Lew Rockwell Interview With Naomi Wolf
I am not exaggerating, this is quite possibly the best interview I have ever heard in my life. (Just click on the link and then play it from within your browser.) During the show itself, Naomi Wolf comes to see why libertarians are so opposed to the IRS and the Department of Education. She (at least twice) says, “Oh my God, you are so right.” Hint: it’s not because we hate poor people.
Paulson’s Plan Making Things Worse
So I argue in a Sacramento Union piece. A sample:
When the House of Representatives failed to pass the original request for $700 billion from Treasury Secretary Henry Paulson on Sept. 29, the Standard & Poors 500 (S&P) fell about 8.8 percent. This supposedly proved how vital the rescue plan was for the health and stability of the economy. And yet on Oct. 15—-after the porked up $850-billion bill was passed—-the S&P fell more than nine percent, its biggest drop since the 1987 crash. It’s not just single-day plunges that have gotten worse.
In the year prior to the collapse of Lehman Brothers in mid-September, the average daily move (up or down) in the S&P was 0.8 percent. And yet since then, the average daily move has increased to 3.1 percent. If the government’s measures were supposed to restore calm to the markets, they have been a huge failure thus far. Many free-market economists have been warning that this would happen.
Nouriel Roubini Pics: Dr. Doom or Dr. Dionysus?
I will do a more serious post later, but first thing’s first: Let’s bump up the Free Advice traffic with some silly pictures!
Here is Nouriel Roubini when he is discussing “stag-deflation”:
And here’s Roubini when he is just kickin it at his Manhattan pad with some NYU grad students:
BTW I learned of the NYU photos from EPJ, but I can’t locate the original post.
Should We Fear Inflation?
In addition to arguing over the existence of a “credit crunch,” we libertarian economists can’t even decide on the sign of price changes over the next six months. (Really, I feel I should go apply at the IPCC.) For example, I’m currently throwing down with Mike Rozeff on the Mises blog about gold prices.
Robert Wenzel has a new post explaining why he is dipping his toes into the alarmist camp. C’mon in, the water’s fine! I am quite confident our gurus will do what it takes to prevent price deflation, just like Greenspan did back in 2003. (Folks, they were actually worried about falling prices and paying off the entire federal debt back then! Sort of the central banker’s analog to the missile gap. BTW I can’t find a link to him warning about the loss of the Treasury debt market, but here is Greenspan in 2001 forecasting that the government would pay off the federal debt.)
Let’s review the money supply figures. First, the truly scary monetary base (which includes bank reserves and actual currency). And note that these are bi-weekly, and the units are the % change from the prior data point:
OK that’s pretty crazy. In fact, if you do it monthly, you have to go back to a single month in the 1930s with a higher month/month percentage growth than the most recent data point.
“But that’s misleading!” say some people. “Sure, Bernanke’s pumping in base, but it’s just offsetting declines in other components of the total money supply.”
OK let’s go up one level to M1. It too shows rather healthy growth. (Here the frequency is weekly, and again the units are the % change from the prior data point.)
Now because of the frequency, the above graph is pretty choppy. (If I weren’t so lazy I would download the data myself, and then plot it in Excel doing a month/month change, but FRED won’t let me do that with the latest weekly data points.) Still, I think you can see that recent growth in M1 is quite high, going back 10 years.
Still, you could say that doesn’t imply prices will rise, since people are just sitting on cash. Fair enough. We finally can try M2. (The Fed stopped releasing M3 numbers.) And, just to eliminate one possible objection, we will remove the non-M1 components of M2, and just show the remainder. So the chart below doesn’t include anything that M1 counts, namely actual cash and checkable deposits. So I think more than any other item that FRED stores for us, the following chart should give an idea of the “non panic hoarding” money supply as of late:
In the above, note that I smoothed it out by switching to yr/yr growth rates. This actually downplays the most recent data points, because M2 growth was admittedly very low earlier in the year.
Still, yr/yr growth in “Non-M1 Components of M2” has been higher the past few weeks, than during the entire time from about 2004-2007.
Maybe I’m missing something, but when people say, “Aww, you can’t just look at those huge spikes in the base, because there’s a credit crunch man!” I don’t see it. I see healthy growth in M2, and I see un-freakin’ believable growth in the base.
P.S. It’s late, but tomorrow I will go over this again and clarify the components of the various aggregates.
IER Commercial
Ah, it brings a tear to my eye every time I watch it. (BTW, they don’t feature me because we don’t want Greenpeace knowing what I look like.)
It’s actually Silas’ birthday today! This one’s for you.
Joking aside, here is the “Help Us Fight Back” page where I got this, and here is IER’s main page. (I work for them in case it’s not obvious.)
Is Gold Going Up or Down?
Michael Rozeff goes into the pit of lions to argue that gold is overvalued. (Really, look at how defensively written his article is. I bet he gets at least 25 LRC readers emailing him in outrage.)
Rozeff is a sharp guy, and (like him) I was surprised that the CPI figures apparently aren’t too bad for a long stretch of time. But even if gold right now is undervalued looking backwards–i.e. if gold has risen more than prices in general since a previous benchmark date–that doesn’t really mean too much. I think prices are going to go through the ceiling in the next few years, and take gold with them.
I know, I know, there are plenty of smart people pointing to M1, the Great Depression, blah blah. I have three things in response:
(1) Ben Bernanke believes that the Great Depression was caused by price deflation. So he will do whatever he can to inflate, thinking that he is saving us by doing so.
(2) You’re saying banks will just sit on the new money? Fine, the feds will borrow and spend it. And again, they will think they are doing a courageous, noble thing; here’s Barney Frank saying the government has to start spending, and concerns about the deficit need to take a back seat right now. Here’s Paul Krugman saying the same. So that’s the Fed chairman, the chairman of the House Financial Services Committee, and the most recent economics Nobel Laureate all proclaiming that more injections of money and debt are the way out of our current mess.
(3) My closing argument is the chart below. Yeah yeah, go ahead and talk about sterilization all you want. I am going to drop the PhD and naively say, “Duh, big money means big prices!”
The Best Comment So Far at Free Advice
Coming from Joe, a former student:
I always thought you were a really good teacher and I’m still kicking myself for not taking your Game Theory class. I still remember you coming into the Austrian class with absolutely no notes or outline and still delivering a structured, organized lecture without forgetting anything.
What Joe doesn’t realize is that I would forget stuff all the time, but since there was no formal outline nobody caught me.
Why "APR" on Small, Short Loans Can Be Misleading
On a recent MR thread, Tyler Cowen was pointing to ridiculously high APRs on certain consumer loans, and speculating on the reason for their existence. My good friend Silas (aka Person) was the first to provide the solution, namely that people were paying 35 pounds for convenience; they weren’t taking out a loan with 222% interest.
I seconded Silas’ explanation, relating how I would agonize over different credit card offers etc. until I realized I was wasting a half hour stressing on something that would mean a difference of $65 either way. And regardless of where that number was coming from, I was getting way too worked up over $65.
But a third commenter really sealed the deal with this scenario from his blog:
In his breathless expose of the payday loan industry [Dec. 3, 2005], the Citizen asks, “would you pay 61 trillion percent interest on a loan?” Well, in some cases, yes, I would, and you probably would too.
I’m in line at the coffee shop at work, and realize I forgot to bring my wallet. I turn to my co-worker. If he can lend me $20, I tell him, I’ll buy him a $2 coffee. He agrees. The next morning, after I’ve been to the bank machine, I pay him back his $20.
Clearly, my friend is an exploitative loan shark. With compounding, the twenty-four-hour loan cost me an annual interest rate of about 128 quadrillion percent — 128,330,558,031,335,269,* to be more exact. That’s 2,000 times higher than even the payday loan operators.
And it’s a good thing I didn’t stop by the bank machine until the next day. There’s a bank machine between the coffee shop and my desk. If I had paid back the loan in five minutes, rather than 24 hours, the effective interest rate would be much higher. Much, much higher — it would have 4,354 digits!
* In the comments he caught a mistake; he had calculated the rate based on a loan of $20, but actually it was a net loan of $18 because of the coffee.
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