21 Mar 2014


Potpourri, Shameless Self-Promotion 63 Comments

==> The Economist magazine gets on the Bitcoin bandwagon. (HT2 Tyler Cowen)

==> The haughty von Pepe sends this Cochrane post in which he (Cochrane) points out that Yellen has thrown policy rules completely out the window.

==> David R. Henderson describes his flawless victory on ObamaCare.

==> Is China going to back its currency with gold? My latest Mises Canada post. (HT2 Frank C. for the tip.)

63 Responses to “Potpourri”

  1. Benjamin Cole says:

    Let’s see…the FOMC held a public-barred (secret) meeting, and then issued a blurry statement on their intentions.

    Gee, I thought hallmarks of democracy were public meetings, transparency and clarity.

    So, the most important macroeconomic policy-making body is above those sorts of democratic ideals?

    Worse, the Fed’s peevish fixation on inflation continues. If they can’t find it with a microscope (about 1 percent now) then they use a telescope and look at TIPS markets five years out.

    Somewhere, someday, somehow, it could be, that maybe, sooner or later, with some bad luck, we possibly, might, maybe see inflation above 2 percent—and that will be TEOTWAWKI!

    I can remember right-wingers denouncing Paul Volcker as a Carter appointee who was too tight. Inflation then about 4-5 percent.

    The world changes. Unless it ends thanks to 2 percent inflation.

    • Major_Freedom says:

      Socialism isn’t meant to be, and can’t be, “public” in the way you describe.

      You’re praying using mantras. “Gee, I thought…”

      When are you going to wake up and realize that your cynicism and denials are really just an effect of your incorrect assessments of what it is you are observing?

  2. Lord Keynes says:

    “Is China going to back its currency with gold?”

    Jeez, the world of international investors and the business community is going to switch to the managed currency of an authoritarian communist state with capital controls and (compared to the US or Europe) wretchedly small financial asset markets? Just because they can buy some gold with the RMB? (which can do just as well in the West).

    And as of last year China’s gold holdings back just 2% of its total foreign exchange reserves,

    That is one bizarre libertarian fantasy, there.

    • Benjamin Cole says:

      Especially since China traditionally went with a silver standard…but only for a couple thousand years…no one told them that gold was super special…

    • Bob Murphy says:

      LK wrote:

      Just because they can buy some gold with the RMB? (which can do just as well in the West).

      LK, do you seriously think that’s what it means to back your currency with gold? That the government allows one to enter the market and pay whatever the spot price happens to be for gold (in that currency) that day?

      So right now the dollar is backed by cars, computers, wheat, haircuts, …?

      • Lord Keynes says:

        I am well aware of the difference between (1) making your currency convertible to gold at a fixed par or market rate and (2) fiat money in which you can buy gold on the spot markets.

        On (1) it is is still ludicrous that China could ever back more than a tiny percentage of its (1) foreign exchange reserves and/or (2) total money supply with gold.

        If they could even get 15% gold to back the RMB, is that what you would call a “gold standard”??

        • Dan says:

          Out of curiosity, what was the point of this statement then, “Just because they can buy some gold with the RMB? (which can do just as well in the West).”

        • Tel says:

          China could just focus on building a reputation for delivering what the buyer has purchased.

          The New York Fed owes 674 tons of gold to the German Bundesbank and 1 year after requested delivery they have shipped only 5 tons. That’s not what I would call “confidence building”.

      • Silas Barta says:

        Considering how many trillion different meanings of “backed by” that people equivocate between … Yes.

        • Bob Murphy says:

          Silas Barta wrote:

          Considering how many trillion different meanings of “backed by” that people equivocate between … Yes.

          *sigh* Silas why must you encourage the trolls? You (and LK I suspect) know perfectly well what *I* meant by “backing the currency with gold” in this post.

          • Ken B says:

            Don’t blame LK for your missing his point. He pointed out that if they want gold they can directly buy it, apart from any convertibility promise by the Chinese govt.

    • Bob Roddis says:

      Gold might make your average Keynesian authoritarian war-mongering government “revenue constrained”. The horror.

    • Bob Roddis says:

      [O]ne could add that even “depositing” cash in your bank account also expands the money supply, because your demand deposit increases while the actual cash is transferred to become part of the bank’s reserves (so new broad money is created).


    • Bob Roddis says:

      Philip PilkingtonMarch 20, 2014 at 6:34 AM
      The following is incorrect:

      “That is entirely correct, and one could add that even “depositing” cash in your bank account also expands the money supply, because your demand deposit increases while the actual cash is transferred to become part of the bank’s reserves (so new broad money is created).”

      Steve Keen thought that this happened until Neil Wilson went through the accounting with him. Double-entry accounting means that the above cannot happen.

      Lord KeynesMarch 22, 2014 at 2:11 AM
      I don’t follow on this. Say, you have $100 in cash in wallet.

      You “deposit” it in bank (read: lend it to the bank as a mutuum).

      The bank’s balance sheet has:

      Assets | Liabilities
      Reserves | demand deposit
      (+ $100)_ | (+$100)

      You have new broad money: $100 in demand deposit money.

      So, which is it? It’s your wacky Rube Goldberg system.


        • Tel says:

          First you say that “M1 excludes vault cash and bank reserves at the central bank,” then in your Method 1 section you ignore that, then you drop a footnote at the very end admitting that what you just did was wrong.

          • Lord Keynes says:

            And If you bothered to read it properly , you’d see I note how broad money calculation methods obscure how new bank money is created with respect to method 1.

            That is why I used a different model of total money supply:

            High-powered money + Bank Money = Total Money
            That is a useful model to illustrate my point.

            • Tel says:

              OK, so you are using your own unique definition of money, and under that particular definition depositing cash in the bank expands the money supply.

              I was indeed confused, thinking this was somehow relevant to what other people talk about in terms of money supply. My apology for not reading carefully enough.

              I will note that a side effect of your definition would also be that taking an antique painting off your wall and storing it in a warehouse must result in there being two paintings.

              • Lord Keynes says:

                “I will note that a side effect of your definition would also be that taking an antique painting off your wall and storing it in a warehouse must result in there being two paintings.”

                Wrong, tel.

                Learn the difference between a mutuum (loan for consumption) and bailment.

              • Tel says:

                So when I take the painting to the warehouse, depending on the fine print on that contract a second painting may or may not exist?

      • Tel says:

        Rothbard went through the accounting in “The Case Against the Fed”.

        Steve Keen is a lovable guy, and I think it’s great what he is doing by encouraging economists to look at dynamics, but I’d trust Rothbard’s accounting before I trusted Keen’s.

        The monetary expansion happens when the bank lends out your $100 in cash while at the same time telling you your $100 is “on demand”.

        The bank couples long-term predictable monetary requirements (e.g. mortgage repayments) against short-term haphazard monetary supply (e.g. demand deposits). This is of course a mathematically impossible thing to do, but statistically you are very likely to get away with it most of the time. Because this operation is intrinsically risky, someone must take that risk… the only question is whether the risk taker voluntarily and knowingly accepts the risk, or whether risk is foisted onto the unsuspecting.

        • Lord Keynes says:

          “The monetary expansion happens when the bank lends out your $100 in cash while at the same time telling you your $100 is “on demand”.”

          No, Tel: the bank is your debtor when you “deposit” $100 and you are now a creditor,

          That is why your bank statement lists “debits” and “credits”, NOT “money on deposit”.

          • Tel says:

            Are you suggesting that bank deposits are not available on demand?

            • Lord Keynes says:

              Your mutuum loan to the bank is re-callable on demand: you can demand the bank repay you its debt to you in whole or in part.

              Learn the difference between a mutuum and bailment, Tel.

              • Tel says:

                So I’ll take that as a “Yes” the $100 bank balance is available on demand.

                But the $100 cash out in the field is also available, so that’s a total of $200 available…

              • Bob Roddis says:

                But the $100 cash out in the field is also available, so that’s a total of $200 available…

                And I would say that the new “$100” out in the field becomes a problem if it is indistinguishable from actual specie as opposed to the quasi-credit thing that it really is.

                I’ve been saying (for sake of argument) that the depositor and banker may very well be able to work out their FRB relationship. However, to avoid fraud, the payee of depositor’s check for that new “$100” must understand exactly what they are accepting for there to be a meeting of the minds and no fraud. I submit that most people would not accept such a payment if they understood its true nature.

                LK disagrees (in his usual diplomatic manner).

                Me: “So why shouldn’t payees be careful about the private brand of money they accept in payment?

                LK: They already are, idiot.


              • Tel says:

                Roddis, I’d like to politely point out that observation is not in your favour.

                Bitcoin was designed from the ground up to avoid this problem… each serial numbered bitcoin can have exactly one owner, and yet somewhat unexpectedly many people did engage in bitcoin FRB and otherwise savvy people did accept the equivalent of deposit slips in payment.

                They might think twice about next time they do it though 🙂

          • guest says:

            No, Tel: the bank is your debtor when you “deposit” $100 and you are now a creditor

            A deposit isn’t a loan.

    • Ken B says:

      Hey LK, is it just me or do you detect amongst “Libertarians” a sympathy for authoritarians like Putin, or worse, as long as they are adversarial to the USA or its government in some way?

      • Lord Keynes says:

        The enemy of my enemy is my friend principle taken to extremes.

        E.g., Rothbard’s comments on Stalin, though I am not sure if these claims are accurate:


        • Bob Roddis says:

          In the early and mid 70s, I found several of Rothbard’s comments about the communists to be off-putting, especially when he seemed to be slightly cheerleading the communist takeover of South Vietnam and Cambodia when a typical communist mass slaughter appeared to me to be imminent.


          • Ken B says:

            That seems to have been purged.

            • Major_Freedom says:


              “How Murray Rothbard Single-Handedly Brought Down the Saigon Government with Malice Aforethought”

            • Major_Freedom says:

              Roddis’ link doesn’t work, but the webpage exists on Rockwell.com if you search for it indirectly.

          • guest says:

            I didn’t know that America was imperialist until I found out that my government had, in 1953, ousted an Iranian prime minister on behalf of a British oil company:

            Is Ron Paul serious? Blowback in 1979 from a 1953 coup?

            It’s because we don’t know this that a lot of Neocons wrote Ron Paul off as a Marxist sympathizer.

            Ken B, here is some more information, for perspective:

            John Stossel ~ The Politics Of War

            Congressman Ron Paul, MD – We’ve Been NeoConned

        • Ken B says:

          Indeed. When I used the word isolationist to describe David Henderson’s views on WWII, Boudreaux objected. After all David supported trade with Germany, so calling him isolationist was, I was told, pejorative. But think about that. “He’s not isolationist. He’d have let Dupont sell the Germans Zyklon-B.”

          • Ben B says:

            Why can’t you support trade with Germany while limiting trade to non-lethal goods?

      • Bob Roddis says:

        The only reason we libertarians support the NAP is because, if it were ever practiced, it would immediately result in endless cases of police torture of suspects and leaving babies to starve and freeze in the wilderness. Those have always been our real unstated goals all along.

      • Major_Freedom says:

        Psychological projection alert!

    • Major_Freedom says:

      “Jeez, the world of international investors and the business community is going to switch to the managed currency of an authoritarian communist state with capital controls and (compared to the US or Europe) wretchedly small financial asset markets? ”

      Hey now, what the US and UK governments want, and what they have, are two different things.

      • Tel says:

        … wretchedly small financial asset markets …

        Some investors would see that as a feature. Depends whether you are investing for the purpose of short term high risk gains (in which case you probably want some complex financial instruments to help you) or whether you are investing for long term stability (in which case you absolutely want to stay a looooong way away from “innovative” bankers, and “creative” accountants).

  3. Lord Keynes says:


    “When the Bolsheviks took power in Russia in 1917, they had given little thought to a future Soviet foreign policy, for they were convinced that Communist revolution would soon follow in the advanced industrial countries of Western Europe. When such hopes were dashed after the end of World War I, Lenin and his fellow Bolsheviks adopted the theory of “peaceful coexistence” as the basic foreign policy for a Communist state.

    The idea was this: As the first successful Communist movement, Soviet Russia would serve as a beacon light and supporter of other Communist parties throughout the world. But the Soviet state qua state would devote itself to peaceful relations with all other countries, and would not attempt to export Communism through interstate warfare. The idea here was not just to follow Marxist-Leninist theory, but also the highly practical course of holding the survival of the existing Communist state as the foremost goal of foreign policy: that is, never to endanger the Soviet State by courting interstate warfare. Other countries would be expected to become Communist by their own internal processes.

    Thus, fortuitously, from a mixture of theoretical and practical grounds of their own, the Soviets arrived early at what libertarians consider to be the only proper and principled foreign policy. As time went on, furthermore, this policy was reinforced by a “conservatism” that comes upon all movements after they have acquired and retained power for a length of time, in which the interests of keeping power over one’s nation-state begins to take more and more precedence over the initial ideal of world revolution. This increasing conservatism under Stalin and his successors strengthened and reinforced the nonaggressive, “peaceful-coexistence” policy.”

    Stalin’s agreement with Hitler to carve up Poland? The invasion of Finland?

    The installation of communist states in Eastern Europe?

    • Bob Roddis says:

      It was so cool the way the Keynesian FDR regime hid and distorted the true murderous nature of the Stalin regime for years, wasn’t it?


    • Major_Freedom says:

      Logically, “increasing conservatism” means there is still positive imperialism. Something cannot “increase” if it is already at the maximum.

      I think what Rothbard meant is the post war period. That’s what I read in the phrase “Stalin and his successors.”

      • Bob Roddis says:


        FYI. The Mike Norman brainiacs have linked to this guy


        who cites you, “Old Reliable, Major_Freedom” for the proposition “This is where all Austrian roads lead”. Tom Hickey calls it “an excellent critique of Austrian economists by a self-professed Libertarian who admits it is a normative (moral) stance rather than a positive (scientific) one”.

        They all seem to miss your second point:

        2. The key issue for Austrians is not if and when price level inflation or aggregate spending changes move this way or that. The key issue is how well money is serving as a tool of economic calculation, and the corollaries of how coordinated the temporal structure of the economy is, both domestically and in a world division of labor context, and how much central bank intervention is distorting relative prices, relative spending, interest rates, and thus resource and labor allocation.

        I’m shocked. You too?

        It’s spring and MF is explaining the world to Sumner.

    • Ken B says:

      Sets the seal on my opinion of Rothbard. I’d state it but Bob is averse to people insulting pigs.

      • Major_Freedom says:

        “Sets the seal on my opinion of Rothbard.”


    • Tel says:

      You will find a lot of Socialists say one thing and do something completely different. Stalin also said his revolution was for the purpose of helping the working class, and then he happily used slave labour when it suited him. Stalin also said that trade unions were unnecessary under Communism because the state was already the best possible employer.

      Chairman Mao was equally dishonest in his own way.

      • Ken B says:

        He’s always dishonest darling in his fashion,
        Yes he’s always dishonest to you in his way.

  4. Bob Roddis says:

    1. Notice LK’s perpetual M.O. of attacking poorly worded and/or poorly argued statements of Austrian and libertarian masters instead of directly addressing basis libertarian and Austrian concepts?

    2. LK is like having a free teaching assistant, useful for finding every less-than-brilliant statement ever made by famous libertarians and Austrians, most of which I have previously encountered but did not meticulously catalog.

  5. Tel says:

    Relating to the ongoing issue of deflation in the 18th and 19th Centuries. I’ve been poking around at http://foodtimeline.org/ which is well worth the effort for any economist looking for historical background.

    There are scans from lots of books, I’m looking at “WESTERN PRICES BEFORE 1861, A STUDY OF THE CINCINNATI MARKET BY THOMAS SENIOR BERRY“. The scan includes “TABLE 23, Median Annual Prices of Fourteen Leading Commodities in the Ohio Valley 1786-1817”. After typing up the price table I ran the commodities through a regression to calculate the best fit exponential growth/decay curve. This is what I got:

    Beef price-inflation of 0.87% per annum.
    Coffee price-deflation of 0.17% per annum.
    Corn price-inflation of 1.17% per annum.
    Flour price-inflation of 0.91% per annum.
    Iron price-deflation of 1.71% per annum.
    Rye price-deflation of 0.19% per annum.
    Salt price-deflation of 3.00% per annum.
    Sugar price-deflation of 0.74% per annum.
    Tea price-deflation of 1.58% per annum.
    Wheat price-inflation of 1.15% per annum.
    Whiskey price-deflation of 1.61% per annum.

    So that’s a 30 year period, long enough to get a trend I would think. The year-on-year variation in these prices was quite high compared to any overall inflation/deflation that might have been going on, so yes prices were adjusting, and overall the monetary supply we reasonably stable for the period. MOST of the prices show some deflation, but nothing dramatic. Where price inflation is seen, it is also very small.

    Slow and steady deflation is what you would expect as productivity improves with a monetary supply that cannot arbitrarily expand.

    There’s a few other commodities I couldn’t be bothered typing in: Hogs (seem to approximately track Beef), Oats (approx tracks corn).

    • Tel says:

      Just a summary: looks like food staples with minimal processing were going up relative to things like Iron and Whiskey which require considerable transformational effort which were going down in price. Tea would have been imported so presumably shipping was getting more efficient and the price reflects this.

  6. Tel says:

    Just keeping up the Krugman slack, while Murphy goes off doing worthwhile things…


    So let me make the obvious point, just in case anyone missed it: the “pivot” of 2010 — when all the Very Serious People decided that the danger from debt trumped any and all concern for job creation — was an utter disaster, economic and human. It was even a disaster in fiscal terms, because a permanently depressed economy will cost far more in revenue than was saved by slashing the deficit by a few percent of GDP in the short term.

    Let’s review what he did here. Krugman blames the people who wanted government spending to slow down after 2010 for the resulting debt, because if only government had spent more employment would have jumped up, and thus more spending would have resulted in less debt.

    • Tel says:

      Here’s one chart, which compares US government spending with employment participation.


      The most notable feature is that employment participation turned the corner first and has ramped down in an almost perfect straight line. Employment was ramping down from 2009 to 2010 while stimulus spending was ramping up. Then employment continued ramping down during the 12 months while stimulus spending was at its highest, and after this teeeerible criiiiiime of 2010, the horror of reduced government spending resulted in pretty much identical downward ramp of employment.

      We often hear that “correlation does not imply causation” but you would think that in order to have causation you at least need a little bit of correlation.

  7. Tel says:

    On yet a different topic, very thoughtful article about the history of Western government:

    Ever since our remote fathers learned to till the soil, government has been based around systematised looting. A mediaeval European monarchy, politically, resembled a modern African kleptocracy. Those who got to the top set about rigging the rules so that they benefitted from others’ labour, and so that their children would enjoy the same privileges after them. Oligarchy and oppression, caste and status, slavery and serfdom: these have been the lot of our species in almost every age and nation.

    Don’t imagine that there was some primordial state of happiness before the advent of farming, either. The more we learn about hunter-gatherer societies, the more brutal we discover them to be. They lack inequalities of wealth only because they lack wealth. When Sting bought large tracts of the Amazonian rainforest and gave it to local tribes, the chiefs promptly started logging on an unprecedented scale and reduced their clansmen to effective slavery in mines while they flew about in private jets.

    The real question is not why some places are corrupt but why some aren’t. How did we create a society where, for want of more monstrous malfeasances, we have the luxury of fulminating over an MP claiming a bath plug on expenses?


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