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The "True Money Supply" Metric: Recent Trends

August 31, 2015 in Economics

By Ryan McMaken

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The “True Money Supply” Metric: Recent Trends

Those who are familiar with money supply stats know that M2 is the usual go-to money supply metric for observers of the money supply and its growth. Investopedia has an explanatory video of M2 here. Basically, M2 is this:

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

At least as early as the late 1970s, though, Murray Rothbard concluded that M2 and other “official” measures of money did not accurately reflect the true supply of money. That is, money, as understood by Austrian economists was something other than the definitions used by the Federal Reserve and government officials.

Rothbard explained this in his essay Austrian Definition of the “Austrian Supply of Money” in the 1978 book New Directions in Austrian Economics, edited by Louis Spadaro. Joseph Salerno later expanded on this in 1987 with “The 'True' Money Supply: A Measure of the Supply of the Medium of Exchange in the U.S. Economy.”

More recently, Michael Pollaro has presented a summary of recent usage of the true money supply metric. Pollaro notes there is some debate among Austrians as to exactly what the metric should include. Frank Shotak uses a slightly different method than the older Rothbard-Salerno metric.

Pollaro himself was publishing recent updates using the true money supply, but he seems to have abandoned this in late 2014.

Without a source for regular updates, I have reproduced the metric as used by Pollaro for the Rothbard-Salerno metric, which is called “TMS2.” My version of it matched up with Pollaro's metric, which can be seen in a 2014 update here.

Here's his graph:

I reproduced this TMS2 measure using stats on M2, retail money funds, small time deposits, treasury and US government deposits at the fed, and travelers checks. I have not attempted to reinterpret …read more


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GOP Candidate Jeb Bush Finds His Inner Neocon

August 31, 2015 in Economics

By Doug Bandow

Doug Bandow

Washington — Republican presidential candidate Jeb Bush has amassed a sizable war chest and positioned himself to be the safe establishment pick after Donald Trump’s expected implosion. Alas, on foreign policy Bush has turned hard right.

“Our security,” he recently claimed, is “in the balance.” Yet the United States continues to dominate the globe as no other nation before it.

Moreover, Bush contended, “if we withdraw from the defense of liberty elsewhere, the battle of eventually comes to us anyway.” Actually, the world long has been filled with horror which Washington chose not to make its own—and it did not then become America’s own.

Bush followed the Republican stereotype in demanding more military spending. He warned of moving “straight in the direction of the greatest risk of all — military inferiority.” To whom?

Like other Republican presidential wannabes, Bush is oblivious to the consequences of U.S. policy.”

“We are in the seventh year of a significant dismantling of our own military,” he falsely claimed. Real spending continued to increase until 2012.

In Bush’s view two and a half percent of GDP for the Pentagon is too low. But as President Ronald Reagan observed, military spending should reflect the threat environment, which is vastly improved from Reagan’s time. Bush seemed to recognize this reality when he suggested a strategic review since “the world’s changed. I mean, we’re, the Soviets aren’t going to launch a tank attack across Eastern Germany into Germany.”

Very true, which makes you wonder how he could speak of “multiplying” threats when the biggest ones have disappeared. He should launch a strategic review first, which would suggest fewer defense responsibilities and thus lower military outlays.

Bush first called his brother’s policy in Iraq “a mistake.” More recently, however, he declared that ousting Saddam Hussein by President George W. Bush was a “pretty good deal.”

Maybe so, if you don’t count dead Americans, dead allied personnel, dead Iraqis, widespread sectarian violence, mass refugee flows, increased Iranian influence, regional instability, and the rise of the Islamic State militant group, also known as ISIS.

Bush misleadingly argued that Islamic State “didn’t exist when my brother was president” and that a continued U.S. military presence “would not have allowed” the group to flourish. This is false in almost every detail.

Islamic State is an outgrowth of al-Qaida in Iraq, which developed in response to George W. Bush’s invasion. The group grew in opposition to the U.S. occupation and …read more

Source: OP-EDS

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Politicization of Intelligence: Lessons from a Long, Dishonorable History

August 31, 2015 in Economics

By Patrick G. Eddington

Patrick G. Eddington

The Daily Beast and the New York Times have reported allegations that senior (but thus far unidentified) Defense Department and United States Central Command (CENTCOM) officials have pressured intelligence analysts working ISIS to alter their conclusions to make their products more palatable to the Obama administration.

The Times story indicates that a DOD Inspector General (IG) investigation into the allegations is underway “after at least one civilian Defense Intelligence Agency analyst told the authorities that he had evidence that officials at United States Central Command — the military headquarters overseeing the American bombing campaign and other efforts against the Islamic State — were improperly reworking the conclusions of intelligence assessments prepared for policy makers, including President Obama.”

This current episode of alleged politicized intelligence estimates sounds eerily familiar to students of the history of the US Intelligence Community in wartime.”

This current episode of alleged politicized intelligence estimates sounds eerily familiar to students of the history of the US Intelligence Community in wartime, particularly the top-down pressure to “only give us the good news.”

One paragraph in the Times story particularly caught my eye. In explaining the Defense Intelligence Agency’s conduct on a pivotal National Intelligence Estimate (NIE) during the Vietnam War, the Times pointed out that analysts’ conclusions that the US would unlikely ever defeat North Vietnamese forces “were repeatedly overruled by commanders who were certain that the United States was winning, and that victory was just a matter of applying more force.” There is a complex history behind how the NIE numbers were established, and it is one that may provide some lessons for looking at the current stories about politicized intelligence reports.

During the writing of the NIE, DIA personnel and several senior intelligence and command staff officers at the Military Assistance Command, Vietnam (MACV), including America’s supreme commander in Vietnam, Gen. William Westmoreland, actively engaged in a successful effort to artificially lower the number of assessed Viet Cong (VC) guerillas facing US forces in Vietnam in NIE 14.3-67. That manipulation of intelligence data came after Westmoreland addressed a joint session of Congress on April 29, 1967, in which he said:

While [the enemy] is obviously is far from quitting, there are signs that his morale and his military structure are beginning to deteriorate. Their rate of decline will be in proportion to the pressure directed against him.

But at the very time Westmoreland made that statement, the available intelligence suggested the opposite the view of …read more

Source: OP-EDS

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China: The Mishandled Issue in the U.S. Presidential Election Campaign

August 31, 2015 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

U.S. presidential election campaigns are supposed to include sober discussions of the most crucial issues facing the country. Unfortunately, the reality rarely corresponds to that ideal, and the current conduct of candidates seeking their party’s nomination for the 2016 election is no exception.

One issue that should be front and center in the campaign is U.S. policy toward China. Instead, that topic receives surprisingly little attention—especially compared to the obsession over every aspect of Middle East policy. When it is not ignored, candidates too often take shrill positions merely to score cheap political points with disgruntled constituencies. Given the great importance of the bilateral relationship, such posturing is unfortunate and could become dangerous.

The lack of attention to China policy was evident in the first debate among the 10 leading GOP candidates. Most of them did not even mention the country, and those who did clearly adopted a hostile attitude. Donald Trump scorned U.S. leaders for not being better negotiators in their dealings with Beijing. Senator Rand Paul mentioned that China holds an enormous amount of U.S. governmental debt, making it clear that he believed such dependence was unhealthy and a national vulnerability. A few of the other candidates on the stage implied that China was among the “enemies” that supposedly no longer respected the United States because of Barack Obama’s lack of effective leadership.

That behavior has been typical of the campaign thus far. Carly Fiorina, the fastest rising star in the Republican field, has devoted time to discussing China, but Chinese leaders almost certainly do not welcome the attention. Both in the debate and on other occasions, Fiorina has taken an extremely confrontational stance regarding such issues as the South China Sea territorial disputes and cyber security. In an interview with CBS News, she recommended that the United States increase its flyover aerial surveillance of the South China Sea. And it is clear that she has no sympathy for Beijing’s territorial claims. “We cannot permit China to control a trade route through which passes $5 trillion worth of goods and services every year,” she stated bluntly.

Campaign posturing, even if not meant seriously, creates needless suspicions and resentment in U.S.-China relations.”

Fiorina was mild on the South China Sea controversy compared to her stance regarding recent cyber attacks—which she blithely assumed originated in China. She contended that such attacks were an act of aggression against the …read more

Source: OP-EDS

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The Resurrection of Discredited Ideas

August 31, 2015 in Economics

By Richard W. Rahn

Richard W. Rahn

Would you call yourself a “socialist”? Webster’s dictionary defines socialism as “a theory or system of social organization which advocates the vesting of ownership and control of the means of production, capital, land, etc. in the community as a whole.”

Modern-style socialism was born during the French Revolution — with the Conspiracy of Equals. In his classic work “Heaven on Earth” about the rise and fall of socialism, Joshua Muravchik, wrote: “Once empowered, socialism refused to yield its promised rewards. The more dogged the effort to achieve it, the more the outcome mocked the humane ideals it proclaimed. Yet for a century and a half, no amount of failure dampened socialism’s appeal. Then suddenly like a rocket crashing to earth, it all collapsed. Within a couple of decades, socialism was officially repealed in half the places where it had triumphed. In the other half, it continued in name only.”

It was an ideology that claimed well over 100 million innocent lives in the 20th century. It denied people basic economic and personal freedoms, including the right to own property, and the ability to respond to incentives to better their own lives. Even in theory it could not work, as Ludwig von Mises and F.A. Hayek so clearly explained — that without market-determined prices, there was no way to know the relative value of anything, so productive resources would be misallocated. There was also no room for innovation. The best that could be hoped for was increasing economic stagnation, a loss of individual liberty, and political repression — which is exactly what happened in practice.

Yet, Sen. Bernie Sanders proudly calls himself a socialist and is welcomed in the Democratic Party presidential primary. He appears to have perhaps more than a million supporters. It is hard to conclude anything other than these people are ignorant of (even recent) history and are incapable of clear thinking. North Korea and Cuba are the best-known remnants of classic socialism. Only the willfully blind think these places are anything other than economic and moral disasters. Members of the press have no problem attacking far more minor policy idiocies from other candidates — so why is Mr. Sanders given a free pass on the core of his beliefs?

For more than two centuries, people who are economically literate have understood the benefits of free trade, which is based on two indisputable propositions. The first is the greater the …read more

Source: OP-EDS