Here come US exporters, right on schedule, complaining that a strong national currency is bad for them and for the US economy. Not so. When a nation debases its currency in order to make its exports cheaper to foreigners, the result is not an increase in wealth but a transfer of wealth within a monopolized currency area. In the short run exporters are able to secure resources at current prices; however, the necessary increase in the nation's money supply causes prices to rise. Eventually the exporters' international market advantage vanishes, creating calls for another round of currency debasement. This is a sure path to capital destruction and overall impoverishment. No nation can make others subsidize its economy and increase its wealth by debasing its own currency.
Friday, January 30, 2015
Monday, January 26, 2015
Re: George Will on the mushrooming welfare state
Columnist George Will puts recent research into the adverse consequences of the welfare state into words that we all can understand. However, I do not think that he gets to the heart of the problem. The welfare state grows because there is no clear line (and there can be no clear line) between those who are supposedly "entitled" to benefits and those who are not. There will always be those who fall just fractionally outside the needs-based entitlement. So the entitlement line gradually gets moved to include more and more recipients. The real issue is how state welfare can be justified in a society based on the rule of law that ensures individual liberty. Welfare entitlements are a "taking" from Peter to give to Paul at the point of a supposedly legal gun. But how is state confiscation any different or more just than private robbery? That amorphous entity called the state decides that it will shirk its duty to protect our property and do exactly the opposite. No majority can make such an unjust act legal through the legislative process.
Saturday, January 24, 2015
Re: Stimulus for Eurozone, but it may be too little or too late
Your analysis of the likely effect of the European Central Bank's proposed massive quantitative easing program is full of economic fallacies that, unfortunately, masquerade as conventional wisdom. One often stated fallacy is your statement that "...the initial market reaction was favorable." The nature of the ECB intervention is to buy assets above their current market prices with money that it will create out of thin air. Of course market prices will rise! But one can hardly characterize such a market response as favorable.
Re: Dollar rise puts Fed under pressure
I predict that the Fed will start charging negative interest rates on bank reserve accounts, which will ripple through the markets and result in negative interest rates on savings at banks. I make this prediction only because it is the logical action of the Keynesian managers of our economy and monetary policy. Our exporters will scream that they can't sell goods overseas, due to the stronger dollar. So, what is the Fed's option? Follow the lead of Switzerland and Denmark and impose negative interest rates in order to drive down the foreign exchange rate of the dollar.
It is the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing "aggregate demand". If savers won't spend their money, the government will take it from them.
Friday, January 16, 2015
Oh. You didn't know that Switzerland was part of the European Monetary Union? You thought that the Swiss used their own currency, the Swiss franc? In a definitional sense only, you are correct. Within its monopolized currency area, the political boundaries of Switzerland, the Swiss franc is legal tender. But for approximately three years the Swiss National Bank has maintained a Swiss franc to euro ratio of 1.2 francs per euro. The usual suspects, exporters, were the driving political force behind the SNB's policy. They feared fewer sales to eurozone countries should the franc cost more in euro terms. This policy made the European Central Bank (ECB) the determinant of monetary policy in Switzerland and relegated the Swiss National Bank to the mechanical role of currency board. When the Swiss franc started to appreciate against the euro, meaning that buyers were willing to accept fewer than 1.2 francs per euro, the Swiss National Bank printed francs and bought euros. Over the last three years as demand for Swiss francs from euro holders increased, the SNB's balance sheet exploded with new euro reserves. However, as the world now knows, in a surprise move the SNB abandoned its currency peg policy. Today the franc exchanges approximately one for one with the euro, meaning that the franc has appreciated by approximately twenty percent against the euro.
As far as I know the SNB has made no official announcement of the reason for its surprise move. I suspect that the Swiss people had made themselves heard that they feared inflation from the ECB's imminent quantitative easing policy. The Swiss gold referendum on November 30 would have required their central bank to hold a fixed percent of reserves in the form of gold. It was defeated only after the major political parties and the SNB amounted a concerted anti-referendum blitz. Still in control of their own currency, it was a relatively simple matter for Switzerland, in effect, to veto the ECB's proposed policy by abandoning the currency peg. This shows the rest of Europe that at least one nation does not fear returning to full control of its currency nor does it fear the consequences of a temporary drop in exports. (The drop will be temporary, because Swiss import prices will fall and eurozone users will be awash with depreciated euros and willing to pay more for the Swiss franc.)
The lesson is clear. If Switzerland can retake control of its money, so can any eurozone nation. The process may take longer, as the country reissues is own currency and re-denominates its bank accounts in local currency terms, but it can be done. Already there are reports that the Danish central bank is contemplating abandoning its currency peg of approximately 7.5 krone per euro. If the sky does not fall on Switzerland and Denmark, other nations may follow. Does anyone know how to say deutsche mark?
Wednesday, January 14, 2015
From today's Open Europe news summary:
Irish Finance Minister Michael Noonan said yesterday that he would not dismiss the idea of a European conference to discuss a possible debt write-down for crisis-hit Eurozone countries such as Greece, Ireland and Spain.
So, the Irish Finance Minister just might be persuaded to allow investors to write down his own country's debt! Did he say this with a straight face?
Tuesday, January 13, 2015
From today's Open Europe news summary:
Bank of France Governor Christian Noyer told Handelsblatt that, if the ECB were to buy government bonds, he would favour “a cap” in terms of percentage of the market which the ECB can buy.Le Figaro reports that the European Commission will today unveil a communication detailing the “exceptional circumstances” under which Eurozone countries can be granted more flexibility on the achievement of their deficit and debt reduction targets.
Both of these actions--European Central Bank purchases of sovereign debt and allowing some countries to exceed their national deficit limits--are violations of the Maastricht Treaty, supposedly the founding legal basis of the European Union and the European Monetary Union (eurozone). This should be a warning to all nations who foolishly believe that they can give up their sovereignty to supranational organizations that will abide by their founding law. These supranational governments will behave no differently than national governments; i.e., they will take whatever power they can regardless of the law. But unlike the potential remedies to restrain those who violate national constitutions, supranational governments that violate their constitutions are restrained only by threats that members will leave. The EU and EMU governing boards act with impunity because they believe that lingering war guilt will keep Germany as a member even though it is against German national interest.
Wednesday, January 7, 2015
From today's Open Europe news summary:
Preliminary estimates by the Italian national statistics office ISTAT show that Italy’s unemployment rate went up to 13.4% in November, with youth unemployment soaring to 43.9% – a new record high.
Maybe Italy should take the lead from the US and raise its minimum wage.
(That's what is known as sarcasm, folks!)
Monday, January 5, 2015
Our #1 Show of 2014!
· JANUARY 2, 2015
Looking back on our first year of Mises Weekends, we decided to check the numbers and run the program with the highest ratings as we close out 2014. So based on analytics from YouTube, iTunesU, andStitcher, the #1 show of the year is none other than Patrick Barron in a two-part interview on the end of US dollar supremacy.
Recorded in October, Patrick and Jeff discuss how the dollar became the world’s reserve currency after Bretton Woods, the dollar’s evolution as a weapon of mass US imperialism, and how its inevitable decline will have horrific consequences for those nations—and individuals—not prepared for it.
We’d love to know what guests you’d like to hear—and what questions you’d like asked—on Mises Weekends in 2015. Let us know via twitter @mises_media, or by emailing email@example.com.
Friday, January 2, 2015
From today's Open Europe news summary:
Draghi: ECB ready to initiate QE to counter low inflationIn an interview with Handelsblatt, ECB President Mario Draghi warned that persistently low inflation in the Eurozone meant that “the risk that we do not fulfill our mandate of price stability is higher than six months ago”. Draghi reiterated that the ECB was ready to step in with a programme of Quantitative Easing, noting that "We are in technical preparations to adjust the scope, speed and composition of our measures for early 2015.”
ECB President Mario Draghi's latest statement is full of Keynesian fallacies, to wit:
1. That price stability is a worthy goal. No, monetary stability is essential, so that prices may reflect the true preferences and productive limitations of the market in order to allocate scarce resources to their most important purposes as dictated by the market.
2. That low inflation or even deflation is harmful. No, in a economy with increasing productivity prices will fall, benefiting all of society. Preventing prices from falling or, as ECB President Draghi desires, encouraging price inflation, causes the Cantillon Effect, whereby early receivers of the new money benefit at the expense of later receivers. Continuing monetary expansion will cause the Austrian Business Cycle.
3. That GDP is a good measure of an economy's success. if this were the case, then Zimbabwe would be a huge success story. GDP simply adds up the monetary prices of goods sold, so higher prices on the same or even slightly lower volume of sales necessarily will be interpreted by Keynesian economists as success.
4. That monetary expansion can spur an economy to greater prosperity. If this were the case, then counterfeiters would be doing all of us a big favor. Monetary expansion distorts the structure of production, sending more resources to the expansion of enterprises further removed from final consumption. This malinvestment eventually will be revealed by losses in these industries. The current collapse of commodity prices and anticipated bankruptcies in commodity production industries are a good illustration of this process and are attributable to massive monetary expansion by central banks since the 2008 great recession.