Tuesday, September 29, 2009

Lionel 3 Rail Track Uk

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.


Sunday, September 6, 2009

What Is The Pan That Comes With The Oven

Choose your "inflation"

In the midst of all the "optimists" who argue that the crisis is over and that recovery is around the corner, here is a "Cassandra" which warns us of what might happen in the future ...

Choose your inflation

Gary North

A touch us. That is if there will be things of luxury. If, however, will Precid as the Austrian theory of business cycle then there sip two or three.

Americans have experienced so far in the thick of money. Prices remained stable. In July the Consumer Price Index is the Median CPI was flat compared to June .

We consider five

inflation:

Deflation

Inflation

Stagflation

Inflation mass

Hyperinflation

E 'better consider all one by one.

inflation: monetary or price?

Dobbiamo sempre tenere a mente che ci sono due modi di definire una –flazione: (1) come un’alterazione dell’offerta di moneta; (2) come un’alterazione del livello dei prezzi.

Queste definizioni ci fanno considerare altre due questioni: (1) il poter definire accuratamente che cos’è la moneta; (2) il poter definire accuratamente che cos’è il livello dei prezzi. Entrambe le questioni sono problematiche.

La Federal Reserve tre anni fa ha messo da parte M3. Ci è stato detto che M3 è inutile come indicatore dei prezzi futuri. Ce n’è voluto di tempo. La Fed aveva ragione. M3 era la più ingannevole di queste M: M1, M2, M3, MZM. Ha sempre sovrastimato la possibilità di un’impennata nel CPI. Non c’è dubbio su quale sia la migliore M per effettuare queste previsioni: M1. Per leggere la mia analisi dettagliata sui perché, andate qui .

Inoltre ci sono molte più informazioni in una “M” che il only predict future consumer prices. There is also the problem of predicting the business cycle. There is no agreement among economists on this.

Then there is the level of prices. What basket of goods and services should use the statistics? What relevance should give every good and service, among the hundreds present? These weights will change with the changing consumer tastes. No index remains intact over time. All are reviewed when there are major changes, the CPI index Dow Jones.

I look for trends. M1 and then use the Median CPI.

The crucial issue is monetary policy. According to the Austrian business cycle theory, they are determined by monetary policy decided by the central bank. The periods of boom and bust are the result of monetary inflation created by the central bank, followed by a smaller expansion. The other schools of thought reject this theory. Well, they're wrong. For an introduction to the subject can then read the chapter of my mini-book Mises on Money.

Deflation

Many of those who expect deflation have in mind the price deflation. A few thought that it may be a deflation caused by the bankruptcy of banks, but it is a very difficult position to defend. The FDIC (deposit guarantee fund) can keep the doors open banks. There are no bank runs to withdraw cash. There are only "race" that concern the transfer of electronic money to other banks. This does not change the money supply.

The price deflation can occur within the free market. It 's the result of increased production in an economy where there is a stable currency. Hence my slogan: "More goods in return for the same amount of money." Economy in which money is gold provides this world, at least until the central banks do not protect the insolvent banks. The same thing happens in a banking system subject to 100%, which we never had. This is not the scenario offered by deflationists.

This is their scenario. Banks create credit. The paper money lowers the rate of interest. People borrow. So far the description is consistent with the Austrian school. This structure of credit is not sustainable. Even here we are.

But here is where opinions diverge. Deflationists I say that in general people can not pay its debts. They are bankrupt. Prices fall. Not only are the prices in those areas where it has developed a bubble but all prices.

There is a problem with this argument. If half the things you normally buy cost less, you still buy the same amount, or even something more, and then buy something else. This also applies to capital goods.

not put the money in the mattress. With that money buy something that falling prices have enabled you to buy. Buy more than B when the price falls to ... or buy more than A.

's simple, no? But those who call themselves deflationists do not understand or do not believe it.

The system is the same amount of money. Each owns a portion. Even you and me. Both of them would like some more ... price. But the contraction of credit markets after the bursting of a bubble is not going to affect the money supply if the central bank or the Treasury ol'FDIC intervene and prevent the fractional reserve banking system to implode and take with you all the digital money created.

This is economic logic. If the logic is correct then there should be a detailed theoretical criticism. Or, given the weakness of human thought, maybe the logic is not corresponds to reality. Economists are famous for constructing detailed theories that do not conform to reality. But the theory of prices in a market economy as a result of supply and demand of money in relation to supply and demand of goods and services is linear. It 's the basis of all economic theory. If we throw away what is left of economic theory?

If a central bank creates a boom in the currency of paper and then ceases to inflation can create deflation. How? By refusing to bail out the banks imploded. This allows the money supply to contract following the disappearance of the deposits commercial banks failed. A fractional reserve banking system can implode. This would create a negative pressure deflation. We have not seen anything like this since 1934, when the FDIC was created.

Do not count such a thing to happen. At least not yet.

Inflation

monetary inflation produces price inflation. On this both the monetarist Chicago School or the Austrians I agree.

If the central bank expanded the money supply, prices will rise. This process takes time. Economists debate about which is the delay: 6 months, one year, 18 months. But in any case, the monetary expansion will drive up prices. The new money must go somewhere, must go to the bank account of someone.

If the central bank expands the monetary base by buying the assets, it creates the currency in which it purchases. Who owned those assets spends that money. If instead the Treasury to be the recipient, is the Congress to spend. (Both in theory and in practice, if Congress puts its collective hands on the money it spends. All economists agree on this point)

Monetary expansion produced by the central bank is the cause of the economic boom and speculative bubbles. Economic expansion temporarily lowers the interest rate. Someone borrows the money you just created.

The United States has suffered monetary inflation from 1914 to 1930. Then, after a three-year break since the collapse of banks, we suffered again from 1934 to present. The dollar has lost 95% of its purchasing power since 1914. No, I do not think the CPI will tell us exactly that. But I can follow the trend. And the trend tells us that prices go up and the purchasing power of money goes down.

long as we have the Federal Reserve that creates money , we have price inflation. The only thing that can delay this process if the Fed increases the reserve ratio, or if commercial banks send their excess reserves in their accounts with the Fed L 'monetary effect is the same: to increase the reserves. This reduces the leverage of the deposits.

price inflation below 10% a year is what I call inflation. But before we get to this point, we will suffer stagflation.

Stagflation

This is the weight of the 70s. There has been a massive monetary expansion accompanied by huge deficits. The federal deficit in 1970 was 25 billion dollars and was the same the following year. Unthinkable!

The Keynesian theory that was dominant then argued that the federal deficit would have defeated recessions. The central bank had only to inflate enough to cover the deficit. But there were two major recessions in the 70s. Unemployment and the prices went up with her. The combination of these two events was called stagflation.

we can have economic stagnation in the world today is obvious. Almost all mainstream economists expect growth to slow next year. Provide for the family in recovery V is no longer in fashion nowadays. More typical is the prediction of Muhammed El-Erian, CEO of PIMCO, the world's largest bond fund. She called the "new normal".

Economic growth will be mitigated for a while 'and unemployment high, the heavy hand of government is evident in many sectors, the heart of the global system will be less cohesive, with the model Anglo-Saxon losing supporters, finance will not be given a more prominent role in post-industrial economies. In addition, the budget will shift the risk to the country risk over time, expectations of inflation and stagflation.

This scenario is a combination of slow growth and rising prices. Today we have no growth and stable prices. Then a slow growth and rising prices is nothing conceptually too different.

I think stagflation is likely once the recovery will come, but we are seeing a huge federal deficit. Ross Perot in 1992 spoke of a loud sound of sucking. He said that sound was the jobs lost to Mexico. But I think that's the sound of the federal government that sucks up all the excess capital in the United States and around the world. This money will not go to the private sector.

What are the basics is a sustainable economic recovery? An increase in the capital. But we're seeing a destruction of capital.

for a while 'suffer stagflation. It will not be stagdeflazione but staginflazione.

Che cosa mi aspetto? Crescita economica sotto il 2% annuo con i prezzi che aumentano del 5% o più all’anno.

Inflazione di Massa

Questo fenomeno apparirà quando il deficit federale non potrà essere più coperto dagli investimenti dei privati e dagli acquisti delle banche centrali straniere. E’ quasi certo che questo accadrà entro dieci anni. Penso che probabilmente potrebbe verificarsi prima della fine del prossimo incarico presidenziale. Penso che il fondo della Social Security cesserà di avere un surplus che oggi viene usato per comprare titoli del Tesoro. I gestori del fondo dovranno anzi vendere alcuni di questi titoli di debito al Tesoro e quest’ultimo dovrà emettere altri titoli per coprire queste restituzioni.

Questo stadio sarà l’indicatore che il modello odierno “prendi in prestito e spendi” è fallito. La FED dovrà intervenire per fornire la differenza tra i titoli di debito comprati dal pubblico ed i prestiti richiesti dal governo. Quando ciò accadrà il tasso di inflazione aumenterà e con esso anche i prezzi.

I define inflation as massive double-digit inflation above 20% but below 40%. The Americans have never had. No industrialized nation has seen a thing until after a major military defeat.

capital markets will be destroyed. The government will absorb virtually all the new capital format. There will be no net increase in capital. We will only use the capital.

The international value the dollar will fall. But other Western nations will stand by following similar policies. It is unclear what the dollar will fall. It depends on the level of competition that the various nations will have to destroy its currency. Every Western country will face the day of reckoning: the bankruptcy of the pension / health.

Then the Fed will have to make a choice: press on the brake or destroy the dollar.

Hyperinflation

The worst scenario is hyperinflation. Ludwig von Mises called this stage "crack-up boom." Leads to the destruction of the currency. The economy will move to an alternative currency or barter. The division of labor will collapse.

No modern industrial nation that has suffered since the Second World guera. The West is not Zimbabwe. It is not un'arretrata agricultural nation that has a tribal system still working to help its members.

think about the implications of the fact that your money can not buy anything. How would you live? Suits in the city. You are dependent on a complex system of computerized forecasting and distribution. All this is governed by the system of profits and losses. This system will cease to function at some point. And that's where the economy moves to a monetary system alternative.

This means destruction of wealth scale comparable to that of a war. It would create a new social order.

not I think the Federal Reserve permits. This would destroy our banking system. The purpose of the Fed's unofficial, but that is his primary job is to preserve the largest banks in the banking system. If the alternative is to provide between paper money to finance government debt and the destruction of the dollar, the Fed cease to buy debt securities.

That will be the turning point.

Deflation

Ed allora avremo il crash. La Fed proteggerà le banche più grandi, che inghiottiranno tutti gli asset delle banche più piccole. Un sacco di piccole banche andranno sotto e con esse i loro depositi.

Avremo corse agli sportelli. La gente vorrà denaro contante. L’FDIC andrà in bancarotta. Le banche pure. E con esse il denaro dei correntisti. Sarà come in “It’s a Wonderful Life” ma senza la scappatoia delle 6 di sera (orario di chiusura).

E 'better than the day you have your money in the bank of Harry Potter rather than in the Bedford Falls Building & Loan.

The contraction of the digital money will be accompanied by a very serious recession. The failures are common. Unemployment may not rise, but only because he was already risen so much during the final stages of mass inflation.

There will be a period of recovery. The cost of recovery will depend on how the poor have been displaced during the period mass inflation. If they are very serious, as I expect, the period of recession will be acceptable only if you have money and a job. But the investment strategies for salvaguardasi against inflation mass produce losses. A set of strategies appears opposite. Being a debtor during the inflation mass. Being a creditor in the second half after inflation.

If the Federal Reserve speak again, you repeat the cycle beginning. But the numbers will be larger.

Conclusion

Choose your inflation. You may try to beat them but each subsequent inflation threatens your capital.

We are entering a period of capital consumption in the United States. I think this problem will plague the West. The same political promises were made. They will be betrayed.

Who will maintain its standard of living during these inflation will be truly blessed. Who will get rich has done a miracle