12 November 2015
Believe it or not, one of the topics in economics that confuses macroeconomists is the actual role of interest rates.
For the most part they just assume that an interest rate is the cost of money, the price of money, or even the transfer of the fruits of production from producers to idle capitalists. This last assumption appears to have been Keynes’s motivation for his dislike of savers, or rentiers as he disparagingly labelled them. The thought that workers slave for a master who then pays interest to capitalists energises Marxism as well.
In a free market, consumption comes in two basic forms: that which is consumed today, and that which is postponed into the future. Deferred consumption is saving, and Keynes’s target was the saver, even “looking forward to the rentier’s euthanasia” as he put it in his General Theory. Continue reading The declining interest rate cap
05 November 2015
Since the 1980s, markets have had to adapt to a world of infinite credit.
Of course, this credit has not been available to everyone: it has been principally deployed in favour of governments, financial markets, and big business. It amounts to a cartel, planned or unplanned, a partnership between banks and government that dominates and controls previously free markets.
The justification for this arrangement is based on anti-market macroeconomic theories, always sympathetic to central planning. The partnership is between governments, their central banks and the commercial banks, granting them a licence to operate by expanding credit out of thin air. Continue reading The end-point in financial credit
29 October 2015
After a few months of slower growth, FMQ has picked up again.
FMQ is the sum of True Money Supply (as defined by the Austrian School of Economics), plus the banking system’s reserves and other banking-related liabilities on the Fed’s balance sheet. Account is taken of temporary adjustments that otherwise distort the picture, such as the Fed’s repurchase agreements and reverse repurchase agreements. See here for a fuller description of FMQ. Continue reading Fiat money quantity update
23 October 2015
There are signs that the US dollar, instead of consolidating the sharp rise that peaked last March, might be reversing its previously rising trend.
Certainly, a weakening dollar fits with the Federal Reserve Board deferring attempts to raise interest rates from the zero bound, and reflects the growing chatter that negative rates cannot be ruled out. It should also interest us that there is evidence the Americans are beginning to take the threats to the dollars’ hegemonic status seriously, and this is no longer just seen as a speculative possibility. Continue reading Decline of the dollar – the consequences
15 October 2015
Gold is money, admittedly not often circulating as such today. Fiat currencies issued by governments have driven gold out of circulation. But where does this leave silver?
Money-substitutes, bank notes and bank deposits, were originally backed by physical silver, and were switched in favour of gold-backed money-substitutes over the last two centuries. It was a process that happened first in England, starting with Isaac Newton’s declaration in 1717 that silver would be exchanged at the Royal Mint in the ratio of fifteen and a half ounces to one of gold. While Newton was a towering genius in physical science, he didn’t understand markets, and that an inflexible bimetallic standard not adjusting for the subjectivity of prices would be problematic. Continue reading Silver as money