19
Aug
2011
And Now, the End Is Near…
Robert Wenzel’s EPJ Alert tipped me off to the fact that excess reserves are finally dropping, while required reserves are rising. Wenzel actually looks at the Fed’s data release, whereas I had been lazy and only checked the FRED graphs (which apparently are a month behind).
Anyway, for a long time people have been telling me, “Bob, make sure you let us know when the excess reserves start getting lent out.” I will do some more investigating when I get back into town (I’m in upstate New York for a wedding right now), but it looks like the time has come.
Wenzel actually looks at the Fed’s data release
I feel like an idiot. Where am I supposed to be looking? Excess, NSA column? It has been fluctuating up and down. It dipped in August 2010, but then rose way back up. How can we know this latest dip is “the end” rather than just another temporary dip?
Am I even looking at the right thing?
“I feel like an idiot.”
Accepting the truth is the first step to recovery.
Is that what they taught you in the psychiatric hospital?
I had the same wisecrack comment. Nicely played.
Google h.6 money supply for M2 growth and google required reserve chart for I think it’s called h.3 report for excess and required reserve numbers. You’ll see the report I’m talking about if it’s not h.3.
Also the way you can see if this is the end is by looking at required reserves as well. The only reason this number would climb is because banks are making loans. So when you see M2 zooming, excess reserves falling, and required reserves climbing 35% plus annualized the last two months that is a pretty strong indicator.
Get the EPJ daily alert. Wenzel has been all over these numbers and keeps you updated on the trends as well as explaining the importance of the numbers. It’s the best daily newsletter out there in my opinion.
Bob, this is definitely off topic, but I’m looking for some Free Advice. Do you know if interventions are at all effective in setting people straight and getting them off drugs?
Brandon, why not just take the person’s drugs and sell them on Silk Road? That will work for sure.
Your link goes to some help wanted promotional page, not a post about excess reserves. I would have posted the correct link, but I can’t find it, I don’t see the term on the front page.
Silas, the links are how I wanted them. The link about the EPJ Daily Alert goes to where people sign up for it, and the Fed data release link, goes to the Fed data release talking about the reserves (right?).
No issues here, Bob.
Ah, I see. Misunderstood what you were trying to link.
Wenzel and I have to pimp each other’s stuff.
Nothing like a bit of codependent pimping. According to H8 released yesterday, C&I loans are now up 5% YoY.
Cheers.
So “recovery” is in progress?
“tipped me off to the fact that excess reserves are finally dropping”
Uh, so what?
Excess reserves are falling because QE ended. Plain and simple. Lending is not increasing. Banks are still de-leveraging. Just look at every single banks Q2 results. Falling excess reserves is a meaningless measure, unless you want to fear monger about hyper-inflation. And banks never lend out reserves, so this is a useless indicator. FYI – the reserve requirement is met in the future.
When the excess reserves continue to fall due to the end of QE, and lending continues to fall as well, will you finally admit another neo-liberal myth has been shattered? Will you raise your hand and say ‘Hey, the MMT’ers were right, there is exactly zero relationship between excess reserves and lending’? I doubt it…. 🙂
FYI – Loans create deposits. Not the other way around.
FYI – banks are capital constrained, not reserve constrained. Reserves are meaningless.
Sorry Mr. Murphy, but you continue to have a fundamental misunderstanding of the banking system. I strongly suggest this essay before continuing to misrepresent the banking system of a country that uses a free floating, non convertible currency.
http://bilbo.economicoutlook.net/blog/?p=9075
AP, why are required reserves rising at the same time? I didn’t just look at the falling excess reserves. (That could have been caused by people withdrawing cash out of fear, for example.) But falling excess reserves coupled with rising required reserves, is exactly the combo I was telling people to watch out for.
Something doesn’t add up. Their capital is being hit hard by the collapse in their stock prices. Yet lending out more would require more capital. Where are they going to get it?
According to people on this post, capital can be raised by obtaining more reserves. This is news to me. I guess banks can now recapitalize in the inner bank market. Someone should inform the CFO of Bank of America of this free advice before his stock goes to zero…
“But falling excess reserves coupled with rising required reserves”
Because there has been a flood of new deposits into the banking system, which increases the amount of (meaningless) required reserves in the banking system. The new deposits are so large, banks are finding ways to keep them away.
http://www.bloomberg.com/news/2011-08-05/bny-mellon-makes-clients-pay-for-deposits-as-investors-seek-safety-in-cash.html
APL could be on to something here. Stefan Karlsson just posted this:
http://stefanmikarlsson.blogspot.com/2011/08/big-money-demand-surge.html
Oops I forgot, AP, I had earlier decided that I wasn’t going to respond to you unless you clarified what the heck you were talking about in the other thread, when you claimed that bonds had “MASSIVELY” outperformed gold in the last 3 years. Please elaborate, because none of us could figure out what you meant by such a claim.
And here is the comment Bob is talking about, in case you forgot.
WTF, are there two of me now? As I wrote above, C&I loans are now up 5% YoY thanks to large domestic banks. The drop in excess reserves are primarily coming from US branches of foreign banks. Not a surprise there as their drawing on their digital cash. This inasmuch supports Wenzel’s hypothesis that the problems are Eurocentric.
However, take the spike in required reserves with a grain of salt, because by far the largest increase in lending is coming from the short term funding markets (FF & RRPs). Derivative exposure has also spiked. Both signs of distress, hedging and risk aversion.
“what the heck you were talking about in the other thread, when you claimed that bonds had “MASSIVELY” outperformed gold”
Uh, first, read my full quote:
“Some curve trades mixed in with STIPS….”
Ok, so I meant STRIPS, not STIPS. My typo mistake. I apologize. Is that what caused the confusion? Because I very clearly did not say bonds alone had outperformed gold. (and for responders who do not know what STRIPS are please figure it out first before flaming me. Thanks).
For example, the 8/15/40 strip is up over 50% since February. I’ll let you guys calculate what gold did over that period.
Or, for you etf lovers out there, the ETN Flat ETF has nearly kept pace with the GLD year to date.
Thats not from 2008
Here’s the full quote in case anyone still cares:
The reality is the deflation trade (government bonds) has MASSIVELY outperformed the inflation trade you and other Austrians have recommended. Any treasury fund manager with half a brain has crushed gold over the last 1, 3, 5, 10, 20, and 30 year period. Some curve trades mixed in with STIPS and a few timely IO’s crushed gold on an absolute and on a risk adjusted basis.
So you can see why some of us thought that AP was suggesting that bonds had outperformed gold.
Also, AP, can you point us to a Treasury fund’s historical results, that have outperformed gold over those periods? You should be able to find such a fund, since all it takes is a manager with “half a brain.” Yet we couldn’t find any such fund, amongst all the top performers over the last few years.
I did you one better. I gave you actual securities. I’ll admit I’m guilty of using the word MASSIVE too generously in this instance, but of course you’re missing the bigger picture, which is deflationary strategies have performed almost as well or even better than so called inflationary strategies. An astute analyst would look at the returns on gold, look at the history of the returns of gold, look at the performance of all fixed income assets and think, ‘huh, maybe inflation is not what’s driving the price of gold.’
And PS – I’m sure you already know this, but outside of mutual funds, most asset managers, hedge fund managers, etc do not disclose their performance or their holdings. So please do not try and discredit my comment by saying ‘well, he can’t find a manager, so it must not be true’. 🙂
Your comment was regarding his post from 2008. You have not shown how bonds have outperformed gold since then.
AP Lerner wrote:
Or, for you etf lovers out there, the ETN Flat ETF has nearly kept pace with the GLD year to date.
I just eyeballed it, and I was getting your ETF was up about 22% compared to gold’s 32% or so, YTD. (Again, just eyeballing the charts so don’t quote me.)
FYI – banks are capital constrained, not reserve constrained. Reserves are meaningless.
Banks choose to be operationally capital constrained, but functionally, they are ultimately reserve constrained.
If the Fed stopped increasing bank reserves, if they ceased inflating, then banks would, for a time, continue to expand loans and be able to choose to be constrained by capital. But as they continue to expand loans, what will happen is that individual banks will be faced with having to keep a higher and higher sum of cash on hand to satisfy withdrawals from clients and transfer requests from other banks. This follows from the fact that the more credit a bank loans out, the higher the checking accounts at that bank will become. As this sum grows, so will withdrawals and transfer requests grow. That requires the bank to have more and more money on hand.
As this process occurs for all banks, the capital constraints will gradually give way to reserve requirement constraints. This is because as banks need more and more cash to settle withdrawal and transfer requests on the basis of their expanding credit, the more they will find a need to borrow in the overnight market, and the less they will be able to lend into the overnight market.
As that latter process takes place, the interest rate on overnight funds will keep growing as well. The supply of loanable funds in the overnight market will gradually decline until each and every expanding bank will have no money available to loan into the overnight market because they need everything to satisfy withdrawal and transfer requests on the basis of their enlarged loan portfolio and corresponding checking accounts.
As the overnight funds market continues to dry up, the interest rate will keep getting larger and larger until banks would not find it profitable anymore to borrow more, because the interest and income they can earn on capital is less than the rate at which they have to borrow.
Once this point is reached, there will be a particular reserve to loan ratio that exists in the banking system, and the banking system as a whole would not be able to expand any more loans because they won’t have additional reserves available to satisfy any increased withdrawal and transfer requests that would result from making one more loan and one more addition to checking accounts. The only way one bank could make more loans is if another bank equivalently reduced its loans.
In other words, the banking system as a whole, in the absence of the Fed increasing bank reserves by fiat, would reach a point where it is reserve constrained.
Now, you might object to this on the basis that banks could increase their loans further by acquiring more capital. But this would not and could not work, because if any one bank receives more capital, then another bank would have to reduce its reserves, which means that bank would have to reduce its loans.
In addition, because the banking system as a whole cannot expand more loans on net, then the prices of capital assets would have nowhere to go but down, so any physical increase in physical capital owned by the banks, would not imply a higher market value of capital owned. It would imply a growing physical supply of capital owned, but at lower prices, making the market value in money no higher, which means they won’t be able to expand loans on net in the nominal sense.
Major – you have many of the relationships backwards, and it appears you do not understand the difference between reserves and capital. Remember, loans always create deposits. You said so yourself. So the meaningless reserve requirement is always met with deposits created by new loans.
Ask yourself this, how come many banking systems have a zero reserve requirement, and the notion of excess, total, and required reserves does not even exist?
please read this and if you still have questions i’d be happy to help.
http://bilbo.economicoutlook.net/blog/?p=9075
Major – you have many of the relationships backwards
Which relationships are “backwards”?
and it appears you do not understand the difference between reserves and capital.
On what basis?
Remember, loans always create deposits. You said so yourself. So the meaningless reserve requirement is always met with deposits created by new loans.
But without increasing reserves, banks who keep increasing loans will eventually reach a point where they can no longer issue any more loans because their withdrawal and transfer requests are just too high.
Ask yourself this, how come many banking systems have a zero reserve requirement, and the notion of excess, total, and required reserves does not even exist?
Because the Fed has been increasing reserves and ex post bailing out the frb banks for so long that banks have become adapted to it, and have started to utilize capital assets as an operational constraint on their loans.
If reserves stopped increasing, then frb banks would eventually realize that the capital constraints operational strategy they have been utilizing, fails to enable them to acquire more and more capital assets at higher and higher prices. Because banks would be limited by withdrawal and transfer requests, their limitation to acquire more capital would limit their ability to grant more loans.
please read this and if you still have questions i’d be happy to help.
http://bilbo.economicoutlook.net/blog/?p=9075
Thanks for the offer of help, but I think you need to be helped first before you can take it upon yourself to help others on this matter.
When you say “because if any one bank receives more capital, then another bank would have to reduce its reserves, which means that bank would have to reduce its loans” I can only conclude you do not know the diffancebetween reserves and capital.
Suppose I have $300 of disposable cash. Should I buy rice and pasta (for cheap calories) or ammunition?
I read an article some time ago that said “My Way” is the most dangerous song to sing karaoke in the Philippines. Apparently they take their karaoke quite seriously, and those who butcher that song face ridicule at best and violence at worst. Have you tried it?
Aristos,
I think you should buy “junk silver” with your $300 rather than the other things. (Meaning quarters, dimes, and nickels made in the 1960s or earlier with silver content.) If you find a coin shop they will probably have some, and not charge a big mark-up.
I have never done “My Way” in karaoke, partly for the reason you cite. Also, it’s a slow song and doesn’t really get fun until the very end.
My understanding of MMT:
1. Let’s abolish banking and lending freedom for the fun of it and institute and enforce via SWAT Teams and prison a fiat money system.
2. The creation of money out of thin air will result in the theft of purchasing power from those holding existing money and Cantillon Effects in general. It will distort economic calculation and thus the price, investment and capital structure leading to unsustainable malinvestments and the boom/bust cycle. MMTers will be oblivious to this critique of their evil “system”.
3. Once instituted, it will be necessary for the government to institute perpetual budget deficits so that the private sector might “net save”. Otherwise, the economy will collapse.
4. Also, bank reserves do not matter because the banks can create money out of nothing whenever they want. No one will have any money unless the banks first create it. Later, they can create the “reserves” out of nothing.
5. The government is not “revenue constrained” because it too can create money out of nothing whenever it wants.
That’s cool, right?
Roddis, everybody can create money out of thin air. It’s called credit.
Not everyone will extend credit to anyone, so no, dude.
The banks will not just extend credit to anyone either.
MamMoTh: The difference is that when I extend credit, if I make a massive mistake and flub it totally, then I’m personally out of pocket with a big loss.
When the banks do exactly the same thing and massively flub it, they demand to be paid back out of tax earnings (i.e. they fix their mistakes by use of force).
It’s a matter of where the risk falls. I cannot offload my personal risk onto anyone else, the banks can do that (and with the help of Fannie Mae and Freddie Mac the entire mortgage industry has also managed to offload it’s exposure to risk).
Also, when I extend credit, that IOU note does not go into general circulation. However, when the Federal Reserve writes an IOU note is does go into general circulation — and you are compelled to accept that as settlement of all debts.
This is something I totally agree with (except for the little detail about bailout coming from taxes, but let’s leave it at that).
Credit is not money. It is a promise to pay money.
In our modern system, besides a few gold and silver coins, everything that people generally call “money” is really nothing but credit (i.e. promise to pay). This includes credit cards, bank accounts, Federal Reserve notes, treasury bonds, and your tab at the local lunch room.
If you insist that “credit is not money” (and I understand that can be a valid point of view) then we are running a financial system without money.
Federal reserve notes are not credit. They are money. Fiat money, but money all the same.
So, ‘we’ are not running a financial system without money. ‘We’ are running a financial system with fiat money.
Credit card accounts, treasury bonds, bank accounts, etc. are worth zero if people think the (fiat) money isn’t there, or won’t be there.
In God We Trust. All others pay cash.
On what basis do you consider the Federal Reserve note different to the money in an electronic bank account or credit card?
Both of them are just some guy saying “this is money”, neither of them are backed by anything other than someone’s say so.
The Federal Reserve note is not even backed by the US Constitution for that matter.
Tel,
“On what basis do you consider the Federal Reserve note different to the money in an electronic bank account or credit card?”
FRN’s are what people ultimately accept as payment. That is why I, and others, accept them as money. If I pay someone with a check , for instance, it is not accepted the way cash is. Cash is money. A check (or credit card) says ‘you take this to my bank and they will give you (fiat) money’. It is not the same thing as money. (If a bank account is the same thing as cash, then why have all those banks failed? Did they not still have accounts when they failed?)
“Both of them are just some guy saying “this is money”, neither of them are backed by anything other than someone’s say so.”
I disagree. Money is the most marketable commodity – the generally accepted means of exchange. ‘Some guy’ calling something money does not make that something money. And again, the credit account, checking account, etc. are ‘backed’ by whatever is money being there.
“The Federal Reserve note is not even backed by the US Constitution for that matter.”
The ‘law’ does not make a good ‘money’. Mises attacked this idea in his book “The Theory of Money and Credit.” (Take notice of the title – it suggests money and credit are two different things.) Silver and gold pieces which circulated as money before the U.S. Constitution was ratified were not made money by its ratification.
These days most people accept an adjustment to their electronic bank balance as payment. Ignoring tiny transactions, everything major is done either by cheque or electronic transfer.
I can’t think of anything that you might want to buy that you must pay actual cash for. Electronic transfers are treated as comletely equivalent to cash. Credit cards are treated as equivalent to cash.
Even when you pay tax, I don’t think I have ever in my life actually paid my tax in cash notes, it has always been electronic.
Even when you pay tax, I don’t think I have ever in my life actually paid my tax in cash notes, it has always been electronic
Actually taxes are always ultimately paid for in reserves, the bank does it for you if you don’t pay them in cash.
Tel,
Just because most people use credit cards, checks, and electronic transfers to engage in exchange does not make them money. All of these are means to transferring cash (FRN’s) from one account to another – usually electronically. They are not money, though.
I am also not disputing that FRN’s under today’s monetary system is often nothing more than a pixels on a computer screen at the FED. What I am saying is that is the money, not the bank accounts, not the credit.
I’ll ask again; if credit, or bank accounts, are money, then why have hundreds of banks failed in the U.S.?
I’ll ask again; if credit, or bank accounts, are money, then why have hundreds of banks failed in the U.S.?
Because of the institutional setup that allows them to operate.
Your original statement was:
Implying that general acceptance is the criteria for what can be considered money… well then you say:
Well, yeah it does if you are going to make general acceptance your criteria for what is money. That is your criteria, not mine.
You are the one trying to put the Federal Reserve Note up on a pedestal, uniquely different to other forms of credit money. From my perspective they are all just IOU notes and nothing more than IOU notes.
The only thing backing the Federal Reserve Note is the threat of government violence (or the service of government protection if you feel more comfortable calling it that).
If you want to compare the Bob Roddis Dollar, and I quote “100% specie reserve requirement”, as compared with the present day Federal Reserve Note, it should be obvious that the Bob Roddis Dollar represents a low risk for the holder. On the other hand, holding the FRN represents a very real risk of inflation (given that 2% inflation is considered minimum these days, holding FRN is a guarantee that you will lose half your money over 30 years, but there’s a significant risk you could lose considerably more).
The only thing the FRN is good for is settlement (i.e. to facilitate exchange) and for this purpose electronic bank accounts, credit cards, etc are just as good.
Tel,
When I say FRNs are money, and not credit, I do not defend FRNs as money. I am against governments supplying money. I think our economy would be much better off without the Fed and with a commodity based money (like gold) supplied by private firms.
My only point has been that money, whether gov’t supplied or privately supplied, is NOT credit. The fact that people accept payment via a credit or bank account is not because it is a bank or credit account but because the money – FRNs in todays case – is expected to be in there in the future.
If someone gives me an IOU I will accept it based on how much of it will be paid if money. If I don’t believe the IOU will pay off in money – FRN or gold – I would not accept the IOU. And, that is because money is NOT credit. Yes people ‘generally’ accept credit payments – but only because they expect the generally accepted medium of exchange, money (whether FRNs or gold), to be supplied in the future. Credit is a promise to pay money in the future, it is not money itself. See http://www.lewrockwell.com/north/mom.html
MamMoTh,
You wrote “Because of the institutional setup that allows them to operate.”
You mean the institutional set up wherein if a bank does not have the cash on hand to satisfy its credit obligations, it fails?
You mean the institutional set up wherein if a bank does not have the cash on hand to satisfy its credit obligations, it fails?
That and capital requirements to continue operation.
Money is credit. And there is strong evidence it has always been.
Not all credit is money though.
Credit requires trust, and through most of history people have not had the framework in place to be able to trust anyone outside their immediate family, or local church group.
Thus trading in precious metal allows the transaction to be completed on the spot, without any need for further trust on the part of the participants. Which is why just about all of human history involved the use of metal as money. Today we are still struggling with the idea of who we can trust, and I must admit that governments don’t come high on my list.
“Thus trading in precious metal allows the transaction to be completed on the spot, without any need for further trust on the part of the participants.”
YES!! And that is why credit is NOT money! Credit is a promise to pay! Money, being the generally accepted medium of exchange, completes the transaction!
Richard, credit completes the transaction because the issuer of the IOU has to accept it as payment.
Markets and then banks were the places where credit was exchanged and debt settled.
Credit requires trust as much as commodity money requires trust: that someone else will accept either the IOUs or the rock you are holding.
The issuer of the IOU always has to accept his own IOU as payment.
The nature of trust is different.
If you are holding an IOU then you are effectively trusting the issuer of that IOU. This applies just as much to FRN — when you are holding Federal Reserve Notes, you must trust the Federal Reserve not to behave in an inflationary manner. Your trust is sitting in the hands of a tiny few people.
However, if you are holding a gold coin, you are putting your trust in the market as a whole, your fate is in the hands of the many. OK, some mad inventor may discover a way to manufacture artificial gold using three old bicycle wheels and a portable particle accelerator — it could happen. But when judging risk, it’s a personal decision whether to expect the Fed to behave like a bunch of dumbarses, or a crazy breakthrough in fundamental particle physics.
OK Bob, what’s the significance of excess reserves falling and required reserves rising? Any article regarding that?
Required reserves are the reserves banks are required to keep on deposit at the Fed based on the reserve ratio. When this number is rising it means banks are making loans.
As far as excess reserves, I know Dr. Murphy has an article on mises.org about this ticking time bomb. If you search excess reserves on that site you should be able to find where he goes over the problems with the Bernanks exit strategies. Basically though, most of the money that has been printed has been bottled up in excess reserves but when banks finally start loaning these funds out it could be highly inflationary.
So you have money supply soaring, excess reserves falling, required reserves rising which make it look like the Austrians are soon to have another I told you so moments.
“Required reserves are the reserves banks are required to keep on deposit at the Fed based on the reserve ratio. When this number is rising it means banks are making loans.”
Sorry, this is not accurate. See my comment above.
Guys-you really need to figure out how the banking system operates in real life and not some fictional Econ text book.
Or some some fantasy Austrian world. Not trying to be snide, but a lack of basic understanding of banking and monetary operations is pretty obvious on this post, and others.
Murphy, Excess = Total – Required
For a more or less constant total, required and excess reserves move necessarily in opposite directions.
So which of the two movements is of concern to you?
This probably only means loans have been created (out of thin air as usual)
That’s not even accurate. Excess, total, and required could all climb together. But what is of concern is if the excess reserves are being loaned out it has the potential to be highly inflationary. If this trend continues or intensifies then we will get to see if the Bernank is ready to implement his famed exit strategies.
Yes exactly, circulating money vs sitting on the shelf money.
Didn’t I say with a more or less constant total? (which is actually the case)
“But what is of concern is if the excess reserves are being loaned out it has the potential to be highly inflationary”
Why are excess reserves a problem if banks can always meet their reserve requirement at a future date in the inner bank market?
Because if excess reserves are being loaned into the economy it can send money supply sky high. M2 has already risen from 5.1% SA 13 week growth on the June 30th report to 11.4% on the report from thursday. NSA is growing at 8%+. If this trend continues and the Bernank doesn’t implement his famed exit strategy inflation will rise significantly.
How exactly do you explain this recent spike in the growth of money supply and do you consider money supply growth a problem as far as inflation is concerned?
With a 100% specie reserve requirement, a person must forgo consumption in order to save. Loans or investment MUST come from previously earned and saved money. Loaned or invested money is no longer available to the lender or investor until paid back. This is what is really meant by credit. Such loans are not created out of thin air.
Under the ghastly, criminal, unconstitutional, immoral and unconscionable fiat money system, the government and banks create money and credit out of thin air without the necessity of any pre-existing savings. When the MMTers proudly shout that the system is “unconstrained”, they mean it. And they think it’s so cool.
And don’t forget, the MMTers also proudly shout that their funny money only has value because of the threat of SWAT team violence as opposed to voluntary and peaceful selection in the market.
When you put it that way, it’s soooo cool!
And the fiat money system is totally consistent with 100% reserve requirement.
That’s completely irrelevant to its profound immorality since fiat money is based upon the theft and embezzlement of purchasing power and is thus the engine of war, poverty, malinvestment and the boom/bust cycle.
Further, it depends for its existence upon a near total abolition of the concept of private property and due process of law. It allows the government to steal and shift wealth around without due process, without a specific act of the legislature, without recourse for the victims and without the victims even knowing what has happened. What a vile system an unconstrained government is.
Right!
MamMoTh is right. Bob, well, not so much. Just wanted to clarify
The lack of specificity in your critique of my analysis means you have nothing to say on the subject. Your alleged expertise in the inner workings of a criminal system does not make the system any less criminal nor does it abolish the laws of economics or morality.
Actually both Bob and Mammy are right about what they each said (fiat is immoral and fiat can be consistent with 100% reserve).
I’m not like Bob. I have a special place against a brick wall–free cigarettes and blindfolds!–for those who have corrupted this system.
You have light?
OT: how does one subscribe to the comments here?
http://consultingbyrpm.com/comments/feed ?
I want to hear Bob Murphy sing that Frank Sinatra song.
Speaking of mystery quotes, here’s a good one:
By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.
Alan Greenspan if I’m not mistaken
Nope.
Hint: The quote means we’re really all Keynesians now. Even me.
Just Google the first line for the answer.
Ahh, I knew it was from someone in the inner circle. I was thinking it was the famous article written by Greenspan in the 60’s.
Even more mystery quotes.
In 1936 the Fabian socialist couple, Sidney and Beatrice Webb, published Soviet Communism: A New Civilization. Since that time it has been seen as probably the most egregious example of pro-Communist propaganda by fellow-traveler enthusiasts for Stalin’s terror state.
Our mystery man reviewed the book in a radio address. The Webbs were very pleased, Beatrice noting how their friend had “boosted” their book.
Mystery man explained the terror state:
…the new system is now sufficiently crystallised to be reviewed. The result is impressive. The Russian innovators have passed, not only from the revolutionary stage, but also from the doctrinaire stage….They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one sixth of the land surface of the world….Methods are still changing rapidly in response to experience. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation. Meanwhile, the Webbs have enabled us to see the direction in which things appear to be moving and how far they have got.
Bob Wenzel provides the answer:
http://www.economicpolicyjournal.com/2011/08/case-for-robert-skidelsky-as-liar.html
It’s curious that no source is given for this statement.
Skidelsky is clear that Keynes did not support the Webbs’ book:
unlike the Webbs, he could never think of Soviet Russia as a serious intellectual resource for Western civilisation. In the 1920s he had said that Marxism and communism had nothing of scientific interest to offer the modern mind. The depression did not alter his view. Russia ‘exhibits the worst example which the world, perhaps, has ever seen of administrative incomptetence and of the sacrifice of almost everything that makes life worth living …’; it was a ‘fearful exmaple of the evils of insane and unneccessary haste’; ‘Let Stalin be a terrifying example to all who seek to make experiments.” He found Kingsley Martin too ‘pro-Bolshie’ in the New Statesman.
Skidelsky, John Maynard Keynes: the economist as saviour 1920-1937, p. 488.
And it is very different from Keynes’ public and well attested denunciations of communism on many other occasions:
“”And so [Keynese could both love the communist generation for their idealism, and despise them for their muddle-headedness. If Keynes could not solve the ‘primal question’ of how to live, he felt he could solve the secondary question of what to do. His assualt on the scientific pretentions of Marxism and the horrors of the Soviet system was unremitting, and needed no revelation of mass murder. He insisted on the supreme importance of ‘preserving as a matter of principle every jot and tittle of the civil and political liberties which former generations painfully secured …. ‘. He was outraged when London University tried to silence the loquacious Professor Laski of the LSE, writing in the New Statesman to defend Laski, but adding, ‘Too many of the younger members of the Left have toyed with Marxist ideas to have a clear conscience in repelling reactionary assaults on freedom.”
Skidelsky, John Maynard Keynes: the economist as saviour 1920-1937, p. 518
And even if true, to attemot ot dismiss Keynesian economics on the basis of an ad hominem attack of Keyens is nothing but a informal
logical fallacy.
At least Keynes never said this:
“It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.”
Mises, 1978 [1927]. Liberalism: A Socio-Economic Exposition (2nd edn; trans. R. Raico), Sheed Andrews and McMeel, Mission, Kansas. p. 51.
You can’t get a clearer apologia for fascism.
Mises’ quote merely claims that the fascists in Italy stopped a Stalinist slaughter-state takeover and while simultaneously describing the thuggish nature of fascism. Suppose Pinochet had stopped a takeover by Pol Pot. It’s like saying I guess we should be thankful to that barbaric thug Pinochet for saving us from the genocidal Pol Pot.
The great Ralph Raico has a new book coming out that has the goods on Keynes da man.
http://www.economicpolicyjournal.com/2011/08/truth-about-john-maynard-keynes.html
Off topic, but you don’t want to miss Major_Freedom going at His Lordship Lord Keynes in 216 comments regarding Jonathan F. Catalan’s article about 1937:
http://socialdemocracy21stcentury.blogspot.com/2011/08/debunking-catalan-on-recession-of-1937.html#comments
Looks like HLLK called MF an idiot and MF got a little peeved. A couple weeks ago, HLLK called me a “total idiot”. Of course, HLLK still doesn’t understand the concept of economic calculation.
I think the best treatment to give LK is the cold shoulder. I say this with ample experience of arguing with him. No amount of demolishing of his arguments will stop him. He has an agenda and will just keep fulfilling it.
LK has an unshakable religious belief in the simultaneous failure of Say’s Law AND the efficacy of voting for social democratic candidates. Free people are ALWAYS too stupid to EVER figure out how to make the right amount of stuff they can sell. A priori, they will ALWAYS make too much stuff. While they are too stupid to know how much stuff to make, they are a priori simultaneously smart enough to elect their SWAT team overseers who a priori know how much unpayable government debt to issue and how much diluted funny money to issue in order to scientifically repair the lack of aggregate demand that invariably results from free people engaging in free exchange.
This happens if you engage Type I Austrians.
I’m kind of curious about what people think about this program:
http://www.abc.net.au/rn/rearvision/stories/2011/3287749.htm
I think some of the ideas they are presenting are quite sensible, and it presents in a way that is approachable to most regular Joes. Probably lots of stuff that’s been said before, especially if you have been awake for the past few years. Hopefully the dangers of massive debt are starting to get recognised by the mainstream (fingers crossed).