Monday, March 30, 2009
Friday, March 27, 2009
Too many dollars were churned out, year after year, for the economy to absorb; more credit was created than could be fruitfully utilized. Some of it went into subprime mortgages, yes, but the monetary excess that fueled the most threatening "systemic risk" bubble went into highly speculative financial derivatives that rode atop packaged, mortgage-backed securities until they dropped from exhaustion.
The whole point of having a central bank is to calibrate the money supply to the genuine needs of an economy -- to purchase goods and services, to fund productive investment -- with the aim of achieving maximum sustainable long-term growth. Since price stability is a key factor toward that end, central bankers attempt to finesse the amount of money and credit in the system; if interest rates are kept too low too long, it causes an unwarranted expansion of credit. As the money supply increases relative to real economic production, the spillage of excess purchasing power results in higher prices for goods and services.
But not always. Sometimes the monetary excess finds its way into a narrow sector of the economy -- such as real estate, or equities, or rare art. This time it was the financial derivatives market.
In the last six years, according to the Bank for International Settlements, the derivatives market exploded as a global haven for speculative investment, its aggregate notional value rising more than fivefold to $684 trillion in 2008 from $127 trillion in 2002. Financial obligations amounting to 12 times the value of the entire world's gross domestic product were written and traded and retraded among financial institutions -- playing off every instance of market turbulence, every gyration in exchange rates, every nuanced statement uttered by a central banker in Washington or Frankfurt -- like so many tulip contracts.
The sheer enormity of this speculative bubble, let alone the speed at which it inflated, testifies to inordinately loose monetary policy from the Fed, keeper of the world's predominant currency. The fact that Fannie Mae and Freddie Mac provided the "underlying security" for many of the derivative contracts merely compounds the error of government intervention in the private sector. Politicians altered normal credit risk parameters, while the Fed distorted housing prices through perpetual inflation.
At this point, dickering over whether Alan Greenspan should have formulated monetary policy in strict accordance with an econometrically determined "rule," or whether the Fed even has the power to influence long-term rates, raises a more fundamental question: Why do we need a central bank?
"There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard." That was Mr. Greenspan, speaking 17 months ago on the Fox Business Network.
In the rules-versus-discretion debate over how best to achieve sound money, that is the ultimate answer.
Ms. Shelton, an economist, is author of "Money Meltdown" (Free Press, 1994).
Thursday, March 26, 2009
Wednesday, March 25, 2009
Tuesday, March 24, 2009
Saturday, March 21, 2009
Tuesday, March 17, 2009
Friday, March 13, 2009
Tuesday, March 10, 2009
Monday, March 9, 2009
Thomas Sowell writes in his latest column:
Some observers are contrasting last week’s highly successful speech by President Obama to Congress with the lackluster Republican response afterwards by Gov. Bobby Jindal of Louisiana.
People familiar with Gov. Jindal have a high regard for him and many think he would make a good president. But Republicans have always had more people who would make good presidents than people who would make good presidential candidates. So long as we have a democracy, that distinction is crucial.
Gov. Jindal made a typical Republican mistake when he began with a “me too” celebration of Obama’s “historic” election. With a very limited time to address some complex issues, he needed to get right to the point and sober up such members of the audience as were capable of being sobered up.
He was, in a sense, defensive, as if he had to establish that he was a good guy. Gen. Douglas MacArthur gave a one-word definition of defensive warfare: defeat.
There can be too many words, as well as too few. Gov. Sarah Palin is doing herself no good by discussing her disastrous interview with Katie Couric. That does not look presidential, or even senatorial. A quarterback has to forget the interception he threw last time, and just make a better throw next time.
It's good for conservatives to offer each other constructive criticism, but my 2 cents is that she really needed to explain that episode, to set the record straight, as Ziegler has been putting it. I think Sowell is underestimating how things can stick with a person unless its answered decisively. There are many who believe, very wrongly I think, that Palin has already been destroyed politically.
I believe the Ziegler documentary will be part of an unprecedented Un-Borking of a person. I suspect Sarah Palin will come back in a way that is unique. And successfully going on the defensive is part of that. The GOP needs to learn to bicker! Stand up and argue back! Playing defense sometimes has to be done.
Friday, March 6, 2009
Thursday, March 5, 2009
More likely a rebuke of Brown's stated wish for a big English Bank Bailout from the Trillion dollar President, but more importantly a more general brush off of the traditional US-UK diplomatic partnership that might subtly subtract from the glory of Obama's one man show.