Radio Free Market

Dear Sirs:
In your February 24th edition under “The Week” recap of significant news events you make the astounding statement that Ben Bernanke should be applauded for his massive money printing, interest rate pegging, socialist monetary planning maneuvers during and after the 2008 crisis.  Now, I do not expect National Review to spout the Mises Institute’s Austrian critique, but all Bernanke did was short stop the necessary and inevitable recession of which he himself was greatly responsible only to re-inflate the bubble in order to guarantee us an even greater crash after he leaves his watch.  Please, please tell your readers that money is not the play thing of governments.  It is part and parcel of the free market economy.  Without sound money economic calculation is impossible.

Patrick Barron

Re: Abe grapples with mystery of missing J-curve

Dear Sirs:
Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen.  Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.  Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers.  The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters.  Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits.  As you state, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.  Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes.  Then the country is left with a depleted capital base and a higher price level.  What a great policy!

The good news is that Japan does know how to rebuild its economy.  It did it the old-fashioned way seventy years ago–hard work and savings.  Patrick Barron

From today’s Open Europe news summary:

From today’s Open Europe news summary:

The European Parliament’s economic affairs committee yesterday voted in favour of a proposal to limit credit card payment fees charged to retailers by banks at 0.3% of the transaction value, reports EUobserver. Negotiations with the Council on the final shape of the rules are not expected before the European Parliament elections in May. EUobserver

The certain consequences of this new proposal will be to reduce the number of businesses that take credit cards, because the credit card companies will not be able to make a profit serving small businesses with low average individual transaction amounts.  The big retailers will benefit from this new law and may even have had a hand in drafting it.

Patrick Barron

Re: Obama Orders New Efficiency for Big Trucks

Dear Sirs:
President Obama needs a lesson in Econ 101.  Requiring that business meet a new fuel economy standard in order to achieve some environmental goal, no matter how discredited the theory, is one thing, but justifying it by claiming that business and consumers will benefit from lower prices is another.  If this were the case, there would be no need for the new fuel economy standard either for big trucks or personal automobiles.  Business pursuit of profits and consumer pursuit of better deals is all that is necessary.  Let the public be warned: higher fuel economy standards for both big trucks and automobiles will cause our cost of living to rise and our standard of living to fall.

Patrick Barron

Re:  Fed Closes a Loophole for Banks Overseas

Re: Lending Where Banks Can’t: Blackstone Thrives in Ireland

Dear Sirs:
These two articles appeared on the front page of your Business Day section on Wednesday, February 19, 2014.  Nothing could more completely refute the claims of the Federal Reserve Bank that its new tougher capital rules and regulatory oversight for foreign banks operating in the US and US banks operating overseas will “help ensure that capital keeps flowing during times of stress” than these two articles.  The first article reports that the Fed brushes aside the banks’ protests that their operating costs will rise, leading to loss of market share, while the companion article tells of the success of the Blackstone Group to fund those very businesses that the banks can no longer afford to serve.  The Fed and its sister regulators in Europe will find that in the future they will be regulating smaller and more irrelevant businesses.  Patrick Barron

Re: A Picture of Detroit in Ruin

Dear Sirs:
Detroit does not need another worthless plan in order to deal with its problems. To what end will a “blight plan” be put? This is the question that should have been asked before spending time and money documenting what all can see. Detroit’s blight is a symptom of a larger problem; it is not the problem itself. Detroit needs economic freedom. Declare Detroit a free city–free from federal and state taxes and regulations. End zoning. Sell off government owned property at whatever price it commands. Allow the people to make whatever use they may put their property, and then get out of the way. What will happen? Expect the first flowers of true economic freedom to blossom–unlicensed schools, beauty and barber shops, day care centers, restaurants, home and appliance repair centers, storage facilities, bodegas, computer repair, etc.. Then watch for light manufacturing to return–all unlicensed, of course–perhaps supplying parts to what remains of the automobile industry. Allow people to arm themselves without getting a government approved license, so that the average citizen can protect himself and his property. If you say this is impossible and that it will not work, then you obviously haven’t read American history.

Patrick Barron

Re: China Digs Itself Deeper into Dollar Trap

This short Bloomberg article is written from a Chinese point of view; i.e., that China finds itself in a trap having sold over a trillion dollars in goods in exchange for what may become worthless pieces of US debt. If it tries to shed itself of this debt too openly and too rapidly, it could suffer a collapse in the value of its holdings and set off a worldwide financial crisis.

The larger picture is that the collapse will be worse the longer China dithers and does nothing. It is clear that the US Federal Reserve Bank has no intention of restoring sound money any time soon. How can it when federal spending is so out of control that the US Congress last week completely suspended the budget ceiling? The Fed will monetize whatever US Treasury bonds the open market will not buy at a very high price.
The US Fed is the culprit, but China was always the willing stooge.

This crisis will end when a major player like China decides that enough is enough. As horrific as the cleansing may be, it is simply reality revealing itself. There never was an unlimited international appetite for US Treasury debt. The world bought the debt only because it assumed that America would honor the debt in money of equal purchasing power. For a long time now, no one has believed this fairy tale. But everyone is afraid of the necessary and inevitable recession/depression to come. The longer we wait the worse it will be.

Patrick Barron

Re: David Beckworth’s review of Money, Gold, and History by Lewis E. Lehrman

Dear Sirs:
Austrian School economists recommend monetary freedom, not any specific state-supported money. End legal tender laws and the most marketable commodities will be chosen as mediums of exchange. Despite Mr. Beckworth’s claims to the contrary, government imposed money is a cause of and not the solution to the business cycle. Furthermore, Mr. Beckworth’s idea that the supply of money should be manipulated to meet its demand, that the central bank should ensure total dollar spending, and that it should intervene to manipulate exchange rates is nothing more than the statists’ failed attempt to benefit special interest groups, usually exporters and recipients of government welfare.

The gold standard brought unprecedented prosperity to the far corners of the world. As usual, Ludwig von Mises said it best in his magnum opus Human Action:

“The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market. It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices an superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.”

Patrick Barron

Re: Wells returns to sub prime lending

The author blames the banks, as if for some unknown reason bankers simply choose to expand lending to sub prime borrowers. But the real source is the Fed’s artificial lowering of the interest rate, which sets in motion a chain of events which force banks to make what will become bad loans. Home buyers find that the carrying cost of owning a home has fallen. The most expensive component of the monthly carrying cost of a home is interest. So, drop the interest rate and this component opens up a whole new class of what appears to be worthy borrowers.

It ain’t the banks; its the Fed! Patrick Barron