04 Jul 2014

The Fed Flirted With Insolvency in December

Federal Reserve 9 Comments

For a while now I have been warning people that even a slight rise in interest rates could render the Fed technically insolvent, because the market value of its assets would be lower than its outstanding liabilities. In terms of accounting, therefore, it would have negative shareholder equity.

Now in early 2011, there was a rule-change that would possibly rescue the Fed from officially declaring bankruptcy: In the event of a big capital loss emanating from a crash in the bond market, the Fed could conceivably argue that it owed the Treasury a negative amount of money. I walk through all of this hocus pocus here.

Yet this had all been theoretical. I was just made aware that back in December 2013, the Fed in practice came very close to actual insolvency (if it marked its assets to market). Specifically, as of 12/31/2013, the Fed reported equity capital of $55.0bn and unrealized portfolio losses of $53.3bn, meaning there was a net (mark-to-market) equity of $1.7bn supporting $4 trillion of assets. (I have seen an official auditor’s report with these figures, but I can’t find an online source to link you to.) That’s pretty leveraged.

If you want to think through what it “means” if the Fed literally goes bankrupt, read my earlier article. By no means will the government say, “Aww shucks, I guess we’ll get out of the fiat money business.” But it might spook investors and pop what I believe is our massive bubble in dollars and Treasury debt.

04 Jul 2014

Getting My Hands Dirty in the Mud With Noah Smith

Austrian School, Noah Smith, Shameless Self-Promotion 42 Comments

Here’s my response to Noah Smith. An excerpt:

So note the contradiction: On the one hand, mainstream economists ridicule Misesians for their “medieval” approach to economic theory, in which they deduce results logically rather than producing falsifiable propositions. But then these same critics tell the world that the outcome of a CPI movement destroys the foundations of Austrian theory. Huh?

04 Jul 2014

Krugman: Belgium Outperforms Economically Because It Lacked Government

Krugman, Shameless Self-Promotion 9 Comments

Really, that was his recent argument. Details here.

03 Jul 2014

My Smug-O-Scope Is Broken So…

Austrian School 73 Comments

…I need you guys to explain something to me. The Order of the Phoenix debated whether I should respond to Noah Smith’s balanced and judicious essay on Austrian economics, and the ayes have it.

But before I write it up, I am genuinely confused on one point: Noah refers to the Austrians’ “antiSemitic overtones” and links to a this YouTube video, which has been out since 2013 and has “301+ views.” I can’t even figure out who released the video, let alone verify that it is someone associated with Austrian economics.

Am I missing something?

03 Jul 2014


Potpourri 14 Comments

Sorry for the scant posting lately. Last week I was in New Hampshire, this week I’m at my parents’ house, and next week I’m at FreedomFest. Anyway:

==> A great conference on Christian Libertarians. I would go except it’s too close to the Night of Clarity event we’re holding in Nashville, for which I must help with the preparations.

==> Speaking of which, Tom Woods reaches out to the Christian Right. He’s so inclusive, that big softie.

==> A post on the “lost” IRS emails if you’re shocked, shocked that people in DC lie.

==> Interesting take on the Redskins’ ruling.

==> Rob Bradley talks about Henry Paulson‘s latest concern over climate change. (The man is a saint.) At IER I have a post coming out on this, probably next week.

==> My 9-year-old son is writing a novel and actually cares what you people think of it. I don’t know where I went wrong with the kid.

03 Jul 2014

Krugman Is a Denier When It Comes to Climate Economics Consensus

Climate Change, Krugman, Shameless Self-Promotion 2 Comments

Details here.

03 Jul 2014

Hobby Lobby Ruling: Principle Will Set You Free

Health Legislation, Pacifism, Shameless Self-Promotion 26 Comments

My latest LibertyChat post on the Hobby Lobby ruling:

The conservative supporters of the Hobby Lobby decision are correct when they say no employer should be forced to pay for contraception against his or her religious beliefs. The liberal opponents of the Hobby Lobby decision are correct when they say this principle would imply that religious pacifists shouldn’t have to pay for war.

If only these two camps would drop their petty sniping and see the beautiful vision of a truly free society: A prosperous world without stupid and stifling regulations on business, and a peaceful world without a snooping NSA and a fleet of flying killer robots controlled by megalomaniacs in DC.

01 Jul 2014

Sneak-Peek Murphy Mises Academy Lectures on Free Trade

Economics, Shameless Self-Promotion, Trade 17 Comments

I was traveling and had to miss a lecture on free trade for the last Mises Academy class I taught, so I pre-recorded them. (Yes, as George Carlin would complain, this means I recorded them before I recorded them.) Now that the class has been closed for a bit, I thought it would be OK to show you guys the lectures so you will have the common sense to sign up for my next Academy course: