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.

My Letter to the Wall Street Journal re: Regulating Imbalances

From: patrickbarron@msn.com
To: wsj.ltrs@wsj.com
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

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

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.

My Letter to the NY Times re: the Credit Crisis

From: patrickbarron@msn.com
To: letters@nytimes.com
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?

Germany and the Future of the European Union

From today's Open Europe news summary:

Germans’ trust in the EU hits all-time low FAZ reports on a poll conducted by
the Allensbach Institute, showing that German citizens’ trust in the EU has
fallen to an all-time low. 63% of respondents had "little or no trust" in the
EU, up from 51% in March 2010. Only 25% had “very large or large trust" in
European integration, down from 37% ten months ago. 68% of respondents had
“little or no trust” in the single currency, almost back to the level of 16
years ago. Only 4% could correctly answer the question “Who is Herman Van
Rompuy?”FAZ Allensbach InstituteIMF: Eurozone crisis is the biggest threat to global
economy;Bloomberg poll: 59% think one or more members of the eurozone will leave
the currency by 2016An IMF report released yesterday warns that a deepening of
the economic crisis in the eurozone is the biggest threat to the global economy.
A poll conducted by Bloomberg, of 1,000 investors, analysts and traders, reveals
that 59% think one or more members of the eurozone will leave the currency by
2016, 11% think this will happen within 12 months.The WSJ reports that
yesterday’s debut bond auction to fund the EFSF was nine times oversubscribed;
bids were received for over €40bn at yields of 2.89%. El Pais reports that the
Spanish government’s decision to inject only €20bn into the cajas yesterday has
been received critically by investors. Rating agency Moody's has estimated that
the cajas lacks €89bn in capital, reports FAZ.The Irish Times reports that,
ahead of today’s vote in the Irish Parliament, three independent MPs, crucial to
the government’s majority, have threatened to withdraw their support for the
Finance Bill unless changes are made. A separate article in the paper reports
that Germany may concede on lower-interest loans to Ireland and other peripheral
eurozone countries if they agree to establish a cap on budget deficit in their
constitutions.Les Echos reports that yesterday EU Economic and Monetary Affairs
Commissioner Olli Rehn travelled to Berlin to discuss the possibility of
increasing the size and scope of the EFSF with some high-profile members of the
FDP, the junior partner of German Chancellor Angela Merkel’s coalition
government. However, FAZ notes that Rehn failed to persuade German Foreign
Minister and FDP leader Guido Westerwelle. Meanwhile, writing in
Wirtschaftswoche, Director of the IFO Institute Hans-Werner Sinn argues that
calls for an increase of the EFSF are dangerous, adding that they hide the EU’s
desire to take over a part of the old debt of troubled member states.City AM City AM Bottom Line City AM EurActiv City AM WSJ WSJ 2 WSJ 3 WSJ 4 WSJ 5 Irish Times Les Echos Le Monde Irish Times Público City AM FT: Spiegel Le Monde: Ricard BBC: Hewitt Irish Independent: McWilliams El Pais El Pais 2 Irish Times Bloomberg Jornal de Negocios Económico Expansion FT

Germany holds the key to any future that the EU may have, and it appears that the great mass of the German people do not have confidence in the EU. The German elite continue to support the EU; for example, the Irish Times reports that "Germany may concede on lower-interest loans to Ireland and other peripheral eurozone countries if they agree to establish a cap on budget deficit in their constitutions." So, these countries will get their lower interest loans and agree to something that they have no intention of doing; i.e., capping their deficits. This is just kicking the can further down the road (an old American expression). But private German citizens, like Hans-Werner Sinn recognize the danger of socializing EU member states' debts.

Perhaps the largest lost opportunity following the collapse of the Soviet Union was Germany's concession to the rest of Europe that it abandon the Deutschmark in exchange for being allowed to unify their country. Despite the blustering of the other European nations, there was no way that German reunification could have been prevented. Had Germany proceeded with reunification and kept the Deutschmark, it is very likely that several nations of Europe would have converted the Deutschmark by now (the conclusion drawn by Professor Philipp Bagus in his recent book, The Tragedy of the Euro) and the financial crisis would not have spilled over to these countries. Furthermore, a deteriorating dollar exchange rate with a large Deutschmark denominated region would have had a sobering effect on the Fed, which may have led it to abandon its easy money policies.

But, the Germans got the Euro, which has been inflated almost as much as the dollar, instead of a much sounder Deutschmark. Although there is no going back to the 1990's, Germany still can shed itself of the Euro. Despite the temporary challenges from such a move, in the long run a strong Deutschmark would be a beacon of sanity for the rest of the world.