Friday, September 18, 2015

The Absurd Idea That the Fed is Not Going to Raise Rates

By Robert Wenzel

With the failure of the Federal Reserve to raise interest rates at yesterday's monetary policy meeting, certain so-called Austrians are out cheering that they have been proven correct in their view that the Fed will not raise rates and that the economy is in in terrible shape and that a new round of quantitative easing is just around the corner.

There is so much economic confusion in this view that I am a bit embarrassed to associate it in anyway with very sound Austrian school economics, but yes, there are those out there, who claim they are Austrians, that claim the Fed is never going to raise rates, with the fall back position that: "Well, they might raise rates once but then quickly reverse and launch a new round of QE."

Let me begin by stating clearly that nowhere in Austrian economic theory does it say that starting in late 2008 the Fed would never raise rates again.


Nowhere in Austrian school business cycle theory does it state that the business cycle is actually not a cycle but a permanent bust phase.

These are absolutely absurd beliefs.

To be sure, the Federal Reserve money manipulations do create business cycles. The boom phase is a manipulated boom phase, but it is a boom phase.

Further, to hold the view that the Fed is "out of bullets," and we will never again see full employment, is equally absurd. It is defying the basic laws of supply and demand. Markets clear. including jobs markets. To claim it is otherwise, because of Fed activities, is a failure to understand basic economics.

There is a period, when the economy shifts after a boom phase, when there is transitional unemployment, but that would be quickly resolved in a free market. To the degree there is unemployment beyond that has nothing to do with the Federal Reserve being "out of bullets." It is about, among other things, unemployment insurance, welfare payments and minimum wage laws. None, I repeat, none of this has anything to do with the Fed. To think in terms of a "macro failure " , is to think in Keynesian terms, not Austrian. The great Austrian economist Murray Rothbard knew full well such failures were not caused by Federal Reserve events.

Rothbard made this clear in his important book, America's Great Depression:
Only if there is no interference, direct or threatened, with prices, wage rates, business liquidation will the necessary adjustment proceed with smooth dispatch.
Further, to think that the Fed can keep rates extremely low forever while pumping trillions of dollars into the system is more absurdity. The Fed has pumped an enormous amount of money into the system and for various reasons that I have discussed in the EPJ Daily Alert it has not translated, yet, into significant price inflation.

I am now forecasting in the ALERT that this is likely to change soon. With higher price inflation rates, there is no way the Fed is going to keep the top range of the Fed funds rate at 0.25%. The inflation rate, as measured by government statistics, will first climb to 3%, then 5%. There is no way the Fed is going to keep the rates at only the top of the current 0.25% target range, under these conditions. They will raise the target,

It should also be noted that the so-called Austrians talk as if the Fed hasn't raised rates at all since 2009, when in fact we have seen a significant increase in rates.

When the Fed does announce an increase in rates, they are going to be announcing a change in the "target range," but rates have been climbing since 2004 within the current target range, so it is even a myth now that the Fed hasn't raised rates.


The so-called Austrians have also bought into the Bernanke hustle known as Quantitative Easing.

QE is just another way of adding money into the system. As any first year econ student can tell you, there are three ways the Fed can control the money supply, via the reserve requirement, the discount rate and open market operations. In the case of the open market operations, securities are purchased/sold to add/subtract funds from the system.

This is basic.

Paul Krugman even covers it in his text, Macroeconomics (pp 428-31)

QE is just a different kind of asset bought via open market operations. It really doesn't matter what asset is bought by the Fed to conduct its operations.

In his 1983 book, The Mystery of Banking, Rothbard made this clear (italic in original)
From, the point of view of the money supply it doesn't make any difference what asset the Fed buys...
Thus, anyone focused on QE, now, is just buying into Bernanke nonsense that some new magic monetary event was going on when it wasn't. It was plain old money printing, The assets bought were different than normal but that is becasue the Fed wanted to bailout the banksters from bad housing paper and mess around with the long end of the yield curve. But the Fed can goose the economy all day without ever doing a QE again. Watching QE is watching the radio, when the Super Bowl is on a big screen in the same room, And, when it comes to monetary policy, the big screen is the money supply itself, and that hasn't exactly been in decline since the Fed announced the end of QE in October 2014.


Bottom line: There is a lot of talk within so-called Austrian circles which is clueless when it comes to fundamental understanding of, and runs counter to, sound Austrian economics:

Among the points that are not supported by sound Austrian economic analysis are the views that:

  • The Fed has "run out of bullets"
  • The Fed will never raise target interest rate.
  • That a minute 25 basis point increase in the Fed funds target rate is going, under current conditions, to crash the economy.
  • That the Fed is causing current conditions that are not conducive to market clearing jobs.
  • That another round of quantitative easing is by necessity just around the corner.
  • That interest rates will never rise again.
  • That the unemployment picture has not improved at all in the aftermath of the 2008 financial crisis.

This is not to say that the Federal Reserve has not created a very unstable structure that has many weak points, There are weak points all around, but it is absurd to make simple arguments such as "the Fed will never raise  rates" when the economy is extremely complex and the argument ignores the very real possibility that price inflation could accelerate very rapidly and force the Fed to hike rates even when in some metaphysical sense it doesn't want to.

Robert Wenzel is Editor & Publisher at EconomicPolicyJournal.com and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics

52 comments:

  1. Why are they "so-called Austrians" instead of just "Austrians."

    Is the fact that they disagree with you on a prediction - what Austrians point out as mostly impossible - make them less Austrian somehow?

    Is it that you are angry that your prediction of raised rates were wrong that now you must save face against those who called you out on it?

    Don't be petty, Bob.

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    1. Kind of seemed like it yeah...if he's talking about Schiff, he pretty much agrees with Bob's views as outlined here.

      Schiff has said that they will probably not raise rates this year, that they may raise it to .25 or even another time but will then have to go back down and most likely start another QE.

      BUT,, Schiff has also said that the Fed WILL raise rates because eventually inflation will just get too out of control that they will be forced to do so. Listen to Schiff's latest podcast episode where he outlines these predictions.

      Maybe he's not talking about Schiff though, I don't know...

      Delete
  2. Wenzel has a point. How can they be Austrians if they don't understand that QE is just another way of pumping money into the system?

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    1. RW also makes a good point about current unemployment, I was also wondering how that was supposed to be hooked up with the Fed, when the minimum wage is keeping African-Americans out of jobs and my sister was in no hurry to get a job becasue of the unemployment money she was getting.

      It seems that those making the opposite arguments aren't very good economists. Certainly not in the tradition of Mises and Hayek.

      Delete
  3. Why is it metaphysically impossible for the Fed to never raise rates again?

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    1. Bubbles eventually pop due to malinvestments failing to pay off, 7+ years of ZIRP or not, and all the inflation that was funneled into them takes the path of least resistance.

      Note that every recession is kicked off with a spike in the CPI, which coincides with a sell off in the most liquid assets, like stocks and bonds:

      https://research.stlouisfed.org/fred2/series/CPIAUCSL

      It becomes more obvious that it's a consistently repeating cycle when you look at it this way, instead of something like the numerical CPI index or GDP, which have been been double, triple, quadruple, etc. seasonally adjusted down to a meaningless straight line.

      When this process begins, not only are central banks forced into raising rates, but they can create a scenario where one small rate hike just lets even more air out of the bubble, forcing another rate hike, and so on.

      Yield curve inversions are common at the end, where the central bank's overnight lending rate is higher than 10+ year rates.

      In the case of the 70s "stagflation," once it started, it did not end until the federal funds rate was significantly higher than even 30 year mortgages.

      What we have been living through since 1998 or so has also been very much like this "stagflation."

      While it has come with unprecedented periods of low rates and expansion of the monetary base, it isn't historically without precedent. The market always wins.

      Delete
  4. "Further, to think that the Fed can keep rates extremely low forever while pumping trillions of dollars into the system is more absurdity."

    [Time stamped]
    Ep. 110: Yellen Admits Rates Could Stay at Zero Forever
    https://www.youtube.com/watch?v=gi1v8AvZY4k#t=9m24s
    Published on Sep 17, 2015

    "And of course, since I believe the Fed is never going to raise rates, and since Yellen admitted to the possibility that they may be at zero forever, well, if the Fed is not going to start shrinking its balance sheet until after it starts raising rates, and it's never going to raise rates, well it's never going to shrink its balance sheet.

    "And again, when I say the Fed is never going to raise rates, I'm talking about on its own volition: because the Fed wants to. I know that, eventually, they're going to have to.

    "See, that is a difference between me and Yellen, or something that Yellen doesn't understand. I know that at some point the Fed is going to lose control of this process, and they're going to have to raise rates. And then it's going to be a complete catastrophe. It's going to be much worse.

    "The crisis that the Fed is trying to avoid by keeping rates at zero is going to be much bigger when it's ultimately forced to raise them from zero. And, of course, it's going to have to raise them much higher because it waited so much longer.

    "And if you thought the 2008 financial crisis was bad, hey, that was the proverbial Sunday School picnic, compared to what's in store for us, now."

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  5. I maintain that the bubble is over 50 years in the making. An Austrian Credit Cycle is enormous. When have we had a real correction since 1929?

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  6. what austrian said we are in a permanent bust phase?

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  7. I'm Really confused by this article. I want to know names. Who are you talking about? Mr and Mrs Strawman?

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    1. Lol, I agree, a few days back Wenzel downplayed the Catholic Church's great writers such as Aquinas. he should become aware of Aquinas' belief that you make your opponent's strongest argument. What I got out of the post was that the situation is much more complex than Wenzel's and Mr. Strawman's views. It is a basic belief of the ABC that money creation must be accelerating in order to maintain the boom phase. Stirgl explains this best in my opinion. It is guesswork as to at what rate it must be accelerating. Signs may appear in the economy which would prompt the Fed to increase the creation rate but when would they recognize them and would they be correct in their assessment. Some believe that they would be late or mistaken and a mini-crash would happen before price inflation occurs, Wenzel doesn't seem to believe this. Clearly market action scared the Fed, Wenzel downplayed this possibility. My view is that the Fed will telegraph any rate increase more clearly before they act and hence I did not expect an increase this month.

      Delete
  8. Excellent post, Bob.

    Your reasonable analysis should be enough to disabuse anyone of the notion of an imminent "crack up boom". Not that things aren't proceeding apace towards Mises' famous paragraph, but it would take an enormous economic and/or exogenous shock to start it tomorrow, or next year.

    Peter Schiff's recollection of meeting Bernanke, and coming away stunned by the fact that he seriously believes the FED can control the economy and never actually do mortal harm to the system, sticks out in my mind as a possible counterpoint to your argument. The arrogance of those in control, coupled with Hayek's knowledge problem, and the number of global players (especially China) that are in "print or die" mode - could potentially coalesce into a worldwide economic distortion that could break the system and lead to WW4.

    The argument that the FED could possibly impose negative interest rates (as proposed by Kocherlakota) was not dismissed by Yellen.

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  9. Doubling down already? I'm starting to wonder what the purpose of this blog is. We'll see negative rates and cash illegal before any rate hikes. It'll be done for the "chillruns" and against the "terrists", of course. The Fed cares not about its "credibility" in the eyes of the .000001% of people who understand its machinations. It only cares about allowing the "system" to live another day. BTW, rate hikes won't crash "the economy" necessarily, but would crash the Fed-fueled speculative real estate, stock and bond markets.

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  10. "To be sure, the Federal Reserve money manipulations do create business cycles. The boom phase is a manipulated boom phase, but it is a boom phase."

    But it's a boom in wealth-destroying activity, such as capital consumption.

    So, when we see employment go up in a manipulated boom, we know the tension between malinvested resources and consumer demand is that much greater.

    This is why some of us see a bust coming.

    We don't know people's threshold for loss, but that's some pretty hot tension out there.

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  11. Why can't the Fed follow in Japan's footsteps? Also we may be at the top of the employment boom.

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  12. Janet Yellen was asked if the Federal Reserve might keep interest rates at 0% forever. She responded, “I can’t completely rule it out but really that’s an extreme downside risk that in no way is near the center of my outlook.” So, even Yellen isn't ruling it out. But you are?

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    1. THE Jeff Berwick?

      You are one of my idols. But, I think RW is correct- the FED will be forced, at some point, to raise rates even if it means monetization of every T-bill and overheating "printing presses".

      Or, they could just destroy the entire system by keeping "ZIRP" for the next decade, but I'm hoping they're not THAT stupid!

      Delete
  13. Rate hike or no rate hike, Yellen is no Paul Volcker. She is Rudy Von Havenstein and Gideon Gono. Simple as that.

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  14. No links to the alleged claims austrians are making.

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    1. Right. RW should name names and cite quotes.

      Delete
    2. I've read a half dozen "Austrian economists" make the claim. Check out Zero Hedge. They have some great reporting, with many Austrian influenced articles, but most of them are saying exactly what RW is describing. They say the FED is "trapped" (and it is in many ways) and therefore will NEVER raise rates.

      His logic for disagreeing is rooted deeply in Austrian analysis. He may be wrong, but I think he makes a compelling case for an eventual rate hike- far too late to stop inflation, but hikes nonetheless.

      Delete
  15. I surmise this is a thinly-disguised attack on Schiff's positions. Just name him for goodness sake. The clashing of opinions among Austrians who share fundamental views is informative, healthy, and welcome. Have Schiff respond in friendly debate.

    Schiff has said almost none of the things he’s characterized as saying above. He has said the Fed will _attempt_ to never raise rates. Schiff has emphasized the bond/stock/economic bust will eventually happen, inflation will eventually happen, and that market circumstances will then force the Fed into a position where raising rates becomes less costly than paying the skyrocketing inflation costs / weak dollar costs of not raising them. This is 100% Austrian.

    Schiff has said the employment situation is horrible and not improving. He often cites government interventions in the labor market and welfare as a major driver as well as the Fed. But Fed action is also squarely to blame for unemployment now 7 years since ZIRP began. Malinvestment initially temporarily creates unsustainable jobs, but those jobs get destroyed when consumer demand does not materialize 7 years out. Workers get fired. Workers possessing all the wrong skills after lifelong training become chronically unemployed in an environment of government welfare paying higher than the subsistence jobs they would otherwise have to resort to in a free economy. Yes, it’s a 1-2, Fed-Government punch, but the Fed’s false financial signals of 0.25% interest are instrumental in structurally sabotaging employment levels by forcing employee productivity below the welfare level. This is now playing out. This is 100% Austrian.

    Schiff has said the 0.25% rate hike will crash _the inflated bubble financial markets_, not crash the economy, which he says needs higher rates to heal the malinvestment. This is 100% Austrian.

    Schiff has indeed said QE is the only bullet left. He’s right. Altering the reserve requirement is not a bullet in the current environment because banks have huge reserves and are not lending due to credit risk. Changing the discount rate is not a bullet in the current environment because banks are not borrowing anything from the Fed (they are storing money at the Fed). The bank credit multiplier is stretched as high as it's going to go in this economic environment.

    Open market operations are all the Fed has left. It's only avenue to "stimulate demand" is to inflate via buying bonds to create NIRP or inflate via buying anything else to maintain ZIRP. Either way, open market operations = QE (money printing).

    Schiff may be wrong, the Fed may choose to take its pain this year or next and raise rates rather than wait until forced to raise them amidst general financial and economic collapse. Schiff makes a reasoned argument why Fed bureaucrats will choose the latter, accelerating the toboggan all the way down into the abyss.

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    1. Your surmise is incorrect. It is a composite of many, including commenters such as yourself.

      I did use the plural "so-called Austrians," not a so-called Austrian.

      Delete
  16. The most absurd thing is your inability to admit you were wrong.

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  17. How was your prediction of a rate increase "supported by sound Austrian economic analysis"

    Were you wrong or was the theory wrong?

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    1. "NOT supported by sound Austrian economic analysis" was the entire quote of his, above.

      More importantly, he's never once claimed any where that his "prediction"(and he never said 100% he thought a raise was coming, just that the chances were good- I'm a DA subscriber and read his daily thoughts on the matter) was based on "Austrian economics."

      His thoughts that there was a GOOD CHANCE of a raise was basically based on the Fed's own chatter about a the magic 5.2% unemployment figure and the fact they like to claim they are "data driven".

      So he was wrong, BIG DEAL!

      Him being wrong has ZERO impact on whether Austrian analysis is a valid form of analysis or not because it has NOTHING to do with whether the Fed raises interest rates or not.

      The fact you don't understand that shows you have no idea what you're talking about- so it's good you're posting anonymously.

      If you want to continue to ignorantly throw stones though, we'd all be happy for you to provide a link to your economic predictions over the last 10 years so we can compare.

      Delete
    2. Wow. Are you an angsty teenager or something?

      I asked how his prediction was "supported by sound Austrian economic analysis" to give him the opportunity to say that it wasnt. This question was crafted purposefully. Thanks for falling into my trap.

      I think that there is nothing in ABCT to allow someone to accurately predict how the people in the Fed will act. I want RW to say so.

      He provides a laundry list of predictions (without linking to them) and implies that those responsible for these predictions are relying them on ABCT. What if they are saying these things for other reasons?

      If RW may make failed predictions about interest rates and his prediction was "not supported by sound Austrian economic analysis ", isn't it possible that people who made these predictions/claims he listed for reasons outside of ABCT? There seems to be a double standard going. Of course we will never know because RW refuses to link to the predictions he lists for his readers to understand the context of the statements.



      So I will return to my original question and lay out the options for everyone before another angsty internet warrior comes in to defend RW because people are apparently unwilling to just have a conversation.

      RW, how was your prediction of a rate increase "supported by sound Austrian economic analysis"?

      There are only a few options. Please let us know which one you believe to be true.

      1. You were wrong and you misapplied sound Austrian analysis.
      2. The theory was wrong and you now have a correction to Austrian theory.
      3. You were wrong but your prediction of increased rates was not "supported by sound Austrian economic analysis" but was based on other factors.

      I think #3 is probably the correct scenario.

      If that is the case, isnt it possible for someone to say "(t)he Fed has "run out of bullets"" without relying on "sound Austrian economic analysis" but for other reasons?

      Do you need to rely on "sound Austrian economic analysis" to say that "(t)hat a minute 25 basis point increase in the Fed funds target rate is going, under current conditions, to crash the economy." (how is crash defined?)

      Same thing for "(t)hat another round of quantitative easing is by necessity just around the corner"? (Necessary for who? Necessary to achieve/prevent what?)

      I am guessing some of these claims (if they were made at all) were done so without reliance on "sound Austrian economic analysis"....... just like RW's prediction of increased rates.

      Delete
    3. "Wow. Are you an angsty teenager or something?"

      No, I'm just annoyed by idiots.

      "This question was crafted purposefully. Thanks for falling into my trap."

      Trap? It was a stupid question, not a trap. Carry on with your obvious surmise. I thought you were trying to make a more subtle statement- my mistake.

      Delete
    4. We hold the same opinion that RW's prediction was not based on "sound Austrian economic analysis" yet you call me an idiot. Does that make you one too?

      It was absolutely a trap and not a stupid question considering RW's refusal to link to alleged claims and additionally insinuate that the people making the claims are doing so in reliance on ABCT. That is intellectually dishonest.

      Funny, the only person to use the word "surmise" in this post was RW. Are you so such a fan that you talk like him too (but stephawwwwwwnnnnnnnn) or are you actually RW posting anonymously?

      And if my "surmise" is so obvious, then why has no one else made it?

      Since things are so obvious, why didn't you answer my questions about the statements of others? Is it possible for to make some of those claims/predictions without relying on "sound Austrian economic analysis"?

      If not, explain why they must be based on a misunderstanding of Austrian economic analysis. Am I missing the obvious?

      If it is possible, then explain why it is acceptable for RW to insinuate that the those making the claims are doing so based on "sound Austrian economic analysis" without linking to them.

      Or are you just going to be a keyboard warrior hurling insults at me?

      Delete
    5. "additionally insinuate that the people making the claims are doing so in reliance on ABCT. "

      Where in RW's statements does he claim they are using "ABCT" in saying interest rates will remain at zero forever? I don't see that. Are you reading into what he's written, or are you assuming that because he references "Austrians" that they would be using ABCT to make such predictions?

      "Since things are so obvious, why didn't you answer my questions about the statements of others? Is it possible for to make some of those claims/predictions without relying on "sound Austrian economic analysis"?"

      I already answered that. You've missed it. Additionally, I'm not RW, so you're suggestion is off base and further it's not my job to answer for him even though I did- if you can't understand my answer maybe you should email him directly.

      "Or are you just going to be a keyboard warrior hurling insults at me? "

      If you don't like having insults hurled at you, you can start by not insulting people yourself.

      Delete
    6. RW certainly implies that people he refuses to name are using ABCT to make predictions/claims he disagrees with. Anyone with average reading comprehension would understand what he implies.

      "Bottom line: There is a lot of talk within so-called Austrian circles which is clueless when it comes to fundamental understanding of, and runs counter to, sound Austrian economics:

      Among the points that are not supported by sound Austrian economic analysis are the views that:
      (followed by the list)"

      It is clear as day he is saying people who claim to understand Austrian theory are using it incorrectly to make predictions he disagrees with. Its painfully obvious.


      No, you didn't answer my question. Your reading skills need work. You answered my question about RW's prediction and using sound austrian theory (we both agree that he based his failed prediction on other information, not ABCT).

      In my second post (the second reply in this chain) I asked about OTHER PEOPLE making claims and whether they necessarily needed to base them on sound Austrian theory or if it was possible for them to base the claims/predictions on other information. You responded by saying you are annoyed by idiots and calling my question stupid. This is not a response to my question.

      So I posed the question again about OTHER PEOPLE making claims and whether they necessarily needed to base them on sound Austrian theory. Now you claim you have already answered that..... ummm no. All you have done is state that RW didnt base his failed prediction on sound Austrian theory. This does not address the predictions made by other people.

      So try answering that question again.


      Also explain how it is intellectually honest to not even post links to the claims/predictions he alleges were made.

      Good luck on being responsive. Slow down in your anger and read my post and your responses again. Would be a shame if you claimed to have answered my question yet again.

      Delete
    7. "It is clear as day he is saying people who claim to understand Austrian theory are using it incorrectly to make predictions he disagrees with. Its painfully obvious."

      It is clear as day?

      Let me tell you, it's not "clear as day" from my perspective.

      Maybe a better question for you to ask, instead of a "trap" question, is a sincere one:

      "RW, what exactly do you mean when you refer to "so called Austrian circles", specifically why are they "so called."

      I think that is the question you want to ask- because you are implying you understand WHY yet it is not specifically stated and this claim you make that it is "clear as day" is only so in your mind.(and maybe some others, but I don't think universally)

      "So I posed the question again about OTHER PEOPLE making claims and whether they necessarily needed to base them on sound Austrian theory. Now you claim you have already answered that..... ummm no."

      As I said, you missed it, better work on that reading comprehension of yours. Maybe you should cut back on the insults and anger and slow your reading:

      "Carry on with your obvious surmise. I thought you were trying to make a more subtle statement- my mistake."

      Maybe me calling you an idiot in response to you calling me an "angsty teenager" interrupted your thought stream.

      Delete
    8. I will literally copy and paste the part you have ignored. Just so there is no confusion on your part.


      "isnt it possible for someone to say "(t)he Fed has "run out of bullets"" without relying on "sound Austrian economic analysis" but for other reasons?

      Do you need to rely on "sound Austrian economic analysis" to say that "(t)hat a minute 25 basis point increase in the Fed funds target rate is going, under current conditions, to crash the economy." (how is crash defined?)

      Same thing for "(t)hat another round of quantitative easing is by necessity just around the corner"? (Necessary for who? Necessary to achieve/prevent what?)

      I am guessing some of these claims (if they were made at all) were done so without reliance on "sound Austrian economic analysis"....... just like RW's prediction of increased rates."

      Delete
    9. LOL - Yes it is clear as day.

      LOL again - now you are attributing other people's comments to me. The "so- called" comment was from someone else. not me

      You failed to answer these questions.
      isnt it possible for someone to say "(t)he Fed has "run out of bullets"" without relying on "sound Austrian economic analysis" but for other reasons?

      Do you need to rely on "sound Austrian economic analysis" to say that "(t)hat a minute 25 basis point increase in the Fed funds target rate is going, under current conditions, to crash the economy." (how is crash defined?)

      Same thing for "(t)hat another round of quantitative easing is by necessity just around the corner"? (Necessary for who? Necessary to achieve/prevent what?)

      I am guessing some of these claims (if they were made at all) were done so without reliance on "sound Austrian economic analysis"....... just like RW's prediction of increased rates."

      You refuse to even copy and paste your answer. You just insist that you did answer them. Pathetic.


      And you fail to address how it is intellectually honest to attribute claims/predictions to austrians without linking to them.

      You are a joke.

      Delete
    10. "You refuse to even copy and paste your answer. "

      I have one simple question for you:

      What did your reading comprehension tell you when I typed the words "obvious surmise"?

      Delete
  18. Was your prediction based on Austrian economic calculation? If so, does the incorrect prediction falsify Austrian economics?

    I'm really curious who these "so-called Austrians" are. They are the focus of your article, yet you refuse to name any of them.

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    1. Specifically predicting some economic event at a specific time is addressed at length by Mises and Rothbard, and is not considered economics. Thymolology is the term, IIRC.

      Generally saying that continuing down the Statist path of centrally planned economics will EVENTUALLY result in economic catastrophe is economically sound. Predicting the time and cause is not.

      One failed prediction by one Austrian economist is just that. Oh, and RW never predicted 100%, or even 90%, for a rate hike. He carefully explained why HE thought they would hike, applying his knowledge. He's not an insider, so he doesn't get the call weeks in advance.

      Delete
    2. "I'm really curious who these 'so-called Austrians' are."

      Apparently it's any Austrian who doesn't share RW's analysis of the Fed. No true scotsman it would seem.

      "One failed prediction by one Austrian economist is just that."

      Agreed. Let's save low esteem for the Keynesians. There is no need for RW to question the fidelity of any other Austrian or vice versa. Tea leaf readings of FOMC psychology is a distinct endeavor from economics As Mises said, "[Thymology] is of no concern to praxeology and economics."

      And if some Austrians have erroneous understandings of Austrian principles, then this should make the perfect teaching and discussion opportunity, not bashing opportunity.

      Delete
  19. why will inflation pick up when the rest of the world is in huge DEflation risk?

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    1. Prices are set by 1) amount of money available to bid on goods, 2) fundamental level of demand for those goods.

      As for #1, the Fed has printed a ton of money from 2008 onward. That's all sitting out there (in commercial and overseas central bank reserves). It's just now beginning to get into circulation.

      As for #2, when economies tumble, fundamental demand for everything plummets. People opt to tighten their belts and do without across the board.

      People bidding in the economy will have more newly printed money to do so...BUT there will be far fewer people bidding and with far less enthusiasm due to the downturn. The two factors "cancel" so to speak. Or more accurately, #2 temporarily masks #1. As you observe, we even see price deflation because demand plunges more sharply than circulating money supply increases.

      But this price deflation is temporary. After the economic bust completes and normal levels of demand reassert, price inflation explodes. Seemingly out of nowhere. The inflated money supply was out there all along; it was just concealed by abnormally depressed demand.

      Delete
  20. Robert Wenzel,

    You are an idiot. You don't even know the arguments of these "so-called" Austrians. This entire article is a strawman attack against a particular individual.

    ReplyDelete
  21. I think the "so-called Austrian" didn't say that rates will stay at zero forever, but rather they will keep rates at zero until the market forces their hand through a currency crisis.

    You needn't agree, but if you're going to make such a thinly-veiled attack, you should at least attack his actual positions, and not this ridiculous straw man.

    ReplyDelete
    Replies
    1. Glad you think the "zero forever" position is ridiculous, so do I.

      And I referenced "so-called Austrians" plural. There are many out there, look around. If anything by going to singular you are mischaracterizing what I wrote.

      Delete
  22. Hard to argue with anything expressed herein. What is Schiff so upset about?

    ReplyDelete
  23. Schiff weighs in!

    http://www.schiffradio.com/fed-worried-cost-of-living-not-rising-fast-enough-ep-112/
    9:40-17:14

    ReplyDelete
  24. Robert, You have done a lot of damage to your credibility by attacking unidentified so-called Austrians. You can repair the damage somewhat by identifying those you attack. Come on, Robert, name names.

    ReplyDelete
    Replies
    1. I'll take that into consideration "unknown."

      Delete