid actual deflation.

Posted by John Kranz at 1:44 PM | Comments (1)
But johngalt thinks:

How to discern one kind of disinflation from another is indeed a conundrum. In a just economy it would be discerned by individuals in a free marketplace, not by central bankers who are always subject to temptation of using anything as an excuse to follow a Bernankish line to avoid ANY deflation. Then the discernment difficulty becomes, are they merely striving to avoid deflation or are they "in the habit of helping themselves to the property of others?"

Posted by: johngalt at May 31, 2013 5:14 PM

April 5, 2013

Friday Otequay of the Ayday

"There is nothing [Stockman says] that others haven't," says Peter Schiff, chief executive of the broker Euro Pacific Capital, with a similar outlook. "But when someone from the establishment criticises the establishment then everyone has to jump on him and discredit him."

From Stockman Feels Force of Washington Fury, by Robin Harding, Financial Times

Posted by JohnGalt at 8:16 PM | Comments (0)

April 3, 2013

That's not a bubble... THIS is a bubble!

Aw hell, I'm gonna blockquote it anyway, because the widely quoted passages are the wrong ones. The right ones are here:

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

And here:

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke - fiscally, morally, intellectually - and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

From David Stockman's Sundown in America. New York Times Sunday Review, March 30, 2013.

And I didn't even quote the part about feckless calculations of inflation! That's gotta be worth something.

Posted by JohnGalt at 3:04 PM | Comments (0)

January 27, 2013


Disturbing news from the GPI Deflator:


I have been dismissive of inflation projections from some of my blog brothers. Yet I must report today's potential "wake up call."

I have been playing finger style guitar for the last ten years or so. Before that time, I had a large supply of picks. I figure it has been 14 years since I bought them. Some new material I am working on requires them, and I took a nice convertible ride on a lovely day to stock up and try some new styles.

Where I recall their being about a quarter before, they are a dollar now. Using the rule of 70, I compute the GPI (Guitar Pick Index) deflator to be 70/(14/2). That's a seven percent annual increase in the price of picks! That Bernanke fellow has quite a bit to answer for.

Posted by John Kranz at 4:31 PM | Comments (2)
But johngalt thinks:

"Math Ranger" here. Idn't that ten percent?

You can blame a lot of that increase on the price of oil, the rise of which is factored out in many indices.

Posted by: johngalt at January 29, 2013 9:05 AM
But jk thinks:

Damn you, Math Ranger! Foiled again!

Heh, I started with 20 years and backed it off at the last minute without recomputing. Math is hard.

Posted by: jk at January 29, 2013 10:22 AM

January 21, 2013

Hyperinflation in Hell!

The Stand-up Economist,Yoram Bauman.

Posted by John Kranz at 1:00 PM | Comments (1)
But johngalt thinks:

I really didn't want to laugh. But I did. A little.

Posted by: johngalt at January 21, 2013 2:42 PM

January 16, 2013

Stealthflation "Race to the Bottom" *

Politicians generally make noise or law, but rarely both at once. That's why I'm not too concerned about the gun-grabbing hysteria in the news these days. The noise achieves multiple goals: It makes the loudest politicians look like they care the most and are "doing" the most; It also distracts from real issues like debt, spending, Benghazi, and the "Global 'Currency War.'"

The massive Fed balance sheet expansion has resulted in the U.S. dollar declining about 11 percent against a basket of world currencies since QE began in 2009. In the meantime, stock prices have doubled since their March 2009 lows and the Morgan Stanley Commodity Related Index has gained about 80 percent.

With the U.S. as its guide, competitive devaluation is expected to accelerate.

Strategas investment strategist Jason Trennert included the "race to the bottom" as one of his five principle investment themes of the year.

And yet, fuel prices continue to fall as domestic production soars (and world demand shrinks.) Think how inexpensive energy would be if you could buy it with a sound dollar.

* You thought "race to the bottom" was my characterization, didn't you? Actually it was, even before reading the article in full.

Posted by JohnGalt at 3:18 PM | Comments (6)
But Keith Arnold thinks:

"... Think how inexpensive energy would be if you could buy it with a sound dollar..."

And also if the Central Planning apparatchiks would allow drilling so supply could rise along with demand. See the graph at http://is.gd/C9bEFj - and yes, thanks, Dick Nixon, for the EPA.

Hey, speaking of central planners, ruining the economy, and general recalcitrant idiocy, are you all doing something special to welcome Ken Salazar back to Colorado come March?

Posted by: Keith Arnold at January 16, 2013 5:02 PM
But jk thinks:

Again, I complement inflation on just how stealthy it is.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.
The index for all items less food and energy increased 0.1 percent in December, the same increase as in November. Besides shelter, the indexes for airline fares, tobacco, and medical care also increased.

The indexes for recreation, household furnishings and operations, and used cars and trucks all declined in December.

The all items index increased 1.7 percent over the last 12 months, compared to a 1.8 percent figure in November. The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as last month. The food index has risen 1.8 percent over the last 12 months, and the energy index has risen 0.5 percent.

Posted by: jk at January 17, 2013 1:15 PM
But johngalt thinks:

Respectfully, that is one reason I call it stealth-flation... because it is a low enough rate to escape serious notice. What is the over/under rate where you would expect people to consider a given year "inflationary?" I would put it at 3 percent. More than that and people raise an eyebrow but less? We've been conditioned to consider that "normal."

"The U.S. dollar declining about 11 percent" over a roughly 4-year period is 2.75% annually. May I be forgiven for wondering, if the central bankers can manipulate the money supply so precisely as to remain slightly below 3 percent, why don't they alternately target it slightly above zero?

Posted by: johngalt at January 17, 2013 7:11 PM
But jk thinks:

Bernanke's Textbook suggests a 2% inflation target. The problem with 0.0137% is that the tools are inexact, and the shock of deflation is considered perverse enough to accept 2% inflation. Better to miss at 2.5 than -0.5.

At the risk of opening another front in this war, 2% core CPI is acceptable to me because technology and trade are disinflationary.

Defending the Chairman is not my favorite job (not when there are toilets that require disinfecting or some old COBOL code that requires documenting), but the man wrote a textbook, he was hired to do what he said. He has done what he said pretty perfectly.

I look forward to his replacement (though it might be Maya Angelou with this Administration) and have come to accept from my economic betters that there are better plays than inflation targeting. Yet I cannot grasp the Strum and Drang. Nobody in government since President Polk or Guy Fawkes has ever done more closely what he or she professed.

Posted by: jk at January 17, 2013 7:32 PM
But johngalt thinks:

You make a good case that he did what he said he would do. That makes the fault not his, but ours for letting him have the job. I'm still not convinced that disinflation - saved money buying MORE in the future than it would now - does harm to anyone beside those who income derives from operating the currency system. Market forces are swift, certain and fair, inversely to the extent which government "manages" them.

Finally I should also say that 11 percent inflation over four years is over and above the average currency inflation in the "basket of world currencies" who are, no doubt, targeting non-negative inflation rates themselves. (Neener neener, we inflated our currency more that you pikers. We're winning the Currency War!)

Posted by: johngalt at January 18, 2013 2:33 PM
But jk thinks:


Posted by: jk at January 18, 2013 6:28 PM

January 11, 2013

Quote of the Day

Given the coin's purpose, it would be far wiser to fashion it out of the same junk now used to make pennies, or for that matter out of plastic, or out of cardboard made from recycled copies of the Congressional Record.

Indeed, if the thing is never to leave the Federal Reserve's vault, it might as well consist of nothing more than a cover from one of those little ice-cream tubs--you know, the ones with the wooden spoon underneath--on which Congressman Walden has scribbled the words "$1 Trillion" along with some appropriate legend. In case the good Congressman is reading this, perhaps he will consider my proposal for such. It is: "In Idiots We Trust." -- George Selgin: My Own Two Cents Concerning Trillion Dollar Coins

Posted by John Kranz at 11:42 AM | Comments (0)

October 29, 2012

Monetary Policy with Hops

I think the Austrians and the Chicago school can agree on the perfect, post storm currency:

1. Beer

"Buy a lot of it," says Trey Click, a magazine publisher who rode out last year's Hurricane Ike in Galveston, Texas. "It's one of the only things you can use for money in the aftermath." Need your neighbor to help you clear trees out of your yard? A case of Bud is a better motivator than a $20 bill when all the stores are boarded up.

All the best to our Keystone & Empire State ThreeSourcers -- stay safe and dry, y'all!

Posted by John Kranz at 12:23 PM | Comments (4)
But Ellis Wyatt thinks:

Back in the '70s when I was planning on how to "Profit From" Harry Browne's "Monetary Crisis" we all thought cases of cigarettes would make the best trade goods, but the fall in smoking has shifted the equation, I guess. While beer is great for hurricanes, for long term EOTWAWKI scenarios I would go with whiskey and vodka in glass bottles.

Posted by: Ellis Wyatt at October 29, 2012 5:04 PM
But dagny thinks:

There is an EOTWAWKI Heinlein novel, Farnham's Freehold I think, where the protangonists are willing to accept books in trade.

Posted by: dagny at October 29, 2012 6:44 PM
But johngalt thinks:

Another good currency would be bullets. Or, in the case of The Road Warrior - gasoline and shotgun shells.

Posted by: johngalt at October 29, 2012 6:54 PM
But johngalt thinks:

Smug, sanctimonious Joss Wheedon videos - not so much.

Posted by: johngalt at October 29, 2012 6:59 PM

September 21, 2012

Monetary Smackdown!

Correct me if I am wrong, but the running meme of contentious monetary policy debates around here is something of a myth. It's not that we all agree, but I don't know that we have any William Jennings Bryans around here who are devoted, passionate, and radically different than others. I consider myself a neo-Austrian Chicago guy of sorts. But the great ThreeSources rows I recall have been about immigration, drugs, or my voting for a Democratic Governor.

But Brother Bryan shares a contentious monetary policy debate. Joe Salerno wades into a Paul Krugman/Brad DeLong/George Selgin contretemps:

[...] but this was the gist of George [Selgin]'s bizarre and irrelevant comment on Krugman's column asking Austrians what their position is on money market mutual funds. In his haste to establish his mainstream bona fides to Krugman, however, George was blind to the fact that Krugman has been forced to recognize and address Austrian arguments precisely by those who George denigrates in his comment as "the anti-fractional reserve crowd among self-styled Austrians, taking its lead from Murray Rothbard."

Yes, we hate the Romans -- but it's The People's Front of Judea that really gets our goat!

In the face of Krugmanites who would inflate the currency without bounds to fund activist government, the pragmatist in me considers Austrian / Chicago debates internecine. I'm all for a robust difference of opinion and debate, but I wonder if there aren't times to circle the wagons against the Brad DeLongs and Paul Krugmans of the world. "Irrelevant and bizarre?" Here's the Selgin comment:

Rothbard, ...would ban 'acts of fractional-reserve banking among consenting adults,' and so, apparently, would Congressman Paul. Whatever such a ban might accomplish, it certainly can't be squared with monetary laissez faire, or for that matter with plain old personal freedom.

Can't we all get along?

Posted by John Kranz at 11:48 AM | Comments (1)
But Perry Eidelbus thinks:

All right, I'm coming very late to this. Rothbard is entirely misunderstood on fractional reserve banking. He would not have promoted a "ban" anything between consenting adults. What he would have done is removed the ability of a bank and government to pollute the money supply.

A bank can lend however it wants, and I'm free to leave my money with a bank or not. If I have savings at a bank that lends out only 80% of deposits when it claims 50%, and I try to withdraw my money *when the account agreement says I can do so anytime at full*, then the bank committed fraud beyond a simple breach of the contract, and I can take action. If the agreement says "only insofar as the bank has available funds to cover withdrawals," then I have no resource.

What Rothbard opposed was a central banking system whereby banks can keep a mere, say, 10% on reserve, and the government/central bank will cover banks' flimsy ability to meet withdrawals.

Posted by: Perry Eidelbus at September 27, 2012 11:49 AM

September 17, 2012

Kudlow: QE3 - Evidence Obamanomics Dismal Failure

Or, "What if they threw a big economic recovery and nobody came?"

Lawrence Kudlow points out in an IBD editorial that Bernanke's "desperate money-pumping plan" is a complete reversal of the "supply side" policy that his predecessor Paul Volker used to great effect in the 80's, with an unsurprising result.

A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.

This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.

The Fed has created all this money in the last couple of years. But it hasn't worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.

The obvious implication being that if it worked then and its opposite is failing now, let's try it again. *Homer Simpson voice*"Hey, why didn't I think of that?"*/Homer Simpson voice* Kudlow explains that when policies don't encourage higher after-tax income for producers or greater return on investment for lenders, well, we'll see less of both.

On page 2 Kudlow explains how QE3, like QE2 before it, is murder on the middle-class that the president loudly and repeatedly boasts he cares most about. As my three year-old likes to say these days, "Nonsense."

Posted by JohnGalt at 2:53 PM | Comments (1)
But jk thinks:

Larry's point is politically devastating: "if the Administration's policies are so swell, how come the Fed has to keep a liquidity fire hose on full in perpetuity?"

A wonkier look at QE3, suggesting Nominal Income Targeting (somewhere blog friend EE cheers!) is available on the Free Banking blog today.

Among the alternatives to NGDP one in particular, the Dept. of Commerce's measure of (nominal) "final sales to domestic consumers" deserves particular attention. It is the measure that was favored by the late Bill Niskanen--yet another largely unrecognized but long-standing proponent of nominal income targeting--who offered several good reasons for preferring it to NGDP targeting, the most fundamental of which was that "demand for money in the United States appears to be more closely related to final purchases by Americans than to the dollar level of total output by Americans."

Posted by: jk at September 17, 2012 4:09 PM

September 14, 2012

QE3 Deux

I did not forget nor ignore the question of QE3. I first hoped that Kudlow would post the video of his discussion with Don Luskin, but that is not on the CNBC site today. I also hoped to find the great graphic he uses -- it looks like a Spanky-and-our-gang vintage film of a baby tossing a pile of cash out the window.

Missing both of those, the WSJ weighs in with three concerns about "the brave new world of unlimited monetary easing:"

Then there are the real and potential costs of endless easing, three of which Mr. Bernanke addressed at his Thursday press conference. He said Americans shouldn't complain about getting a pittance of interest on their savings because they'll benefit in the long term from a better economy spurred by low rates. Retirees might retort that they know what Lord Keynes said about the long term.

Mr. Bernanke was also as slippery as a politician in claiming that his policies don't promote deficit spending because the Fed earns interest on the bonds it buys and hands that as revenue to the Treasury. Yes, but its near-zero policy also disguises the real interest-payment burden of running serial $1.2 trillion deficits, while creating a debt-repayment cliff when interest rates inevitably rise. Does he really think Congress would spend as much if he weren't making the cost of government borrowing essentially free?

The third cost is the risk of future inflation, which Mr. Bernanke accurately said hasn't strayed too far above the Fed's 2% "core inflation" target. That conveniently ignores the run-up in food and energy prices, which consumers pay even if the Fed discounts them in its own "core" calculations.

The deeper into exotic monetary easing the Fed goes, the harder it will also be to unwind in a timely fashion. Mr. Bernanke says not to worry, he has the tools and the will to pull the trigger before inflation builds.

Kudlow showed the Fed's balance sheet going from $800 Billion to $3T in a few years, with QE3 suggesting almost a full $1T being added every year. Governor Romney said that he does not plan to renominate Chainman Bernanke to another term. Let us hope he wins and The Chainman is sent back home to play with toy helicopters.

Posted by John Kranz at 4:27 PM | Comments (0)


Dagny's plea to the blog economists for someone to "explain to me, in small words, what the FED has just done" having heretofore gone unanswered, I'll link to a capitalist hack who gives a fairly concise summary of the "absolute final gasp of the central bank cartel" in Bernanke's Last Bullet.

Bill begins by explaining what the Fed did yesterday:

On Sept. 13, the Federal Reserve announced a program to purchase $40 billion of mortgage-backed securities a month — at a pace of $480 billion a year. Unlike previous incarnations of quantitative easing (QE), this one is open-ended with no sunset stated or envisioned.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Fed wrote in its statement.

And then he explained what it means:

When coupled with the European Central Bank’s (ECB) Sept. 6 announcement of open-ended government bond purchases, this is the absolute final gasp of the central bank cartel. They are desperate. These coordinated actions indicate only one thing: the global economy is going over a cliff. Name one region or industry that is prospering. Not China as its exports dry up. Not Australia who is just now entering its own housing meltdown. Certainly not Europe where even Germany is starting to show signs of recession. And the emerging economy nations? They depend on others to buy their commodities and goods. They are just months away from their own problems.

Bernanke has now fired his last bullet. When this reckless move fails, nobody will believe just shoveling more money into a broken economic engine will do anything meaningful.

Posted by JohnGalt at 2:23 PM | Comments (1)
But jk thinks:

The best commentary emanated from a non-economics blogger. Jim Geraghty:

As Cam asked last night, "What's the last really good thing that had a '3' in its title?" I nominated The Return of the King, The Dark Knight Rises, and Indiana Jones and the Last Crusade, but Cam pointed out none of them have "3" in the title. Redskins fans, we're still deciding if "RGIII" counts.

The open-ended nature is disconcerting. The dual mandate, which I consider one too many, is now discarded in favor of GDP-targeting. The man from Princeton will now run the entire economy from the FOMC.

Posted by: jk at September 14, 2012 4:16 PM

September 10, 2012

Monetary Policy You Can Sink Your Teeth Into

This is good. My hat's off.

Many people, even those who are not New York State residents, have probably heard the lottery slogan, "All it takes is a dollar and a dream." Now comes an actor, comedian and writer, seeking to make his way across the country in the next two weeks with only a dream and, oh, yes, instead of a dollar, a trailer filled with 3,000 pounds of a new bacon.

That would be Oscar Mayer's new Butcher Thick Cut bacon. Actor Josh Sankey leaves New York without cash or credit cards, to parley a trailer full of bacon into food, lodging, and transportation.

If you hanker for some tasty pork products, you can swap on baconbarter.com. Wonder if he needs a tape library?

Hat-tip: Insty (of course -- the Professor has the bacon beat covered).

Posted by John Kranz at 10:07 AM | Comments (0)

August 24, 2012

Shameless Promotion of Others is Okay

Blog friend EE has an essay in this collection:

Congress created the Federal Reserve System in 1913 to tame the business cycle once and for all. Optimists believed central banking would moderate booms, soften busts, and place the economy on a steady trajectory of economic growth. A century later, in the wake of the worst recession in fifty years, Editor David Beckworth and his line-up of noted economists chronicle the critical role the Federal Reserve played in creating a vast speculative bubble in housing during the 2000s and plunging the world economy into a Great Recession.

Kindle version coming Aug 28.

Posted by John Kranz at 2:25 PM | Comments (3)
But johngalt thinks:

Looks like a worthwhile read. Everytime I see something like this though I wonder how it will dovetail with Randal O'Toole's thesis.

Posted by: johngalt at August 24, 2012 4:10 PM
But EE thinks:

Thanks for passing along the cheap plug.

Posted by: EE at August 27, 2012 11:49 AM
But jk thinks:

Looking forward to it, man! I think I will wait for the Kindle version, unless buying through the Independent Institute is somehow advantageous for the authors.

Posted by: jk at August 27, 2012 12:12 PM

August 21, 2012

.Romney Calls for Fed Audit as Party Mulls Platform Plank

D'y'all see this?

"I would like to see the Fed audited," Romney said today. Still, he cautioned that Congress shouldn’t be given the authority to run the central bank.

"I want to keep it independent," he said. "There are very few groups that I would not want to give the keys to. One of them is Congress."

Posted by JohnGalt at 3:42 PM | Comments (7)
But Bryan thinks:

I agree!

Legalize competing currencies and get the government out of it all together :).

Posted by: Bryan at August 21, 2012 3:53 PM
But jk thinks:

The Federal Reserve? Didn't you hear? Todd Akin (R - MO) thinks that a woman doesn't get pregnant if she's raped. Don't you have Facebook?

The Federal Reserve...

Posted by: jk at August 21, 2012 3:55 PM
But jk thinks:

Brother Bryan: the Everyday Economist turned me on to George Selgin and I agree that what he calls "Free Banking" is the best way. DO you find that consistent with Article I Section Eight's "To coin Money, regulate the Value thereof, and of foreign Coin?" Would this require amendment (probability 0.0000000000000015%) or simple statue (probability 0.0000055%)?

(Me negative?)

Posted by: jk at August 21, 2012 4:20 PM
But Bryan thinks:

I am by no means an expert on "free banking" but from what I have read about it, I would not complain if that were the primary banking system of the United States.

But then again...I like complaining :)

Posted by: Bryan at August 21, 2012 4:30 PM
But Bryan thinks:

As to the legality, I would argue that you could implement a "free banking" solution without statute or amendment.

I think this system would create itself if the government simply revoked the Fed's charter and repealed legal tender laws. You could certainly codify it into law, but I don't think it would be needed for this system to function.

Posted by: Bryan at August 21, 2012 4:35 PM
But dagny thinks:

Todd Akin (R-MO) is the kind of person that makes me want to turn in my R membership card. And, unfortunately for the R's this year, many other women feel the same way.

Posted by: dagny at August 21, 2012 4:43 PM

July 27, 2012

Hackuva Good Question

I have not been able to generate any enthusiasm for Rep. Ron Paul's quixotic campaign to "Audit the Fed!" One can criticize fiat money, wish Alexander Hamilton had read George Selgin or that Roger Taney had slayed Nicholas Biddle in a duel -- I get that.

But the equation "X is bad, therefore add Congress" has few if any real values for 'X.'

Daniel Hansen asks "Do we really want Congress controlling the Fed?" It being the AEI blog, he has to present a serious argument and take time to enumerate things that our 535 economists-in-chief have -- if I may use a technical term -- boogered up.

Ron Paul's recent Audit-the-Fed bill that passed through the House (with no hope of passing through the Senate or being signed by Obama) marks an interesting victory for supporters of Ron Paul. Should the bill magically enter into force, all aspects of the Fed's operations -- like monetary policy moves, discount window operations, agreements with foreign central banks, and so on -- could be subject to intense public scrutiny and Congressional oversight.

All of which begs the question: Would we be better off if Congress had more control over the Fed?

Compared to the rest of ThreeSourcers, I am Chairman Bernanke's biggest fan, telling his mom that Inflation Targeting remains valid and forcing her to accept Operation Twist's subtle manipulation of the yield curve. But no matter what your feelings of Bearded Ben, can you look me in the eye and say that the guys who gave us Dodd-Frank, ObamaCare, Sarbanes-Oxley, the light bulb ban, ethanol and mohair subsidies, and the Designated Hitter are going to do better?

No. Hell no. Let Barney Frank yell at the Chair a few times a year by all means. But keep him or his replacement away from the monetary policy levers.

UPDATE: Okay, maybe I cannot blame Congress for the DH...

Posted by John Kranz at 3:56 PM | Comments (7)
But jk thinks:

Fair cop on enumerated powers. That was my reference to Hamilton. "To Coin Money and regulate the value thereof" was one of our founding document's flaws. And I'll make you a deal: If we start following the rest of the Constitution, I will be game to let it dictate this.

I have read a bit of the Austrians, my friend, and have ABCT pretty well down. While anyone could learn more, I reject your suggestion that that is what holds me back from the wisdom of trading The Bernank for Barney Frank.

How many Congresspersons understand ABCT? You think our 535 Budding-Austrians-in-Chief want to ensure sound money? Looking at the hash they have made of fiscal policy, I hesitate to extend their authority even if it is in Section 8.

Though it would fix one thing. I think if Congress took over the money supply, all ThreeSourcers would soon be able to agree on inflation.

Posted by: jk at July 27, 2012 5:38 PM
But Keith Arnold thinks:

"To regulate the value thereof" is a dangerous can of worms to open. I can only imagine the temperature of the discussion that would ensue at this very blog, were we to open this up for debate.

"To regulate the value thereof" presently has a very different meaning than it had back when we were on the gold standard, and "we declare that the value of a dollar equals 'x' many grams of gold," or something meaningful like that.

[And I am NOT going down the road of "It says 'to coin money,' not 'to print money,' and paper money isn't in the Constitution!" That's a discussion for another day...]

Quis custodiet ipsos custodes? Perhaps all of us agree the Fed needs to be audited - heck, perhaps we might all agree the Fed needs to be eliminated - but do we want a Congress, two-thirds of whom can't balance the Federal checkbook or file their own taxes correctly, doing the math? I want Congress as far from the money as I can get them. An independent auditor? Sure, I hear Arthur Andersen LLP has all of next week free...

Question for the panel: how do you "regulate the value" of a dollar in a way that does not include setting prices of goods and services with those dollars? Remember, I'm the guy here who didn't blame Nixon for Watergate as much as for recognizing Red China and for the 1971 wage and price controls.

I suppose things would work better if we all understood that a dollar is not a thing of value intrinsically, so much as it is a nifty medium of exchange.

What if...

What if we lived in a world where the government produced meaningful, value-backed, relatively stable dollars, which free people were then allowed to use and decide for themselves how many they were willing to part with in return for goods and services?

What if we lived in a world where banks and lenders could decide for themselves by agreement with borrowers, without the diktats and pronouncements of a detached and irrelevant bureaucracy, what interest rates would be appropriate to the risk and the time-value of money?

Yeah, I know - purely hypothetically, of course. I mean, thinking it could be put into practice in reality would just be crazy talk...

Posted by: Keith Arnold at July 27, 2012 6:22 PM
But jk thinks:

Trying to segue me into previewing Review Corner early are we? Robert Natelson's The Original Constitution goes all the way through, imputing an 18th Century lawyer's understanding of the terms. And he is pretty sympathetic to an expansive view of "coining:"

For example, the Coinage Clause granted Congress power to "coin Money." You could read this as meaning "to make money in the form of metallic coins." If you read the Clause that way, then it did not grant Congress power to issue paper (or electronic) money. Alternatively, you could read "to coin" in the broader sense of "to fabricate" (as in "to coin a phrase"). In that case, the Clause would confer power to issue non-metallic money. The historical records show that the understanding of the ratifiers ("intent of the makers") was that this usage of "to coin" meant to fabricate. Thus, under the Founders' view this provision gave Congress power to issue paper money.

(Sorry, too good a diversion to resist.)

I think Congress gets its custodeo on during the regular hearings and advising and consenting to Fed appointments. And -- like you -- that's close enough for me. I don't see another regulatory appendage fixing the basically undemocratic nature of the Fed.

If we're not going to go full tilt on competing currency, I think the Fed is the least worst solution. But Brother Bryan is correct to call me out as a fair weather originalist on this. But I dare y'all to find many more.

Posted by: jk at July 27, 2012 6:45 PM
But Keith Arnold thinks:

Excellently written! And I will confess I did not intend to bring up something in a book you just happen to be reviewing; write this one off to one of those great-minds-think-alike thoughts.

I will be looking forward to that review, though; I've had some very similar thoughts, and I will offer an interesting experiment. Get a copy of the text of the Constitution (including the Bill of Rights) and search for every instance of the word "regulate." You'll note that each one is a point of contention on today's scene. I have a theory on that, but I'd covet your thoughts. Hint: a little knowledge of 18th-century clockmaking is a dangerous, perhaps revolutionary, thing.

By the way - my tweets to #3src don't seem to be getting through. Are they showing up at your end, or have I completely hosed this up?

Posted by: Keith Arnold at July 27, 2012 7:12 PM
But jk thinks:

Brother jg pointed out that it had become case sensitive when he thought it used to be more open to diversity: #3src good #3Src bad. Playing with the widget to fix this, I could have broken you -- you use all lower?

Posted by: jk at July 27, 2012 8:44 PM
But johngalt thinks:

The widget seems to be showing only "top" tweets, not all of them. Possible?

Posted by: johngalt at August 1, 2012 4:21 PM

May 1, 2012

Paul vs. Paul

Bloomberg television carried this 20-minute debate live yesterday. Drudge linked it with the headline: Ron Paul staying in race, may not support Romney. But I don't think I would have pitched it that way. I had already seen the story as a hit on my Google Alert for "Liberty Dollar." Andrew Kirell via MEDIAite wrote:

Krugman, grinning through Rep. Paul’s answers, responded that “if you think you can avoid [the government setting monetary policy], you’re living in the world that was 150 years ago.” Predictably, Krugman continued on to defend our monetary policy as a response to “free market economy gone amok,” and explain why he thinks government is necessary in order to prevent future depressions.

When discussing the topic of inflation (something Krugman wants more of), Rep. Paul hit back that “[Krugman] wants to go back 1,000 years” to the Greco-Roman times when inflationary monetary policy was a common practice. Paul explains how the Roman empire eventually destroyed their currency through inflation, implying that Krugman’s desire for the federal government to print more money could lead to similar consequences.

Krugman chuckled and responded: “I am not a defender of the economic policies of the emperor Diocletian. So let’s just make that clear.”

“Well, you are. That’s exactly what you’re defending,” Paul insisted.

Mitt Romney, take notice: When you're opponent says, "I'm not _________" the correct reply is, "That's exactly what you're doing."

When co-host Trish Regan questioned Paul on whether he wants to abolish the Federal Reserve entirely, he explained that he wants to legalize private currencies to compete with the government monopoly on currency. As it stands today, if people use a private currency, they can go to to jail (as we saw several years ago with the federal raid on the Paul-inspired Liberty Dollar).
Posted by JohnGalt at 2:10 PM | Comments (1)
But Perry Eidelbus thinks:

"you’re living in the world that was 150 years ago."

We should greatly appreciate Krugman's admission that it WAS possible since it was done. This country had minor panics when it used gold- and silver-backed currency (but not the free coinage of silver that William Jennings Bryan advocated).

Enter a great centralizer of power, Abraham Lincoln, who started printing dollars, and then the Federal Reserve. Our country had never had such busts.

Posted by: Perry Eidelbus at May 1, 2012 6:31 PM

April 25, 2012

If I wanted America to Fail

Here we see that Francisco d'Anconia now has a contemporary counterpart with his own YouTube channel.

Posted by JohnGalt at 7:49 PM | Comments (0)

April 10, 2012

Money Swappin'

Since central banking, and more specifically, monetary policy is such a hot topic here at Three Sources, I decided to share this article written by Philipp Bagus for Mises Daily. While a lot of attention has been given to monetary policy, interest rates, and inflation in previous posts on Three Sources, Mr. Bagus brings to the forefront an often overlooked activity undertaken by our central bank: Currency and Credit Swaps.

Our differences regarding price inflation versus monetary inflation aside, it is because of these activities that an Audit of the Federal Reserve is needed. The moral hazards created by these types of activities are numerous and include, but are not limited to, currency debasement and loss of liberty in Europe.

Posted by Bryan at 12:32 PM | Comments (4)
But nanobrewer thinks:

Let me take a moment and welcome brother Bryan to TS; and to thank foresight that I chose other than my given name for my "handle" here.

To save time booting up the True Type page (and to not take up valuable Headline space), can I ask for recommendations for tax preparers? I'll file an extension, so save the finger-wagging... I've enough complexity with divorce expenses, legal bills (of which I hear a portion is deductible) and 401k liquidations to warrant seeking a pro.. in May.

Btw: I'm approved to buy a house, so I'll be pretty mute for a month or three. I'm sure you'll terribly miss me. Let's hope Mitt discovers some wind under his wings....

Posted by: nanobrewer at April 11, 2012 9:34 AM
But jk thinks:

ThreeSourcers finger-wag on taxes? Mai non!

gd and dagny are your sources for recommendations. If neither tunes in on their bad week, I'll do a bit of emailing.

Best of luck in the house -- you need answer one question for the ex-pats: Boulder County?

Posted by: jk at April 11, 2012 10:19 AM
But Boulder Refugee thinks:

NB- The Refugee and the Mrs. use Colleen Weaverling at Middlemist and Crouch in Boulder. Been using her for years for two businesses, personal returns, etc - excellent accountant and advisor. Contact me if you need more details.

Posted by: Boulder Refugee at April 11, 2012 3:04 PM
But nanobrewer thinks:

The house (nee: 1979), is in Lafayette; a couple of blocks from the eastern end of Waneka Lake.

Posted by: nanobrewer at April 12, 2012 11:29 PM

April 5, 2012

'Stealthflation' we barely knew ye

The I-word is about to come out of the shadows, and into the full light of day. Investors:

Minutes from the Federal Reserve's last meeting show the central bank has all but abandoned plans for another round of quantitative easing.

It's now clear the Fed is more worried about inflation than recession.

Other notable nuggets-

Net interest expense will triple to an all-time high of $554 billion from $185 billion, Treasury says, meaning we'll pay more to service our debt than to protect our nation. The defense budget stands at $525 billion.


The reversal in interest rates makes defusing the Obama debt bomb through real budget cuts even more urgent than it already is.


The federal debt so far has not been the political liability that it could be for Obama in his bid for re-election.

But if interest rates rise at an even faster clip as he heads into November, the issue could blow up in his face. As his South Side reverend once famously said, the chickens are coming home to roost.

Posted by JohnGalt at 3:05 PM | Comments (7)
But jk thinks:

I've a huge deliverable next Monday and have shirked my blogging duties. Sorry if I miss somebody's point more than usual.

It seems we complain that they see no inflation and promise to expand the balance sheet with QEn or rearrange maturates through twist (and I join you).

Now, they are -- sensibly -- telegraphing some tightening or at least no further expansion. I think that was a good move. Equities never like the threat of less punch in the bowl, but the Dollar improved and Larry Kudlow's blood pressure dropped 25 basis points.

Don't know I got to be the blog fiat money guy, but again facing the exigencies of our system, the Bernanke Fed is actually doing okay. Not as good as free market competing currencies, not as good as I would do. But compared to fiscal policy (which gets 78.653% of the real estate in the linked IBD article), The Bernank is doing okay.

Posted by: jk at April 5, 2012 6:48 PM
But johngalt thinks:

I hate when earning a living interferes with blogging.

My point with Stealthflation has been that monetary policy was and is creating price inflation despite the denials and assurances we heard from professional economists. The Bernank was seemingly so fearless of inflation that he virtually guaranteed the present low interest rate into 2014. Now he reverses course, two years early. I read this as evidence that I was right all along and the Fed was either wrong or duplicitous.

Posted by: johngalt at April 5, 2012 11:16 PM
But johngalt thinks:

A gross oversimplification, I know.

Posted by: johngalt at April 6, 2012 1:56 AM
But jk thinks:

That is exactly what I inferred. I find/found the two-year zero interest rate guarantee irresponsible, no defense there. And I would have tightened a little, or at least jawboned the dollar up, a quarter or two ago.

My point was that you are training a dog. He has just asked to go outside and done just what you wanted. And you're whacking him with a newspaper yelling "Bad dog! You messed up the carpet last week!"

Posted by: jk at April 6, 2012 10:23 AM
But johngalt thinks:

I was trying to whack him with that newspaper last week.

Posted by: johngalt at April 6, 2012 1:52 PM
But johngalt thinks:

I have to add that FNC's Neil Cavuto backed me up this morning.

Contributor: "The only thing that I disagree with is that there's some sort of conspiracy here. I mean, the government doesn't want to deny that there's inflation. A lot of prices are cheaper. The overall numbers...[interrupted]"

Cavuto: "If you acknowledge inflation, the genie's out of the bottle. You have to start lifting interest rates, you have to start doing a lot of stuff you don't want to do. You most certainly want to hide it."

This was the meaning of my title - there was a stealth cloak, and it is dissipating.

Posted by: johngalt at April 7, 2012 1:28 PM

March 28, 2012

The War On...Cash?

While I hesitated to post about anything having to do with monetary policy due to that topic's polarizing nature on Three Sources, I found this article very interesting and worth sharing. Regardless of which economic school we adhere to, we probably agree that understanding the role of money in civilized society is crucial to economic analysis and often times taken for granted. This article presents several interesting arguments against central banking and the dangers associated with the decreasing role of cash in today's economic transactions. In an effort to "stir the pot" as it were, I will leave you with this little excerpt:

"But since 1969, the inflationary monetary policy of the Fed has caused the US dollar to depreciate by over 80 percent, so that a $100 note in 2010 possessed a purchasing power of only $16.83 in 1969 dollars. That is less purchasing power than a $20 bill in 1969!"
Posted by Bryan at 6:10 PM | Comments (10)
But jk thinks:

@jg: I meant in comparison to immigration and drug legalization.

As a Kumbaya-of-the-day, I'd suggest that we might all agree on John Taylor's Dangers of an Interventionist Fed.

My attraction to "The Bernank" was that Inflation Targeting was for all intents and purposes rules-based if you did it correctly. And he followed his own textbook for much of his term. Now, I would agree [left foot, right foot...] that he has trodden way out of the lines.

I challenge you to find an immigration or drug enforcement article on which we could gain (admittedly speculative) comity.

Posted by: jk at March 29, 2012 12:48 PM
But Bryan thinks:

While I am not sure where everyone stands on immigration and drugs, I will admit that we are probably splitting hairs when it comes to monetary policy and that we are probably making perfect the enemy of the good on that particular topic.

Perhaps someone should post an article on drugs or immigration to get a debate started?

Posted by: Bryan at March 29, 2012 12:57 PM
But jk thinks:

Resting up, Brother Bryan, we're all resting up...

We do have the category archives if you want a sneak peek at the program to see whose side everybody is on (basically everybody against me -- I have only the correctness of my ideas to keep me going).


War on Drugs

Posted by: jk at March 29, 2012 2:16 PM
But johngalt thinks:

Let me choose an example for you Bryan. I'll be interested in your analysis of why JK and I seemed to be talking past each other that day.

And I also wanted to punctuate your original post, which concluded that the US dollar has depreciated by 80 percent since 1969. This means That the largest bill still in circulation as legal tender, the hundred, is worth less than the 1969 version of a twenty. And today's twenty, somewhat affectionately called a "yuppie food stamp" has a 1969 value of three dollars and thirty-seven cents. Something to think about the next time you're asked to drop $7.50 for a Big Mac combo meal. ($1.26 in 1969 dollars.)

Posted by: johngalt at March 29, 2012 2:47 PM
But jk thinks:

Well, maybe not lockstep...

I see that as a 4.35% average on the TABPSSLCPOOASSB* deflator over 42 years. And that period includes Al Burns's tenure as FOMC Head. Speaking of talking past each other: you're setting up a strawman that I don't think there was inflation in the 1970's -- that is certainly not the case.

I'd love to graph the TABPSSLCPOOASSB from Reagan's direction to Volcker to today. Plus I bet the portion size has increased substantively from 1969.

* Two All Beef Patties, Special Sauce...

Posted by: jk at March 29, 2012 2:55 PM
But Bryan thinks:

LOL @ TABPSSLCPOOASSB...that's awesome!

I didn't come up with the overly long names for the data series located in the FRED Database. Blame for that goes to the economists at the St. Louis FED who had nothing better to do with their time.

In my future posts/research/graphs, I will format the data series name to have a more relevant title.

Regarding your view of inflation during the 1970's, my point I was trying to make was if we look only at prices we miss the bigger picture. We knew there was inflation in the 1970's because there was an increase in the general level of prices. If, however, there had been no rise in prices during this time period, but the growth in the money supply remained the same, this would not be regarded as bad by those that argue inflation is a general increase in prices and not an increase in the money supply.

What my data showed was that growth in the money supply does not necessarily increase prices, but that doesn't mean that there are not negative consequences associated with said growth (ie Roaring 20's or 1980's Japan).

Posted by: Bryan at March 29, 2012 4:10 PM

March 13, 2012

Is it.......Stealthflation?

Am I a nice guy or what? (The correct answer is "what?")

Brother jg's favorite topic closed Kudlow & Company last night and I thought I'd share:

The reason I share is because my man Brian Wesbury does a much better job in the debate than Steve Cunningham.

NOTE: I created a "Monetary Policy" category. We cannot pretend any longer.

Posted by John Kranz at 10:43 AM | Comments (5)
But johngalt thinks:

Wesbury said that inflation was higher in the 70's than the Fed told us it was; and agreed that food is up, energy is up, gas is up, but doesn't want "inflationistas" to run with the 8 percent number. His only analytical rebuttal was 4.2% nominal GDP minus 8% inflation equals "the economy in one of the worst recessions its ever been in on a real basis and I don't see that in the other data."

I contend that the (meager) growth shown in other data is a result of previously earned private wealth continuing to seek productive uses. Businessmen know how to do business and keep trying to grow and prosper despite anti-capitalist government policies. The difference between the Great Depression and the Progressive Depression is largely the level of individual prosperity from which household wealth begins to decline. We're better able to weather the storm now than were our forebears. But our national economy is still a lot like Mike the Headless Chicken.

Posted by: johngalt at March 13, 2012 3:14 PM
But Bryan thinks:

I'm an "inflationista"...lol.

Great video though. I enjoyed the debate.

Posted by: Bryan at March 13, 2012 3:17 PM
But jk thinks:

Anybody on the same side as Kudlow is usually okay on my book. Yet I'll tag along with Wesbury in that I am not denying nor unconcerned about inflation. Just not ready to suit up with the infationistas.

Posted by: jk at March 13, 2012 3:56 PM
But Bryan thinks:

Come on in the water's warm...

Posted by: Bryan at March 13, 2012 4:32 PM
But johngalt thinks:


Posted by: johngalt at March 13, 2012 5:53 PM