This thirty minute interview is part one of a two part series. Part two will be released next week.
In this interview I explain how the dollar became the world’s leading reserve currency, what it means to be a reserve currency, how the US has benefited financially from this arrangement, and how delinking the dollar to gold has allowed our military empire to expand in an irresponsible manner.
Patrick Barron
http://www.wakeupcallpodcast.com/dollar-hegemony/
Re: Anglo Irish Bank executive appears in court after US extradition
Dear Sirs:
The failure of Anglo Irish Bank–whatever the reason–did not cause the collapse of other financial institutions. Mr. Boland’s article leads one to view banks as dominoes in which one collapse necessarily leads to the collapse of all, but such is not the case. Something more fundamental was at work that led to what the great Austrian school economist Murray N. Rothbard called a “cluster of errors”. Why should all banks collapse at roughly the same moment? Some banks may have invested unwisely or suffered from incompetent or even criminal management, but why all banks? We don’t see this in other industries. For example, a restaurant’s failure does not lead to a collapse of the restaurant industry, or an airline’s demise does not lead to the collapse of all airlines. But banking is different. Banking is subject to adverse consequences stemming from the manipulation of the interest rate, usually downward, by the central bank. More businesses appear to be eligible for bank loans at the lower interest rate. The subsequent increase in lending causes an artificial and unsustainable boom that eventually must be liquidated due to lack of real capital. Anglo Irish Bank was the first to succumb to this central bank caused collapse, but it did not cause the collapse of other Irish banks. That bill may be delivered to the central bank itself.
Patrick Barron
From today’s Open Europe news summary:
The European Central Bank is widely expected to announce further stimulus measures to aid the struggling Eurozone economy as it meets in Frankfurt today. Most analysts expected the deposit rate to be cut further into negative territory to between -0.4% and -0.5% and the quantitative easing programme to be expanded by between €10bn and €20bn as the ECB struggles to lift the Eurozone out of deflation.
Source: The Financial Times Reuters The Times Die Welt
One of the consequences of the demise of sound money is that government spending now is characterized as good for the economy. Imagine a society with sound money. What government would dare claim that taking the citizens’ money and spending it was a good thing? The citizens are that much poorer by the amount of money taxed. Yet this is exactly what the Keynesian mindset claims. Now the ECB is so far down the Keynesian rabbit hole that it sees nothing bizarre in considering that it take more of the citizens’ money in order to make them wealthier. Welcome to Nineteen Eighty-four.
Patrick Barron
(Philadelphia’s mayor wants to impose a three cent PER OUNCE! tax on sodas.)
Re: Mayor Kenney: Soda tax would fund $400 million in projects
Dear Sir:
Philadelphia Mayor Kenney joins the too-long list of economically ignorant politicians. One begins to wonder whether ignorance of basic economics is a prerequisite for running for elected office. Gee, I didn’t think I would ever say this, but I agree with the Teamsters; i.e., the three cent per ounce tax on sodas will destroy jobs. Has the mayor really not considered that money spent on a soda tax will NOT be spent elsewhere? Let’s suppose that the people spend the same total dollars, including the new tax, to buy sodas as in the past. The revenue to the soda-providing industry will go down, because the tax comes off the top, and the number of units of sodas sold will be less. Got that? So, the soda bottlers will produce fewer bottles of soda. Materials and manpower used by the soda bottlers will go down, both in gross revenue and number of units. Soda delivery workers, the Teamsters, will deliver fewer bottles, resulting in layoffs. The retail stores will sell fewer units, resulting in lower net revenue–the price of the soda less the tax–and earn lower profits. Everyone involved in any way with the soda retail selling industry, such as the store owners and their employees, will be negatively affected. In short, Mayor Kenney’s soda tax will impoverish the people of Philadelphia in addition to depriving them of their right to consume a legal product, which apparently is the goal of the social engineers. How about this…the people of Philadelphia refuse to buy a soda anywhere in the city. Tax revenue from soda sales would be zero. The social engineers who are oh so concerned about the health of Philadelphians would have to seek another outlet for their busybody inclinations.
Patrick Barron
From today’s Open Europe news summary:
In his new book, former Governor of the Bank of England Lord Mervyn King warns, “Put bluntly, monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other…This is extraordinarily dangerous.” He adds that the measures aimed to keep the Eurozone together, such as bail-outs, “Will lead to not only an economic but a political crisis.” Lord King argues that the Eurozone must “face up” to its problems and the fact that some countries can only prosper again outside. Lord King accepts that “the counter-argument – that exit from the euro area would lead to chaos, falls in living standards and continuing uncertainty about the survival of the currency union – has real weight”, but sees little alternative for the struggling states.
Source: The Daily Telegraph
The fall in living standards would be temporay. A breakup of the euro will stop the consumption of capital that is made possible by the Eurozone’s bailout policies. The profligate countries of Europe would no longer have “legal” access to other people’s capital, namely Germany’s. They would have to reform their economies and live within their own, and not someone else’s, means. A breakup of the Eurozone would save Europe from its current socialist, capital-consuming structure.
Patrick Barron
Dear Sirs:
Professor emeritus Joseph Betz thinks that Bernie is a good socialist, similar to the myth of the “good dinosaur“, a movie to which I took my three year old grandson. Professor Betz says that “Economically speaking, a government that guarantees social and economic rights is socialist; its opposite is capitalist.” He further states that “…socialism does not mean Karl Marx’s government ownership of the means of production,…” Sorry, professor, but that’s exactly what socialism means. To support his views Professor Betz resorts to the least persuasive form of argument–a call to authority. Professor Betz is enamored with the United Nations’ 1948 Universal Declaration of Human Rights and the Catholic bishops of the United States call for government programs to secure “Economic Justice for All”. Bernie may not be a socialist; he may be simply another politician who is willing to use the police power of the state to regulate business and confiscate property in order to meet his vision of the just society. However, neither Bernie nor Professor Betz offer any logical support for their views. I suggest that both read Claude Frederic Bastiat’s The Law for starters. They will learn that self-ownership is the basis of all law and the foundation of the sanctity of private property. Limited government was formed by self-owning citizens to secure their rights. Bernie and Professor Betz, like so many these days, turn the citizen/government relationship upside down in order to further their own self-interests. Both should be ashamed of themselves.
Patrick Barron
From today’s Open Europe news summary:
Reuters reports that a number of banks have warned that the ECB may run out of sovereign bonds to buy, particularly if it ups the size of its monthly purchases. The ECB would either have to alter its 33% limit of bonds per sovereign issuer or expand its purchases to other forms of bonds. Meanwhile, ECB Supervisory Chief Danièle Nouy has said, “We do observe a trend towards higher risk-taking by banks…in its search for yield.”
The ECB doesn’t have to buy sovereign bonds in order to stimulate demand. It can buy anything. I am willing to sell it my old bottle cap collection. I would not object if the ECB placed a very high value on it; I certainly did when I was seven or eight years old. A few million euros would certainly cause me to increase my demand for the many luxuries of life, which undoubtedly would stimulate demand in certain sectors. How about it, ECB?
Patrick Barron
Re: US Consumer Prices Flat in January, but Offer Glimmer of Inflation
Dear Sirs:
This quote from Ms. Davidson’s article perfectly illustrates the fallacy that higher prices are desirable:
”Broad-based price growth is signalling that the wage and price pressures are building, an indication that the economy is expanding at a solid pace and that recessionary concerns are overdone,” PNC economist Gus Faucher said.
Higher prices are the result of a combination of two factors, both of which are undesirable–lower output or an increase in the money supply which causes an increase in spending. The following simple formula of Professor George Reisman can be found on page 505 of his magnum opus Capitalism: A Treatise on Economics.
P = Dc/Sc
P is the general level of consumers’ goods prices, in the sense of the weighted average of the prices at which consumers’ goods are actually sold. Dc is the aggregate demand for consumers’ goods. as manifested in a definite total expenditure of money to buy consumers’ goods, and Sc is the aggregate supply of consumers’ goods, as manifested in a definite quantity of consumers’ goods produced and sold.
As further explained by Professor Reisman, “An expanding quantity of money operates to raise the general price level by virtue of raising aggregate demand relative to aggregate supply.”
In other words, the Federal Reserve Bank’s policy of printing more money causes aggregate demand to rise, but the rise in prices does not mean that more goods and services are being produced. It most probably means that more money is chasing the same or even smaller quantity of goods. In fact an increase in the quantity of money causes dislocations and disequilibrium in the structure of production, which causes the supply of consumers’ goods to fall.
Therefore, an increase in prices, which is commonly called “inflation”, is nothing to be desired by the general public.
Patrick Barron
Re: China’s Economy Suffers From Hangover of Producing Too Much
Dear Sirs:
The focus of this otherwise excellent article should be that China has produced too much of the wrong goods. Easy credit causes disruption in the time structure of production, making longer term projects appear to be profitable in the future. But such will not be the case. Ludwig von Mises used the analogy of trying to build too large a house with too few bricks. The project appears to hum along nicely until the builder realizes that he does not have enough bricks–i.e., real goods–to finish the house. China’s only rational option is to end the credit expansion that caused the current dislocation. More easy credit merely perpetuates and expands the destruction of capital.
Patrick Barron
From today’s Open Europe news summary:
“German conservative MP Gunther Krichbaum – who chairs the Bundestag’s EU Affairs Committee – has warned that the UK “won’t be able to survive” outside the EU, citing the reintroduction of tariffs on British exports in the event of Brexit.”
Herr Krichbaum has revealed more about the EU than he intended. The EU is a closed protectionist bloc; it allows free trade within its borders but imposes high tariffs and quotas on goods and services from countries lying outside its borders. The purpose of such a system is to restrict, rather than expand trade, in order to mollify politically powerful internal economic groups. Its purpose is NOT to allow EU citizens free access to the goods and services of the rest of the world.
Should the UK leave the EU, it may well face high tariffs on its potential exports to the EU. If so, it should NOT reciprocate and impose high tariffs on imports from the EU. The UK should adopt unilateral free trade. No nation can control the internal economic politics of other countries. All any country can do is trade freely with the world.
Pat Barron
Mises Institutes Around the World
Brazil Canada Columbia Czech Republic Ecuador Estonia Finland Germany Israel Italy Poland Portugal Romania Slovakia South Africa Sweden Switzerland United States Ukraine
... needs to be read by as many Members of Congress as possible.
