Sunday, August 21, 2011

Insiders Must Be Really Worried about Ron Paul

Mr. Insider, Nouriel Roubini, is going on a Sunday morning twitter attack against Ron Paul, and Paul copycat Rick Perry:

Voodoo economics/politics: R Perry & R Paul book titles: Fed Up & End the Fed Perry: most of fed gov is unconstitutional. Paul: the Fed too.

One may agree or disagree with Fed policies. But proposing ending the Fed is lunatic @rcwhalen: Opposition to Fed isn't matter of economics.

One thing is to break up TBTF huge banks; another to close the Fed @rcwhalen:Fed, National Banks are just federal vehicles for leverage/debt

Economic & financial crises & boom/busts were much more frequent, nasty, virulent, destructive of jobs & wealth before the Fed was created.

Bucolic uninformed naive delusion/myth that world was better be4 central banks were created: Financial crises were more nasty before the Fed

Central banks/Fed were created after repeated/destructive financial crises & boom/busts let to have a lender of last resort to stop panics
Murray Rothbard explains the real deal (my emphasis):

The currently fashionable attitude toward the business cycle stems, actually, from Karl Marx. Marx saw that, before the Industrial Revolution in approximately the late eighteenth century, there were no regularly recurring booms and depressions. There would be a sudden economic crisis whenever some king made war or confiscated the property of his subject; but there was no sign of the peculiarly modern phenomena of general and fairly regular swings in business fortunes, of expansions and contractions. Since these cycles also appeared on the scene at about the same time as modern industry, Marx concluded that business cycles were an inherent feature of the capitalist market economy. All the various current schools of economic thought, regardless of their other differences and the different causes that they attribute to the cycle, agree on this vital point: That these business cycles originate somewhere deep within the free-market economy. The market economy is to blame. Karl Marx believed that the periodic depressions would get worse and worse, until the masses would be moved to revolt and destroy the system, while the modern economists believe that the government can successfully stabilize depressions and the cycle. But all parties agree that the fault lies deep within the market economy and that if anything can save the day, it must be some form of massive government intervention.

There are, however, some critical problems in the assumption that the market economy is the culprit. For "general economic theory" teaches us that supply and demand always tend to be in equilibrium in the market and that therefore prices of products as well as of the factors that contribute to production are always tending toward some equilibrium point. Even though changes of data, which are always taking place, prevent equilibrium from ever being reached, there is nothing in the general theory of the market system that would account for regular and recurring boom-and-bust phases of the business cycle. Modern economists "solve" this problem by simply keeping their general price and market theory and their business cycle theory in separate, tightly-sealed compartments, with never the twain meeting, much less integrated with each other. Economists, unfortunately, have forgotten that there is only one economy and therefore only one integrated economic theory. Neither economic life nor the structure of theory can or should be in watertight compartments; our knowledge of the economy is either one integrated whole or it is nothing. Yet most economists are content to apply totally separate and, indeed, mutually exclusive, theories for general price analysis and for business cycles. They cannot be genuine economic scientists so long as they are content to keep operating in this primitive way..
...the depression phase of the business a phase that comes out of, and inevitably comes out of, the preceding expansionary boom. It is the preceding inflation that makes the depression phase necessary...
Why do business cycles tend to be recurrent and continuous? Because when the banks have pretty well recovered, and are in a sounder condition, they are then in a confident position to proceed to their natural path of bank credit expansion, and the next boom proceeds on its way, sowing the seeds for the next inevitable bust.
But if banking is the cause of the business cycle, aren't the banks also a part of the private market economy, and can't we therefore say that the free market is still the culprit, if only in the banking segment of that free market? The answer is No, for the banks, for one thing, would never be able to expand credit in concert were it not for the intervention and encouragement of government. For if banks were truly competitive, any expansion of credit by one bank would quickly pile up the debts of that bank in its competitors, and its competitors would quickly call upon the expanding bank for redemption in cash. In short, a bank's rivals will call upon it for redemption in gold or cash in the same way as do foreigners, except that the process is much faster and would nip any incipient inflation in the bud before it got started. Banks can only expand comfortably in unison when a Central Bank exists, essentially a governmental bank, enjoying a monopoly of government business, and a privileged position imposed by government over the entire banking system. It is only when central banking got established that the banks were able to expand for any length of time and the familiar business cycle got underway in the modern world.


  1. "Bubbles, boom/busts, financial crises were virulent/endemic to capitalism well before central banks were created. Fed created to stop that"

    And it's done a great job hasn't Roubini?

  2. Here's one reason why:

    "Ron Paul Polling 10x Stronger in August 2011 vs August 2007

    By Eric Ostermeier on August 18, 2011

    Although he has been (famously) ignored by much of the media during the 2012 election cycle (vis-à-vis his relative standing in the GOP field), Texas congressman and presidential candidate Ron Paul is polling at approximately 10 percent in the race for the GOP nomination. That represents a monumental uptick from his standing in the Republican field four years prior in mid-August 2007. At that time, Paul was averaging only about 1 percent among likely voters in a similarly crowded field, with Rasmussen and CNN surveying Paul at 0 percent, Quinnipiac at 2 percent, and Gallup at 3 percent. In polls with end dates over the last two weeks this cycle, Paul has come in at 6 percent according to a FOX News poll, 9 percent at Rasmussen, 12 percent at CNN, and 14 percent at USA Today/Gallup. It remains to be seen whether Representative Paul will see an accompanying boost in campaign fundraising in 2012 compared to the 2008 cycle, during which he raised an impressive $34.5 million."

  3. Roubini's flying off the handle! Before the end of the day his whole front page is going to be basically the same tweet. I'm imagining him in a complete frenzy firing these things off.

    How many great depressions have we experienced since the creation of the Fed (assuming that what we're currently crawling through is going to be looked back on as the second great depression)? Why does nobody talks about or remembers these "much worse" calamities from before the creation of the Fed?

  4. Nothing new here. We can all still rest assured that no anti-Austrian has the slightest familiarity with or understanding of our ideas.

  5. According to Krugman, the Austrians have recently acquired a “real and really bad influence” upon monetary policy.

    With this being the case, I’m simply amazed that the establishment is putting up such a flaccid and pathetic response. I’m glad, but expected much more. I guess there is no response to be made and we’ve won the debate.

    Since we’re now such a strong (and really bad) influence on monetary policy, that’s another good reason for the media to ignore (and fail to comprehend) Ron Paul. Right?

  6. One of the things that continually amazes me are the comments from Keynesians like this one:

    Last 3 US recessions (1990, 2001, 2007-09) caused by boom/busts caused by PRIVATE sector's manias/panics: S&L, tech bubble, housing bubble

    BASIC economics says that people are affected by their wants (and not really so much by their needs, since normally those are fulfilled rather easily). The Fed dangles cheap money out in front of people, and they do what is absolutely natural: they take advantage of it. That mass distortion eventually goes wrong due to mal-investment, and then the Keynesians blame it on the people who acted exactly as basic economics says they should act.

    I guess it shouldn't be a surprise that Roubini would like bubbles. His whole life probably exists because of them -- including the education bubble.

  7. The fundamental problem is gov't intervention in the economy at all. Gov't needs to enforce contracts, laws against fraud and negligence, but stay out of the markets. Markets set prices and prices drive decisions. By manipulating money supply, the Feds create confusion and immorally transfers wealth. Whatever monetary system the US adopts, it must be insulated from gov't influence and special interests. Or our recent history will repeat itself.

  8. Sweet. Was wondering how I'd tweak tomorrow's headline. Now it's settled.

  9. Even if we accept his premise that central banks were created to mitigate previously "frequent, nasty, virulent" boom/bust cycles, we would still be faced with the fact that, as far as their role in preventing or reducing the effects of those booms and busts is concerned, the central banks have utterly and completely failed.

  10. In addition to Paul now running in third in Iowa and New Hampshire at 16 and 14 percent, and beating perry by five percent in Texas, Paul also just raised 1.8 million dollars in online fundraising just for Paul's birthday!

    With good solid money coming in, good organization, the most passionate supporters of a candidate I have personally ever seen, and his internet army of supporters that allow the traditional media to be taken on to an extent, the establishment has every reason to be terrified.

    Even if Paul doesn't win the nomination, he will convert millions to austrian econ, anti-war, and anti-fed views that will one day take hold of american politics.

  11. I'm admittedly mostly ignorant in these matters, but the more I learn, the more it looks to me like the bottom line reason to have a central bank is to try to limit the mess when the fractional reserve system hits the fan. Maybe one day I'll become as smart as Roubini and realize where I'm wrong, but until then I'm behind Ron Paul despite differences of opinion on other matters.

  12. Even if you abolish the federal reserve, the US military and their friends: Coca-Cola, Monsanto, Nestle, Du-Pont, Chevron etc... still exist. The US military relies on excess food production to exert huge economic influence over the world. Having 5000 more nukes than the next guy isn't helpful if they have 5000. The threat of economic sanctions gives America the free reign to do as they please in the international forum, and it is there primarily that your military sucks the life out of its people, in order to pay for its quest to rule the world.

    The "government" is a privileged customer at the moment, yes. But this is only because when the military says "Jump", it says, "How high? Oh, and, shouldn't we make it look like we're doing all we can to make sure we don't go to war?"

    I think Ron Paul's faith in the free market is ludicrous. But I don't care about that anywhere near as much as his sane approach to war, in general. War is the barbarism that will bring America (and the world with it) to its knees, unless sensible people say, "No more. We won't go."

    The unfortunate thing for Ron Paul is, abolishing the fed is a very risky thing to do... taking out a keystone species, even in an artificial ecosystem, can have chaotic effects. I admire his conviction though.