Saturday, 1 August 2015

What Drives GDP Growth in the U.S.?

For chicken and egg theorists it should be added that money is created prior to the items that make up GDP (which are measured in US$), often with a substantial lag. 

Wednesday, 29 July 2015

Mises’s Contribution to Understanding Business Cycles


Included in The Theory of Money and Credit were at least the rudiments of another magnificent accomplishment of Ludwig von Mises: the long-sought explanation for that mysterious and troubling economic phenomenon — the business cycle. Ever since the development of industry and the advanced market economy in the late eighteenth century, observers had noted that the market economy is subject to a seemingly endless series of alternating booms and busts, expansions, sometimes escalating into runaway inflation or severe panics and depressions. Economists had attempted many explanations, but even the best of them suffered from one fundamental flaw: none of them attempted to integrate the explanation of the business cycle with the general analysis of the economic system, with the “micro” theory of prices and production. In fact, it was difficult to do so, because general economic analysis shows the market economy to be tending toward “equilibrium,” with full employment, minimal errors of forecasting, etc. Whence, then, the continuing series of booms or busts?

Ludwig von Mises saw that, since the market economy could not itself lead to a continuing round of booms and busts, the explanation must then lie outside the market: in some external intervention. He built his great business cycle theory on three previously unconnected elements.

Monday, 27 July 2015


By Frank Shostak

According to mainstream economics, the validity of various definitions of money can be ascertained by means of a statistical test. What determines whether money M1, M2, and the other Ms are valid definitions is how well they correlate with national income. Most economists hold that, since the early 1980s, correlations between various definitions of money and national income have broken down. The reason for this break-down, it is held, is that financial deregulation has made the demand for money unstable. In short, the nature of financial markets has changed; consequently, past definitions of money no longer hold.

Thursday, 23 July 2015

Chart of The Day: The U.S. Stock Market - 2007 Bubble vs 2015 Bubble

I'm no stock market technician, but these patterns look a bit similar....

Also see: Topping Action

Wednesday, 22 July 2015

Q1 2015 Debt to GDP Ratio for Eurozone Rises to 92.9%

Eurostat reports,
At the end of the first quarter of 2015, the government debt to GDP ratio in the euro area (EA19) stood at 92.9%, compared with 92.0% at the end of the fourth quarter of 2014. In the EU283, the ratio increased from 86.9% to 88.2%. Compared with the first quarter of 2014, the government debt to GDP ratio rose in both the euro area (from 91.9% to 92.9%) and the EU28 (from 86.2% to 88.2%).
At the end of the first quarter of 2015, debt securities accounted for 79.1% of euro area and for 80.8% of EU28 general government debt. Loans made up 18.0% and 15.2% respectively and currency and deposits represented 2.9% of euro area and 3.9% of EU28 government debt.

How to solve a debt crisis? Add more debt of course. At least that's the thinking of the central planners in Brussels and country politicians as government debt in the eurozone rose by a staggering €253.954 billion (2.77%) from Q1 2014 to Q1 2015. From bad to worse then. Unfortunately, it will become much, much worse as long as eurozone bureaucrats and governments continue their big spending, central planning and anti free market policies. 

The "Debasing the Currency to Jump Start an Economy" Myth

"Debasing one’s currency does NOT solve anything. There is no way that a country can force others to subsidize its economy through debasing one’s own currency or that one can “jump start” or “stimulate” one’s own economy by debasing the currency. All currency debasement accomplishes is a transfer of wealth from the non-exporting sectors of an economy to exporting sectors and foreigners. In other words, increased exports are subsidized by one’s own citizens."

Tuesday, 21 July 2015

Nigel Farage: "Mr Tsipras, Take Back Control of Your Country"

From 8 July 2015.

The Chimera of Contracyclical Policies

By Ludwig von Mises

An essential element of the “unorthodox” doctrines, advanced both by all socialists and by all interventionists, is that the recurrence of depressions is a phenomenon inherent in the very operation, of the market economy. But while the socialists contend that only the substitution of socialism for capitalism can eradicate the evil, the interventionists ascribe to the government the power to correct the operation of the market economy in such a way as to bring about what they call “economic stability.” These interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies. However, they reject this idea in advance. What they want is to expand credit more and more and to prevent depressions by the adoption of special “contracyclical” measures.

In the context of these plans the government appears as a deity that stands and works outside the orbit of human affairs, that is independent of the actions of its subjects, and has the power to interfere with these actions from without. It has at its disposal means and funds that are not provided by the people and can be freely used for whatever purposes the rulers are prepared to employ them for. What is needed to make the most beneficent use of this power is merely to follow the advice given by the experts.

Doug Casey: Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse

By Max Rangeley

You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.

This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.

Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.

Continue reading the article here.