Thursday, February 24, 2011

Merkel's Bogus Claim

German Chancellor Angela Merkel claims that Ireland's low tax rate helped cause the banking crisis. Although a lower tax rate on some sector of the economy can cause more investment in that sector, it cannot cause malinvestment. Malinvestment is caused by false economic signals from the central bank's artificially lowered interest rate. This makes all economic actors believe that more capital exists for long term investment than is actually the case. Ms. Merkel is deflecting the cause of the banking crisis from excess money creation, caused by the European Central Bank, to bogus and unproven claims that higher taxes will ensure economic stability. It is ever thus with those who live off the efforts of others, as do all politicians. They try to convince the wealth generators that they, the wealth consumers, are somehow responsible for economic prosperity and are due a bigger share of the pie via higher taxes.

Friday, February 18, 2011

My Letter to the Wall Street Journal re: Regulating Imbalances

Subject: Impossible Task
Date: Fri, 18 Feb 2011 09:55:51 -0500

re: G-20 May Agree on Imbalances Measures

Dear Sirs:
The G-20 is attempting the impossible when it believes that it can establish and enforce rules and guidelines to prevent and/or cure global economic imbalances. Such imbalances that exist today in current account, public and private debt, and foreign reserves are enabled and prolonged by economic interventions made possible by government control of fiat money. None of these imbalances can be sustained in a free market, sound money environment. Countries that import too much lose gold, prices fall, and the gold outflow reverses; thusly, gold is an automatic market regulator of current account and reserve imbalances. Interest rates take care of both public and private debt levels. Wiley investors, the best protectors of their own money, will demand onerous terms of risky creditors or cease to offer terms at all. Get government out economic matters and send the pompous G-20 politicians and bureaucrats home.

Patrick Barron

Thursday, February 17, 2011

My Letter to the Wall Street Journal re: The Real Cause of Higher Prices

re: Food, Energy Push Up Consumer Prices

Dear Sirs:
The title of your lead article about rising prices repeats the discredited economic theory that overall price inflation is caused by rising prices in certain segments of the economy, the so-called "cost-push" theory of higher prices. This is a circular argument. Higher prices are the result of one or both of only two phenomena--higher spending due to expansion of the money supply or lower product output. The Fed's irresponsible expansion of base money, through its QE1 and QE2 debt monetization programs is fueling commodity inflation first. It will spread to the rest of the economy eventually. Stopping higher prices requires only one thing--stopping the monetary printing presses.

Patrick Barron

Monday, February 14, 2011

No Room for Anti-inflationists at the European Central Bank

From today's Open Europe news summary:

Axel Weber to step down from the Bundesbank at the end of April;
Slovak candidate for ECB board of directors rejected because of her country’s opposition to Greek bail-out

The German government confirmed on Friday that German Bundesbank President Axel Weber will leave his post at the end of April for “personal reasons.” In an interview with Der Spiegel, Weber also explained that he had decided to withdraw his candidacy for European Central Bank President because his “clear position” on issues such as the ECB bond purchases from struggling countries risked putting him on a collision course with some eurozone governments. The front page of Handelsblatt notes that German Finance Minister Wolfgang Schäuble has agreed to give up Germany’s demands for the chairmanship of the ECB, but only under the condition that German Chancellor Angela Merkel successfully pushes ahead with her ideas for an EU economic government with France, something which Weber reportedly opposed.

The frontpage of German magazine Wirtschaftswoche carries the headline, "Axel Weber goes, inflation arrives". The paper warns that "the departure of Axel Weber endangers trust in the stability of the euro." Former German SPD Finance Minister Peer Steinbrück has denied claims that he could replace Weber as Germany’s candidate for the ECB top post. In an interview with Bild, German Economy Minister Rainer Brüderle has suggested that the next ECB President does not necessarily have to be German, provided that they consider price stability as a priority to achieve growth and prosperity.

Meanwhile, FAZ reports that diplomatic sources have confirmed that Belgian Central Bank official Peter Praet will be appointed to the ECB board of directors at the expense of the Slovak candidate, Elena Kohútiková, who may have been rejected because of her country's resistance to the Greek bail-out. De Morgen quotes ECB President Jean-Claude Trichet saying that he "couldn't understand why a country that refused to show solidarity with the Greeks would want a top position at the ECB."

Saturday’s Independent Saturday’s Guardian FT Weekend Handelsblatt BildSpiegel Stern BildBild: Brüderle Bloomberg Le Monde Economist

The German magazine Wirtschaftswoche says it best, "Axel Weber goes, inflation arrives".

In his opposition to anti-inflationist Elena Kohutikova of Slovakia, Jean-Claude Trichet tries to pull a clever sematic trick when he says that opposing inflation is the same as opposing Greek solidarity. It is not. The best thing for the common Greek citizen is for Europe to force the Greek government to live within its means, liberalize its economy, and end corruption. Bailing out the Greek political class with printed Euros, which is a stealth tax on the rest of Europe, can hardly be justified as showing solidarity.

Thursday, February 3, 2011

My Letter to the NY Times re: the Credit Crisis

Subject: The Credit Crisis
Date: Wed, 2 Feb 2011 16:34:08 -0500

Dear Sirs:
Your Friday, January 28, 2011 business section had three major stories on the credit crisis: (1) For Housing, A Quick Fix Or Less Risk, by Floyd Norris, (2) Crisis Panel's Report Parsed Far and Wide, by Sewell Chan, and (3) Few Signs of a United Approach to Financial Regulations, by Jack Ewing. All three major stories have the same theme; that is, the necessity to regulate credit in order to prevent another financial crisis. However, none of the articles consider that government intervention in the credit markets caused the problem with us now or understand that continued intervention cannot prevent another crisis. It was central banks' expansion of the money supply and governments' policy interventions that created an unsustainable credit bubble. No financial regulation or oversight will prevent another crisis as long as these two factors exist. What no one wants to hear is that only a free market can prevent these crises.

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382

Impoverishing Wealth Producers

From today's Open Europe news summary:

Handelsblatt and Der Spiegel report on the dispute between the European Commission and the German government over new plans to cap eurozone countries’ trade surpluses at 4% of GDP, which could curtail Germany’s exports. German Economy Minister Rainer Brüderle said that he considered the targets “absurd”, adding that “the proposal does not fit a modern competitive Europe.”

Handelsblatt reports that, in spite of increasing inflation in the euro area, the ECB will probably not raise interest rates for the moment, for fear of further destabilising peripheral eurozone economies. Open Europe’s Pieter Cleppe is quoted in the Irish Daily Mail saying that if the ECB decided to raise interest rates in the near future, “it would kill any Irish recovery.”

I cannot believe that Germany will tolerate any interference with its export industries; therefore, if this measure is adopted, why should Germany remain in the EU?

In the first week of class for my Austrian Economics students at the University of Iowa we discuss the concept of "Diminishing Marginal Utility" as applied to money. An increase in the money supply conveys NO societal benefit. Among other evils, it transfers wealth from those who produce it to those who have not produced it, the very definition of theft and injustice. By tolerating increased inflation, the ECB is stating publicly that its policy is to transfer wealth by stealth means from some EU members to others. Again, why should those being robbed tolerate such a policy?