Last week, Janet Yellen announced the Federal Reserve will begin the much anticipated “tapering” of its massive balance sheet. The Fed chair also hinted another interest rate hike is in the works. After the most recent FOMC meeting, we raised the question: Is this a viable path forward, or is the central bank playing a game of monetary chicken? Peter Schiff has argued that the Fed ultimately won’t be able to reduce its balance sheet to any significant extent. So, despite the Fed’s hawkish stance, the path forward seems far from certain.
In a recent article published on the Mises Fed Watch, Tho Bishop also raised some poignant questions about how the Fed will actually move forward with monetary policy.
Earlier this month, we reported a move by China that could foreshadow the end of the US dollar as the world reserve currency. The Chinese announced the launch of a gold-backed, yuan-denominated oil futures contract. The move potentially creates a way for oil exporters to circumvent US dollar denominated benchmarks by trading in yuan. The contracts will be priced in yuan, but convertible to gold.
More broadly speaking, Russia and China seem to be setting the stage to set up an alternative the international US dollar system. Many analysts believe the two countries are buying gold specifically to minimize their dependence on the US dollar. Russia and China are also reportedly moving closer to developing a broader gold-based trading system.
In an article originally published on the Mises Wire, Ronald-Peter Stöferle digs deeper into the possibility of “de-dollarization.”
The world is looking for alternatives to the dollar — and finds them more and more often.”
Peter Schiff has been talking a lot about the weakening dollar. In a recent Schiff Report video, Peter said he sees the “mother of all dollar bear markets” on the horizon. The dollar has already dropped about 12% on the year, and it’s on track for its worst year since 1985. That was the beginning of a decade long bear market for the dollar. Peter says he thinks this one will be worse.
I think this one is going to be the mother of all dollar bear markets, and I think the dollar is going to fall much further than it did in any prior bear market.”
The following article by economist Dr. Daniel Lacalle, published at the Mises Institute FedWatch, provides some further insights into monetary policy by looking at the strength of the euro in relation to the dollar. His analysis sheds light on the relationship between strong and weak currencies, and the cost and benefits of each.
The following article by Frank Shostak was originally published at the Mises Wire.
Does it make sense that by means of more inflation the US economy could be pulled out of the liquidity trap?
Some economists such as a Nobel Laureate Paul Krugman are of the view that if the US were to fall into liquidity trap the US central bank should aggressively pump money and aggressively lower interest rates in order to lift the rate of inflation. This Krugman holds will pull the economy from the liquidity trap and will set the platform for an economic prosperity. In his New York Times article of January 11, 2012, he wrote:
During its last session, the Kansas legislature voted to raise taxes. The national media and left-wing politicians immediately began finger-pointing, calling the state’s five-year tax cut experiment an epic failure.
In 2012, Kansas implemented an economic reform package that included a reduction of the top income tax rate from 6.45% to 4.9%. The plan eliminated income tax on some businesses altogether. At the time Gov. Brownback called the plan “a shot of adrenaline into the heart of the Kansas economy.”
It didn’t quite work out as planned. Government expenses are expected to outpace income by $1.1 billion through June 2019. The legislature reversed course.
So what happened? One obvious answer is that you can’t just cut taxes. Government needs to shrink proportionately. That didn’t happen. But as economist Kel Kelly points out in the following article originally published at the Mises Wire, there is more to the story. It wasn’t a failure. You just have to understand how to look at it.
The following article by Louis Rouanet was originally published at the Mises Institute FedWatch.
Although today high levels of inequality in the United States remain a pressing concern for a large swath of the population, monetary policy and credit expansion are rarely mentioned as a likely source of rising wealth and income inequality. Focusing almost exclusively on consumer price inflation, many economists have overlooked the redistributive effects of money creation through other channels. One of these channels is asset price inflation and the growth of the financial sector.
The rise in income inequality over the past 30 years has to a significant extent been the product of monetary policies fueling a series of asset price bubbles. Whenever the market booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble.
Pundits and government officials keep telling us the economy is strong. Everything is great. After all, GDP is growing.
But a lot of people recognize things aren’t all that great. Some prominent economic analysts have said a major crash is looming. Nobel Prize winning economist Robert Shiller called stock market valuations “concerning” and hinted that markets could be set up for a crash. Several other notable economists have recently expressed concern about surging stock markets, particularly in the US. Marc Faber has predicted “massive” asset price deflation – possibly of a drop of as much as 40% in stock market value. Billionaire investor Paul Singer recently said the financial system is not sound. And former Ronald Reagan budget director David Stockman said we should get ready of “fiscal chaos.”
So, how is it that some see a meltdown on the horizon while most of the mainstream sees nothing but unicorns and roses? If the economy is growing, how can anybody things recession is right around the corner?
Well, what if the mainstream doesn’t understand a recession?
America is partying like its 1928 – right before the crash the kicked off the Great Depression. Some analysts believe the next crash is looming on the horizon. What will spark it? That remains to be seen. But no matter what the catalyst turns out to be, Mark Thornton says the cause will be the same as the last several collapses – Federal Reserve policy. Therefore, we should dub it the Bernanke-Yellen Bubble-Depression This article by Thornton was originally published on the Mises Wire.
In a recent article I advocated for a new way of naming business cycles. The new approach emphasizes the cause rather than the effect. So instead of the “housing bubble” and “financial crisis,” we should refer to the Greenspan-Bernanke Crisis. Here we will turn our attention to the current situation.
The following article by Ryan McMaken was originally published on the Mises Wire and is reprinted with permission
Earlier this month in the Wall Street Journal, James Grant explored the latest academic attack on the gold standard — this time in the form of One Nation Under Gold by financial journalist James Ledbetter.
Not that the establishment economics profession needs another book trashing gold. Among the university- and government-employed PhDs who hand down their wisdom about economics from on high, few have anything but disdain for the yellow metal.
Grant knows this all too well.
In this episode of Thoughts from Maharrey Head, Tenth Amendment Center national communications director Mike Maharrey talks about state action to undermine the Federal Reserve and the government’s monopoly on money.