The recent improvement of the global economy, with particularly high economic-growth numbers for the United States, is just one more deception in a long series of deceptions that have plagued policy makers and investors. While official statistics register a rising gross domestic product, the long-term production potential of many economies around the world is actually contracting. The present economic expansion is brought about by massive stimulus policies. This kind of economic expansion does not constitute genuine economic growth. Read More

Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold — and not something else — is used as money is merely a historical fact and as such cannot be conceived by catallactics. In monetary history too, as in all other branches of history, one must resort to historical understanding. If one takes pleasure in calling the gold standard a “barbarous relic,”[1] one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency. Read More

If you watch any of the financial channels for any length of time, you’ll eventually hear someone going on about how grateful we should be for government intervention: “thank goodness the government stepped in or the world financial system would have collapsed.” I’m afraid this kind of talk is going to go on longer than the war on terror.

If the bailouts are questioned at all, the TV talking-head will reply, “yes but everyone was worried in the fall of 2008 that they would go to the ATM and wonder whether any money would come out.”

“Look how rocky the markets were after Lehman Brothers filed bankruptcy,” they say. “Imagine if other big firms were left to fail!”

“If there had been no bailout and no stimulus, it would have been a depression for sure. Hey, it’s been bad, but if not for the wise men at Treasury and the Fed, we’d all be standing in soup lines or selling apples on street corners. Prices would plummet, we’d all be doomed.”

White House economic director Lawrence Summers said a year ago, “Deflation is a real risk facing the economy,” urging passage of a stimulus bill and taxpayer funds to bail out banks. Summers said that stimulus and bailouts were required for “our economic security.”

Do financial failures and falling prices mean the depression and stagnant economy that Summers and others fear? (more…)

Mises Daily:

When Keynes’s General Theory was published in 1936 there was no reason to believe that it would soon serve as the framework for 40 years of economic theory and policy. Almost to a man, every important economist of that era condemned the book and its message as confused, inconsistent and dangerous.

Joseph Schumpeter compared Keynes’s proposals with the types of economic policies pursued by France’s Louis XV, which led to the bloodshed of the French Revolution.[1] Friedrich Hayek angrily insisted that Keynes was asking us to abandon 200 years of economic theory and return to the crude and naive idea that somehow the more money you create the wealthier you become.[2]

And Kenneth Boulding declared that

Mr. Keynes’ economics of surprise, like Hitler’s, may be admirable in producing spectacular immediate success. But we need Puritan economists like Dr. Hayek to point out the future penalties of spendthrift pleasures and to dangle us over the hellfire of the long run.[3]

Yet, by 1946, only ten years after the appearance of The General Theory, all that had changed. Keynesian economics had swept the field and those who refused to accept the new vision were considered as out of date and antiquated as those who still believed that the sun revolved around the earth. (more…)

By Kaj Grussner of Mises.org

Austrians have long called for a reform of the monetary system. The current, Fed-driven, fiat-money system is on the verge of collapse. But however bad the current system is, a new system won’t necessarily be better.

Many libertarians would favor a return to the gold standard, while others would be content with simply repealing legal-tender laws and allowing competition in currencies. However, even in a great collapse like the one looming now, these reforms may still seem too extreme to the general public. This is especially true if they have an alternative that seems reasonable and gives total control over the monetary system to the state. One such alternative is the 100-percent-reserve solution advocated by Stephen Zarlenga, director of the American Monetary Institute, and author of the book “The Lost Science of Money.” (more…)

Does It Make Sense to Resurrect the Glass-Steagall Act?

Mises Daily: Tuesday, February 16, 2010 by Frank Shostak

At the end of January, President Barack Obama announced that he is planning to introduce new regulations for the banking industry, to prevent excessive speculation. According to the president, no bank or financial institution that contains a bank will own, invest in, or sponsor a hedge fund or private equity fund, or have proprietary trading operations unrelated to serving customers for its own profit.

The driving force behind this plan is the former Federal Reserve Board chairman Paul Volcker who, it seems, wants to resurrect the Glass-Steagall Act of 1933. Instead of the separation of commercial and investment banking, we will now have a separation of banking business from proprietary trading, hedge funds, and private equity. In his testimony to the Senate on February 2, 2010, Volcker said,

The specific points at issue are ownership or sponsorship of hedge funds and private equity funds, and proprietary trading — that is, placing bank capital at risk in the search of speculative profit rather than in response to customer needs.

Some provisions of the Glass-Steagall Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates on savings accounts, were repealed in 1980. The provisions that prohibited a bank-holding company from owning other financial companies were repealed on November 12, 1999. The repeal enabled commercial banks to underwrite and trade instruments like mortgage-backed securities, and establish structured investment vehicles (SIVs) that bought those securities. (more…)

Mises Daily: Monday, February 08, 2010 by Doug French

Despite the juiced-up GDP numbers of the last two quarters, there is no illusion that the depression is over and the boom has resumed. While GDP is reported as being positive, the employment numbers remain weak. The headline jobless number has one in ten people out of work. Include those who have become discouraged and dropped out of the labor force, and the number is one in five. Since the start of the depression at the end of 2007, 8.4 million payroll jobs have been lost.

Gaining employment has been especially hard for young people. “From December 2008 to December 2009, the employment of 16–24 year olds in the United States fell by 1.78 million, or a third of the total drop in employment of 5.4 million,” reports David G. Blanchflower in The Peninsula. Even college graduates are suffering as wages fall with fewer opportunities.

The artificial boom that misdirected so much capital into financial services, real estate, and other areas of consumer and investor excess also misdirected human resources. The bust now is cleansing those unneeded and redundant jobs. But those professions were what college students had been preparing for. (more…)

Mises Daily: Thursday, February 04, 2010 by Morris and Linda Tannehill

Many people ask, “But how in the world could a laissez-faire society deal with aggression by foreign nations, since it would have no government to protect it?” Behind this question are two unrealized assumptions: first, that government is some sort of extra-societal entity with resources of its own — resources which can only be tapped for defense by the action of government — and, second, that government does, in fact, defend its citizens.

In reality, government must draw all its resources from the society over which it rules. When a governmentally controlled society takes defensive action against an aggression by a foreign power, where does it get the resources necessary to take that action? The men who fight are private individuals, usually conscripted into government service. The armaments are produced by private individuals working at their jobs. The money to pay for these armaments and the pittance doled out to the conscripts, as well as the money to pay the salaries of that small minority comprising the other members of the armed forces, is confiscated from private individuals by means of taxation.

Government’s only contribution is to organize the whole effort by the use of force — the force of the draft, taxation, and other, more minor coercions, such as rationing, wage and price ceilings, travel restrictions, etc. So, to maintain that government is necessary to defend a society from foreign aggression is to maintain that it is necessary to use domestic aggression against the citizens in order to protect them from foreign aggression. (more…)

Richard Nixon once said, “We’re all Keynesians now.” But that was a long time ago, and it’s certainly not the case anymore (if it ever was).

While influential 20th Century economist John Maynard Keynes would say it’s best to increase deficit spending in tough economic times, only 11% of American adults agree and think the nation needs to increase its deficit spending at this time. A new Rasmussen Reports national telephone survey finds that 70% disagree and say it would be better to cut the deficit.

In fact, 59% think Keynes had it backwards and that increasing the deficit at this time would hurt the economy rather than help.

To help the economy, most Americans (56%) believe that cutting the deficit is the way to go. Read More

More phony-white-liberal crocodile tears have been shed over the issue of academic freedom than perhaps over any other. More academics have waxed more eloquent over it than over perhaps any other topic receiving their tender attention. In the eyes of some, it has been equated with the very basis of Western civilization. In the eyes of others, judging by their anguish, it has been equated with the Second Coming!

There is not a day that goes by that does not see the American Civil Liberties Union in a virtual state of apoplexy over some real or imagined violation of academic freedom. And all this seems pale in comparison with the gnashing of teeth and frothing at the mouth by labor unions of professional academics and teachers in this fair land of ours.

From the name itself, academic freedom would seem to be innocuous enough. All it would seem to mean would be that academics, like anyone else, should have freedom. Freedom of speech, freedom to come and go, and freedom to quit a job. The usual freedoms that everyone has.

Such is not the case, however. “Academic freedom” has a very special meaning: the freedom to teach the subject matter in whatever way the academic in question wishes the subject taught, despite any wishes to the contrary that his employer may harbor. In other words, the employer may not fire the academic as long as he teaches the subject matter in any manner that the academic, not the employer, wishes. (more…)

Mises Daily: Friday, January 29, 2010 by George F. Smith

Having failed to learn what causes depressions and how to treat them when they arrive, our nation’s leaders are steering us straight into a monetary catastrophe. Predictably, the major media voices are clinging to the assurances of Keynesians, who see new wads of debt and paper money and conclude that the good times are ready to roll again; don’t pay any heed to the millions still looking for work.

The free-lunch Keynesians even tell us how we got into the crisis and what saved us. Paul Krugman speaks for many when he blames market deregulation for the meltdown and hails the Fed’s printing press as our savior.

What does this mean? It means we can laugh at rumors that the Fed’s cheap credit brought on the crisis. We can laugh even harder at the claim that Fed monetary pumping will ensure an even greater disaster down the road. And we can save our biggest laughs for that lucky guesser, Peter Schiff, whose knowledgeable detractors laughed at him in 2006 when he predicted the current meltdown. (more…)

by Llewellyn H. Rockwell, Jr.

All this talk of unemployment is preposterous. Think of it. We live in a world with lots of imperfections, things that need to be done. It has always been so and always will be so. That means that there is work to be done, and therefore always jobs. The problem of unemployment is a problem of disconnect between those who would work and those who would hire.

What is the disconnect? It comes down to affordability. Businesses right now can’t afford to hire new workers. They keep letting them go. Therefore, unemployment is high, in the double-digits, approaching 17% or more. Among black men, it is 25%. Among the youth, it is 30% or higher. And the problem is spreading and will continue to spread so long as there are barriers to deal-making between hirers and workers.

Again, it is not a lack of work to be done. It is too expensive to pay for the work to be done. So ask yourself, what are those things that prevent deals from being made?

Let me list a few barriers: (more…)

Mises Daily: Thursday, January 28, 2010 by Mateusz Machaj

A few days ago, the Fed announced that it had “earned” a record-high amount of money in 2009. Then it turned $46 billion over to the Treasury. Here we are in the midst of a serious recession, with the unemployment rate high, the housing market still in a slump, and the stock market making only small steps toward recovery. In this climate, the Fed is making profits.

That’s impressive, isn’t it? Unfortunately, the Fed’s huge earnings are a signal that the economy is still in terrible shape and that its condition is worsening.

Let us take a closer look at the Federal Reserve’s balance sheets, at least to the extent that they are available to us. One year before reaching their record-high profits, the Fed’s assets consisted of nearly $500 billion in government assets. These consisted of Treasury bonds and assets issued by Fannie Mae and Freddie Mac, the two giants of the real-estate market whose solvency is guaranteed by the federal government. Since Fannie and Freddy are currently owned by the state, their assets should be treated as state securities. (more…)

The first night of class, this little man with thick glasses perched on a Durantesque nose, sporting a bow tie and a pocketful of pens, shuffled into the room. He began talking the moment he stepped through the door, poking fun at the silly politicians who were deriding the “evil” oil companies for supposedly using the Gulf War to gouge consumers.

It was a typical Rothbard tale, illuminating how the free-market price system efficiently distributes goods, while government intervention mucks things up. He then launched into his History of Economic Thought story, which during the fall 1990 semester had a monetary theme. There was no time to take roll or go over a syllabus; we had centuries to cover. (more…)

Ron Paul delivers an address on the state of our republic. Notice how his address is straight forward, filled with facts and examples, and does not pander to people’s emotions. Compare this to President Obama’s State of the Union address, which will lay blame everywhere except at the feet of the government or federal reserve and will try to play on the emotions of people without citing any real facts or examples.