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A Flawed Approach to Monetary Policy

September 17, 2013 in Economics

By James A. Dorn

James A. Dorn

The 2008-09 financial crisis greatly expanded the power of the Federal Reserve under Chairman Ben Bernanke. Now that his term is ending, the focus is on the choice of a successor. That choice, however, diverts attention from a more serious issue: namely, the institutional flaws in the present U.S. monetary regime and its bias against capital freedom.

Today, we have a monetary system in which the dollar is a pure fiat money and the Fed is a purely discretionary monetary authority operating outside the bounds of a monetary constitution. The Fed’s near-zero interest rate policy and quantitative easing have distorted asset prices, increased risk-taking, and laid the basis for another panic once interest rates begin to rise.

Markets work best when property rights are well defined and government is limited to its legitimate functions of protecting persons and property.”

It is disingenuous for Chairman Bernanke to say, as he did in May at a banking conference in Chicago, that the Fed is “watching particularly closely for instances of ‘reaching for yield’ and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals.”

The Fed’s strategy for some time has been to hold rates near zero and prop up asset prices to fuel consumption while penalizing those who save for the future. The Fed’s financial repression (i.e., suppressing nominal interest rates and causing after-tax real rates to be negative) has led to malinvestment, while its large-scale purchases of longer-term Treasuries and mortgage-backed securities under quantitative easing have placed it squarely on the side of big government and in the center of credit allocation.

The Fed should not be directing capital to the housing sector; it should let free capital markets allocate credit based on fundamentals. The Bernanke Fed has shown a basic mistrust of markets, parroting the liberal political class. Indeed, the goal of the Fed’s new macroprudential policy is to use its monetary and regulatory powers to oversee the entire financial system.

Such intervention will upset the spontaneous market order by undermining the rule of law, introducing institutional uncertainty, and politicizing investment decisions. The Fed will gain more discretionary authority and move further from a rules-based monetary regime. The free-market adjustment process (with its information processing price and incentive system, and its “creative destruction”) will be thwarted in favor of central bankers and their professional staffs, none of whom foresaw the financial crisis.

The …read more

Source: OP-EDS

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Counting the High Cost of Obama's Libya, Syria Debacles

September 17, 2013 in Economics

By Gene Healy

Gene Healy

There’s an unhealthy dose of ’80s nostalgia in the media reaction to the emerging Vladimir Putin-brokered settlement of the Syrian chemical weapons attack crisis.

The punditocracy seems transfixed on Cold-War era concerns like, “Have the Russians made our president look weak?” But there’s a more important takeaway from last week’s events.

The “Obama Doctrine” — or at least that part of the president’s muddled foreign policy philosophy that favors humanitarian “wars of choice” — is finished. “Tomahawk humanitarianism” has had its day. The Libyan precedent won’t be repeated — and it’s a good thing, too.

The president’s Libyan adventure may have had the unintended consequence of exacerbating violence in Syria.”

New York Times columnist and armed international niceness advocate Nick Kristof called the 2011 air war in Libya one of “President Obama’s finest moments in foreign policy.” It was anything but.

Put aside the fact that the war was illegal by Obama’s own terms, expressed on the campaign trail in 2007, since it “unilaterally authorize[d] a military attack in a situation that [did] not involve stopping an actual or imminent threat to the nation.”

Our allegedly limited “kinetic military action” in Libya — which lasted some seven months — was also a disaster in humanitarian terms.

As political scientist Alan J. Kuperman recently explained, NATO intervention “increased the duration of Libya’s civil war by about six times and its death toll by at least seven times, while also exacerbating human rights abuses, humanitarian suffering, Islamic radicalism, and weapons proliferation in Libya and its neighbors.”

In a new article in the journal International Security, Kuperman tallies up the meager benefits and considerable costs: “Human rights conditions in post-intervention Libya,” which according to Human Rights Watch include abuses “ ‘so widespread and systematic that they may amount to crimes against humanity,’ are considerably worse than in the decade preceding the war.”

The Washington Post’s recent look at Libya two years after the revolution describes a hellscape “governed” by hundreds of armed militias, where “even minor disputes escalate into frequent gun violence on the streets.”

But with oil production nearly shut down — 250,000 barrels a day, down from 1.6 million just before the war — at least you can’t accuse Obama of spilling “blood for oil.”

Meanwhile, thousands of portable surface-to-air missiles, useful for shooting down civilian aircraft, have been “privatized,” with some possibly in the hands of terrorists.

Outside Libya’s borders, Kuperman notes, “the most obvious negative …read more

Source: OP-EDS

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America's Rich Are Getting Richer Even Faster Than You Thought

September 17, 2013 in Blogs

By Sam Pizzigati, Blog for Our Future

We have come, as a nation, almost full circle back to the deeply unequal America of the late 1920s.


The future just keeps getting brighter for Americans with unique specialties.

Randy Stearns has one such specialty: “home-tech integration.” Stearns helps people install and maintain high-tech gadgets. But we’re not talking “geek squad” and hooking up home networks here. We’re talking rich people — and electronic toys that can cost more than houses.

Randy Stearns offers “24/7 white glove” service for clients who typically pay between $150,000 and $450,000 per project. These affluents get plenty for their money. Call Randy and you, too, could end up with a home monitoring system that sends out alerts whenever your wine cellar temperature rises too high.

Annual sales in luxury home-tech integration, Stearns estimates, are going to nearly double — to $3.7 billion — by 2016. He may be underestimating his potential market. America’s rich, two top economists revealed last week, are actually getting richer faster than almost anyone thought possible.

Last year, report Emmanuel Saez from the University of California Berkeley and Thomas Piketty from the Paris School of Economics, the incomes of America’s top 1 percent — families that took home over $393,941 — shot up just under 20 percent over the year before. America’s really rich, families in the top 0.01 percent, saw their incomes soar by over 32 percent.

The just over 16,000 families that make up our top 0.01 percent finished up last year averaging $30,785,699 in income each.

And the rest of America? The incomes of the nation’s bottom 99 percent rose all of 1 percent last year. Since 2009, bottom 99 percent incomes have barely bumped up at all, just 0.4 percent on average, after taking inflation into account.

Emmanuel Saez has a stat that puts the matter even more starkly. America’s top 1 percent, he notes, has “captured 95 percent” of all income gains over the first three years of the recovery. Overall, since 1993, top 1 percenters have grabbed “just over two-thirds” of total family income growth.

This massive surge at the top has — no surprise — significantly hiked the share of …read more


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Podcast: David Gordon on the History of Anarchist Thought

September 17, 2013 in Economics

By Mises Updates

Daniel J. Sanchez interviews David Gordon about his new Mises Academy Course on the History of Anarchist Thought.

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