Posts Tagged ‘Federal Reserve’

 From Ludwig von Mises Institute

 By Clifford F. Thies            Posted on 1/31/2008

An old joke is that economists have called 19 of the last 16 recessions. Our signal of a recession is three months running of decline in the index of leading indicators. We have not yet had a recession without first having the signal. But, we have occasionally had the signal without the subsequent recession. Well, on January 18th, the Conference Board released its economic indicators and, with this release, we got the signal of the now long-awaited recession. What does it mean?

First, it does not mean we will have a recession. It means we will probably have a recession. We might wind up with a mere slowing down of the economy and avoid an actual recession.

Second, it does not mean we will have a deep or long recession. How short or long, and how shallow or deep is the recession, if we have one, cannot be forecast. Your guess would be as good as mine.

Third, and this is the important point, we economists can now stop trying to explain to people that we actually are in a well-functioning economy, and can start to commiserate with them about how bad things are. If there’s one thing hypochondriacs don’t want to hear, it’s that their many serious illnesses are all in their heads.

Before, we would respond to complaints about the global economy taking away jobs by saying a 4 percent unemployment rate means we have roughly full employment. Now, we can say, while 5 or 6 percent unemployment is a low level of unemployment by historical standards, its recent uptick is indicative of a slowing down of an economy and possibly of the start of a recession.

Hopefully, the listener will be assuaged by the sympathetic response, and not ask if there is a connection between the global economy and the recession, because we would have to explain that, because of the recent surge in exports, the recessionary pressure that has developed has been ameliorated by the global economy.

Instead of responding to complaints about the high rate of inflation by saying a 2 percent rate of inflation is pretty close to price stability, we can now say that a rate of inflation of 3 or 4 percent, which has been accelerating recently, is indeed a cause for concern.

For all the talk by the Federal Reserve about “inflation targeting,” we now see that responding to short-run problems is paramount for the Fed. Holding the line on inflation is something the Fed does when it is convenient. Resorting to inflating the money supply when times are tough is predictable, as is a continuing loss of purchasing power of the US dollar. The only uncertainty is how fast the dollar will lose purchasing power. Will it be at a creeping rate, or at a galloping rate, or at a hyperinflationary rate?

You might think that we learned our lesson about inflation during the 1970s, when we moved first from a creeping to a galloping rate, and then risked a further move to hyperinflation. The double-dip recession we then went through starting in 1979 fell in the second tier of economic downturns (below only the Great Depression). There is currently no indication that a severe downturn is on the horizon. But, if we work hard enough at it, with fiscal and monetary policy pumping up the economy and delaying and exacerbating the inevitable, we can make such a severe recession possible in the future.

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PAUL: Champion of the Constitution

Sunday, January 27, 2008 240108rpaul.jpg


Murray Sabrin is a professor of finance at Ramapo College in Mahwah and a Republican candidate for the U.S. Senate in New Jersey.

TWO HUNDRED years after the Declaration of Independence was signed, a Republican physician from Texas was chosen by the voters in his district to head to Congress in a special election. Of course, 1976 was a presidential year, and incumbent President Gerald Ford was actively working to shore up support from the Republican Party to earn the party’s nomination for a new term.

So Ford called this freshman congressman into the Oval Office, congratulated him on his victory in the special election and then asked the young doctor for his support in the Republican presidential primary.

“I’m sorry, Mr. President,” said the man in 1976, “but I cannot support you. I am backing Ronald Reagan.”

That courageous man was Ron Paul, and now, 32 years later, he himself is seeking the Republican nomination for president of the United States. And the platform on which Paul is running would make Ronald Reagan proud, because it represents a return to the limited government principles that made the Republican Party great, and can make it successful again.

Paul calls himself a “champion of the Constitution.” His record in Washington, where his votes against runaway federal government spending have earned him the nickname “Dr. No,” shows that he is more an heir to the legacy of Reagan than any other candidate running for president.

Quite simply, Paul does not equivocate on the Constitution or the Bill of Rights. He forcefully rejected the McCain-Feingold campaign finance reform package, which trampled on our political free speech guaranteed by the First Amendment. He has been one of the most strident advocates of Americans’ Second Amendment gun rights and a steadfast defender of the Fourth Amendment, voting against the depredations of the American people’s privacy by the federal government.

Paul has also been the most vocal critic in Congress of the Federal Reserve’s “legalized counterfeiting.” Since the creation of the Federal Reserve in 1913, the U.S. dollar has lost more than 90 percent of its purchasing power. And since 1971, when President Nixon ended the last link between the dollar and gold, the U.S. dollar has lost about 80 percent of its value.

To some, that may sound like complicated economic theory. But it’s actually quite simple. When we live beyond our means as a nation, we must borrow money from others to make ends meet. When we can’t borrow any more, and our government lacks the courage to cut spending, we have no choice but to just print more money.

Sooner or later, this causes the price of goods to increase, especially imports, and the middle class will be squeezed.

President Paul will not allow that to happen.

Paul served this country for five years in the Air Force during the Cold War. So he is strongly attuned to the need for a formidable national defense. That is why he voted in favor of invading Afghanistan in 2001, in the immediate aftermath of Sept. 11, and why he wants all terrorists brought to justice.

He will never compromise the integrity of America’s borders, and has taken a hard line against illegal immigration, calling for an end to benefits for those who enter this country illegally.

Paul believes that if we continue to subsidize illegal immigration, we will invariably get more of it.

So if you miss the principles of Reagan that made the Republican Party so strong, and you believe that we need a president who will restore the federal government to its constitutional size, then Paul is the only choice.

He backed Reagan in 1976 because he foresaw the great legacy in advance – America prospers when government gets out of the way and allows the wealth and talents of the American people to flourish. Ron Paul is the only Republican who has recaptured that spirit, and that is why he is our best hope for president.


America became the greatest, most prosperous nation in human history through low taxes, limited government, personal freedom and a belief in sound money. We need to return to these principles so our economy can thrive again. When enacted, my plan will provide both short-term stimulus and lay the groundwork for long-term prosperity.

Other candidates talk a lot about stimulus packages, but my record stands alone. I have fought for these measures for years as a member of Congress and will make them a top priority as president.

Ron Paul, a 10-term Republican congressman from Texas’s 14th District, is currently the ranking member of the House Financial Services Committee’s Subcommittee on Domestic and International Monetary Policy, Trade, and Technology. He has been named “Taxpayers’ Best Friend” for 10 consecutive years by the National Taxpayers’ Union. Ron Paul is also the author of several books on monetary policy and economics.

 The Four-Point Plan

  1. Tax Reform: Reduce the tax burden and eliminate taxes that punish investment and savings, including job-killing corporate taxes.
  2. Spending Reform: Eliminate wasteful spending. Reduce overseas commitments. Freeze all non-defense, non-entitlement spending at current levels.
  3. Monetary Policy Reform: Expand openness with the Federal Reserve and require the Fed to televise its meetings. Return value to our money.
  4. Regulatory Reform: Repeal Sarbanes/Oxley regulations that push companies to seek capital outside of US markets. Stop restricting community banks from fostering local economic growth.

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Original Article:

By Jeffrey A. Tucker
Posted on 1/21/2008

See if you can spot anything wrong with the following claim, a version of which seems to appear in a book, magazine, or newspaper every few weeks for as long as I’ve been reading public commentary on economic matters:

The dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise…. But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation … is suddenly being demanded from unexpected places.

Now, a paragraph like this one printed in the New York Times opinion section on December 30, 2007 — an article called “The Free Market: A False Idol After All?” — makes anyone versed in economic history crazy with frustration. Just about every word is misleading in several ways, and yet some version of this scenario appears as the basis of vast amounts of punditry.

The argument goes like this:
Until now we’ve lived in a world of laissez-faire capitalism, with government and policy intellectuals convinced that the market should rule no matter what. Recent events, however, have underscored the limitations of this dog-eat-dog system, and reveal that simplistic ideology is no match for a complex world. Therefore, government, responding to public demand that something be done, has cautiously decided to reign in greed, force us all to grow up, and see the need for a mixed economy.

All three claims are wrong. We live in the 100th year of a heavily regulated economy; and even 50 years before that, the government was strongly involved in regulating trade.

The planning apparatus established for World War I set wages and prices, monopolized monetary policy in the Federal Reserve, presumed first ownership over all earnings through the income tax, presumed to know how vertically and horizontally integrated businesses ought to be, and prohibited the creation of intergenerational dynasties through the death tax.

That planning apparatus did not disappear but lay dormant temporarily, awaiting FDR, who turned that machinery to all-around planning during the 1930s, the upshot of which was to delay recovery from the 1929 crash until after the war.

Just how draconian the intervention is ebbs and flows from decade to decade, but the reality of the long-term trend is undeniable: more taxes, more regulation, more bureaucracies, more regimentation, more public ownership, and ever less autonomy for private decision-making. The federal budget is nearly $3 trillion per year, which is three times what it was in Reagan’s second term. Just since Bush has been in office, federal intervention in every area of our lives has exploded, from the nationalization of airline security to the heavy regulation of the medical sector to the centralized control of education.

With “free markets” like this, who needs socialism?

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 This is not merely a subprime crisis

Article in:Financial Times

byWolfgang Munchau
Published: January 14 2008 02:00

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