Monday, November 30, 2009

Braces Color Selector

All against Ron Paul

Fino a qualche anno fa, se escludiamo qualche accademico dimenticato che negli Stati Uniti seguiva gli insegnamenti economici di Mises e Rothbard, nessuno avrebbe mai neanche osato indicare la politica monetaria Federal Reserve as the cause of business cycles or even to question the goodness of the decisions of Alan Greenspan.

In fact, at the political level there was someone in the United States. He was a Republican congressman from Texas and have for years challenged the Master apparizionial during its Congress in 2003 predicted with remarkable clarity what would happen to the property market in the following years and brought to the forefront the issue during the campaign money Presidential 2008.

In Italy there is almost never mentioned Ron Paul, at least until last week, where the Sole24ore briefly mentioned in a article Alessandro Merli and site Libertiamo.it Seminerio Mario has dedicated an article .

Finally, Ron Paul has the space it deserves? Of course not, the problem is another.

These days, the Financial Committee of the Congress approved the bill Hr.1207 presented just by Ron Paul, which aims to improve the transparency of monetary policy actions of the Fed

Now the financial newspapers were quick to comment on the report, raising gli scudi in difesa della banca centrale americana e prospettando scenari apocalittici che si verificherebbero se il disegno di legge venisse approvato. I giornali di casa nostra si sono subito adeguati.

Non che ci fossero dubbi riguardo l’articolo del Sole24ore, che liquida il tutto in poche righe

«Dell'ostilità della politica sono conferma i progetti dell'influente senatore democratico Chris Dodd per ridimensionare i poteri della Fed, nonostante il parere opposto dell'amministrazione, e l'attacco frontale del populista republicano Ron Paul in Congresso, che vorrebbe addirittura tenere sotto controllo le decisioni rate "

In a period of two rows Merli can write two falsehoods.

first define Ron Paul as "populist," you do not know on what basis, but the intentions are obvious smear, and then states that the purpose of the deputy of Texas would be "put under control the rate decisions."

Anyone familiar with Ron Paul knows that there is no truth in what he wrote but how many Merli, in Italy, have never heard of it?

Surely they know those Libertiamo.it Seminerio and especially Mario, who was a columnist for the Free Market and has collaborated with the Istituto Bruno Leoni.

The cavalry is coming in defense of the main defender of free market, the real one, in the U.S.? No.

Seminerio, in fact, brings the thought of Alan Blinder, an economist who worked at the Federal Reserve, which highlights the dangers inherent in the bill 1207.

"The amendment appears harmless, says Blinder: ultimately, because la Fed dovrebbe essere immune da revisione esterna della propria attività? Giusto, ma il punto è che la Fed non è priva di tali controlli e verifich e. Per dirla con Blinder, il presidente della Fed “non viaggia in jet privato né pasteggia a caviale”, oltre a doversi sottoporre ad audizioni parlamentari periodiche; i libri contabili della Fed sono già sottoposti a verifica da parte del GAO, che entra anche nella valutazione di importanti aspetti di operatività della Fed, come l’operazione AIG ed i salvataggi bancari, per fare un esempio di stretta attualità »

Il primo point raised by Blinder is this: the Fed is already controlled so why increase the checks? The second one refers to the possible "unintended consequences" of the measure

" In all likelihood, next year the Fed will begin the process of exit from the ultra-expansionary monetary policy . E 'entirely predictable that this will happen when someone in Congress does not hurt either, or maybe it will be furious. We would be happy to review the Fed's monetary policy by the GAO, that members of Congress would use to intimidate, perhaps even threaten members of the body of the Fed that sets interest rates? We would like to see members of the FOMC called to testify before Congress to explain why "are killing jobs"? "

Let's address the two points in order.

The Fed is already controlled?

The text of the bill 1207 can be found at this link .

The key point is the first:

(a) In General-Subsection (b) of section 714 of title 31, United States Code , is Amended by striking all after 'Shall an audit agency 'and inserting a period .

If we look at the way the code in question, the paragraph is as follows:

(b) Under Regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Federal Reserve Board and Federal reserve banks may not include

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;

(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

(3) transactions made under the direction of the Federal Open Market Committee; or

(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.

Dopo la trasformazione diventerebbe così:

(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency.

are then removed all the exceptions that prevent the Comptroller General to be in possession of all the truly relevant information. The American taxpayer has a right to know where are all brand new dollars that have been created to save the banking system? Knowing which banks took the money from the Federal Reserve, as they have taken, such arrangements have been made with other central banks, how much gold is in the coffers, etc..

Right now you can know all these things? Seeing is believing.








Blinder Remember what he said?

" the books of the Fed are already audited by the GAO, which also enters in the evaluation of important aspects of operation of the Fed, like the AIG transaction, and bank bailouts, to a example of topical "

Sure, sure, sure!

We come to the second question.

Hr 1207 will allow the Congress to control interest rates?

The question raised by Blinder

" We would be happy to review the Fed's monetary policy by the GAO, that members of Congress would use to intimidate, threaten perhaps , members of the body of the Fed that sets interest rates? "

is purely rhetorical. In the bill there is no fact reference to monetary policy decisions, which remain the responsibility of the board of directors of the Fed!

It 's just one bogey agitated in front of the player, saying: "Leave it to us or force us to inflation and we can not defend the purchasing power of your money"

course, is pure propaganda. In fact, the bill does not affect in any way the independence of the Federal Reserve, but rather undermines the privacy .

What Blinder wants is that the technocrats of the Fed could conduct their experiments cash away from prying eyes. We demand the technocrat: how can the common man to know what is the level of interest rates that maximizes economic growth and employment?

The answer is that not only the common man can not know this "optimal level" but not the technocrat to the Fed!


The interest rate, in fact, should be a market price like everyone else or else the economy is bound to suffer from cycles of expansion and depression, as described by Mises and Hayek.

Why, rather, almost all so-called "defenders of free markets" are in favor of privatization and liberalization in all areas except for the currency and the credit market?

Tuesday, October 13, 2009

Retirement Poster Template

Predictable and inevitable

Monday, October 12, 2009

What's An Ip Number Byond

Economists study the history!

In a piece published by the Sun 24 hours Bradford De Long accused substantially macroeconomists do not know the history of economics modern, which is dotted with bubbles followed by recessions.

" If you ask a historian of modern economy like myself because the world is currently in the grip of a financial crisis and a severe economic downturn, I would say that this is only the latest episode in order time in a long string of bubbles, crack, crises and recessions dating back at least similar to the bubble of the early twenties of the nineteenth century due to the construction of canals, in 1825-1826 the failure of Pole, Thornton & Co, and the subsequent first recession in industrial Britain. We have witnessed the same phenomenon at other times in history, nel 1870, nel 1890, nel 1929, e nel 2000 . »

De Long va avanti e sottolinea che

« Per qualche motivo, i prezzi degli asset vanno fuori controllo e salgono a livelli insostenibili. Talvolta ciò è da imputare agli scadenti controlli interni alle società che remunerano in maniera spropositata i propri dipendenti per correre dei rischi. Altre volte causa di tutto sono le garanzie governative. Infine, altre volte ancora ogni cosa è semplicemente da ricondurre a una lunga serie di avvenimenti propizi che lascia che il mercato cada in preda a un ottimismo per nulla realistico.
Poi, però, arriva il tracollo, e when it does collapse, consequently, the retention of risk: everyone knows that occur in huge losses of financial assets that are not aware, but nobody has the faintest idea where they are. The collapse follows a real escape for salvation, followed in turn by a sharp drop in the velocity of circulation of money, as and that investors accumulate cash. And this fall in the velocity of circulation of money will cause a recession
"

poor controls, excessive remuneration, government guarantees, auspicious events that make the market fall into prey to unrealistic optimism ... investors hoard money and cause a recession. Is not something missing in this story?

In the rest of the article's criticism of De Long hits the mainstream macroeconomists and is acceptable, all things considered, I would like to exploit the appeal of De Long to

" listen and learn from the Dick Sylla history of the bank bailout of Alexander Hamilton in 1825, from Charlie Calomiris the story of Overend, Gurney crisis, by Michael Bordo history of the first bankruptcy of Baring Brothers, and Barry Eichengreen, Christy Romer, Ben Bernanke and the history of the Great Depression "

Let, however, to hear the story from a different point of view, it can find a common factor in all these sequences of boom and bust.

Panic of 1819

to this crisis, the first in the United States due to the phenomenon of the economic cycle, our historic reference is Murray Rothbard with his book "The panic of 1819 .

The panic of 1819 was the first major U.S. economic crisis. For the first in American history there was a crisis of national scope that could not be simply and directly attributed to specific locations such as famine or restrictions or embargoes.

Rothbard tells us that this crisis arose as a result of measures taken during the war of 1812, when the U.S. government is indebted largely to finance the conflict. This high demand of funds was met by the banking system that took the opportunity to issue new banknotes which, however, were not backed by any gold deposit. When the owners asked to convert their notes pieces of paper into hard cash which provoked a banking crisis and the government to allow banks to suspend payment (or to be able to refuse to convert banknotes into gold).

Freed from the constraint of maintaining a gold reserve, the banks were able to expand even further their emissions of paper money, creating a credit boom. When the situation seemed to fall in 1816-1817, Congress authorized the creation of a national bank (the Second Bank of United States) that was tasked with creating notes backed by gold reserves and provide the country with a sound currency . In reality, this National Bank, predecessor della Fed, non fece altro che unirsi al coro inflazionista.

Dove finirono tutti questi soldi? Nel mercato immobiliare e ….. nel Mercato Azionario di Wall Street, che nasceva ufficialmente proprio nel 1817, nel bel mezzo della bolla speculativa!

Dopo il boom seguì la recessione, non ci fu nessun New Deal, nessuna Grande Depressione, il governo non fece nulla e nel 1821, liquidati i cattivi investimenti, l’economia ripartì.

Il fallimento di Pole, Thornton & Co - 1825

Ci spostiamo ora in Inghilterra dove durante le guerre napoleoniche, per finanziare le enormi spese del conflitto, era stato abbandonato il gold standard e la Bank of England aveva potuto inflazionare a suo piacimento la moneta, tra il 1797 ed il 1821. Il ritorno al gold standard fu drastico perché l’intenzione era quella di ritornare al livello di parità tra sterlina ed oro che esisteva prima della guerra ma nel 1823 l’economia sembrava essersi rimessa in sesto. A questo punto, racconta Rothbard in “ History of Economic Thought: Classical Economics ”:

« L’espansione creditizia attuata dalla Bank of England fece da apripista in questo nuovo boom inflazionario, aumentando il totale di crediti concessi da 17,5 milioni di August £ 1,823,000,000 to 25.1000000 pounds two years later, a huge increase of 43% or 21.7% annually. Most of monetary and credit boom came to light through investment in highly speculative shares of mining companies in Latin America. [..] By the end of 1824, the international exchange rates became unfavorable gold began to flow abroad within the next year, the British began to demand gold from their banks are making more. [..] This was followed by bank runs and panic. [..] Pole, Thornton & Co. went under, despite the attempt to rescue the last minute attempt by the Bank of England '.

Other inflationary boom, another recession.

The Panic of 1837

Now back to the United States, where the Second Bank of the United States was not to have learned their lesson because, as Rothbard says in "History of Money and banking in the United States "

'price inflation began in the early '30s when wholesale prices reached a level of 82 in July 1830, to go up by 20.7% in three years and reach a level of 99 in the fall of 1833. The reason for this growth is simple: the money supply grew by $ 109 million in 1830 to 159 million in 1833, an increase of 45.9% or 15.3% per annum. [..] No doubt, the monetary expansion was led by the Second Bank of the United States which increased its currency and deposits from 29 million to $ 42.1 million, an increase of 45.2 percent. "

In recent years, meanwhile, consumes the fight between President Jackson and the banker Nicholas Biddle, resulting in a progressive emptying of the privileges of the Second Bank until his disappearance a few years later. The prices, which in the meantime had declined after 1834 they returned to climb:

"wholesale prices rose from a level of 84 in April of 1834 to 131 in February 1837, a significant increase of 52% in less three years. "

This was perhaps because the banks, freed from the" brake "of the Second Bank of the United States, began to create credit money beyond all limits, as the story" official "? Rothbard writes that:

"There is no doubt that inflation prices was due to the remarkable monetary inflation of those years. In fact, the total money supply rose by $ 150 million at the beginning of 1833 up to 267 million in early 1837, a spectacular increase of 84% or 21% per year '

But this did not happen because banks created additional credit on existing money: in fact their reserve ratio never got below 16%, which is the level they had maintained during the existence of the Second Bank. What happened is that:

'A partire dal 1833, il totale di denaro contante (moneta metallica) nel paese si incrementò da 31 milioni di dollari a 73 milioni all’inizio del 1837, per una crescita del 141,9% o del 35,5% annuo. Quindi, anche se una crescente sfiducia nei confronti delle banche indusse il pubblico a ritirare parte del denaro dai loro conti, [..] le banche furono comunque in grado di aumentare le loro note ed i loro depositi allo stesso tasso in cui il denaro affluiva nelle loro casse».

.Le cause di questo afflusso di metallo furono «per prima cosa un largo flusso in ingresso di argento dal Messico ed inoltre un netto taglio delle usuali esportazioni di argento in Oriente».

Come spiega Rothbard:

«La vera causa [del flusso di argento negli Stati Uniti] fu l’inflazione monetaria in Messico causata dal regime di Santa Anna, che finanziò il suo deficit coniando monete di rame svilite. Poiché queste ultime erano molto sopravvalutate e le monete d’oro e d’argento, al contrario, erano sottovalutate (a causa del cambio fisso che non era stato cambiato), queste ultime sparirono velocemente via dal Messico fino a sparire. L’argento, ovviamente, e non l’oro, stava finendo negli Stati Uniti durante this period. When the Mexican government was forced in 1837 to change the exchange rate at an appropriate level, the flow of Mexican silver in entering the United States ceased '.

When the collapse came in 1837, William Leggett remarked

Anyone who has observed in an objective manner the course of events of the last three years could have predicted the state of affairs that has occurred now ... would have seen that banks .. tried with all their efforts, emulating each other, to force their own notes in circulation, and showering the earth with their monetary surrogates. He saw they tried in every act of seduction to convince people to accept their supposed aid, so that in this way have gradually aroused a thirst for speculation [..] that has evolved into a fever and the people as prey to an epidemic or a fad of the moment, he embarked on all sorts of desperate adventure. They dug canals business requires no means of transport, opened roads where no traveler wanted to go, built towns where nobody wanted to live "

De Long So, what we learn from the history of speculative bubbles? What is the factor that unites them all?

Saturday, October 10, 2009

Can U Hav A Pet Platerpuss In The Uk

Corporatism: A Love Story

Michael Moore on 29 September met with young students at George Washington University to promote his new film, "Capitalism, a love story." Hear what answers the question of a student who asks whether we can really talk to the U.S. free market and the condition of corporate power is attributed to the "market" or the fact that they can avail themselves of state power to advance their own interests.

Here's what Moore responds



"We have really a market free and not free enterprise even if we say we have them. To these people, the wealthy and corporations do not like competition. They do not like that we have the right to choose, like monopolies, their vision of Nirvana is the only automotive industry or the airline and it is strange that these people who says he believes so much in the way we live, really believe in a system where we should not have choice and admire the way you do in the old Soviet Union '


So it tells Moore: "This is not the free market, this is not capitalism."

Then maybe he should call the movie "Corporatism: A love story" but it could not get the message that there is in the second part of the interview ...

Friday, October 9, 2009

Vintage Snowmobile Salvage Yards Minnesota

Go and trust the Nobel Prize ... Inflation

Since the 12 in Oslo awarded the Nobel Prize for economics, we see what he wrote on his blog a few days ago who has won this award two years ago. Or Paul Krugman

Commenting on the business cycle theory of Schumpeter ...

" 's all here: the mass unemployment is necessary because we must shift resources away from sectors that have expanded too much, the stimulus is bad because it slows the necessary readjustment. But now as then the whole theory falls apart when asked why, say, a boom in real estate - which requires a shift of resources towards the property sector - does not produce the same type of unemployment in a recession shifting resources out of the real estate sector "

Believe it or not, these are the words of Nobel Prize winner for economics Paul Krugman ....

This is the answer to Bob Murphy (the place because it's fun)

workers prefer to leave the work to be dismissed

imagine that we have the economy in equilibrium, say with unemployment at 2.5%, with a few people who leave the job or are laid off, due to changing preferences, technology, etc.

Then someone comes along who starts printing new banknotes without respite from $ 100. This guy starts to advertise the fact that wants to hire new workers in his factory and offers to pay for aspiring Qualified twice what they are getting now. Obviously the number of people who work in his factory is designed to skyrocket in the next few months while he continues to print its banknotes from $ 100

Now Paul Krugman wants to know : because the rate of unemployment does not rise 10% given that all these workers are moved to work in the factory of the forger?

The answer, of course, is that some of the people who were previously unemployed people find work at the factory and all other employees simply quit their jobs before as the higher wages they get now. The unemployment rate came down to say 0.3% for a year or two.

But sooner or later something must happen. It may not be possible for the print pieces of green paper makes the real economy more productive. People thought to be the richest for a few years after the process had begun for infringement, when in fact the whole it was not. All that was happened was a massive process of redistribution of wealth and capital consumption that is consumed while the people had been ingannata nel pensare che i suoi redditi reali erano cresciuti di molto.

Ad un certo punto la gente realizza che il proprietario della fabbrica non è altri che un falsario e spengono le macchine. Le banconote da $100 smettono di entrare in circolazione. Ognuno alla fabbrica viene licenziato istantaneamente e tutti quelli che rifornivano la fabbrica di materiali vedono il loro fatturato scendere del 50% (perché la fabbrica era un loro grosso cliente). Così anche loro devono licenziare un bel po’ di persone.

I lavoratori licenziati sono esterrefatti. They can not believe that having now consider paying jobs (in real terms) one half of what it took last week. They decide to wait a while ', sending away curricula in hopes of finding a job that pays, say, 85% of their old salary. Obviously the rate of unemployment is 0.3%. In fact rises above 2.5% and is an exceptionally high level for many months.

Paul Krugman does not really get us? Of course, maybe this is not a true story of what happened in the United States from 2002 to 2007, but there is nothing logically wrong with the story.

Thursday, October 8, 2009

How Can You Tell If You Have Mucus In Stool

primary disease




That our world is sick because the economy was based on false principles. The coin is in fact not wealth, but it is created by debt and can therefore be arbitrarily inflated.

Inflation is not a strange and unfortunate accident that rains from the sky to disturb a system that is otherwise perfectly engineered, but instead is the cornerstone on which the powerful have wanted to build the machine economy. In practice it is nothing but a huge robbery against the population, and more unstoppable rise in prices, deals very difficult to eradicate structural damage to the economy and society.
Inflation is the primary disease, which created a cascading number of other diseases: impoverishment of the population, patronage, privilege, arrogance of power, crime, social injustice, malfunction of the services, hopelessness and nihilism of youth.

video taken by the Conference of the book presentation held at the Politecnico di Torino, 10/6/2009. To view the full movie and read the book visit www.usemlab.com

Tuesday, September 29, 2009

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Krugman, Keynes and Hayek. Because the Keynesian solution to the crisis is wrong

Krugman

The September 15 Paul Krugman analyzed the macroeconomic situation of the United States

First we look at how deep the pit where we are. Instead of going into the details of the calculations necessary to measure the output gap, let me present a very simple calculation: to compare the GDP, as the recession began, with what would have been if the economy had continued to grow along its trend (1999 to 2007 )

Quindi siamo circa un otto per cento sotto a quello che dovrebbe essere. Questo si traduce in una perdita di produzione ad un tasso di più di mille miliardi di dollari all’anno (ed anche in disoccupazione di massa). E continueremo a soffrire queste perdite, anche se il PIL sta ora crescendo, fino a quando avremo abbastanza crescita per chiudere quel gap. Siccome non c’è nulla nei dati che suggerisca che il gap si sta chiudendo, questa è una tragedia che continuerà.

Che cosa vuol dire il professor Krugman (ma anche tutti i keynesiani)? Prendo in prestito il modello che Garrison used in Time and Money (borrowed from Leijonhufvud ) to explain what Keynes argued in his General Theory.

Keynes

distributed by Keynes's conclusions on the origins of the business cycle:

" Now, we have been used to explain the crisis to emphasize the trend of the interest rate to rise under the influence of increased demand for money or as an intermediary in trade for speculative reasons. Sometimes this factor può certamente avere un ruolo aggravante e, forse occasionalmente, di scintilla. Ma suggerisco che una più tipica e spesso predominante spiegazione della crisi non è da ricercare nel rialzo del tasso di interesse ma nell’improvviso collasso dell’efficienza marginale del capitale »

Vediamo ora, servendoci da questo grafico riassuntivo, di capire che cosa significa.

Prima della crisi

L’economia si trovava al punto A. Vediamo brevemente che cosa ci indicano i sei pannelli (la lettera D indica la domanda aggregata mentre la S indica sempre l’offerta aggregata):

Pannelli 1,2,3 – Mercato del lavoro e reddito aggregato

Nel punto di piena occupazione vengono impiegate 20 ore di lavoro al salario nominale di 10$ l’ora (pannello 1), per un reddito totale da lavoro dipendente pari a 200$ (pannello 2). Poiché Keynes (Teoria Generale) sosteneva che « i costi dei fattori produttivi hanno un constant relationship with the wage , "we can assume (panel 3) that the total income to be in constant contact with the earnings (in our case $ 300 / $ 200, or 3 / 2).

Panel 4 - Total expenditure

The panel 4 is the heart of his analysis and the Keynesian circular flow model . The cost of one's income to another, and then aggregate expenditures are equal to the aggregate income. What are the components of aggregate expenditure?

There are consumption (regular member), which depend on the income through what Keynes called the propensity to consume (in practice, if our propensity to consume is 0.6, for every $ 100 we receive we will spend $ 60) and investments (volatile component) which do not depend on income, but only by expectations of the future. In our case the level of consumption is $ 210 with investment of $ 90.

Panel 5 - Production Possibility Frontier

Normally this figure is omitted macroeconomic analysis but it is very important because it shows what are the production levels sustainable by the economy. According to Keynesian analysis, before the onset of the crisis, the economy went along the production possibility frontier .

Panel 6 - The market for loanable funds

This panel, finally, correlates demand and supply of loanable funds, which correlates the savings (Savings ) with investment ( Investments) through the interest rate market.

comes the crisis

As we wrote previously Keynes identified the cause of the crisis mainly to a sudden collapse of the marginal efficiency of capital, then aggravated by increased interest rates due to increased demand for money (higher liquidity preference) .

"Back to what happens at the beginning of the crisis. As long as the boom continued, many of the new investment is not shown to have a current yield is not satisfactory. The disillusion comes because doubts suddenly arise concerning the plausibility of future performance, perhaps because the current yield shows signs of decline as the stock of new durable goods increases. If you think that the current production costs are higher than they will in the future, then there is another reason for a drop in the marginal efficiency of capital. Once the doubts arise then spread rapidly. So at the beginning of the recession will be very capital whose efficiency has become zero or even negative. " (Keynes, General Theory, cap.22)

the chart this movement is reflected in a leftward shift of investment demand from D to D 'which means that a level of investment I' less than full potential. Since then, wages have, in the Keynesian rigid downwards, the demand for labor also shifts from D to D 'and the new level of employment (which is not at the meeting point between supply and demand) is of only 15 hours instead of 20. It should be noted that even if wages were allowed to decrease the level of employment would be lower than pre-crisis. The lower income means that the supply of credit to move to the left from S to S ', leaving unchanged the initial interest rate.

In panel 5

we can finally see how the economy has declined in the production possibility frontier (there are closures, supply chains still, etc.)..

will take over then the aggravating factor, ie the increase in liquidity preference

"Besides the dismay and uncertainty about the future that accompany a collapse of the marginal efficiency of capital as they natural consequence of a sharp increase in liquidity preference, and therefore an increase in the rate of interest. So the fact that a collapse of the marginal efficiency del capitale tenda ad essere associato con un aumento del tasso di interesse può seriamente aggravare il declino degli investimenti» (Keynes, Teoria Generale, Cap. 22)

La curva di offerta di credito si sposta ulteriormente verso sinistra al livello S’’. Questo si traduce in un aumento del tasso di interesse ed in un livello di investimenti I’’. Il risultato è un aggravarsi della situazione che si stabilizza solo al punto B.

Il gap nella produzione di cui parlava Krugman è rappresentato dalla distanza tra i due punti A e B .

The Keynesian solution is to "fill" this gap through a coordinated monetary and fiscal policy. First, monetary authorities must neutralize the flight to liquidity through the availability of money through the credit market (ΔMc) and then bring the interest rate at pre-crisis level (blue arrow).

"If a reduction in the rate of interest alone would be able to be an effective remedy would then be able to get a shot quickly under control, more or less effective, the monetary authorities . But this is not what usually happens. " (Keynes, General Theory, Cap.22)

must then take the public authority which, through a level of spending G (so called "stabilizer") is to bridge the gap and bring the economy At the point of full.

seems in practice that public spending and debt are the solutions to the crisis. But this analysis is correct? How do spending and debt to be both causes of the crisis and their solution? To understand this we must return to what had happened before the crisis, during the boom.

Hayek

The Austrian business cycle theory explains that the boom is caused by an expansionary monetary policy that lowers the interest rate below its natural level. As the price system is the way in which the market signals the information to their players and since the interest rate the price is certainly more important than the economy, since it allows for the coordination of production over time, the intervention of the authorities currency has destructive consequences.

Let's see what happens to the production system (which we assume to be on the frontier of possibilities production) when the banking system entered into the new currency of ΔM in the form of credit. First, we note that in the Saving-Investment Panel, the supply of credit shifts to the right, intersecting the demand curve at point A, which corresponds to a lower interest rate (the '<>

Let's see what are the reactions of households and entrepreneurs.

For families the interest rate also indicates the opportunity cost they receive when they choose to consume today or save and buy in the future. If it is very low which means that very little incentive to consume and to save money (interest on current accounts are low, the titles "safe", make it and so on). An expansionary monetary policy to temporarily change time preferences of consumers and moving towards an early consumption, often financed by debt: the so-called consumerism. In the graph we see this trend by noting that the rate 'families, who still follow the S-curve, save less and therefore consume more (blue arrow on the panel of the production possibility frontier).

The message they receive

entrepreneurs is rather the opposite. If


increases the credit available, they are thinking, this is a signal that consumers are saving, and therefore will be inclined to increase their consumption in the future, so there is room to increase future production. In addition, a low interest rate makes a number of attractive investment, especially long-term , which was previously disadvantaged.

If the credit expansion increases the amount of money available, lowering the interest rate on loans to pay down the quality of the investment. In summary, not only will expand the claim beyond the bounds of real savings ( overinvestment), but it is also directed to speculative and risky activities that have little chance of success ( malinvestment ). The production possibility frontier we can see the 'overinvestment (the blue arrow, while the triangle shows the malinvestment Hayek (elongation time of the production structure)

The level of consumption and investment that manifested during the boom, represented in the graph from point A, is not all along the production possibility frontier , but beyond it, and then is not a sustainable for the economy.

The excesses and distortions that have occurred during the boom are not without consequences. The new production possibility frontier, in fact, not only in the point A (it is not represented by the dashed red curve), but neither is it more than you had at the beginning of the boom (the blue curve). In reality we can not say much about its location but recommends that the Austrian school is that you try to stop the liquidation of bad investments because only in this way the economy can find its sustainable structure and start over.

Conclusions

the light of Hayek's analysis is wrong and harmful you want to close the productivity gap and try to bring the economy to the sounds of fiscal and monetary stimulus, to the levels it had before the onset of the crisis (and then back to point A). Not only prevents the market to rediscover what is its efficient production structure, but will inevitably continue to waste its resources in those productive activities that have developed during the boom, in an unsustainable way, further worsening the overall situation.

An example is the automobile market: the 2006-2007 period has seen a boom in car sales (stimulated by scrapping and easy credit). And 'maybe lawful and reasonable to consider the record production level of 2007 as the target to be achieved and made permanent to the sound of subsidies, incentives and scrapping force (think of driving restrictions for cars older)?

Thursday, September 24, 2009

Ozark Trail Folding Knife

Surprise! Now the crisis is the fault of the commodity money!

** The post was changed from its original version **


On Sun 24 hours a few days ago , was presented the book by two professors at the University Bocconi Milan, Massimo Amato, Luca Fantacci, called "The End of Finance." This book aims to explain, in the wake of what Keynes argued, the reasons for the financial crisis and to propose a series of remedies to prevent future there are others.

The thesis that emerges from the interview, but not necessarily be true to what is contained in the book, they might shudder, mindful, who follows the Austrian school of economics, but since the two professors say they follow the wake of Keynes can be interesting (and funny) to see if they actually followed the British economist thought or if they have misrepresented entire contents.

Let's see first what is, and Amato Fantacci, the structural cause of the crisis.

"The real crux - says Amato - was changing the very function of finance . The latter, broadly speaking, covers the opening of a credit to a person cui viene anticipato del denaro per sviluppare, ad esempio, un'impresa. Una funzione essenziale per l'economia reale che presuppone, prima o poi, la chiusura del credito stesso». Non è un caso, quindi, che nel latino del tardo impero " Finantia " significasse «definizione amichevole di una controversia».

« È il "pagherò " della cambiale - fa notare Fantacci-, che, tuttavia, nel mercato finanziario si è trasformato in un "pagherò mai" » [..]«Grazie a tecniche come la cartolarizzazione, il creditore e il debitore sono stati "allontanati", non c'è più una relazione personale tra loro. È stato volutamente interrotto, split ratio between the two parties. In this way, the debtor could not only delay payment, but postpone it indefinitely: the promissory note was, in fact, turned into a "will ever pay." A revolution is not only economic but, dare I say, anthropology. " But how was it possible to go that far? "It's pretty easy to understand - Fantacci answers - Debt, maybe subprime mortgages, has been transformed, thanks to the unpacking of securitization, in something desirable so appealing. A title the more required as "thrown" into the river of cash which, by its very nature, needs to find a remuneration , possibly sempre maggiore».

Non è affatto semplice riuscire a capire il pensiero di Amato e Fantacci. Viene infatti detto che:

- la finanza odierna si basa su debiti che non verranno mai pagati nella loro interezza

- la cartolarizzazione dei debiti ha separato debitori e creditori per cui questi ultimi non conoscono chi ha preso in prestito i loro soldi

- c’è un enorme fiume di liquidità looking for a return

- all debts, including subprime ones, are now appealing

But what is the causal order? What do you mean by "river of cash" and who created it? There were consequences in the real economy (we are talking only of finance) or not? Why the crisis arose at some point? In the interview not be explained.

It only states that

According to this, therefore, liquidity is one of the problems underlying the crisis ...

School Austrian of Economics also offers a thorough explanation of why a credit boom then leads to a crisis and what is the role of "liquidity". But Beloved Fantacci and what "liquidity"?

"Yes. The liquidity, meaning continuous convertibility of currency and vice versa in a title, is the structural basis for this system "

Within two periods have gone from" cash "intended as a" river of cash "to" cash "as" ability to quickly convert an asset into cash financial ". It seems to me therefore that the idea of \u200b\u200bAmato and Fantacci is more or less this:

In recent years there has been a huge increase in the indebtedness of households and businesses. Once, when two people stipulated a bill of exchange, the lender remained in possession of the title to maturity, when the debt was refunded. Now the financial markets make it possible to package and resell the debt and they are so attractive to be sold (converted into money) very quickly in the market, changing hands many times.

However, when increases in liquidity preference and many want to convert their assets into cash, the stock price goes down (so they will raise the interest rate) and onset of the crisis. This explanation is, in some ways, the interpretation of Keynesian thought given by Krugman , but Keynes's ideas had a little 'different about the causes of the economic cycle (General Theory, Chapter 22)

" Now, we have been used to explain the crisis to emphasize the trend of the interest rate to rise under the influence of increased demand for money or as an intermediary in trade for speculative reasons. Sometimes this factor may certainly play an aggravating and perhaps occasional spark. But I suggest that a more typical and often dominant explanation of the crisis lies in the increase in the rate of interest but in the sudden collapse of the marginal efficiency of capital "

But

the "liquidity" alone was not sufficient without the role of money as a store of value "

" The money intended as a store of value-meets Fantacci -. Com is known, the currency is now: unit of account, medium of exchange and, precisely, a store of value. Here, the latter feature is essential in the financial market: money be a commodity whose price is the interest rate . If there were those who give money this aspect should not, or could be paid with the interest rates, precisely ".

According to Amato and Fantacci money today would be a "commodity money whose price is the rate of interest" and that due to the fact that the money is "a store of value." Apart from the assertion that money today is a "commodity money" (a coin of legal tender paper can be a commodity money?) Is worth commenting on the absurd argument that "the interest rate is the price of money ", which derives from a misinterpretation of what is written by Keynes in the General Theory.

In Chapter XIII, entitled "The general theory of interest rate" Keynes declares that the individual, when it had a net income, is facing a double decision:

" The time preferences of an individual require two distinct decision points to be completed . The first relates to the aspect of time preference, which I call the propensity to consumption, which determines how much each person consumes and how much of your income in some form will be held in reserve and allocated to future consumption.

But having made this decision, there is one further che lo attende, ovvero, in quale forma detenere questo “diritto ad un consumo futuro” che si è riservato, sia che esso provenga dal suo reddito corrente o dai suoi risparmi passati. Vuole tenerlo sotto forma liquida (es. moneta o un suo equivalente)? Oppure è preparato a separarsi di questo suo diritto per un periodo specifico o indefinito, lasciando che siano le condizioni future di mercato a determinare in quali termini potrà, se necessario, convertire questo diritto a consumi futuri in immediata possibilità di consumo in generale ? »

E quindi: il tasso di interesse, per Keynes, è la ricompensa per separarsi dalla liquidità for a given period, which is the opportunity cost of holding money in liquid form.

E 'Amato and Fantacci say what? No, and in fact after Keynes wrote,

The interest rate is nothing more than the inverse proportion between a sum of money and how much can be gained by splitting for a certain period of time in exchange for a debt .

must be careful not to confuse "opportunity cost" con “prezzo” in quanto se è vero che per prestare moneta (e percepire un interesse) l’individuo deve separarsene per un certo periodo, tuttavia la cessione della proprietà delle moneta non è definitiva. Allo stesso modo se affitto una casa ne cedo la proprietà per la durata del contratto ma nessuno si sognerebbe di affermare che l’affitto costituisce il prezzo della casa!

Poco più avanti Amato afferma:

« La prova si è avuta quando le banche centrali hanno inondato il mercato con "denaro frusciante". Ebbene, se fossero prevalse le caratteristiche di unità di conto and a medium of exchange, the currency would be circulated among the financial institutions. Instead, banks have hoarded liquidity. They considered a commodity, have put it "in stock", bearing in mind the essential function of store of value "

It refers to the fact that when the Fed , by last October, has flooded the banks money, they have increased their reserves with the Federal Reserve instead of "circulate money in the credit market." According to Amato, this is because the nature of a "store of value" of Money has prevailed on the characteristics of a medium of exchange and unit of account. "

Who here Amato Fantacci and Keynes have abandoned to his fate and are following a different path and now beyond doubt. Keynes, to describe this situation, would in fact talking about a liquidity trap (General Theory, Chapter XV)

" There is a possibility that after the interest rate has dropped to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers cash over to a debt offering an interest rate so low. In this event the monetary authority would have lost effective control of the interest rate. "

In this case the solution is not Keynes' attempt to circumvent the store of value of money" but

« Se questa situazione dovesse manifestarsi questo comporterebbe che l’autorità pubblica potrebbe prendere in prestito in maniera illimitata dal sistema bancario al tasso di interesse nominale. »

Detta in parole povere: se la politica monetaria non è efficace allora deve intervenire l’autorità pubblica per colmare il gap di output produttivo e ristabilire la piena occupazione.

Invece per Fantacci ed Amato la soluzione è

«eliminare the commodity money, so that the banks will return to focus on what should be their own core business, that is carrying on the business of brokering loans in the world to ensure the real economy. "

and eliminate money from the characteristic of "store of value" while maintaining its function as a medium of exchange and unit of account.

This idea, which sadly has many supporters, is based on the assumption that money is nothing more than a lubricant of trade and that these occur when it disappears and what remains is only an exchange of goods and services. Here is an example.

Gino's pizza on a freshly baked pizza and want to buy a beer. In a barter economy should look for someone who has the beer and is willing to exchange it with pizza in a cash economy but the whole is much simpler:

Gino sells pizza with George (who want) to € 4 and then went to the bar where he used to buy the 4 € a bottle of beer. At the end of trade in the currency disappears as soon as Gino had the pizza and now has a beer.

It 'really? Absolutely not!

It has not gone any € during transactions (before George had 4 € and now they have the bartender)! Indeed, as Mises wrote, is not correct to talk about money "in circulation" because any time all currency is in your wallet or on behalf of someone.

The fact that individuals agree to exchange goods for money (and therefore the money is a medium of exchange) is because they know that in the future will be able to use that money to get other goods (and here is the function of store of value). If this expectation ceases, because monetary authorities such as the hyperinflationary currency destroying its value, then individuals will try to get rid of money at their disposal to buy real assets (as has happened in Weimar , Zimbabwe, etc..) And this' Last also cease to be a medium of exchange.

And this is more or less the same objection that Keynes, while sharing the principles, Gesell was the idea of \u200b\u200b"making the cost of hoarding money" (General Theory, Chapter 23)

" In particular [Gesell] did not know that money is not the only thing to keep a liquidity premium, different from other goods only for its size, and derives its importance to the fact of having the largest liquidity premium compared to other items. So if the notes were deprived of their liquidity premium, a long series of substitutes, it would have taken the place " (eg gold, foreign currency, precious metals)

So even Keynes, even wanting to cause "the euthanasia of the rentier" and "abolish scarcity di capitale» (Teoria Generale, Cap. 22) non si sarebbe mai sognato di suggerire di privare la moneta della sua funzione di riserva di valore!

Ma quanti sono i keynesiani, che magari insegnano economia all’università, a non avere mai letto, né capito, Keynes?

Wednesday, September 9, 2009

Buy A Pet Platypus In The Uk

Better or worse than expected?

Lo scorso gennaio, mentre l’Amministrazione Obama presentava al Congresso il piano di stimolo fiscale, i politici ed i media ci bombardavano con messaggi allarmanti e prevedevano una imminente catastrofe se il governo non avesse fatto qualcosa per impedirla.

Nancy Pelosi screaming that the U.S. was losing 500 million jobs per month , Obama felt that we could not " afford to wait and see if things improve " but we had to "act now . The presidential economic team also had just churned out a report it provided the movements in the unemployment rate in the United States with and without the stimulus plan.


Ora siamo a settembre ed i messaggi sono invece positivi e volti all’ottimismo:


La crisi è quasi finita ”, annuncia Obama. Bernanke rilancia: “ La crisi sta per finire ”. Il Pil si sta comportando meglio del previsto (traduzione: rallenta il calo del PIL ), gli Stati Uniti continuano a perdere posti di lavoro ma se ne perdono meno (traduzione: non è un corso di analisi matematica ma non sapevamo come addolcire la pillola. Intanto studiate che a settembre potremmo sfoderare la derivata terza)

Evviva! La crisi è finita, la locomotiva si sta rimettendo in moto, grazie al piano di stimolo di Obama!

Ed i posti di lavoro? Se l’economia va meglio del previsto questo vorrà ben dire che anche la disoccupazione avrà seguito il trend più favorevole, no?


Confrontiamo i dati previsti con quelli reali .


OOPS!


not only data on unemployment in the U.S. are worse than the weather report in January but this is also true for both scenarios, with or without fiscal stimulus!

summarize: in January, was presented an economic report in which the economic team Obama was making predictions about the unemployment rate with or without a fiscal stimulus plan. These predictions have been proven wrong and the unemployment rate is now worse than was expected in January in the absence of government intervention.

As usual, the "Austrians" had already explained in January because the fiscal stimulus would not work.