Here we present a history of the Fed in charts. As you’ll surely glean from the below — the Fed has degenerated from a by and large passive institution (dealing only in high-quality self-liquidating commercial paper and gold) to an active pursuant of junk, an enabler of wars, a ‘benevolent’ combatant of the depressions of its own creation, a central planner of employment & prices and of course a forgiving friend to inconvenient market follies.

 

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Statistical games

June 28, 2014

It’s fair to say that among those of us buried deep in the paranoid depths of the alt-finance community, a certain suspicion exists when it comes to government economic statistics. I don’t think it’s too much of a stretch to claim that among the broader population, cynicism about such stats is also increasing. We have after all seen a senior policeman testify in parliament to the corruption of official crime stats, just as rigorous studies have shown grade inflation in school exam results. Why should economics be immune from this malign trend?
 
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Niall Ferguson and Andreas Schaab (Harvard) and Moritz Schularick (The Bonn Institute of Macroeconomics and Econometrics) have an interesting new study out detailing the history of central bank balance sheet expansions and contractions in “12 advanced economies since 1900.”

 

Mainstream economists tend to belittle the significance of this subject. Monetarists and Keynesians regard an elastic money supply, manipulated by central banks, as a desirable weapon to be used in smoothing out the business cycle. Some economists even go so far as to argue that with interest rates at record lows and inflation tepid, central banks should be directly monetising government infrastructure projects.

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The new issue of Standpoint carries an interesting article from Robin Harris – director of the Conservative Research Department from 1985 to 1988 and member of Margaret Thatcher’s Policy Unit from 1989 to 1990 – on the subject of pension reform in Britain. Whoa, don’t all rush for the exit at the same time; this is worth your time – an interesting examination of the tensions that can crop up between free-market capitalism and conservatism.
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The deflation bogeyman

May 17, 2014

 

Peter Schiff and Nouriel Roubini, two of the original “Doctor Dooms”, go at it hammer and tongs in the video above, in a discussion on the state of the US economy and the perennial inflation versus deflation debate. Not much love lost between them, though they keep the discussion civil.

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The French economist Thomas Piketty is being referenced a lot at the moment. In case you don’t know, Piketty has written a book called Capital in the Twenty-First Century – the title deliberately Marxist in tone – about the problem of growing inequality, and how capital’s ever-greater share of the world’s riches is leading us towards a system where inherited wealth is central to one’s personal fortunes (or otherwise).

 

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Financial warfare

April 29, 2014

War is the continuation of Politik by other means.

– Carl von Clausewitz (1780-1831)

 

Regrettable though it maybe, but politics hasn’t died. Which means war hasn’t died either; though the tools of warfare are constantly evolving.

 

Clausewitz’s quote came to mind recently, when I read snippets from a recent interview the BBC’s Robert Peston did with Hank Paulson, US Treasury Secretary during the 2008 financial crisis. Paulson recalls how desperate he was that the Chinese – owners of some $1.7 trillion of mortgage-backed bonds issued by Fannie Mae and Freddie Mac – not start dumping these securities, so potentially leading to an even bigger crisis.

 

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