<blockquote>‘The crucial test of private property is the attitude of government toward money..'
- Isabel Paterson,
‘The crucial test of private property … money.’</blockquote>
'Centuries of monetary fiascos made it clear that money had better be backed by something of value and of limited supply (i.e. gold standard) to ensure that politicians and bankers did not fall prey to the same inflationary traps that had repeatedly destroyed currencies and economies across the globe.'<blockquote>'..This week I found my thoughts returning back about 12 years to my earliest Bulletins. Inspired by the great Austrian economist Ludwig von Mises, my introductory article discussed the need for a contemporary Theory of Money and Credit. Not only was modern economics devoid of monetary analysis, there were critical changes unfolding within U.S. Credit that were going completely unappreciated.
Importantly, Credit creation was gravitating outside of traditional bank lending channels and liability creation. Fannie, Freddie and the Federal Home Loan Bank system had evolved into major risk intermediaries and Credit creators. I began by arguing against the conventional view that “only banks create Credit.” Securitization markets were exploding in volumes, both in mortgage and asset backed securities. I was focused on the lack of constraints on this new Credit mechanism that operated outside of traditional bank capital and reserve requirements. In contrast to the antiquated bank loan and deposit “multiplier effect” explained in economic texts, I referred to this powerful new dynamic as an “infinite multiplier effect.” Borrowing from Murray Rothbard, new "money" and Credit were created “out of thin air.”
And the more I studied monetary history the more I appreciated the importance of both money and Credit theory. It became clear to me that money had for centuries played such a profound role in economic cycles (and monetary fiascos). Yet this type of analysis was extinct. Even within the economics community, there was not even a consensus view as to a definition of “money.” There had been decades of bickering about what monetary aggregate to use in econometric models (M1, M2 or the newer M3), along with what measure of “money” supply should be monitored and managed by the Federal Reserve. Especially in light of all the financial innovation and new financial instruments, the economics profession and the Fed punted on monetary analysis. Out of sight and out of mind.
Even if one was focused on the issue, the importance of traditional monetary analysis was lost in myriad new complexities. Yet my study of monetary history and research of contemporary Credit convinced me that the analysis of “money” likely had never been more critical to the understanding of (extraordinary) market and economic behavior. I was intrigued by Mises work on “fiduciary media,” the financial claims that had the economic functionality of traditional (narrow) money. I began to view contemporary “money” as “money is as money does.” And I was especially struck by monetary analysis from the late American economist Allyn Abbott Young. Young wrote brilliantly about the historical “preciousness” of money.
And the more I studied, contemplated and pieced together analyses from scores of monetary thinkers, the more it became clear to me that “money” was critically important because of its special attributes. In particular, money created unusual demand dynamics: essentially, economic agents always wanted more of it and this insatiable demand dynamic created a powerful proclivity to issue it in excess quantities. Keep in mind that a boom financed by junk bonds will pose much less risk (its shorter lifespan will impart less structural damage) than a protracted Bubble financed by “AAA” agency securities and Treasury debt.
Centuries of monetary fiascos made it clear that money had better be backed by something of value and of limited supply (i.e. gold standard) to ensure that politicians and bankers did not fall prey to the same inflationary traps that had repeatedly destroyed currencies and economies across the globe.'
- Doug Noland,
Money and the European Credit Crisis, October 28, 2011</blockquote>
'..the monetary errors, in China and throughout the world, derived at least in part from his ignorance and insouciance about the effect of interest rates.'<blockquote>'..the Chinese regime overdid it, even by the most demented Keynesian standards. Rather than financing spending directly, they encouraged the state-owned banks to go on a lending spree. The result was an astonishing surge in bank lending, 42% of GDP in 2009 and 2010 and 37% in 2011, around $2.8 trillion annually. The result has also been galloping inflation and a banking system now truly close to collapse. Mao Ze-dong tried for thirty years to destroy the entrepreneurial Chinese economy; where he failed, Maynard Keynes may have succeeded from the grave.
..
65 years after his death, Maynard Keynes has a lot to answer for. Not only are the failed stimulus policies, massive deficits and renewed economic crisis due largely to misguided application of his theories, but so also are the monetary errors, in China and throughout the world, derived at least in part from his ignorance and insouciance about the effect of interest rates. However China’s government, faced with not even a recession but simply a slowdown in activity caused by external factors, appears to have applied Keynesian theories with unprecedented vigor, such that even those on the left who bemoan the inadequacy of the 2009-10 U.S. stimulus should be satisfied. Regrettably, if China descends into Weimar inflation and their response is international aggression, the rest of us will have to pay the price.'
- Martin Hutchinson,
Keynesians Turned China into Weimar, October 31, 2011</blockquote>
Context<blockquote>
Mises Celebrated in Lviv, Ukraine, October 19, 2011
The Philosophical Origins of Austrian Economics, 1994
The Origin of Markets and Money, October 13, 2011</blockquote>