You are browsing the archive for 2014 June 05.

Avatar of admin

by admin

‘The Era Of Negative Interest Rates Has Begun’

June 5, 2014 in Economics

By Ryan McMaken

126px-European_central_bank_euro_frankfurt_germany

To battle the evils of deflation and dis-inflation, the European central bank is blazing new trails:

According to CNBC:

The European Central Bank (ECB) took the unprecedented step Thursday by imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it.

The move was part of a series of measures to combat the euro zone’s growth-sapping disinflation and give a push to its stuttering economic recovery.

Business Insider announced ‘The Era Of Negative Interest Rates Has Begun’ and noted:

Specifically, the ECB cut the deposit rate to -0.1%, from 0.0%, effective June 11.

This is a historic development, as it’s the first time a major central bank has cut any main interest rate to negative in a bid to spur lending and spending.

The idea is that if banks aren’t being rewarded with a good deposit rate by parking their reserves at the central bank, then they will be more likely to lend it to households and businesses.

This development, while perhaps something new in a de jure kind of way, is really not a significant change in the de facto status quo in which central banks, most notably the ECB and the Fed, are continually seeking to jumpstart economies by inflating the money supply. Of course, they’ve been trying to jumpstart things for nearly six years, but surely this latest move will work like a charm.

By switching to negative interest rates, the ECB is hoping that more money will move out of banks’ reserves and into the “real” economy in the form of loans and spur growth. It’s more likely to spur inflation and unemployment, however. The idea is that if negative interest rates force banks to reduce reserves and loan more, then people and firms will borrow more, spend more, and create a demand-induced boom. Unfortunately, it doesn’t really work that way.  We might also note that one reason that inflation, at least in the US, has been muted is the huge stack of excess reserves banks have accumulated. (See here for more on that.) Negative interest rates here in the US could get those funds flowing, with inflation to follow.

And finally, to be fair to the ECB, no one can claim that it hasn’t done its part to flood the economy with liquidity when we consider the growth in central bank assets in recent years:

…read more

Source: MISES INSTITUTE

Avatar of admin

by admin

Is Capital a Blessing or a Curse?

June 5, 2014 in Economics

By Ryan McMaken

A form of capital known as “a wheelchair.”

Shawn Ritenour discusses how the accumulation of capital, far from being harmful to labor, is what makes improvements in the standard of living possible for people at all income levels, while making it possible for people to pursue goals other than economic ones. (See also Gary Galles on this.)

Ritenour writes:

“Capital is opposed to labor, and the rich get richer while the poor get poorer” is a phrase heard all too often.

It’s often repeated by those who misunderstand the true economic relationship between capital formation and the productivity and real income of workers.

  • later explained the nature and beneficial consequences of division of labor and how voluntary exchange is necessary for the division of labor to thrive.

Something often forgotten, however, is that a highly developed division of labor would be impossible without capital formation—another engine of economic development.

What is Capital, and Why Does It Matter?

Capital goods are produced means of production: tools, machines, buildings, and intermediary goods.

What we call capital is merely the sum of the monetary value of all a firm’s assets that are dedicated to that firm’s productive operations minus the sum of the monetary value of all of a firm’s liabilities. These assets may consist of land, physical plant, tools, machinery, goods-in-process, receivables, cash, etc.

Therefore, capital formation should be no more suspect than any other economic activity. Fulfilling the cultural mandate in our fallen world without either starving to death or killing one another requires productive labor. Sustaining a growing population requires increases in productivity.

This is why capital is a blessing.

  • The use of capital goods increases the productivity of the user, by allowing people to produce a greater quantity of output in the future.
  • They also enable people to produce some goods that could not be had at all without capital goods, such as watches, automobiles, or smartphones.
  • By increasing our productivity, they allow people to obtain more goods at lower prices, raising real incomes for all who participate in economic society.

However, capital goods do not spontaneously spring fully developed from nature. Before capital goods can be used, they must be produced.

What Does Capital Require of Us?

Producing capital goods takes time. In order to obtain capital goods it is necessary to …read more

Source: MISES INSTITUTE

Avatar of admin

by admin

Ben Wiegold Talks Minimum Wage

June 5, 2014 in Economics

By Ryan McMaken

Interviewed by Paul Molloy of Freedom Works radio, Mises Daily author Ben Wiegold discusses his article and the effects of the minimum wage.

…read more

Source: MISES INSTITUTE

Avatar of admin

by admin

Mises Daily: There is No Tradeoff Between Inflation and Unemployment

June 5, 2014 in Economics

By Mises Updates

6771

There is No Tradeoff Between Inflation and Unemployment by Chris Casey

Even mainstream empirical data shows that the Phillips Curve is wrong and that inflation does not cure unemployment. More importantly, Austrian economics has long shown that, regardless of how you slice and dice the historical data, inflation causes malinvestment, booms, and busts, thus increasing unemployment.

…read more

Source: MISES INSTITUTE

Avatar of admin

by admin

Is Japan Serious about a New Security Role?

June 5, 2014 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

Japanese Prime Minister Shinzo Abe’s speech to the Shangri-La Dialogue (also known as the Asian Security Summit) has attracted considerable attention in both East Asia and the United States. In that speech, Abe stated that Japan “intends to play an even greater and more proactive role,” thereby “making peace in Asia and the world more certain.” Under this new security strategy, he pledged that Tokyo “is determined to spare no effort or trouble for the sake of the peace, security and prosperity of Asia and the Pacific.”

The underlying motive for the tone of the speech was not hard to discern. Japanese leaders have become increasingly upset about China’s growing assertiveness in the region. Tokyo is most concerned about its own territorial dispute with Beijing involving the Diaoyu/Senkaku islands in the East China Sea, but the worry is broader than that.

Only time will tell whether Japan is willing to back-up its new security rhetoric with meaningful substantive measures.”

The Abe government is also alarmed by the breadth of China’s territorial claims in the South China Sea and the rise of tensions between China and several of its neighbors, most notably Vietnam and the Philippines. Indeed, Abe praised the latter two countries for their supposed willingness to resolve the disputes through dialogue. Although he did not mention China by name, Abe denounced efforts to change the status quo through “one fait accompli after another”—an unsubtle reference to Beijing’s recent actions.

It was an impressive speech, but only time will tell whether Japan is willing to back-up its new security rhetoric with meaningful substantive measures. It also remains to be seen whether smaller East Asian nations are willing to move beyond their historical fears of Japanese aggression and view Japan as a useful strategic counterweight to a rising China. If it is serious about wanting to play a more extensive security role, Tokyo must take several steps to give substance to its new policy declaration.

Three measures are especially important. First, Abe must succeed in his campaign to modify Article 9 of Japan’s constitution, which even given increasingly expansive interpretations over the past six-and-a-half decades, confines Tokyo to purely self-defense military measures. If Japan is to be taken seriously as a regional security player, it must have the flexibility to adopt more proactive steps and to enter into collective defense arrangements. But there is still tenacious domestic opposition to …read more

Source: OP-EDS