Monetary Montgolfiers

“There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation”

– Henry Hazlitt

Look at this from the Federal Reserve Bank of Dallas “Higher incomes and household wealth boost spending. Higher, real (inflation-adjusted) interest rates—which encourage consumers to save—reduce current spending”

So if what you want is more spending (higher aggregate demand) then higher incomes and household wealth is good, and higher real interest rates are bad.

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Politics Is The Very Reason Fiscal Policy Doesn’t Work In Recessions

It’s a delightful idea, that if we put all the wise people in a big room and get them to chew over society’s problems then they’ll come up with optimal solutions. Reality doesn’t quite work that way as every legislature on the planet shows us. So it is with this idea of Keynesian demand management. Our specific example being this idea that in a recession the government should go spend more so as to get us out of the recession.…

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It’s A Straight Choice – No Euro or Germany Pays Greek Pensions

This isn’t exactly what these federasts are saying here but it is what they mean. In jargon the eurozone is too large to be an optimal currency area so fiscal integration is needed. In vernacular we can say that either there’s no euro itself or Germany has to pay Greek pensions. For that’s what fiscal integration would mean down the road.

The underlying point is that monetary union means the same monetary policy everywhere. Has to, that’s just what it means.

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Paul Krugman’s Argument That Fiscal Policy Just Won’t Ever Work

This is not, of course, something that Paul Krugman would either ever say nor mean, that fiscal policy just won’t work as a macroeconomic policy. Yet it’s something that can be derived – with caveats – from what he’s just said.

To set the scene here. We’ve, largely enough and for the Lord’s Sake don’t get hung up on details here, two sets of macroeconomic policies. One is monetary, the other fiscal. Monetary talks about the quantity of money floating around, the interest rate which determines how the narrow money supply – that central bank money and cash etc – translates into the wider money supply of credit and bank accounts etc.…

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In motorcycling, there exists the charming term “tankslapper”

A small instability in the steering begins a cascading failure as the handlebars first twitch, then tremble, and then finally oscillate violently enough to buck the rider off the bike.

We can apply it elsewhere.

The Federal Reserve started in 1913, and the gold standard was abandoned the following year. Then in 1971 even the gold exchange standard was abandoned by Richard Nixon – governments in the developed world could suddenly print money to their heart’s content, without having to perform the tiresome act of hoiking metal out of the ground.…

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Central Bankers Abhor A Vacuum

“An economy” might be described as the description we slap on our attempts to allocate useful and scarce resources – and the scarcer and more useful they are, the more money is usually demanded in exchanged for them.

So prices are how we measure this scarcity and usefulness.

With free markets, these prices are discovered by the consumers – they propose how much of their money they are willing to swap for a given product or service, and the producers that can make a profit at that price, prosper.…

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