You are browsing the archive for 2014 August 02.

Avatar of admin

by admin

The Fed and the Destruction of the Dollar

August 2, 2014 in Economics

By John P. Cochran

A recent “Notable and Quotable” in the Wall Street Journal highlights insights from Steve Forbes and Elizabeth Ames’s new book Money: How the Destruction of the Dollar Threatens the Global Economy—and What We Can Do About It. There is much to like in this short excerpt.

Echoing Roger Garrison on the housing crisis, Forbes and Ames point out, “For example, few connected the housing bubble of the mid-2000s with the Fed’s weak dollar.” They add, “The weak dollar was not the only factor, but there would have been no bubble without the Fed’s flooding of the subprime mortgage market with cheap dollars.” They point out other factors often blamed for the crisis, regulatory factors, greed, affordable housing laws and the role of the government-created mortgage enterprises were in effect through much of the nineties without creating “housing mania” and correctly surmise that Fed credit creation was the factor that, to borrow a phrase from Roger, “turbo charged” a policy distorted market eventually generating the boom-bust, the Great Recession, and setting the stage for the now prolonged stagnation. Too bad Bernanke, Yellen, Krugman, and Blinder continue to ignore this fundamental truth which  Garrison summarizes nicely:

Had the Fed provided no fuel for the boom, federal housing policy, though perverse, would not have been unsustainable. The mortgage market would have had to compete with all other markets for the funds that savers provided. There would have been a continuing bias in favor of the mortgage market, and the ongoing rate of foreclosures would have been higher. House prices would have been higher (because houses and mortgage loans are complements), but they would not have been high and rising.

Forbes and Aims go wrong when they fail to recognize that the Fed policy was loose in the 1990s. They ask, “Why did it (housing crisis) happen in the 2000s and not in the previous decade?” They respond, “The answer is that the 1990s was not a period of loose money.” Like John B. Taylor, who yearns for a rules based policy and a return to the “Great Moderation”, Forbes and Aims fail to recognize Fed policy was amiss during the late 1990s as well. The both downplay or ignore the dot.com boom-bust and the less severe recession of the early 2000s. The significance of this first cycle for the role of monetary policy was perhaps missed because it occurred at the end of …read more

Source: MISES INSTITUTE

Avatar of admin

by admin

The War on Drugs Is Not Like The War on Poverty

August 2, 2014 in Economics

By Mises Updates

6828

Mises Daily Weekend by Randall Holcombe

Unlike the War on Poverty, the War on Drugs is a real and bloody war by the United States against a minority group known as drug buyers and sellers.

…read more

Source: MISES INSTITUTE

Avatar of admin

by admin

The Best of Mises University 2014

August 2, 2014 in Economics

By Mises Updates

6829

It was an amazing and encouraging week at Mises University this year.

…read more

Source: MISES INSTITUTE