Antony — April 19, 2013
Archive for Money and Banking
Antony — April 5, 2013
Some social commentary on Cyprus, European politics, banker bailouts, and Bitcoin… in song form:
Dave Killion — September 30, 2012
I have never been anxious concerning privacy, despite repeated cautions in the media. Like many, I shrug off warnings because I don’t think I have much worth hiding, and neither I nor anyone I know has fallen victim to any kind of identity theft. Still, there are enough stories that I’m sure it’s just a matter of time before something strikes close enough to home that it will overcome my laziness and denial. But even a lazy denialist might find this Belgian commercial persuasive –
Dave Killion — August 21, 2012
When designing Canada’s new (polymer) $100 bill, the Bank of Canada initially used a Photoshopped image of a South Asian woman to decorate the bill. The new design was shown to several focus groups, some of whom ‘expressed concern’ over the image. The bank responded by switching to a Caucasian woman. Word gets out. Hilarity ensues –
“Bank of Canada governor Mark Carney apologized Monday for the way the image of an Asian woman was removed from the initial design for new $100 banknotes, promising to review the bank’s internal processes.
“I apologize to those who were offended – the Bank’s handling of the issue did not meet the standards Canadians justifiably expect of us,” Carney said in a statement. “Our banknotes belong to all Canadians, and the work we do at the bank is for all Canadians.”
Because so many government goodies are doled out based on status (and there are only so many goodies to go ’round, even for the state), special interests have to compete fiercely to achieve, maintain, and grow their presence. This means no slight, however insignificant it may be, can be ignored. I don’t know for sure what other concerns were voiced by those focus groups, but I’m pretty confident that not only was the new design considered by some to be too racial, others found to be either sexist, ageist, elitist, or offensive to someone’s delicate sensibilities.
If Canada enjoyed currency competition , some private institution could put out a series of notes decorated all over with Asians, and nobody would whisper a complaint. But in order for that to happen, politicians would have to forego the advantages they derive from manipulating fiat currency at the expense of the taxpayer. And if they have to reduce us all to a bunch of pathetic whiners in order to prevent that from happening, well, I guess it’s pretty obvious that they don’t mind that one bit.
Antony — May 17, 2012
The recent news of JP Morgan’s $2 Billion trading loss is another example of a Black Swan event, discussed in our book club’s current book. It appears that traders at the bank used complex econometric models to make market predictions, then hedged their bets using a negative carry trade, which means that maintaining the position cost them money over time. Rather then just accept these small losses as a cost of doing business, they kept increasing their bet in order to recoup the losses they had built up, known a Martingale betting strategy. As time went on, economic events deviated from their model assumptions in ways that they did not expect (the Black Swan), and the losses multiplied. This episode has exposed the inept risk management at the bank. And now that other traders know of JP Morgan’s vulnerable position, they are attacking them, “squeezing” their position.
The interesting strategy devised by Taleb was to take the other side of the trade. Realizing the distorted risk perception of most traders, he will take the psychologically uncomfortable position of accepting many small losses in hopes of occasional large wins that more than compensate for the losses. His method is described in this Malcolm Gladwell article.
These events are good illustrations of a basic tenet of Austrian Economics: There are no constant in human action. This is why econometric models can never work. As soon as you make assumptions that variables will stay within certain parameters, and begin acting on those models, the assumption will be violated, and the model blows up. This is why the Phillips Curve does not work when applied to public policy. It is the mistake that blew up Long Term Capital Management in the 1990’s. And it is the reason why economics cannot be understood using empirical methods, but must use a deductive approach, developing causal linkages based on a priori axioms.
Antony — April 29, 2012
Over the last month, I have been doing a bit of research and data collection, in my spare time, for Robert Wenzel of Economic Policy Journal. The work was to help him prepare for a speech that he gave at the Federal Reserve Bank of New York last Wednesday. Robert Wenzel is a good Austrian economist, and he really tore into the failure of Fed policies with no holds barred. It’s amazing the speech even happened, Bob’s account of the circumstances can be found here.
Antony — March 10, 2012
I am currently in the process of reading Ludwig von Mises’ groundbreaking work The Theory of Money and Credit. Though originally published in 1912, it is amazing how many insightful and relevant points are made in the book that are directly relevant to modern day political and economic issues.
I was particularly struck by a paragraph in the section on Inflationism. In this passage, Mises describes the anti-democratic nature of inflation. How inflationary policies allow governments to fund projects which would otherwise not have public approval. And how the consequences can be concealed, as the resulting price rises are blamed on evil capitalists and speculators.
“A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e., of antidemocratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism. When governments do not think it necessary to accommodate their expenditure to their revenue and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.”
This passage explains why libertarians, such as Ron Paul, get so agitated about central banking. It is because centralized control of the money supply facilitates inflationary policies that in turn empower governments to act outside the constraints of public opinion. It enables governments to pursue unpopular and expensive polices. Inflation permits unfettered war and welfarism. It steals from savers, hurts the elderly and poor on fixed incomes, and destroys the middle class. Inflation impoverishes society by disrupting capital investment, creating malinvestment, and thereby reducing economic productivity. Inflationary policies create the boom-bust cycle we are currently suffering through.
Mises understood this 100 years ago. If only our modern day politicians and economists would listen.
JMaddock — February 20, 2012
I recently came across this article, arguing that there is no bubble in Canada’s real estate market, yet concluding with a very telling prediction:
“Apart from some overheated niches in the market … we’ll more likely see home prices that simply go sideways for several years, allowing incomes to catch up.”
It seems that even though real estate prices were pushed into a bubble by too much easy credit over the last several years, politicians, central bankers, and establishment analysts still aren’t willing to admit it. Instead, they’ll keep interest rates tantalizingly low and provide even more easy credit, just to deliberately jack up other prices and make sure house prices “go sideways for several years,” rather than experiencing a correction.
But as house prices “go sideways for several years, allowing incomes to catch up,” the real value of real estate will, by definition, be going down. Thus, whichever way you look at it, Canada’s housing market is in a bubble. The government and central bank just don’t want to admit it. They’d rather transform the whole economy into a bubble to match.
Antony — January 20, 2012
Interested in money? Want to understand what determines its value, and how money affects the economy? Ludwig von Mises’ book The Theory of Money and Credit was a groundbreaking book in Austrian Economics, and is the definitive treatise on Austrian monetary theory. In this book, Mises develops a fully articulated theory of money that explains the connection between the Austrian concept of subjective value, and how this determines money’s objective exchange value. This book also includes the first development of the Austrian Business Cycle Theory, which is vital in understanding the boom-bust cycles we see ravaging economies around the world.
I will be taking the Mises Academy course Mises on Money and Banking, which covers this book, starting on February 1st. It will be taught by Robert Murphy, who wrote the study guide to the book, so he should be very knowledgeable on the subject matter. Last year, I took three courses with the same professor covering Man, Economy and State. I learned a lot, and was happy with the quality of the those courses, so I feel comfortable recommending this course also.
So if you want to beef up your intellectual firepower on Austrian monetary theory, I’d encourage you to sign up for this course. Especially if you are in the Book Club, then we can discuss it at our meetings!
Stu — December 6, 2011
Watch the whole thing, but look for Ron Paul @ 7:39
Still Report 32
Quoted from Nathan’s Economic Edge (http://economicedge.blogspot.com): Bill produced an excellent video where he hits directly on target, right on the root issue of WHO it is that produces our money! Way to go, Bill!
He does an excellent job of calling out the illegal “Fed,” along with the IMF, and to that I would add World Bank – all sham and highly undemocratic money from nothing, self-anointed central banking criminals who have never received proper authorization from the people of the planet and in fact are operating against our rule of law as spelled out in our own Constitution! Absolutely, they are literally taking over countries and Bill correctly points out what they have done to both Italy and Greece – their game is to enslave with debt (which they did nothing to create), and then to take over direct control. Money creation is all about power and control.
Donald Trump running a debate? Are you kidding me? Until our nation is conscious enough to start voting for people like Bill Still, we are going nowhere fast. Go Bill, way to get the proper word out!