You are browsing the archive for 2014 January 15.

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Worst of All Worlds’ for Lenders

January 15, 2014 in Economics

By Mark Thornton

Mortgage Lending is down more than 50% at the big banks from the 1st to 4th quarter. Higher interest rates on mortgages is leading to less refinances and fewer home purchases.

But Market Watch reports that things are not all bad:

But, the news isn’t entirely grim. The dropping originations that are hitting banks’ financial results could prove to be a boon for borrowers. Banks are hungry enough for mortgage revenue that they may relax standards and increase lending for home-purchase loans. Indeed, a recent Federal Reserve report on bank loan officers signaled that some are easing mortgage standards.

…read more

Source: MISES INSTITUTE

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Higgs: Looking Beyond the Unemployment Numbers

January 15, 2014 in Economics

By Ryan McMaken

Robert Higgs, in spite of his reservations about writing op-eds, has written a great one for the McClatchy-Tribune wire:

One of the main reasons for containing our joy is that the rate fell from 7 percent in November despite the addition of just 74,000 net new jobs, a weak performance by any measure – and far below the 2013 monthly average of 182,000 new jobs. Another reason for caution is that the standard unemployment measure (U-3) provides a distorted picture of what’s taking place in the job market.

A better measure of the health of the job market is total employment: how many people have jobs. After all, it is employment that contributes to our well-being. Jobs, not unemployment, produce the goods, services and earnings that our families rely on. And on this front the picture is grim by historical standards, with 2 million fewer civilians working at the end of 2013 than at the end of 2007, when the economy began to tank.

But even this doesn’t tell the full story, because while the economy and job market have been struggling, the population has been growing. This means that a smaller percentage of the job-eligible civilian population – that is, non-institutionalized individuals age 16 and older – has jobs.

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Source: MISES INSTITUTE

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Where Is The Inflation Today?

January 15, 2014 in Economics

By Hunter Lewis

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People often ask today: if the Fed has created so much new money, why hasn’t it produced more inflation?

When the Fed creates masses of new money, it initially flows to Wall Street, which profits from  it in a variety of imaginative ways, but from there its path is unpredictable.

The Fed inserted into the TARP bill in 2008 the authority to pay interest on bank reserves. Of course this interest is paid by creating even more new money, but it provides an incentive for banks to leave reserves idle.

On the other hand, the reserves are not as idle as they look. For example, they support derivatives activity. The total amount of derivatives held by the top four US banks is estimated at the moment to be $217 trillion. And keep in mind that it was derivatives exposure that brought Lehman Brothers down in 2008.

To the degree that the new money does get out into the economy, it will flow in different directions and have different effects. If it reaches the average consumer, it will produce consumer price inflation. This does seem to be happening. Consumer price inflation calculated as it was in the past would be much higher than today’s reported 1%.

If the new money  reaches rich people, it will drive up the prices of what rich people buy. We see this today when a single townhouse in Manhattan is listed for over $100 million. If it flows into the stock market, it will raise stock prices. If enough flows in this direction, it will create an asset bubble, which seems to be happening once again today. Asset bubbles are followed by crashes, which in turn bring recession and unemployment.

Wherever the new money flows, it may increase demand in the short run, only to reduce it in the long run. This is because the new money created by the Fed is not just given away. It is made available to banks to lend, which means that it enters the economy as debt. A little debt, especially if spent or invested wisely, may help an economy. But too much will strangle it.

As consumers, businesses, and governments become weighed down with more and more debt from the past, especially debt that was spent unwisely, the interest and principal payments become increasingly burdensome. Dollars that might have been spent on new investments with the potential to create new jobs and new income are instead …read more

Source: MISES INSTITUTE

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Audio: Robert Murphy Explains Obamacare

January 15, 2014 in Economics

By Ryan McMaken

In case you missed it, here is Bob Murphy explaining Obamacare on the Tom Woods show.

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Source: MISES INSTITUTE

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The Political Nature of Paper Monies

January 15, 2014 in Economics

By Mises Updates

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[From the Summer 2013 issue of The Quarterly Journal of Austrian Economics]

By Nicolay Gertchev

The distinctive feature of modern central banks is their political and privileged position within the economy. Indeed, the very framework in which paper monies are produced and introduced into circulation is fundamentally different from that of commodity monies. Commodity monies, which evolve out of direct voluntary exchanges, are subject to the rules of both horizontal and vertical competition. On the one hand, different commodities can be competing for fulfilling simultaneously the function of a medium of exchange. Additionally, various producers of the same commodity can be competing for offering certification services with regards to the specific monetary objects. On the other hand, and much more importantly, the producers of any of the commodities which serve as media of exchange must compete, in the context of generalized scarcity, with the producers of any other good. This implies that on the market an expansion of the money supply is costly, as factors of production must be bid up from other sectors. Thus, the price mechanism, through its influence on the expected relative profitability of any business venture, naturally regulates the quantity of money in the economy.

This natural regulation of the production and purchasing power of commodity monies also ensures that the entrepreneurs who venture into supplying media of exchange do not benefit from a privileged position. Their income and wealth are positively affected if the demand for money relative to other commodities, including other media of exchange, rises; inversely, a negative income effect occurs if competition intensifies or demand declines. Competitive money producers must cope with the uncertainty related to the management of private property, and could occasionally be driven out of business, exactly as any other capitalist entrepreneurs. Most significantly, the fact that they supply the economy with a medium of exchange does not confer on them any special status that would allow them to claim more of the aggregate output of the economy than what they earn on the market, i.e., what other property owners transfer voluntarily to them through free and mutually beneficial exchanges.

Things are altogether different with paper monies. To begin with, it should be emphasized that the acceptability of paper monies in the daily exchanges is rooted exclusively in the government’s fiat. Given that they have no non-monetary utility, and therefore no alternative source of valuation, the foundation for ever agreeing to …read more

Source: MISES INSTITUTE

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Sen. Paul Speaks at 2014 Index of Economic Freedom- January 14, 2014

January 15, 2014 in Politics & Elections

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Source: RAND PAUL

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Sen. Paul Appears on America's Newsroom with Bill Hemmer- January 15, 2014

January 15, 2014 in Politics & Elections

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Source: RAND PAUL

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Tunisia’s Leaders Shrug Off Economic Freedom for the People

January 15, 2014 in Economics

By Emmanuel Martin, Dalibor Rohac

Emmanuel Martin and Dalibor Rohac

For ordinary people of the Middle East and North Africa, the events of the Arab Spring were driven as much by a frustration at the lack of economic opportunity as they were a discontent with authoritarian, repressive regimes in the region. After all, the popular uprisings were triggered by the self-immolation of Mohamed Bouazizi, a Tunisian fruit vendor who had been repeatedly harassed by local authorities. When he was prohibited by the officials to sell fruits and vegetables, with his goods confiscated, his life — and the lives of those who were dependent on him — were instantly ruined.

Unfortunately, three years later, things are coming full circle in Tunisia. As the country’s National Constituent Assembly is nearing a vote on the new Tunisian Constitution, a heated debate arose last week about Article 48 of the document, which deals with individual rights and freedoms. This would embed the protection of economic freedom in the constitution and prevent instances of arbitrary harassment — which motivated Bouazizi’s desperate act — but also curb the rampant populist overregulation that fuels unchecked corruption by government officials.

Unfortunately, the amendment was rejected in a vote held on Friday, with only 93 voices in favor of it, while 109 were required. For its opponents, such as member of parliament Samia Abou, this amendment would “impose an economic orientation of savage neoliberalism” on the country. Mourad Amdouni, another parliamentarian, warned that “if you pass this article, it would be the greatest betrayal made to the Tunisian people and the revolution.”

Denial of “freedom to work” dampens Arab Spring hopes.”

Considering the origins of the Tunisian revolution, such statements are a travesty. Bouazizi died because he demanded freedom of economic initiative. It was precisely a lack of freedom of enterprise that stifled Bouazizi — just like the vast majority of Tunisians.

Close to 95 percent of Tunisia’s economic landscape consists of microenterprises. These face formidable barriers to entry and growth. According to the World Bank’s Doing Business report, starting a business has become more difficult compared with previous years. Obtaining a simple construction permit requires 94 days and costs close to 256 percent of average annual income in the country. Tunisia also ranks 109th in the world in the access of its entrepreneurs to credit.

The reason why the Mediterranean tradition of entrepreneurship and economic freedom has not been translated into institutions and policies …read more

Source: OP-EDS

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At Last, Parent Resistance to Collective Standardized Tests

January 15, 2014 in Economics

By Nat Hentoff

Nat Hentoff

Huge numbers of students must take high-stakes standardized tests that may shape the rest of their lives. These tests, however, take no account of the differences among the individual students. For particular examples, the tests don’t recognize the students’ home lives, or the visual or hearing problems that have impeded their learning.

Those students often failing these tests are lower-income blacks and Hispanics, and students with special needs such as English language difficulties. But many other children fail them too.

Furthermore, many of these students who keep failing learn in school that they are dumb and drop out to begin dead-end lives.

But now, parents are actually reading about these tests and increasingly organizing against them. For example, as Bob Peterson, the President of the Milwaukee Teachers’ Education Association, commented on his blog last fall, “This year both the state and the school district have increased testing for four-, five-, six- and seven-year-old students in the district” (“Parent Opposition to Early Childhood Testing on the Increase,” Bob Peterson, “Public Education: This is what democracy looks like,” Oct. 1, 2013).

He went on to write about Milwaukee parent Jasmine Alinder, whose daughter was just starting kindergarten. Alinder, the president of Parents for Public Schools of Milwaukee, explained her frustrations in an essay she posted to Facebook, which Peterson quoted extensively from.

Alinder wrote: “MAP (Measure of Academic Progress) testing for five-year-olds does not test math and reading competency. At best it tests patience and computer literacy, which is more likely an indication of computer access at home.

“At worst it creates a culture of stress and frustration around standardized testing that may scar some of these children for the rest of their school careers” (“A Parent’s View: MAP Testing of Five-Year-Old Kindergartners,” Jasmine Alinder, Sept. 25, 2013).

I’ve known older kids taking such tests in higher-income neighborhoods. They get sick to their stomachs taking practice tests in preparation for the actual tests that will be on their permanent records.

What do they really learn from such tests?

But parents are continuing to speak up nationally, as AlterNet reported last October on a school in my city, New York:

“The Castle Bridge Elementary School is a progressive, dual-language K-2 school in the Washington Heights section … When parents there learned of a plan to give multiple choice tests to children as young as kindergarten, they decided enough was enough. They refused to let their children be tested” (“What …read more

Source: OP-EDS

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The West and Iran in Central Asia: More Competition or Cooperation?

January 15, 2014 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

The Western powers and Iran have been at diplomatic loggerheads for many years over a variety of issues. Two disputes have received the most attention from Western officials, journalists and independent policy experts. The most prominent one is the controversy over Iran’s nuclear program, which despite the recent interim agreement between Tehran and the P5+1 powers, remains far away from a lasting solution. Washington and its allies continue to worry that Iran remains intent on barging into the global nuclear weapons club, while the new Iranian government of Hassan Rouhani is focused on getting those countries to lift the sanctions that have greatly impeded, if not crippled, Iran’s economy.

The other major source of contention consists of Western worries that Iran is expanding its radical influence in the Persian Gulf and throughout the Middle East. That concern has caused Washington and the major European Union capitals to side with the leading Sunni powers in the region, Turkey and Saudi Arabia, against Shiite Iran. The tilt is most evident in the political and logistical support that the United States and some of its allies have given to rebel forces in Syria seeking to overthrow Bashar al-Assad, Tehran’s principal ally in the Middle East. Washington’s noticeable bias in favor of Bahrain’s pro-Saudi, Sunni monarchy, despite that regime’s repressive conduct toward the country’s majority Shiite population, also reflects the goal of curbing Iranian influence.

There is another theater in the feud between the West and Iran that has received less attention but is of considerable importance: the contest for influence in Central Asia.

Policy makers in the United States and its Western allies need to take a fresh look at Central Asia and policies toward that region.”

US leaders worried greatly about Tehran’s possible machinations from the moment the Soviet Union imploded and produced an assortment of independent states in the region. Even during the final year of George H. W. Bush’s administration, Washington’s clear goal was to thwart Iran from appealing to religious or ideological solidarity to expand its influence among Central Asia’s Muslim societies. James A. Baker, Bush’s Secretary of State, was quite candid about that motive for US policy in the region. In his memoirs, Baker conceded that the administration was “concerned about Iran, and supportive of Turkey’s efforts to bring Central Asia into its sphere of influence.”

Baker admitted further that US officials were especially worried …read more

Source: OP-EDS