Monday, November 23, 2015

My letter to the Philadelphia Inquirer re: Learn Economic Nonsense from the Fed

Re: Fed to help teachers learn finance

Dear Sirs:
Here is what the Fed will teach about money and finance:

Lesson #1: Print money
Lesson #2: Print more money
Lesson #3: Print even more money

Here is a quote from Mr. Bill Martin, a high school teacher who has taken many Fed classes:

"We hook the students with questions about the $100,000 bill," he said: "Where does money come from? It's created by lending. You take some of that $100,000 bill, lend it at an interest rate, say, to 100 people, and they grow a business and it becomes $200,000. That's how wealth is created. Growth doesn't happen unless lenders lend. You borrow to grow, and then pay it back with interest."

It's magic! (Or is it?) If banks can create $100,000 of wealth at the stroke a pen (by lending), why can't you or I do the same thing? We print $100,000 on our personal copiers and lend it at interest. Voila! Instant wealth!

Pardon me if I do not believe this nonsense. Wealth is created by hard, smart work, plus saving to build capital. It is not created at the stroke of a pen or from the rollers of a printing press.

Thursday, November 12, 2015

Another socialist EU proposal to reward irresponsibility

From today's Open Europe news summary:

Commission eyes jointly funded Eurozone deposit guarantee scheme

The Financial Times reports that, according to leaked documents seen by the paper, the Commission is planning to create a Eurozone Deposit Guarantee Scheme, which would initially support national schemes but eventually replace them with a fully mutualised system by 2024. The move is strongly opposed by Germany, which is currently the only Eurozone state to have a fully funded deposit guarantee scheme, as required by EU law.
Despite the fact that centralization of money and banking regulation at the EU has led to nothing more than an increase in member state transfer payments funded by debt, the EU Commission continues business as usual. It is blind to the consequences of its actions and desires a steady march toward a European super state.
Germany must leave the European Monetary Union before these new laws come into existence. Its national wealth is being stolen by back door policies such as this. Furthermore, it is not in Europe's long term interest to have Germany's wealth destroyed. Germany needs to regain control of its own economy and can do so only by regaining control of its own money and banking system. This is not abandoning Europe but saving Europe from itself. Without German guarantees the rest of Europe would be forced to abandon the worst of their socialist policies. The best role for Germany is to set a good fiscal and monetary example for the rest of the EU (plus the US and the rest of the world) to emulate.

Friday, October 30, 2015

The logic of sovereignty and unilateral free trade

From today's Open Europe news summary:

FT: UK pushing for ‘emergency brake’ on EU laws to safeguard rights of non-Eurozone countries

The Financial Times reports that the UK is seeking to obtain an ‘emergency brake’ on future EU proposals in order to protect the rights of non-Eurozone countries. This new ‘emergency brake’ could be based on the so-called ‘Ioannina-bis mechanism’ – which already exists in the EU Treaties – and could allow non-euro countries to delay a vote on new EU legislation if it threatened their interests or the integrity of the single market, triggering additional consultations at the level of EU leaders. The ‘emergency brake’ is reportedly part of a set of UK demands to reform the relations between euro ‘ins’ and ‘outs’. Other proposals include recognising the EU as a ‘multi-currency union’ and ensuring that non-Eurozone countries will no longer have to contribute to Eurozone bail-outs. Another provision would establish the principle that non-euro countries would not be forced to take part in initiatives – such as the banking union – that are driven by the Eurozone’s integration needs.
The paper cites Open Europe’s proposals to strengthen non-Eurozone states’ rights, published last month, which argued that if three non-Eurozone countries oppose an EU proposal, EU governments should aim for consensus. If this cannot be reached within six months, the proposal should either be dropped or only be pursued by a smaller group of member states.

The logic escapes me that the UK should remain in the EU yet opt out of policies that are unfavorable to its interests. EU policies are in constant flux, which would require a UK bureaucracy just to keep track of them and somehow decide which ones are favorable and which ones are not, no easy task. Sovereign nations with free market economies have no such problem. Each sovereign nation makes its own policies based upon its own internal political situation. Every business evaluates for itself whether or not it wants to satisfy requirements of foreign trading partners. Some may and some may not.
The longer this referendum is delayed the more likely it is that UK citizens will realize that there is nothing to gain from belonging to the EU (or any trade bloc) that it cannot achieve at zero cost by adopting unilateral free trade.

Tuesday, October 27, 2015

My letter to the WSJ re: Two kinds of refugees, people and money

Underground banks in China

Dear Sirs:
Money will flee areas where it is repressed just as people will flee areas where they are repressed. Capital controls can be seen as the monetary analogy of the Berlin Wall. Capital controls are indications of a failed economic system that benefits the politically connected elite at the expense of the people.

Tuesday, October 20, 2015

I can answer that question, Mr. Prime Minister.

From today's Open Europe news summary:

Cameron: Those who want to leave EU will have to answer question of single market access

In his House of Commons statement following last week’s European Council summit, Prime Minister David Cameron said that, when it comes to EU membership, “I want Britain to have the best of both worlds” in terms of sovereignty and market access. He reiterated the four key objectives of his renegotiation including extricating Britain from ‘ever closer union’, boosting the EU’s competitiveness by “signing new trade deals, cutting regulation and completing the single market”, ensuring that the EU “works for those outside the single currency” and changing EU rules on benefits access to “ensure that our welfare system is not an artificial draw for people to come to Britain.”
During the subsequent debate, Cameron argued that “as we get closer to the debate on whether Britain can stay in a reformed EU, those of us who want that outcome will be able to point clearly to what business gets from Britain being in the single market with a vote and a say, and those…who might want to leave, will have to answer the question of what guarantees they can get on single market access and single market negotiation ability.”
Pressed by Labour leader Jeremy Corbyn to take part in the EU refugee relocation scheme, Cameron responded, “If we become part of [this] mechanism…we are encouraging people to make the dangerous journey.” In response to a question about border controls, he argued, “Can we guarantee that we will be able to have the excellent juxtaposed border controls in France that we have today if we do not have an adequate relationship with the EU?”
Finally, on the issue of 16 and 17 year olds voting in the EU referendum, Cameron argued, “We voted in this House of Commons on votes at 16, and we voted against them, so I think we should stick to that position.”
Source: Hansard
Dear Prime Minister,
I can answer your question, to wit..what guarantees Eurosceptics can give on Britain's post EU single market access. None. But, then, neither can you give a guarantee that the EU will not ignore your negotiated repatriation of powers. In fact, no one can ever guarantee anything that others may do. That is the whole point of leaving the EU--to regain sovereignty, which means to regain independence. It turns out that when the UK joined the EU it unwittingly signed away its sovereignty to unelected EU bureaucrats. Now its only option (from inside the EU) is to beg to be allowed to run its own country in order to trade with the mostly insolvent EU members. The EU's outrageous regulations are making that harder and harder to swallow. But as one looks around, one sees lots of non-member nations trading freely with the EU. Of course, this does not rule out the possibility that the EU could prohibit all trade of its members with the UK simply out of spite. If there's one thing we've learned it is that there is no preposterous diktat that is beyond the consideration of Brussels' unelected elite.
The UK's simple yet powerful policy should be to adopt unilateral free trade with all the world. Now there's an idea that the UK can export at no cost whatsoever!

Thursday, October 8, 2015

My letter to the WSJ re: Why is the Fed worried that inflation is too low?

Re: Fed's Rate Delay Spurred by Worry Over Low Inflation, Minutes Show

Dear Sirs:
Can anyone please explain why the Fed is worried that inflation is too LOW? Did no one at the Fed live through the high inflation years of the 1970's, which were caused by excessive money printing in the 1960's to fund LBJ's guns and butter policies? Inflation is the silent thief of the people's wealth. In a just world the Fed's very words would condemn it to charges of failure to safeguard the currency of the nation at the expense of the people.

Wednesday, October 7, 2015

My letter to the NY Times re: My advice to the ECB and the Fed

Re: Skepticism Prevails on Preventing Crisis

Dear Sirs:
Mr. Binyamin Appelbaum's report of the Fed's conference in Boston over the weekend perfectly illustrates our central bankers' incompetence. They wring their hands over what they do not know and beg the public to forgive them when the next financial crisis strikes, which surely it must. If the Fed wishes to prevent financial crises, it only needs to stop initiating them. The Fed's hubris that it can fathom the proper interest rate for our vast and complex economy must rank among the greatest fallacies of all time. The Fed sees the world through the completely discredited Keynesian lens which posits that aggregate demand--what the rest of us know simply as spending--is the path to prosperity. Anyone who believes this nonsense need ask himself why he has not liquidated his own savings on frivolous consumption and why the citizens of countries like Zimbabwe, Venezuela, and others are not as rich as Midas. Please allow me to answer Mr. Luc Laeven's question, posed to the conference attendees, to wit, "Do we have other policies?" Yes, Mr. Laeven, I do. Liquidate your central bank (the European Central Bank) and recommend similar action by the Fed. Scrap legal tender laws that prevent the market from choosing the best medium of indirect exchange. Outlaw fractional reserve banking as the fraud that it is. Subject banks to the same commercial code as all other businesses. There--problem solved! Now send everyone at the conference home to look for a real job.