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It has been fascinating to watch the mainstream media attention given to Governor Rick Perry’s comments on Fed Chief Ben Bernanke and his printing press, though, in all the coverage, it would have been worth mentioning that the guy who came in second in the Iowa straw poll (Rep. Ron Paul) wrote an entire book about the central bank (End the Fed).
From the Chris Britt archive at Creators.com.
I’ve about had it with the inane theory that the lack of aggregate demand is the primary reason why we are now mired in the worst economic slump since the Great Depression. The latest bit of idiocy on the subject was offered up by Reagan/Bush policy adviser Bruce Bartlett in a New York Times commentary today that, when laid side-by-side with some of Paul Krugman’s writing on the subject (see here, here, here) is truly disturbing because, this “lack of aggregate demand” theory courses through all policymaking debate, on both the left and on the right, in Washington and New York.
The theory posits that it is not important what level of overall demand an economy has reached or how it got there, but that, when all the wheels fall off the wagon as they did back in 2008, the imperative is for the government to somehow restore that level of demand.
Otherwise, you get another Great Depression.
It makes no difference if, back in 2005, people making $40,000 a year were buying no money down $500,000 homes and then, after the home’s value went up to $600,000 in 2006, pulling out their $100,000 in brand new home equity to put in a pool, buy a motor home, and install big screen TVs in every room of the house because, once you reach a certain level of demand and it begins to drop like a rock because everyone has become indebted up to their eyeballs, it must be restored.
At that point, it simply becomes a question of how much taxes must be cut or how much money must be borrowed or printed to accomplish that goal.
Whether that level of demand was reasonable never seems to come up and the idea that we’ve come to the end of a 30-year debt binge in all areas of public and private finances – where the accumulated debt can no longer be easily serviced, let alone taking on new debt to fuel more consumption – gets only passing notice.
There are lots more examples of this here, here, here , here, here, here, and here, this unfortunately being another example of how conventional wisdom is often wrong.
You’d have to think that, at some point, the Commerce Department is going to lose interest in reporting the monthly housing starts data since, if the graphic below were an EKG, the patient would clearly be dead. Nonetheless, they push on, today’s report(.pdf) indicating that housing starts fell 1.5 percent to an annual rate of 604,000, right around the historically low average level of the last three years since the housing boom went decidedly bust.
Permits for new construction fell 3.2 percent to an annual rate of 597,000, but, nobody really cares. Of more interest to housing market observers these days is whether wards of the state Fannie Mae and Freddie Mac will continue to exist in their current form and if they might someday soon turn into the nation’s largest landlord, renting out the millions of foreclosed homes that they either already own or will take back in the years ahead.
Apparently, they don’t think very highly of money printing in Texas if Governor Rick Perry’s comments about a third round of quantitative easing from the Bernanke Fed are any indication, the governor clearly restraining himself when he said, should the central bank do so, they’d “treat him pretty ugly down in Texas” before calling such an act “treasonous”.
Fed chairmen generally avoid making big changes to monetary policy during an election year and this is one good argument for Bernanke taking action sooner rather than later. Announcing a trillion dollar QE3 in May of 2012 – six months before the election – would have a completely different feel to it than one launched in September of this year.
Forty years ago today, President Richard M. Nixon “closed the gold window”, forever severing the link between paper money and precious metals, or so they thought at the time.
With the gold price having risen from under $40 an ounce to over $1,800 an ounce during those four decades – an annualized gain of almost 15 percent per year – it increasingly looks as though the days of a pure fiat money system are numbered, a case made by many of the stories below that celebrate mark today’s anniversary.
• The Nixon Shock -Bloomberg/BusinessWeek
• The Nixon Shock Heard ‘Round the World – WSJ
• Nixon’s not-so-happy gold legacy 40 years on – Mineweb
• Nixon Showed What Not to Do in an Economic Crisis – Bloomberg
• August 15, 1971: President Nixon’s Golden Error – Real Clear Markets
• August 15, 1971: A Date Which Has Lived In Infamy – Forbes
• We are now paying for abandoning the gold standard – Telegraph
• Road to downgrade began 40 years ago – Des Moines Register
• Gold Standard or Nixon Standard – Lew Rockwell
• Gold-standard debate back, 40 years after Nixon – MarketWatch
• Gold Standard: Forty Years Gone — And Good Riddance – WSJ
• Nixon’s Colossal Monetary Error: The Verdict 40 Years Later – Forbes
• 50-Fold Gain for Gold Price 40 Years After Gold Standard Ends – Bullion Vault
• Fiat Money: The Root Cause Of Our Financial Disaster – Forbes
• Forty Years of Paper Money – WSJ
Along with the Wikipedia entry Nixon Shock, Roger Lowenstein’s treatment atop the list above should be considered required reading. I’m still working my way down through the rest of these items and may have a few thoughts of my own to offer later in the day.
Until then, I wonder what Milton Friedman would think today after the financial market turmoil and the remarkable rise in the gold price during the fourth decade after he thought freely floating fiat currencies would be such a good idea.
A new Gallup survey on how Americans see the economy is not likely to sit well with Iowa Republicans as the nation’s capital is acting as a “confidence vacuum” for the rest of the country. Though it’s hard to see in the graphic below, it seems Washington D.C. has been hoovering up whatever good mood was left in the rest of the country, it being the only region posting a positive number in the survey, far outdistancing the 50 states.
Times are also good in the northern energy boom states and there is a clear federal government spillover effect in Virgina and Maryland, but, other than that it’s pretty grim.
By Tim Iacono, Since 2005
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