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Big Mac and the Dollar

July 31, 2014 in Economics

By Mark Thornton

Using McDonals’s Big Mac as the standard, the US Dollar looks relative firm compared to some other currencies. The chart below from The Economist looks at the purchasing power of currencies relative to the Big Mac in 2009 and 2014. A half dozen currencies have been relatively weak compared to the dollar and a half dozen have been in line with the dollar. Only the Norwegian Kroner and Swiss Franc have been relatively strong compared with the dollar over the time period. In a world currency war, most currencies, including the dollar could be losing purchasing power in an absolute sense.

Some central banks have helped their currencies slim down. The Swiss franc’s decline is thanks in part to the Swiss National Bank. It put a styrofoam lid on the franc’s value when capital began flowing in from panicked European investors, lest the rising cost of Swiss exports abroad drive Switzerland into recession. The Bank of Japan has also taken a bite out of the yen’s value. Its generous portion of quantitative easing has helped push the currency down from close to fair value to 24% below it.

The Chinese yuan, once the most undercooked currency in the index, is now only the 12th-most-undervalued, thanks to slow but steady appreciation in recent years. Yet because China’s economy has grown so quickly, it has piled on weight in the index, helping to push the average undervaluation even lower.

It is not on the whole surprising that currencies globally are looking a bit less supersized. A healthier American economy and reduced asset purchases by the Federal Reserve are a recipe for a stronger dollar. But American firms need to maintain their competitiveness. History suggests that even when Fed tightening is well done, it is rare that global credit conditions shift without a little scorching.

From the print edition: Finance and economics

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Source: MISES INSTITUTE

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Congratulations to All Who Passed the Mises U Exams

July 31, 2014 in Economics

By Ryan McMaken

winners

At the end of Mises University, many students chose to take the optional — and highly rigorous — Mises University examinations for cash awards.  64 students took the written exam, and 30 of those passed to go on and take the oral exam.

The first-place prize of $2,500, made possible by Douglas E. French, was awarded to Kyle Marchini.

The second-place prize of $1,500, made possible by Mrs. Joele Eddy and the late Dr. George Eddy, was awarded to Matei Apavaloaei.

The third-place prize of $750, made possible by Mrs. Joele Eddy and the late Dr. George Eddy, awarded to Edgar Duarte Aguilar.

Passed Oral Examination with Honors:

Kyle Marchini, Matei Apavaloaei, Edgar Duarte Aguilar, Davis Bourne, Blaine Kelley, Paulo Kogos, Jonathan Newman, Brice Rothschild, Arkadiusz Sieroń,

Passed Oral Examination:

Matt Battaglioli, Guilherme Benezra, Joakim Book, Georg Bühler, Douglas Calder, Joel Crenshaw, Eric Faden, Darrell Falconburg, Juan Igarzabal, Lasse Kristensen, Savannah Liston, Daniel Rothschild, John Soriano, Carel van der Linden, and Jonathan Wilbur.

french

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Source: MISES INSTITUTE

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Argentina Is Now In Default, But There Is Life After Default

July 31, 2014 in Economics

By Ryan McMaken

1280px-Elecciones_en_Argentina_-_Cristina_y_Néstor_Kirchner_26102007_-_3

The Wall Street Journal declares it a done deal.

Nicolás Cachanosky explains the road that got us here.

Forbes claims that “everyone lost” because of the default, but that’s debatable.

Chris Westley points out the advantages of an Argentinian default, while Peter Klein explains how default here in the USA may be a good thing as well.

For even more, see Joe Salerno’s “Myths and Lessons of the Argentine ‘Currency Crisis’” from February.

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Source: MISES INSTITUTE

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Rapid Buses Beat Rails

July 31, 2014 in Economics

By Randal O’Toole

Randal O’Toole

Transit agencies from Baltimore to San Diego and from Seattle to St. Petersburg are planning new light-rail lines. Yet light rail is not only vastly more expensive than buses, it is slower, less comfortable, less convenient and has lower capacities than a well-designed rapid-bus system.

Being expensive to build, light rail can only reach parts of a region and thus most people have to drive to a park-and-ride station or transfer from a bus to train and back, thus lengthening the time of their trip. By comparison, for less money, rapid buses, which often rely on dedicated bus lanes to bypass traffic, can reach every corner of an urban area.

When full, most people have to stand on a light-rail train, but most people on a bus can be seated. Modern buses can also come equipped with WiFi and other amenities, making them even more attractive to riders.

Baltimore and other cities should invest in high-speed bus systems rather than light rails.”

And while it would appear that light rail can transport more people per day, the opposite is true. A single light-rail car can hold about 150 people, and in most cities three can be strung together in a train holding 450. By comparison, the biggest buses hold only a few more than 100 people. For safety reasons, however, most light-rail lines can support only about 20 trains an hour in each direction, while city streets can serve more than 160 buses per hour, giving the buses a huge capacity advantage. Where an expensive light-rail line can move about 9,000 people per hour, an inexpensive bus route can move nearly twice that many on city streets and many times more on a freeway lane.

The trade-off between light rail and buses is that one has higher capital costs and the other has higher operating costs. With the federal government willing to pay much of the capital costs of transit, but little of the operating costs, many transit agencies chose light rail so they don’t have to impose high operating costs on their taxpayers.

This is a false bargain, however, because the light-rail line ends up serving far fewer people. To reach more people, the light rail must be supported by feeder buses, which cost nearly as much to operate as a rapid-bus system.

Moreover, when the costs of maintenance are counted, light rail ends up costing more, not less, than …read more

Source: OP-EDS

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Austerity for Whom?

July 31, 2014 in Economics

By Joseph Salerno

Steve Hanke points out that the anti-austerity faction in the EU led by Italy,  France, and Spain is hypocritical when it claims  that “there is nothing left to cut” in their budgets.  Senior civil servants in Italy get paid over 12 times the national average salary.  In France the ratio of senior civil service pay to the national average salary  is over 6 and in Spain about 4.

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Source: MISES INSTITUTE

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The Fed at One Hundred: A Critical View on the Federal Reserve System

July 31, 2014 in Economics

By John P. Cochran

fedbook

Some great contributors. This might even be worth the high price:

Including contributions from David Howden, Guido Hulsmann, Thomas DiLorenzo, Thomas Woods, Robert Murphy, Shawn Ritenour, Jeffrey Herbener, Mark Thornton, William Barnett, Peter Klein, Lucas Engelhardt, and Douglas French.

The book was edited by David Howden and Joseph Salerno, and includes a forward by Hunter Lewis.

Joe Salerno discussed the book at the most recent Austrian Economics Research Conference.

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Source: MISES INSTITUTE

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Argentina Defaults Again

July 31, 2014 in Economics

Argentina entered into economic default on Wednesday for the second time in 13 years after the country was unable to reach an agreement with U.S. creditors. Cato scholar Juan Carlos Hidalgo sums up the recent news: “The authorities in Buenos Aires were given multiple opportunities to reach a deal with the holdout bondholders and yet they decided to make a political rallying point of defying the rule of law. The ultimate losers are the Argentine people who will suffer from a deepening recession, a more pronounced devaluation, and a continuation of their country’s long-term decline.”

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Source: CATO HEADLINES

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The Conservative Case for Immigration Reform

July 31, 2014 in Economics

By Alex Nowrasteh

Alex Nowrasteh

The debate over immigration reform, intensified by the surge of unaccompanied child migrants at the U.S.–Mexico border, has many conservatives worried. Republican strategist Lanhee Chen explained that conservative opposition to immigration reform in the United States “is a very visceral reaction to what America should be about.” According to conservative opponents of immigration reform, immigrants will change America.

Reforming our immigration system to allow more immigration would indeed mark a significant change. But far from representing a liberal diversion from American principles, such reform would marginally change America back to the way it used to be.

It’s important to understand how America’s immigration laws have changed over time. The first naturalization law, passed in 1790, did not put any restrictions on immigration. It wasn’t until 1882 that Congress, in its first major legislative restriction, passed a blanket ban on Chinese immigrants. Over the next 40 years, Congress passed laws banning immigration of the Japanese and illiterates, and it imposed low quotas on immigration from European countries whose members were supposedly “unassimilable” — all at the insistence of nationalists, labor unions, progressives, and eugenicists.

The U.S. should deregulate worker migration and allow more legal immigration.”

Few people would argue for a return to the completely free immigration system set up by the Founders, or for the kind of restrictions that existed in the late 19th and early 20th centuries. Sensible approaches to immigration, however, are to be found in our not-so-distant past.

During the 1950s, the Bracero guest-worker visa program channeled migrants into a legal and regulated market, shrinking the illegal-immigrant population by 90 percent. The Border Patrol handed visas to migrant workers when they entered and sometimes even gave illegal immigrants work visas after they were discovered working on American farms. Instead of building fences or putting troops on the border, the Bracero program welcomed migrants willing to work in the legal migration system of the time. Such a system does not exist today.

Some small reforms and a few tweaks to our current system — such as allowing migrant workers to easily switch jobs, removing quotas, removing or streamlining minimum-wage regulations that apply to migrants, and allowing more sectors of the economy to hire migrant workers — could recreate a workable migration system like the one we had in the heyday of the Eisenhower administration.

Conservatism is not an ideology that opposes all change. It is a reformist ideology that supports measured …read more

Source: OP-EDS

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China Poised for Global Leadership? Time to Bury Mao Zedong, the Greatest Mass Murderer in History

July 31, 2014 in Economics

By Doug Bandow

Doug Bandow

Tiananmen Square symbolizes modern China. The space forever will be remembered as the focus of the mass demonstrations dispersed by brute military force in 1989. Today the square is peaceful — but dominated by the ghost of Mao Zedong, likely the greatest mass murderer in history.

His portrait hangs on the Gate of Heavenly Peace which sits on Chang’an Avenue, a major street along the northern edge of the iconic Square. Mao’s mausoleum at the center draws thousands of visitors every day. The country has abandoned almost every element of his thought since his death in 1976, but the leadership clings to his aura. His many victims still await justice.

The Great Helmsman was born in 1893. The son of a wealthy farmer, he rejected the marriage arranged by his parents. He then became a nationalist and revolutionary, and in 1921 one of the founders of the Chinese Communist Party.  His parents died when he was young. He eventually had much reason to hate the Kuomintang, whose forces executed his wife, sister, and brother; his third marriage ended in divorce, after which he married actress Jiang Qing, later a member of the infamous “Gang of Four.” He commanded Red Army forces with varying degrees of success while gradually achieving preeminence during a struggle that lasted nearly three decades. In Tiananmen Square on October 1, 1949, Mao proclaimed the establishment of the People’s Republic of China. “We have stood up,” he declared a few days before.

The Communists became the new elite, with the leadership taking up residence in Zhongnanhai, a well-guarded compound next to the ancient Forbidden City, home to the emperors. Over time his rule became ever more erratic and brutal. After taking power he orchestrated campaigns against “landlords” and other “counter-revolutionaries,” which murdered as many as five million, or perhaps more, with millions more sent to labor camps.

In 1956 he launched the Hundred Flowers Campaign or Movement, which offered Chinese an opportunity to speak freely: “let a hundred flowers bloom,” he said. However, Mao soon tired of criticism and began the repressive Anti-Rightest Movement. It’s possible that he initiated the first to expose his enemies, or entice “the snakes out of their caves,” as he later put it. Executions were widespread, with some estimates of the dead hitting the millions.

Eventually the PRC will have to confront Mao’s legacy.”

Barely a year after the PRC’s formation, Mao pushed Beijing …read more

Source: OP-EDS

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China's Risky Play in the U.S. Debt Market

July 31, 2014 in Economics

By James A. Dorn

James A. Dorn

The rally in U.S. Treasuries this year is due in large part to China’s continued appetite for longer-term U.S. government debt. In the first five months of this year, China bought US$ 107 billion of Treasury debt maturing in more than one year, up from US$ 81 billion for all of 2013. That pace is the fastest on record and has put downward pressure on yields even in the face of the Federal Reserve’s decision to end quantitative easing by October.

The 10-year U.S. Treasury note has fallen from 3 percent at year-end 2013 to 2.54 percent, a decline few expected. The corresponding rise in bond prices, however, is unlikely to continue once the U.S. economy heats up, QE ends and the Fed begins to increase its benchmark rate. Fed Chairwoman Janet Yellen is in no hurry to increase rates, but the longer she waits, the more costly will be the final adjustment process.

Keeping rates too low for too long helped produce the Great Recession. Doing so again risks another crisis. As Kansas City Fed President Esther George warned in a recent speech: “Waiting too long (to increase rates) may allow certain risks to build that, if realized, could harm economic activity.”

China has picked up the pace of its purchase of Treasuries, but both it and the United States would be better off if it relied less on the accompanying investment and export-led model.”

China’s willingness to support U.S. Treasury prices and help keep yields low stems from a desire to stimulate export growth and protect state-owned enterprises. Instead of allowing market forces to determine the exchange rate, the authorities peg the yuan-dollar rate while allowing some variation to frustrate one-way speculation.

Most experts expect the long-run real exchange rate to appreciate, which would help rebalance China’s economy. But this year the yuan has been declining, exports expanding and foreign exchange reserves accumulating. A large part of those reserves are invested in U.S. Treasuries. Moreover, the carry trade (incentivized by the Fed’s zero interest rate policy) has led to an inflow of dollars that ultimately end up at the People’s Bank of China (PBOC). Under a floating rate system, those inflows would increase the yuan’s nominal exchange rate. However, under the pegged system, the PBOC supplies base money to prevent appreciation of the yuan, and then sells bills to absorb the newly created base money and …read more

Source: OP-EDS