Tuesday, December 20, 2016

My letter to the NY Times re: Free Basic Income Is Not a Solution to Unemployment

Re: Free Money for the Jobless

Dear Sirs:
Your article about Finland's experiment in providing a free basic income to the unemployed fails to address the main question--what exactly is the cause of unemployment and what is the best way to eliminate it? The cause of unemployment is a change in the market, which, if not caused by government itself, is a natural occurrence in a dynamic economy. The great Austrian economist Joseph Schumpeter coined the phrase "creative destruction" to describe the process whereby an advancing, wealth generating economy is constantly shedding old production methods for better ones, causing malinvestment of capital and temporary unemployment of labor. Government programs such as unemployment insurance hinder the necessary and beneficial process of capital and labor adapting to the new market environment. Not only do they cause disincentives to adaptation, they must be funded out of the wealth generating sector of the economy. Finland's experiment in going beyond unemployment payments and providing a basic income is simply the welfare state bureaucracy trying to justify its own existence after the failure of its previous programs. There is no solution to unemployment other than that provided by the market itself.

Sunday, December 4, 2016

The Chimera of Mandating Health and Safety Standards


Federal regulation of health and safety is based upon several illogical premises. Unfortunately these premises are never discussed. Instead we are bombarded with scare stories that business intends to make its profits with no consideration to the health of the public or the safety of its workers.


Illogical premise number one: There is an absolute criteria for health and safety that can be discovered.


 Wrong! There is only a continuum of healthier and safer practices. For example, we accept some level of pollution and some level of worker risk. Some level of pollution escapes from factories, commercial establishments, and even homes. Likewise, there are many occupations that are obviously dangerous, such as lumberjack and commercial fisherman. Furthermore, even occupations that no one would consider to be dangerous contain some level of risk. My wife broke her foot a few years ago when she slipped on a well waxed hallway at work.


Illogical premise number two: The federal government should be responsible for conducting research into determining the extent of risks to health and worker safety.


Wrong! All research should be conducted by private means, because such research itself comes at a cost to society. Wealthier societies can afford more research than poorer ones. Yet the federal government will command resources to conduct health and safety research that the free market would direct to a higher use. Nothing should be exempt from the market test. Therefore, all research should be conducted at private expense.


Illogical premise number three: The federal government should be responsible for setting health and safety standards based upon either public or private research.


Wrong! Any standards should be set by the most local community affected. For example, pollution standards may be different in Gary, Indiana than Hollywood, California. The former is a major industrial city, and the latter is a wealthy bedroom community. Hollywood's residents may very well set more stringent standards than Gary residents, because there is little factory-type pollution or worker risk there. Therefore, stringent standards would not affect production or jobs. Jurisdictions may even be a city block or two long and not encompass an entire city. Residents of Gary, Indiana may set more stringent noise level standards in residential neighborhoods than directly across the street from a factory. Of course, there may be natural gradations to noise level, with homes in noisier neighborhoods selling cheaper than homes in quieter neighborhoods.


Illogical premise number four: The federal government should fine and/or shut down businesses that violate its standards.


Wrong! Violations of health and safety are torts--i.e., harms--or a taking--i.e., violation of the benefits of property rights--that can be adjudicated only in a court of law based upon the standards of the local community. Standards need not be the same for every community. Any financial remedy should go entirely to the plaintiffs and not to a federal government agency. Otherwise, the federal government agency becomes a legitimate shakedown/extortion racket, funding itself through its own fines imposed for so-called violations of its own standards. (Regrettably, this is the situation today!)



Standards for health and safety are legitimate concerns. Violations are torts (harms) and/or takings (of property rights). There is no one standard that can be discovered, only a continuum of standards that may be different in different places, according to community desires. All standards impose costs that involve tradeoffs with other needs. In other words, a costly new standard may be accepted in some richer venues and rejected in poorer ones. Imposing one strict standard impoverishes the latter while perhaps having little or no effect on the former. Therefore, health and safety standards should be adopted by the smallest constituency possible.



Wednesday, November 30, 2016

Germans favor self-destructive policy

From today's Open Europe news summary:

Majority of Germans want Merkel to take tough stance in Brexit negotiations

A poll for the Körber Foundation reveals that 58% of Germans think Chancellor Angela Merkel should ‘negotiate tough’ with the UK while 40% say she should be ‘ready to compromise’. Within Merkel’s CDU party 65% are in favour of a hardline approach whereas supporters among the leftwing parties and the AfD are more inclined towards a compromise deal. The poll also shows that 67% of Germans think that the UK’s decision to leave the EU has reduced the cohesion among the remaining members of the bloc. Meanwhile, 62% believe that the EU is not on the right track and 42% want a referendum about Germany’s EU membership.

Although this short clip never defines what constitutes a "tough stance", I assume it means that goods and services from the UK should face restrictions--tariffs, quotas, or even outright prohibitions--regarding accessing the EU market. OK. Does that also mean that EU businesses should be restricted from exporting to the UK? I doubt that the Germans want to reduce sales, but the only way UK customers can buy EU goods is with euros obtained from exports to the EU. Of course, the Europeans could continue to sell to the UK and stockpile their British Pounds, but that is equivalent to buying something with a check that the payee never cashes. In other words, the EU would be making a gift to the UK. Let us not forget that the purpose of exporting is to import.

Tuesday, October 25, 2016

Raising taxes is "tax harmonization"; lowering taxes is "Brutal Brexit"

From today's Open Europe news summary:

European Commission plans corporate tax rule harmonisation

The European Commission will announce plans today to harmonise corporation tax policy across the EU. The plans would not mandate a single tax rate across Europe, but would instead seek to “eliminate the mismatches and loopholes between national tax systems, which companies can currently exploit,” as well as applying only to firms with an annual turnover above €750 million. An opinion piece for Expansión describes mooted reductions in UK corporation tax as ‘Brutal Brexit.’

"Doublespeak" is alive and well at the European Commission.

Sunday, October 16, 2016

The Global Financial Consequences of US Foreign Policy

Andy Duncan of Finlingo.com interviewed me last week from London.

Click on the link below for the 32 minute interview.

The Global Financial Consequences of US Foreign Policy

Friday, September 30, 2016

Should the Fed Raise Interest Rates

For some time now the Fed has been hinting that it will moderate its interventions--monetizing government debt by printing money to buy government bonds and now quantitative easing by printing money to buy corporate bonds--in order to drive down the interest rate to unprecedented low levels. The Keynesian theory behind these interventions is that lower interest rates will spur lending, which in turn will spur spending. In the Keynesian mindset spending is all important--not saving, not being frugal, not living within one's own means--no, spend, spend, spend. The Keynesians running all the world's banks firmly believe that it is their duty that spending not diminish one cent, even if this means going massively into debt. Keynes himself famously said that government should borrow money to pay people to dig holes in the ground and then pay them again to fill them back up.


To Austrian school economist like myself, this is childish, shallow, and ultimately dangerous thinking. Austrians understand that economic prosperity depends first of all upon savings, not spending. Savings is funneled by the capital markets into productive, wealth generating enterprises. Gratuitous spending is simply consumption. Now, there is nothing wrong with consumption...as long as one has actually produced something to be consumed. Printed money is not the same as capital accumulation. Or, as Austrian school economist Frank Shostak explains, goods and services are the "means" of exchange and money is merely the "medium" of exchange. Expanding the means of exchange through increased production--which requires increased capital, which itself requires increased savings--is a hallmark of a prosperous society. Increasing the medium of exchange out of thin air, as is current central bank policy, is the hallmark of a declining society that has decided to eat its seed corn.


Of course, the central bankers and their political friends are terrified of a recession that undoubtedly would follow an increase in interest rates. What our monetary and political masters do not understand is that the recession is both necessary and inevitable. It is necessary in order to end capital consumption and wealth destroying enterprises. Furthermore, it is inevitable in that the structure  of production has been so skewed toward capital consumption that production is threatened. We are living on both borrowed money (at home and abroad), and  the accumulated capital of previous generations. This one time spending spree WILL end. The longer we try to prop up spending with borrowed and printed money, the worse will be the reckoning when it does come.


So, how far should the Fed go in raising interest rates? There is no answer for this question. The Fed must end its monetary interventions and allow the free market to determine the interest rate that balances savings with loan demand. The last time the free market was allow to work, in the era of Fed Chairman Paul Volcker, the prime rate went to over 20%. This was very hard on both business and workers, but inflation was cured and the American economy shed itself of wealth destroying enterprises and became the economic powerhouse of the world once again. The same thing can happen, if only our monetary master get out of the way.

Tuesday, September 6, 2016

Italy wants other European nations to pay its unemployment bills

From today's Open Europe news summary:

Italy to propose Eurozone joint unemployment insurance scheme

La Repubblica reports that Italian Finance Minister Pier Carlo Padoan will later this month submit to his Eurozone counterparts a draft plan for a joint unemployment insurance scheme. Eurozone countries would contribute gradually to the tune of 0.5% of their GDP – meaning that the common pot would eventually amount to around €50bn. The scheme could be tapped by any Eurozone country experiencing a sudden increase in unemployment or a slowdown in employment growth compared to the bloc’s average.

The socialists running most governments in Europe (they are all socialists in policy if not in name) keep coming up with more schemes to make all of Europe pay for their destructive economic policies. What reason will Italy or any other Eurozone country have to make its economy more robust and allow its people to work cooperatively with others, if it can draw upon a Europe-wide unemployment fund? I can't see Germany or some other more economically successful European nations agreeing to this harebrained proposal.

Friday, September 2, 2016

There is no such thing as a negative interest rate


We Austrian economists are used to having terms corrupted, misused and redefined by statists and others who love and advocate strong central control of money and power. The term "inflation" is a prime example. We Austrians refer to "inflation" as creating new fiat money--as in inflation of the money supply. This is in sharp contrast to what we commonly hear in the mainstream media and from all Keynesian influenced economists, who use the term to describe a general increase in prices. Now nearly everyone thinks of inflation in this sense, so much so that we Austrians must always be careful to say "inflation of the money supply" whenever we use the term "inflation".


Those of us of a libertarian political persuasion, which includes many (but not all) Austrian economists, likewise bristle at how modern statists have hijacked and corrupted the term "liberal". Liberal is a term that is derived from the word "liberty". Ludwig von Mises even penned a book titled "Liberalism". Naturally, it contains not one reference to what today's so-called liberals advocate; i.e., erosion of property rights and statist intervention in almost all aspects of life.


However, now we Austrian economists are faced with a term that is new. It is NOT a term that has had a prior meaning and has been corrupted and re-defined.. It is a new, made up and wholly fabricated term-- "Negative Interest Rate".


Interest is founded on time preference


The rate of interest is founded on an innate trait of the human condition. All other things being equal, humans desire goods and services earlier rather than later. Austrian economists refer to this human trait as "time preference". Those who desire things sooner rather than later are said to have a high time preference. Likewise, those who desire things later rather than sooner are said to have a low time preference.


No two people have the same time preference. In fact, time preference changes within the same individual constantly. So someone with a higher time preference, but without the resources to own the good in the present, may be willing to pay others a higher overall price in the future for access to the good today; they may be willing to pay extra to use someone else's money in order to have it today. This "extra" is the interest rate that "someone else" will charge the person in order to allow the purchase to happen today.


Here you see a basic principle. There are TWO prices for something, a "have it now but can't afford it now price" and a "I'll save up to have it later price". The "have it now but can't afford it now price" means that the buyer must borrow--or we could call it "rent"--the money in order to buy it now. We call that "renting of money" interest.


The difference in price is the interest rate for that transaction at that place and time. One sees that there really is no single "interest rate". Like any market, what appears to be a price of a good--money, in the most common example--is constantly in flux due to the fact that it is derived from a human trait, time preference, that itself is constantly in flux.


Stop abusing our language and insulting everyone's intelligence


What the mainstream media and the public call a "negative interest rate" is an abuse of language. Time preference can never be negative, because that would require a total change in human nature. People will always want something sooner rather than later. It is HARD to save and delay consumption. People have to be disciplined to save and delay gratification. The idea of a "negative interest rate" is an attempt to turn reality on its head. It is another tactic in the Keynesian attempt to refute Say's Law; i.e., that production must precede consumption and that what one produces becomes the means by which he consumes. One can neither consume nor sell something that was never produced, which is the absurdity that is implied by a negative interest rate.




It is human nature that no one is willing to give up control of what he possesses now and accept less in the future. Since time preference can never be negative, the interest rate can never be negative. What is called a negative interest rate is merely a deposit charge that is difficult to avoid. Central banks throughout the world are exploiting their ability to charge for reserves held by their bank customers. By calling its charge a negative interest rate, central banks are trying to create the impression that what they are doing is a natural market phenomenon. It is no such thing. Because the central bank has a monopoly on the kind of money that may be used--its own!--and the quantity of money that people and businesses may use within a currency zone, it has the temporary power to force its member bank customers, and by extension its member banks' own customers, a fee for holding that which they cannot conveniently house anywhere else at the present time. This is nothing more than monetary repression, the purpose of which is to force the banks and their customers to loan, loan, loan, and spend, spend, spend respectively in order to re-inflate moribund economies.


The charade of central banking can come to an end. An important first step for all of us is to stop accepting the central controllers' corrupt definitions of terms that we use to describe reality. Economics is not an opinion; it is a science of reality. Definitions matter.

Monday, July 11, 2016

A wonderful new book about Austrian Economics for the layman

Blind Robbery! How the Fed, Banks, and Government Steal Our Money

by Andreas Marquart and Philipp Bagus

Reviewed by Patrick Barron


The purpose of this book is nothing less than to foment a revolt against the economic and monetary status quo, which, if continued, will destroy civilization as we know it. Yes, that is a big task, but Misters Marquart and Bagus may have accomplished just that. They have given us, in a relatively short book written in a conversational style for the layman, a comprehensive explanation of how an economy really works and why our current, central bank dominated system is destroying the productive sector of Western economies, transferring wealth from the masses to the politically connected few, and which, if continued, is bound to fail spectacularly so. But Marquart and Bagus are optimistic that the layman can understand the hidden forces at work and lobby to change them for the better. Champions of the Austrian School of Economics, which many economists believe may be too difficult for the layman to understand, these worthy gentlemen have given us a treatise that brings all the elements of that school of thought together in a book that can be read and understood by those completely unversed in economic theory of any kind . They start by employing the device of considering a fictitious town that has no medium of exchange; i.e., it is an economy based on barter. From this humble start, we learn how money arises naturally as part of the market in order to solve the limitations of a barter economy. We learn that only commodity money would be chosen by the market. We learn how bankers collude with governments to destroy commodity money for their own gains, which leads to a marvelous explanation of business cycle theory that arises as a result thereof. The "blind robbery" of the catchy title refers to the inflation of the money supply by government and the banks, which leads not only to the boom-bust cycle but also to the more hidden loss of money's purchasing power over time. But the loss of money's purchasing power is a boon for government spending and those who are that spending stream's recipients, mainly the military, Wall Street insiders, and welfare recipients. Perhaps the most innovative part of the book is the way the authors weave in an explanation of the steady corruption of society's sober, hardworking culture, a sure fire death by a thousand cuts.


Read this book! Pass it along! Donate copies to schools and libraries! Let's start the revolution!


Blind Robbery may be purchased here.


Or copy this link into your browser:





Thursday, July 7, 2016

The Real Lesson of Brexit


Following the surprise vote by the UK to leave the European Union, most commentators are trying to understand the rationale behind the British vote. Let me be a contrarian and ask, why does it matter? Undoubtedly there is no single reason that millions of British citizens voted the way they did. Furthermore, there is no objective way of determining whether or not leaving really is advantageous for Britain, although most mainstream media are wringing their hands that the British vote was "wrong".  The real lesson of Brexit is that the British citizenry exercised their sovereign right in a fair, democratic referendum and chose to change the way they are governed. This lesson is not being lost of the rest of Europe's citizenry, who now are energized to get binding referendums on the ballots of their own countries.


The fact is that the European Union is NOT a sovereign entity. In fact Britain itself--and by extension, all the rest of the EU's member states--are not ultimate sovereign entities either. The individual citizen is sovereign. THIS is the lesson of Brexit. THIS is the lesson that the British have given to the citizenry of Europe: i.e., that they CAN leave the EU after all, because they are the true sovereign entities.


Compared to the rest of Europe, the question of whether British citizens had a right to a Remain/Leave referendum was never very controversial. Through various venues the people were demanding a vote. To his credit Prime Minister David Cameron announced that he agreed, even though he desired that Britain stay in the EU and campaigned for this result. He even gave his cabinet members the freedom to campaign as their conscience demanded. When the Leave side won, he forthrightly stepped down. This example of statesmanship reminds me of what was said of the traitorous Thane of Cawdor in Shakespeare's Macbeth, that "Nothing in his life became him like the leaving it."


And what of the rest of Europe? Well, implicitly even the EU elite have accepted the British decision, although they are not above trying to modify it in ways to ensure that Britain still pays into the EU's coffers. The last time I checked there were no reports of EU invasion barges arriving at ports in Calais, preparing for a modern Norman or Nazi invasion. There have been no reports of British subjects being arrested, their assets confiscated, and being imprisoned or expelled from the Continent. The biggest threat seems to be that the EU will erect high tariffs against British goods and restrictions on British financial services. Oh, the Humanity! If the new British government were wise-- which is highly unlikely!-- it would declare unilateral free trade and ignore the threats. The EU may indeed take such action, but it would harm its own citizens to just as great an extent as British citizens. Trade restrictions harm both countries, whose individual citizens wish to trade in order to better their lives.


But, again, this is NOT the main point. It is impossible and irrelevant to tally gains and losses when one country bars trade with another. The main point of the Brexit referendum has always been that the British people have a right to change their form of government in a peaceful manner. I fully expect that the citizenry of other EU countries will do what is necessary to get their own Remain/Leave referendums on their respective national ballots. Their task will not be as easy as that of the British, but now that they have seen that it can be done there is little doubt that more such referendums will follow. Whether their citizens decide to Remain or Leave, the big winner will be the reaffirmation of the peoples' right to self government.



Wednesday, July 6, 2016

Wrong solution to a misunderstood problem

From today's Open Europe news summary:

Business Secretary says growth must take priority over deficit as Carney warns Brexit risks beginning to ‘crystallise’

Bank of England Governor Mark Carney yesterday warned that the financial risks of Brexit “have begun to crystallise” and relaxed rules on banking capital, with the aim of releasing as much as £150bn in possible loans. The heads of Barclays, Lloyds Banking Group, Royal Bank of Scotland, HSBC, Santander, Nationwide Building Society, Metro Bank and Virgin Money signed a joint statement that they would “make the extra capital available to support lending to UK businesses and households in this challenging time”. Carney said that the resilience of the UK financial system could be seen in the fact that “overall bank funding costs have not increased”.
Meanwhile, in an interview with The Financial Times, Business Secretary Sajid Javid said the focus now was on “more economic growth”, suggesting that the combination of a downturn and a new fiscal stimulus could cause the budget deficit to rise from 3% of GDP to 5%. He called for corporate and personal tax cuts. Three UK commercial property funds worth about £10 billion pounds suspended trading and redemptions yesterday as investors sought to remove their cash. The pound this morning dropped to 31-year low against the US dollar and its lowest level against the euro since 2013.
Bank of England Governor Mark Carney, the heads of major UK banks, and Business Secretary Sajid Javid propose more money printing and more debt for an economy already awash in both and which has led to no discernible benefit except to the pay packets for executives and government bureaucrats. Brexit is an opportunity to shirk off not only the discredited policies of Brussels but also the discredited Keynesian policies advocated by the London establishment. The UK DOES need to reduce its budget deficit. Like any household, government must live within its means and stop confiscating the nation's resources through the subterfuge of money printing. Only through sound money and honest borrowing will the electorate be able to decide if it wants to continue to pay for pie-in-the-sky welfare programs and military adventurism. It would be a cruel mistake to use Brexit as a pretense for even more money printing and more uncollectible debt. The path to prosperity is through hard work and savings, not the Bank of England's money printing press.

Monday, June 13, 2016

My letter to the Philadelphia Inquirer in defense of Brexit

Dear Sirs:
Trudy Rubin claims that "Brexit would be a huge step backward", but she never explains why. Oh, she does correlate the growth of the EU regulatory state with the collapse of the Soviet Union, but this is not cause-and-effect. The Soviet Union collapsed because NATO stood guard over the Western democracies until the internal cancer of communism had destroyed the Russian economy. Even Ms. Rubin admits that Europeans resent its (the EU's) massive bureaucracy, myriad regulations, financial disasters, and open border policies. Furthermore, she admits that Brexit probably would lead to the dismantling of the EU. Is this not democracy in action? The Europeans, of all people, understand the dangers of large, undemocratic, centralized, bureaucratic states, of which the EU is just the latest incarnation.

Patrick Barron

Friday, June 10, 2016

Puerto Rico needs better advisors

Re: House passes bill to restructure Puerto Rico's $70 billion debt

The US House of Representatives has passed a bill to appoint a special commission to restructure and renegotiate Puerto Rico's unsustainable debt. The hubris of Congress that it and its appointed commissioners have superior knowledge regarding public finance is farcical. It is widely reported that Puerto Rico's debt is $70 billion. With a population of 3.7 million, Puerto Rico's per capital debt is around $19,000. US debt is widely reported to be $10 trillion. With a population of around 300 million, US per capita debt is around $33,000. I suggest that Puerto Rico hire better advisors, preferably German, since Germany is running a balanced budget.

Tuesday, June 7, 2016

Trade negotiations are not necessary

From today's Open Europe news summary:

WTO chief warns of “complex and drawn-out” trade negotiations after Brexit

Roberto Azevêdo, Director-General of the WTO, has warned that it could take Britain decades to disentangle its trading relations with the EU and negotiate new ties with the rest of the world after Brexit. He told The Times, “It seems that there is a great deal of confusion about the trade implications of a British exit from the EU. I think it’s important to provide the facts. The likelihood is that a British exit would lead to a sequence of complex negotiations – with the EU itself, with the 58 countries that have trade agreements with the EU, and also with all the other members of the WTO. These negotiations would be complex and drawn-out.”
Meanwhile, Prime Minister David Cameron said yesterday that leaving the EU would cause an immediate shock, then uncertainty, and negatively impact trade. Boris Johnson said the risks of remaining in the EU are “massive”, due to the Eurozone and migrant crises.
No so-called trade negotiations are needed. The idea that a nation must seek the approval and reciprocity in order to lower or completely eliminate barriers to trade is one of the most persistent myths in all of economics. It is akin to believing that one cannot start a diet until everyone else starts a diet. Lowering barriers to trade does not require the cooperation of any other nation. All a nation has to do is unilaterally eliminate all barriers to foreign products. Such an action will lower the cost of living for the citizens of the importing country. Of course, these imports will be paid with currency of the importing country. And what is the exporting country to do with this currency? It has a choice. It can spend the currency on imports from the country that issued the currency . It can invest in the country that issued the currency. Or it can hold the currency as foreign reserves, to be spent later. Now, how is any of this a problem for the country that eliminated barriers to trade?
Scrap all the trade agreements currently in force. Send the trade negotiators home. Declare unilateral free trade. This is the path to peace and prosperity.

Friday, May 20, 2016

Defending property rights cures the bathroom controversy


The current tempest in a teapot among the "rights" advocates is that no one should be restricted from using the gender specific bathroom of his choice. The "rights" advocates want to use the police power of the state to ensure this outcome. The federal government has come down on the side of the "rights" advocates, with regional and local governments sometimes taking the opposite side. Once again, Americans are being told that there are only two sides to this issue, and both sides claim to defend what is proper.


But are there only two sides? Perhaps we are looking at this issue in the wrong way. Instead of assuming that some level of government can make this decision for all of society, there is the alternative solution of defending the right of the property owner (of the bathroom in question) to make this decision. After all, someone actually paid for the bathroom in order to satisfy his preference. And there are precedents. We all have seen signs that tell us that bathrooms are reserved for customers only. There is no movement that I have seen that demands that any bathroom anywhere be accessible to whoever desires to answer the call of nature. We all accept that limiting bathroom facilities to customers is the right of the business owner. Why should not the business owner be allowed to decide which bathroom his patrons use? If his patrons are not happy with his decision, they are perfectly free to refrain doing further business there. And other business owners could adopt a different policy and reap the rewards that come from satisfying this subset of society.


Already there are unisex bathrooms everywhere. My wife and I patronize a very nice French restaurant in Philadelphia which provides only private stalls. Anyone can use whichever stall is available in complete privacy. Each stall is a little room unto itself, similar to a Porta-Potty. Outside the stalls are lines of sinks, towels, mirrors, etc. that are used by everyone. Seems to me that this common sense solution can be adopted by business owners who wish to avoid antagonizing any possible segment of their customer base, rather than be forced to comply with a government mandated solution. Some very small businesses provide only one bathroom, which is unisex. The toilet, sink, towel, and mirror are located inside the one private bathroom. Again, we see these just about everywhere in America and even more predominately in Europe.


Come on, America! Let's stop fighting among ourselves and then demanding that government set universal rules. Let's defend the property rights and business incentives of the owners of bathrooms to find solutions that we all can accept. It's already happening for those wishing to see.

Monday, May 16, 2016

Another reason to get rid of the euro

From today's Open Europe news summary:

European Commission considering new tools to prevent cash outflows from failing banks

According to a document seen by the Financial Times, the European Commission is considering proposing a new ‘moratorium tool’ that would give national regulators the power to freeze payments to bondholders and potentially halt depositor withdrawals in order to prevent huge cash outflows from failing banks before national authorities can intervene.
This is the typical answer from the elite running the EU and the ECB. When their policies lead to failure, the people's assets will be seized. In typical Orwellian New Speak fashion, such action will be hailed as the necessary and proper solution to the problem.

Wednesday, May 11, 2016

My response to an email blast by Roger Helmer, member of the European Parliament

Per your recent email:

"But the key point is that the UK is a massive importer (and net importer) of EU goods.  We will in fact be the EU's largest export customer.  Bar none.  This is undesirable from a balance-of-payments point of view, but it gives us enormous negotiating clout."

Dear Roger,
One of the greatest fallacies in all of economics is that buying more from one customer than he buys from you is a bad thing; i.e., a balance of payments/trade deficit. Unfortunately, you commit this error in your recent email blast, copied above. What are the EU countries to do with all those pounds that they accept in payment for vendible goods? They will buy something in Britain, maybe even British national debt. If they let the pounds stack up in their central banks as foreign reserves, all they have done is present a gift to the British people, similar to a merchant never cashing your check.

Warmest regards from an friend in the US,

Patrick Barron

Tuesday, May 10, 2016

Is an increase in German exports a good thing for Germany?

From today's Open Europe news summary:

German exports rise unexpectedly

German exports rose by 1.9% month-on-month in March 2016, according to new data released by the National Statistics Office (Destatis) yesterday. It was the largest monthly increase in half a year, and came as a surprise to analysts who did not expect any growth at all. Imports in March dropped by 2.3% to €80.9bn, leaving Germany with a trade surplus of €26bn.
A rise in German exports is seen as a positive development, but is it? What does Germany get in return for sending its products abroad, especially if it sends these products to other members of the Eurozone; i.e., that countries using the euro? It gets an increase in its euro-denominated credit at the European Central Bank, known as its TARGET2 balance. In other words, Germans work hard to produce real, vendible goods in exchange for a debased and depreciating currency.
Patrick Barron

Thursday, May 5, 2016

Another step toward cash confiscation in Europe

From today's Open Europe news summary:

ECB to halt production of €500 note, but it will retain its value

The European Central Bank announced yesterday that it would stop printing the €500 note from the end of 2018 due to, “concerns that this banknote could facilitate illicit activities.” However, the bank confirmed that the note will always remain legal tender and will therefore continue to retain its value.
Once cash has been eliminated, the ECB can implement its negative interest rate program on a large scale. In fact it probably doesn't have to eliminate small bills, since it may be impractical and/or impossible for anyone to hold and use cash denominated in small bills for anything other than petty purchases.

Tuesday, May 3, 2016

Can rules prevent money printing?


Two ways to increase money


Today's fiat dollar is created by two methods. One, the central bank (The Fed) creates new money when it purchases an asset. This money is credited to someone's bank account, a liability on some bank's books, and is matched on the bank's asset side by new reserves held at the Fed. Two, these new reserves can be pyramided by the banking system's fractional reserve rules into many multiples of new money. When the bank loans money, it creates a demand deposit on the liability side of its balance sheet, offset by the loan on the bank's asset side. Historically, banks have been the biggest money manufacturers, due to the leverage effect of fractional reserve rules.


The moment of money creation


Notice that the banks' ability to create new money depends upon the central bank's power to create reserves. Therefore, we may consider that bank money creation is a secondary and dependent power, even though its impact on the money supply has been great. The moment of money creation is the central bank's ability to print reserves. Even if the banks demurred in making new loans--which creates new money--the central bank can still increase the money supply by injecting reserves into the system. This power is no different than that recommended by the so-called "Greenbackers", who call for the Department of the Treasury to issue currency itself, as did the Lincoln administration during America's Civil War. In fact, when the Fed buys an asset, it is acting exactly the same as a "greenback" issuer. The money with which it buys the asset was created out of thin air.


Keynesians support fiat money creation


An implicit justification for continued support of a central bank or a treasury that can print money is that money is different--i.e., it is not part of the market, like wheat and automobiles-- and that special situations can arise in which money printing is warranted. It is a tenant of Keynesian orthodoxy that there must be a lender of last resort to stop  a death spiral of deflation; i.e., falling prices. All those who desire that fiat money printing power be given to any agency, whether government treasury office or central bank, may be considered a Keynesian of some stripe, for they are convinced that there are special circumstances that require fiat money creation. They differ only in what they consider to be such special circumstances.


Even Fed icons printed money


Many of us "old timers" revere Paul Volcker, Fed Chairman from 1979 to 1987, who refused to print money, thereby driving a stake through the heart of runaway inflation. Some even older "old timers", such as David Stockman, revere William McChesney Martin, Fed Chairman from 1951 to 1970. But let me point out that neither of these courageous gentlemen kept complete control over reserves, the building blocks of fiat money. Both were subject to political pressure to inflate reserves. Martin was fortunate to serve during the presidency of Dwight Eisenhower, a fiscal conservative and inflation hawk. But when Ike left office in 1960, Martin succumbed to political pressure by first President Kennedy and most ominously by President Johnson to inflate. By the end of Martin's long reign, the run on the Fed's gold reserves had begun, and only one year later President Nixon threw in the towel and took the US off what little was left of the gold standard.


The lesson that may be drawn is that no one is exempt from the pressure to print money. No human can withstand the political pressure to inflate reserves. Thus, the relative small increase in reserves during the Martin and Volcker eras have morphed into outright helicopter money by subsequent Fed chairmen, who were convinced that circumstances almost always require the creation of more reserves. I contend, furthermore, that no one can withstand the political and social pressure to print fiat reserves. Inflating the money supply is just a matter of degree.


Even the "right" people have no need of money printing power


Fortunately, there is no need for concern that that no human can withstand the political pressure to inflate reserves.  Austrian economic science explains that money is a product of the market. Markets are conceptual devices, a sort of short hand to describe millions and perhaps billions of individual, discreet exchanges. Money is that commodity or commodities that are most marketable and, therefore, are chosen by the market as mediums of indirect exchange. There is no room and no need for anyone to control or direct markets of any kind, and this applies to money, too. Therefore, if there is no need for anyone to control money production, why tolerate an institution that promises to behave itself and honor rules? Even if we thought that the right people could be found to occupy positions of such power, why create the positions in the first place?


No logical justification for unsound money


The Austrian position that money printing is never warranted is an a priori, deductive conclusion that requires no evidence to be proven correct and that no evidence can prove to be incorrect. It is based upon the irrefutable axiom that "man acts". Therefore, it is both illogical and a violation of justice to create an institution that is not subject to normal commercial law of the market.




A  complete abandonment of legal tender laws--i.e., laws that allow citizens to use only one money in a monopolized political zone--would allow the inverse of Gresham's Law to prevail. Good money would drive out bad. Return money production to the market process, where money is that commodity or commodities which are most widely desired by the market as media of indirect exchange. There is no praxeological reason to grant any institution monopoly power to produce money; therefore, there is no reason to create an institution that can do so and there is no reason to draw up rules that would prevent such an institution from doing so. This is a logical absurdity. The market itself and normal commercial law will ensure that the best money alternatives will prevail.

Draghi espouses the old "excess savings" nonsense

From today's Open Europe news summary:

Draghi rebukes ECB German critics

In a speech on Monday, the President of the European Central Bank, Mario Draghi, delivered a blunt rebuke to German criticism of the ECB’s low interest rate policy saying “There is a temptation to conclude that…very low rates…are the problem… But they are not the problem. They are the symptom of an underlying problem.” The real problem, Draghi argued, was the excessive amount of global savings a significant part of which was caused by Germany’s large current account surplus.  In what was seen as a thinly veiled attack on Germany’s finance minister, who has argued for an end to ECB stimulus, Draghi also noted that “Those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy.”
It is time for ECB president Mario Draghi to go home. He has run out of ideas and excuses. To wit, the above criticism of German bankers who, he says, do not understand that the real cause of low interest rates is not the ECB's massive interventions into the bond market, but that the world saves too much and the Germans produce too much of what the rest of the world wants to buy.
Let's get one thing very clear--there is no such thing as saving too much, just as there is no such thing as too much capital accumulation.  Capital accumulation is the foundation of all economic progress. Without capital accumulation there can be no further division of labor and no further increases in the productivity of labor. Savings--real savings, not fiat money creation--are required for capital accumulation; i.e., postponing consumption today in order to enjoy a higher standard of living tomorrow. In a free market the level of saving is determined by the purposeful desires of billions of individuals.
It is time (it is PAST TIME!) for Germany to leave the Eurozone and reinstate the deutsche mark before Draghi succeeds in destroying its economy.

Sunday, April 17, 2016

A proper rejoinder to an empty threat

From yesterday's Open Europe news summary:

French Economy Minister: UK “won’t be in a position to negotiate something better” after Brexit

French Economy Minister Emmanuel Macron told an audience in London yesterday, “After a Brexit vote, you are not in a position to negotiate something better…Leave the club and you will be alone. What will be your position with the Chinese? I’m sorry to say, but exactly the same as Jersey and Guernsey with the EU.”

The proper response to M. Macron is "Why would the UK have to negotiate anything?" The UK--or any nation, for that matter--can freely open its borders to the imports of the entire world. It does not have to negotiate something that it can do unilaterally. Of course, the French Prime Minister is speaking about his own country's trade barriers to deny the importation of UK goods. No nation can control the self-defeating actions of others. If France wants to embargo goods from the UK, it certainly can do so and there is nothing that the UK can do about it. But so what? Who is harmed? The French! The French do not enjoy UK products that they would prefer over products from anywhere else, including France. Otherwise, what is the purpose of embargoing UK goods? When the French sell goods into the UK market, they take pounds in payment. What are the French to do with these pounds? Stack them in the vault of the Bank of France and never spend them? Fine. Now the French have given UK citizens free gifts of their goods.

One of the greatest and most persistent fallacies in economics is that a nation suffers when it lowers its barriers to imports and the exporting country does not reciprocate.

Tuesday, April 12, 2016

My letter to the Philadelphia Inquirer re: Was the Libyan intervention legal?

Re: White House is seeking to share blame over Libya

Dear Sirs:
As described in the above report by Josh Lederman and Kathleen Hennessey, found on page A10 of yesterday's Inquirer, the White House is concerned primarily with seeking a better outcome from future military interventions based upon its past failures. The bigger and more important question for Americans is whether the Libyan intervention was legal. Muammar Gadhafi, whom NATO helped depose and who later was killed, asked the right question. Why was NATO attacking his country when his country had not attacked a NATO country? Is America is a nation of laws or of men? President Obama--and, I fear, most politicians-- believe the latter.

Patrick Barron

Friday, April 8, 2016

German and Dutch objections to ECB QE are ignored

From today's Open Europe news summary:

ECB Minutes show deep divisions over stimulus measures
Minutes of the March meeting of the ECB governing council, released on yesterday reveal deep divisions amongst its members over the latest round of ECB stimulus. The Dutch and German members were fiercely against, The Financial Times reports, with the minutes noting that some feared the measures could result in “market distortions,” and that “the costs and risks of engaging further in public sector asset purchases, particularly in the medium to long term, would outweigh their potential benefits.”
As usual, Germany's (now joined by the Dutch) objections to the ECB's quantitative easing program is ignored. It is a mystery why Germany continues to use the euro, since it is no one's interest, not even the rest of the Eurozone countries, that it do so. The euro is a mechanism for the rest of Europe to steal German capital in order to prop up unsustainable welfare programs. This process will not cease until Germany's economy is shattered. How can this be in the best interest of anyone, even the irresponsible countries of Europe? I believe the answer is that the rest of the Eurozone countries are led by opportunistic politicians who will line their pockets so that they themselves will not be affected by the coming collapse.

Tuesday, March 29, 2016

My letter to the Philadephia Inquirer re: The consumer always pays

Dear Sirs:
I have been following your reporting of Mayor Kenney's proposed tax on sugary drinks. Please keep one thing in mind--consumers pay every tax; corporations merely collect it. Coca Cola and Pepsi must pass on the cost of any tax to the consumer or go out of business. Do not be confused with supposed "research" that shows that not all previous taxes were passed on to consumers. ALL business expenses are borne by the consumer of the final product.

Patrick Barron

Do what I say or I'll shoot myself!

From today's Open Europe news summary:

Spain warns of consequences for Gibraltar if Britain votes for Brexit

The Times reports that Spain may end its agreements with Gibraltar, and could even close the border if Britain votes to leave the EU. A Spanish official told the paper that “We do not see Britain leaving the European Union as an opportunity but you have to understand that if Brexit happened it would change our obligations to Gibraltar… No longer would we have to respect the free movement of capital and goods which Brussels demands. We could even close the border if wanted to.”

This "Spanish official" should ask all the Spaniards who work in Gibraltar if they would support closing the border. No wonder Catalonia wants its independence.

Pat Barron

Saturday, March 26, 2016

Part 2 of my interview re: The end of dollar hegemony

Part 2. Thirty minutes.

Pat Barron

Show notes page: http://www.wakeupcallpodcast.com/dollar-hegemony-2/

iTunes link: https://itunes.apple.com/us/podcast/wake-up-call-podcast-foreign/id1089024518?mt=2&ls=1
Embed code (embed a player on your site):
YouTube link: https://www.youtube.com/watch?v=Mw1dmiwdCMk
In case you missed it, here is Part 1, also thirty minutes.
Pat Barron
Show notes page: http://www.wakeupcallpodcast.com/dollar-hegemony/

iTunes link: https://itunes.apple.com/us/podcast/wake-up-call-podcast-foreign/id1089024518?mt=2&ls=1
Embed code (embed a player on your site):
YouTube link: https://www.youtube.com/watch?v=z9PkT2m_vd4

Sunday, March 20, 2016

The history, meaning, and probable end of "dollar hegemony"

This thirty minute interview is part one of a two part series. Part two will be released next week.

In this interview I explain how the dollar became the world's leading reserve currency, what it means to be a reserve currency, how the US has benefited financially from this arrangement, and how delinking the dollar to gold has allowed our military empire to expand in an irresponsible manner.

Pat Barron


Wednesday, March 16, 2016

My letter to the Financial Times, London re: The fallacy underlying the cause of Irish bank failures

Re: Anglo Irish Bank executive appears in court after US extradition

Dear Sirs:
The failure of Anglo Irish Bank--whatever the reason--did not cause the collapse of other financial institutions. Mr. Boland's article leads one to view banks as dominoes in which one collapse necessarily leads to the collapse of all, but such is not the case. Something more fundamental was at work that led to what the great Austrian school economist Murray N. Rothbard called a "cluster of errors". Why should all banks collapse at roughly the same moment? Some banks may have invested unwisely or suffered from incompetent or even criminal management, but why all banks? We don't see this in other industries. For example, a restaurant's failure does not lead to a collapse of the restaurant industry, or an airline's demise does not lead to the collapse of all airlines. But banking is different. Banking is subject to adverse consequences stemming from the manipulation of the interest rate, usually downward, by the central bank. More businesses appear to be eligible for bank loans at the lower interest rate. The subsequent increase in lending causes an artificial and unsustainable boom that eventually must be liquidated due to lack of real capital. Anglo Irish Bank was the first to succumb to this central bank caused collapse, but it did not cause the collapse of other Irish banks. That bill may be delivered to the central bank itself.

Thursday, March 10, 2016

ECB to stimulate Europe by taking its citizens' money

From today's Open Europe news summary:

Further ECB stimulus expected to aid flagging Eurozone economy

The European Central Bank is widely expected to announce further stimulus measures to aid the struggling Eurozone economy as it meets in Frankfurt today. Most analysts expected the deposit rate to be cut further into negative territory to between -0.4% and -0.5% and the quantitative easing programme to be expanded by between €10bn and €20bn as the ECB struggles to lift the Eurozone out of deflation.
One of the consequences of the demise of sound money is that government spending now is characterized as good for the economy. Imagine a society with sound money. What government would dare claim that taking the citizens' money and spending it was a good thing? The citizens are that much poorer by the amount of money taxed. Yet this is exactly what the Keynesian mindset claims. Now the ECB is so far down the Keynesian rabbit hole that it sees nothing bizarre in considering that it take more of the citizens' money in order to make them wealthier. Welcome to Nineteen Eighty-four.

Tuesday, March 1, 2016

My letter to the Philadelphia Inquirer re: mayor wants to impose a soda tax

(Philadelphia's mayor wants to impose a three cent PER OUNCE! tax on sodas.)

Re: Mayor Kenney: Soda tax would fund $400 million in projects

Dear Sir:
Philadelphia Mayor Kenney joins the too-long list of economically ignorant politicians. One begins to wonder whether ignorance of basic economics is a prerequisite for running for elected office. Gee, I didn't think I would ever say this, but I agree with the Teamsters; i.e., the three cent per ounce tax on sodas will destroy jobs. Has the mayor really not considered that money spent on a soda tax will NOT be spent elsewhere? Let's suppose that the people spend the same total dollars, including the new tax, to buy sodas as in the past. The revenue to the soda-providing industry will go down, because the tax comes off the top, and the number of units of sodas sold will be less.  Got that? So, the soda bottlers will produce fewer bottles of soda. Materials and manpower used by the soda bottlers will go down, both in gross revenue and number of units. Soda delivery workers, the Teamsters, will deliver fewer bottles, resulting in layoffs. The retail stores will sell fewer units, resulting in lower net revenue--the price of the soda less the tax--and earn lower profits. Everyone involved in any way with the soda retail selling industry, such as the store owners and their employees, will be negatively affected. In short, Mayor Kenney's soda tax will impoverish the people of Philadelphia in addition to depriving them of their right to consume a legal product, which apparently is the goal of the social engineers. How about this...the people of Philadelphia refuse to buy a soda anywhere in the city. Tax revenue from soda sales would be zero. The social engineers who are oh so concerned about the health of Philadelphians would have to seek another outlet for their busybody inclinations.

Patrick Barron

Monday, February 29, 2016

Former Bank of England Governor Says Eurozone Must Break Up

From today's Open Europe news summary:

Former Bank of England Governor warns Eurozone must break up if some members are ever to prosper again

In his new book, former Governor of the Bank of England Lord Mervyn King warns, “Put bluntly, monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other…This is extraordinarily dangerous.” He adds that the measures aimed to keep the Eurozone together, such as bail-outs, “Will lead to not only an economic but a political crisis.” Lord King argues that the Eurozone must “face up” to its problems and the fact that some countries can only prosper again outside. Lord King accepts that “the counter-argument – that exit from the euro area would lead to chaos, falls in living standards and continuing uncertainty about the survival of the currency union – has real weight”, but sees little alternative for the struggling states.
The fall in living standards would be temporay. A breakup of the euro will stop the consumption of capital that is made possible by the Eurozone's bailout policies. The profligate countries of Europe would no longer have "legal" access to other people's capital, namely Germany's. They would have to reform their economies and live within their own, and not someone else's, means. A breakup of the Eurozone would save Europe from its current socialist, capital-consuming structure.

Wednesday, February 24, 2016

My letter to the Philadelphia Inquirer re: Is Bernie the good socialist?

Re: What kind of socialist is Bernie Sanders? by Joseph Betz

Dear Sirs:
Professor emeritus Joseph Betz thinks that Bernie is a good socialist, similar to the myth of the "good dinosaur", a movie to which I took my three year old grandson. Professor Betz says that "Economically speaking, a government that guarantees social and economic rights is socialist; its opposite is capitalist." He further states that "...socialism does not mean Karl Marx's government ownership of the means of production,..." Sorry, professor, but that's exactly what socialism means. To support his views Professor Betz resorts to the least persuasive form of argument--a call to authority. Professor Betz is enamored with the United Nations' 1948 Universal Declaration of Human Rights and the Catholic bishops of the United States call for government programs to secure "Economic Justice for All". Bernie may not be a socialist; he may be simply another politician who is willing to use the police power of the state to regulate business and confiscate property in order to meet his vision of the just society. However, neither Bernie nor Professor Betz offer any logical support for their views. I suggest that both read Claude Frederic Bastiat's The Law for starters. They will learn that self-ownership is the basis of all law and the foundation of the sanctity of private property. Limited government was formed by self-owning citizens to secure their rights. Bernie and Professor Betz, like so many these days, turn the citizen/government relationship upside down in order to further their own self-interests. Both should be ashamed of themselves.

Patrick Barron

The ECB can buy my old bottle cap collection

From today's Open Europe news summary:

Market players warn ECB could run short of sovereign bonds to buy

Reuters reports that a number of banks have warned that the ECB may run out of sovereign bonds to buy, particularly if it ups the size of its monthly purchases. The ECB would either have to alter its 33% limit of bonds per sovereign issuer or expand its purchases to other forms of bonds. Meanwhile, ECB Supervisory Chief Danièle Nouy has said, “We do observe a trend towards higher risk-taking by banks…in its search for yield.”

The ECB doesn't have to buy sovereign bonds in order to stimulate demand. It can buy anything. I am willing to sell it my old bottle cap collection. I would not object if the ECB placed a very high value on it; I certainly did when I was seven or eight years old. A few million euros would certainly cause me to increase my demand for the many luxuries of life, which undoubtedly would stimulate demand in certain sectors. How about it, ECB?

Saturday, February 20, 2016

My letter to the WSJ re: Inflation is not indicative of an expanding economy

Re: US Consumer Prices Flat in January, but Offer Glimmer of Inflation

Dear Sirs:
This quote from Ms. Davidson's article perfectly illustrates the fallacy that higher prices are desirable:

”Broad-based price growth is signalling that the wage and price pressures are building, an indication that the economy is expanding at a solid pace and that recessionary concerns are overdone,” PNC economist Gus Faucher said.

Higher prices are the result of a combination of two factors, both of which are undesirable--lower output or an increase in the money supply which causes an increase in spending. The following simple formula of Professor George Reisman can be found on page 505 of his magnum opus Capitalism: A Treatise on Economics.

P = Dc/Sc

P is the general level of consumers' goods prices, in the sense of the weighted average of the prices at which consumers' goods are actually sold. Dc is the aggregate demand for consumers' goods. as manifested in a definite total expenditure of money to buy consumers' goods, and Sc is the aggregate supply of consumers' goods, as manifested in a definite quantity of consumers' goods produced and sold.

As further explained by Professor Reisman, "An expanding quantity of money operates to raise the general price level by virtue of raising aggregate demand relative to aggregate supply."

In other words, the Federal Reserve Bank's policy of printing more money causes aggregate demand to rise, but the rise in prices does not mean that more goods and services are being produced. It most probably means that more money is chasing the same or even smaller quantity of goods. In fact an increase in the quantity of money causes dislocations and disequilibrium in the structure of production, which causes the supply of consumers' goods to fall.

Therefore, an increase in prices, which is commonly called "inflation", is nothing to be desired by the general public.

Patrick Barron

The ECB will destroy the euro and all economies using it

From Open Europe news summary:

ECB accounts hint at further easing in March

The ECB yesterday released the accounts of its January monetary policy meeting, which showed unanimous support for the view that the bank’s policy “needed to be reviewed and possibly reconsidered” at the March meeting.  The accounts also mention that a view was put forward that the ECB could “consider a limited period of overshooting [its inflation target] in future.” The discussions also considered that downside risks were materialising and whether domestic demand could continue to offset weakness in external demand for the Eurozone.

It's all "demand", as if demanding a good or service will magically bring that good or service into existence. This is the classic Keynesian outlook on the world. It makes one wonder why pathetically poor Africans and Asians remain in such a state. Do they not "demand" more goods and services, too?

The ECB's inflationist policies will destroy the euro and the economies of Europe which use it. Time for Germany, especially, to get out of the Eurozone and reinstate the Deutsche Mark before the ECB manages to transfer all of its capital to the rest of Europe. Once Germany is dragged down to the level of Greece, etc., it's all over for Europe.

Wednesday, February 17, 2016

My letter to the WSJ re: Not too much production but too much of the wrong kind of production

Re: China's Economy Suffers From Hangover of Producing Too Much

Dear Sirs:
The focus of this otherwise excellent article should be that China has produced too much of the wrong goods. Easy credit causes disruption in the time structure of production, making longer term projects appear to be profitable in the future. But such will not be the case. Ludwig von Mises used the analogy of trying to build too large a house with too few bricks. The project appears to hum along nicely until the builder realizes that he does not have enough bricks--i.e., real goods--to finish the house. China's only rational option is to end the credit expansion that caused the current dislocation. More easy credit merely perpetuates and expands the destruction of capital.

Patrick Barron