"End the Fed" Rallies Planned for 38 Cities on Saturday
I just learned of a coordinated protest outside of every Federal Reserve bank planned for this Saturday (i.e. tomorrow) November 22. I would like to point interested parties to a main website but I spent 5 minutes with Google and couldn’t find it, just proving that leftists are way better at organizing than libertarians. Anyway, here is the site for the Houston rally, and their “poster” is below. If you live in a city with a Fed branch, presumably you can try googling it directly for your specific event time.
Thanks to English Bob in the comments for giving us the general site. Below is a “poster” tailored to the Houston event.
Incidentally, I was glad that the email I received about the event, stressed that the organized want this to be very peaceful. The Houston event even recommends business attire. I think they are trying to distinguish themselves from angry anarchist teenagers who vandalize McDonalds chains to fight the power.
Sen. Jim Inhofe: Paulson Warned Worse Than Depression If We Didn’t Fork Over the Money
According to Republican Senator Jim Inhofe, Henry Paulson warned that things would turn worse than the Depression if he didn’t get his $700 billion to buy toxic assets, and then changed his tune as soon as he had the money. Here is an exchange (including the audio) between Inhofe and a radio interviewer:
Pat Campbell: “Somebody in D.C. was feeding you guys quite a story prior to the bailout, a story that if we didn’t do this we were going to see something on the scale of the Depression, there were people that were talking about martial law being instituted, civil unrest….who was feeding you guys this stuff? Because clearly it worked on [Oklahoma Congressman John] Sullivan, clearly it worked on [Oklahoma Senator Tom] Coburn, it didn’t work on you.”
Sen. Jim Inhofe: “That was Henry Paulson. We had a conference call early on, it was on a Friday I think — a week and half before the vote on Oct. 1. So it would have been the middle … what was it — the 19th of September, we had a conference call. In this conference call — and I guess there’s no reason for me not to repeat what he said, but he painted this picture you just described. He said, ‘This is serious. This is the most serious thing that we faced. This is going to be far worse than the Great Depression in the 30s’ — and all these things, he was very descriptive — if we didn’t buy out these toxic assets, which he abandoned the day after he got the money.”
Thanks to Kalim Kassam for the link.
The Housing Bubble: Greenspan or Asian Savers?
UPDATED BELOW
In today’s Mises.org article, I take on Henderson and Hummel’s recent Cato piece that said it was a foreign savings glut, not Fed policy, that caused the housing bubble.* The conclusion:
David Henderson and Jeffrey Rogers Hummel have tried to exonerate Greenspan from his alleged role in the housing bubble. However, to do so they must rely on novel transformations of the conventional monetary measures, in order to demonstrate “tight” Fed policy, when all of the conventional indicators show a very “loose” policy precisely when the boom was at its greatest. Furthermore, Henderson and Hummel offer an alternative thesis—a global savings glut—that hardly fits the most basic of facts. Global savings rates were lower for most of the housing boom than in the preceding decade, and global savings rates are higher now (amidst the bust) than they were during the boom that they allegedly fueled.
Putting aside the details, we can also step back and ask ourselves, does it really make sense that one of the worst financial crises to grip the world was caused because people started saving too much? Or does it make a lot more sense to blame it on huge central-bank injections of phony credit into the markets? How two economists who appreciate the strength of the free market could opt for the former hypothesis—despite the dubious evidence for it—is puzzling indeed.
Naturally, there is more to the story of the housing boom than simply saying, “The Fed chairman did it.” A full explanation would involve the Chinese government, Fannie Mae and Freddie Mac, and the ratings agencies that gave high marks to dubious mortgage-backed securities. But the original Misesian insight has withstood the test: it still seems that the Fed was a necessary condition for the worst speculative bubble in world history.
UPDATE: * One angry emailer took me out to the woodshed and said that H&H never claimed foreign savings were responsible for the housing bubble, but that instead foreign savings were responsible for the low interest rates. I still think everyone (including H&H) agrees that the low interest rates helped the bubble, so it’s a distinction without a difference. I think it is pretty clear though that Hummel himself thinks a foreign savings glut is a necessary component of the explanation, and more relevant than Fed policy; see here. I am waiting to hear back from either of them on the matter; I will of course issue a clarification / retraction at this blog (and on the Mises blog tied to the article) if I have misrepresented their view.
Two Questions on the Pirate Capture of the Saudi Oil Tanker
First question: After looking at the size of this thing, can someone explain how the heck some guys with automatic weapons in speedboats were able to capture it? Couldn’t the crew just lock the doors and say, “Go away, we know it’s not a candy gram!” ?
Second question: When the news first broke, do you think Pete Leeson said “oh baby oh baby!” ?
Is There A Simple Connection Between Monetary Aggregates and Prices?
I think we are in store for massive yr/yr price inflation (where 8% < massive < 100%) within the next 6 - 12 months. My reasons are qualitative: (1) Bernanke is terrified of deflation and has allowed the base to grow like crazy, (2) real output is going to tank, and (3) once the panic has subsided and people calmly consider what the US government has done in the past few months, the dollar will get crushed in the foreign exchanges. Now I can’t really give much more specific predictions than that, because I still haven’t found a model (or “framework” if the word “model” scares you) for empirically handling these issues with which I’m comfortable. For example a monetarist might like Friedman’s idea of looking at the quantity of money per unit of real GDP. You’d think that if you could predict those two things, then you could predict (price) inflation. But no you can’t, because the demand for money could change. During the 1970s, the graph of the quantity of money (measured as M1, say) divided by real output, tracks the CPI pretty well. But during the 1980s it breaks down completely. M1 per unit of real GDP goes way up, even though price inflation was very modest. The answer (according to Arthur Laffer, and I agree with him) is that the Reagan tax cuts and other pro-business moves made US assets more attractive, and increased the demand for dollars. (I think also the disinflation might have caused a feedback effect too, where lower inflation expectations are partly a self-fulfilling prophecy, though I don’t know if Laffer would endorse that angle.) Now even though he is possibly my favorite blogger right now, even so I think Robert Wenzel has oversimplified the analysis in a recent post, where he said:
Stop Printing Money….like the Fed did this summer and you kill inflation.
Wholesale prices plunged a record amount in October.
The Labor Department reported today that wholesale prices dropped by 2.8 percent in October, the biggest one-month decline on records that go back more than 60 years.
The 2.8 percent overall decrease marked the third straight month that wholesale prices have fallen.
Money supply growth, as measured by M2 nsa, was under 2% on an [annualized] basis this summer, but is now back up over 7%. Take advantage of the inflation pause while it lasts by buying hard assets.
Wenzel’s analysis might be fine as far as it goes, and I agree that people should buy gold right now if they haven’t already. But if Wenzel is saying that M2 growth is a reliable harbinger of price inflation, then I think he is wrong. (If he wants to clarify in the comments I will gladly post a correction here if I am misrepresenting his view.)
The chart below plots annual percentage changes in M2 against annual percentage changes in the CPI. If anything, the two almost seem to move inversely. If I had a crystal ball and knew the monthly M2 figures out till 2020, I’m not sure I could make much money from that information. (Then again, with my PhD in economics, you could probably tell me the weekly share price of Exxon out till 2020, and I wouldn’t be able to profit from it…)
Ron Paul Shows Ben Bernanke Has No Backup Plan (?!)
In the video below (HT2LRC), Ron Paul asks Fed Chairman Bernanke whether there are any plans to replace the “dead fiat dollar system” with one based on gold. Now I realize a lot of his fans may have seemed silly in their over-the-top enthusiasm during the primary; I understand why habitual smirkers were amused. But c’mon folks, can you even believe that there is a Congressman who talks like this to the Fed chair?! This is awesome.
Now what is really interesting is that Bernanke says that he and other central bankers never even discuss the possibility of switching over to gold in the case of a collapse in the fiat system, even though (as Paul claimed) central banks right now own some 15% of the world’s stockpile of gold. (I guess they plan on doing a lot of tooth fillings.) So I don’t know whether to think Bernanke is lying or just incredibly incompetent. I mean, doesn’t the US military have contingency plans to take over France, just in case? So you’re telling me the Federal Reserve, with its legions of economists, doesn’t even think about what to do if, say, China decided to dump its dollar holdings and that caused a global run?
Paul Krugman Makes Sure We Understand How Crazy He Is
It is really amazing to see how glib Paul Krugman can be about his insane recommendations. (HT2MR) I can’t take this apart right now; it surely deserves its own Mises.org article. For now, let us just read it and “enjoy”:
It’s a curious thing that even now, when we are clearly in a liquidity trap, we still have a lot of economists denying that such a thing is possible. The argument seems to go like this: creating inflation is easy — birds do it, bees do it, Zimbabwe does it. So it can’t really be a problem for competent countries like Japan or the United States.
This misses a key point that I and others tried to make for Japan in the 90s and are trying to make again now: creating inflation is easy if you’re an irresponsible country. It may not be easy at all if you aren’t.
A decade ago, when I tried to make sense of Japan’s predicament, I used a simple, unrealistic model to ask what we really know about the relationship between the money supply and the price level. We normally say that an increase in the money supply, other things equal, leads to an equal proportional increase in the price level: double M and you double the CPI. But that’s not actually right. What a model with all the i’s dotted and t’s crossed actually says is that the CPI doubles if you double the current money supply and all future expected money supplies.
And how do you do that? No matter how much Japan increases the monetary base now, expectations of future money supplies won’t move if people believe that the Bank of Japan will move to stabilize the price level as soon as the economy recovers. And once you realize that central banks may not be able to move expectations about future money supplies, it becomes a real possibility that the economy will be in a liquidity trap: if interest rates are near zero, money printed now just gets hoarded, and monetary policy has no traction on the real economy.
Zimbabwe wouldn’t have this problem: people believe that any money it prints will stay in circulation. But the likes of Japan, or the United States, print money for policy purposes, not to pay their bills. And that, perversely, is what makes them vulnerable to a liquidity trap. Back in 1998 I argued that the Bank of Japan needed to find a way to “credibly promise to be irresponsible.” That didn’t go down too well, but it was what sober, careful economic analysis prescribed.
…
The whole subject of the liquidity trap has a sort of Alice-through-the-looking-glass quality. Virtues like saving, or a central bank known to be strongly committed to price stability, become vices; to get out of the trap a country must loosen its belt, persuade its citizens to forget about the future, and convince the private sector that the government and central bank aren’t as serious and austere as they seem.
BTW, if you are a supergeek, here is Krugman’s more formal exposition on the liquidity trap. I have to read this in preparation for an article on all this stuff. (I can hear Drago saying to Rocky, “I must break you.”)
Robert Nozick Is Overrated; or, Pete Boettke Needs to Get Out More
In a recent blog post, Pete Boettke tells us that Robert Nozick is the smartest man he’s ever met. In the comments, I mention that I have thought Nozick was overrated since the time I saw him give a talk at NYU, and he botched the “Edgeworth Box” (a diagram from economics). Some people were telling me that anybody can screw up a diagram, so I clarified:
Just to reiterate: I was not merely saying, “Nozick screwed up the Edgeworth box, and so he must be an idiot.”
Rather, I’m saying that the points he was making in the lecture depended crucially on the diagram, and so it led me to wonder if he ever *really* understood the diagram (as opposed to seeing it laid out in an econ textbook, and getting the basic gist of it).
If he had been puzzled by his diagram–since it wasn’t depicting what he was telling us in the audience that it was supposed to be showing–and then said, “Sorry folks, something is screwy here…” I or someone else could’ve yelled out, “You drew the curves the wrong way!” and that would have been fine. I wouldn’t have filed it away in my mind that “Nozick is overrated.”
But like I said, what really seemed odd to me was that he breezed right through his lecture, and wasn’t at all tripped up by the fact that his diagram wasn’t showing what he told us it was showing.
Posted by: Bob Murphy | November 17, 2008 at 10:52 PM
And then I added:
Actually, now that I just clarified with the last post, I think that really clinches it for me with the stuff in [Anarchy, State, and Utopia]. I mean, to me (and I think to other Rothbardians), Nozick’s whole demonstration where he builds up the legitimate minimal state (or whatever his terminology is) is absurd in several respects.
So for him to go through that chain of reasoning, and then tell his reader, “See now, I just justified the State!” was as much of a non sequitur as him drawing curves and saying, “See now, I just showed you Pareto improvements!” when he had done no such thing.
To sum up, the common mistake was him not realizing he was giving an invalid argument.
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