Sunday, August 21, 2011

Roubini's Off the Wall History of Financial Crashes

Nouriel Roubini is continuing his mad streak of tweets attacking those who see dangers in central banking, in general, and the Federal Reserve in particular. His tweets distort the history of banking and crashes from the 1700's to modern day. He begins:


  1. Wenzel,

    You do truth-seekers a service here with this post so I don't mean this as criticism because I think you really nailed Roubini for his ignorance/deceit in this regard, but you're missing the real point here:

    Roubini is implicitly arguing that, post-Fed, each time the Fed has come to the rescue in a financial panic/crisis it is or will be the last time. Then it happens again, and they intervene, for the last time. Somehow the whole "they keep intervening" doesn't seem in his mind to contradict the "for the last time" bit.

    What's more, he is implying that the final day of reckoning can be indefinitely put off via Fed intervention. That there are free lunches. That everyone can have their cake and eat it too, with no bad or faroff consequences.

    The man doesn't get economic theory. Is it any wonder his interpretation of and conclusion-drawing from history is completely off kilter?

  2. meanwhile, across the Atlantic, via the Telegraph, Ambrose Evans-Pritchard lays out his latest wtf: "Relax, Central Banks Can Save Us".

  3. The previous booms and busts were all caused by government intervention in the form of inflationary monetary policy and in the form of meddling in the banking industry. There were central banks in the nineteenth century, and they caused the Panics of 1819 and 1837. After the second central bank was abolished, there was only one panic, the most mild of all, before the federal government involved itself in banking again in 1863. The Panic of 1857 was caused by the inflationary practices of the state-run banks, mainly in the North. The southern states, which by this time had hard-money policies, were barely hit by this panic. After 1863, the government once again involved itself in banking with the National Banking Acts. Government inflation to pay for the war, as well as the federally chartered national banks, caused the Panic of 1873, as widely accepted at the time. (See the secretary of the treasury's speeches from this period.) The Panic of 1893 was caused by additional government meddling in the form of inflation created by the Silver Purchase Act, as well as the exceedingly high McKinley Tariff. Bottom line -- the government intervention in the economy caused all those pre-Fed panics, none of which was bad as the Great Depression and our current endless depression, not the mention the innumerable smaller booms and busts in between. We libertarians must repeatedly hammer these points. Hard-money economists of the nineteenth century -- the precursors to the Austrians -- acknowledged government intervention as the cause of the panics. Rothbard writes in detail about all these panics in The History of Money and Banking in the United States and The Mystery of Banking. See also The Panic of 1819, as well as the writings of the original economists. The problem is not central banking per se but government control of the money supply and interference in the banking industry. Currently, the central bank is the instrument of government control of the money supply.

  4. The Great Roubini's Vanishing Act - he vanished the 1920-21 recession, which provides a text book case refuting the Keynesians.
    I quote Bob Murphy:

    "To restore fiscal and price sanity, the authorities implemented what today strikes us as incredibly “merciless” policies. From FY 1919 to 1920, federal spending was slashed from $18.5 billion to $6.4 billion—a 65 percent reduction in one year. The budget was pushed down the next two years as well, to $3.3 billion in FY 1922.

    On the monetary side, the New York Fed raised its discount rate to a record high 7 percent by June 1920. Now the reader might think that this nominal rate was actually “looser” than the 1.5 percent discount rate charged in 1931 because of the changes in inflation rates. But on the contrary, the price deflation of the 1920–1921 depression was more severe. From its peak in June 1920 the Consumer Price Index fell 15.8 percent over the next 12 months. In contrast, year-over-year price deflation never even reached 11 percent at any point during the Great Depression. Whether we look at nominal interest rates or “real” (inflation-adjusted) interest rates, the Fed was very “tight” during the 1920–1921 depression and very “loose” during the onset of the Great Depression."

    The result was a far shorter recession, followed by a boom...

  5. Just tweeted and FBd this post- great demolition of Roubini's disingenuous and deceitful tweets. What an ass- just another slick (sick) tool of the elite.

    Dale Fitz

  6. Mr. Wenzel,

    Thank you for providing a response to Roubini's tweets and a job well done.

    I kept waiting for it all day after the initial story.

    Once again, to paraphrase Mr. Roddis, "Let these clowns blab their Keynesian nonsense".

  7. While those of us that know our history of banking in the US understand that Roubini is being intellectually dishonest in his tweet, but let's pretend he's not. The price for the slightly better stability that he sees as a result of the central bank is the destruction of 97% of the value of our currency. I think that's a pretty steep price to pay for the stability we've gotten.

  8. Got 'em on the run. Maybe Roubini will back Krugman's space aliens proposal...

  9. M2 growth is 6x rather than 10x.
    Use a logarithmic scale rather than a linear one for an honest look at growth over time.
    Any discussion of "printing money" should include the context of real GDP growth and the price level.

  10. Wow, Roubini must be covering for someone here. When intelligent people make such facially and patently stupid arguments it is always for a reason.

    Roubini is shilling here. For what or whom seems rather obvious to me -- Ben "Bazooka Joe" Bernanke and his puppeteers and cohorts.

    I doubt he'll be given much credence by serious folks after this and his "why worry" stance on inflation. No doubt he'll continue to be self-promoting media darling.

  11. Anon@9:54 The M2 increase is a shitload of cash being poured into connected fatcat's pockets whichever way you slice it.
    And real GDP and the price level are aggregates of goods and services in many different categories over the entire economy and as such a almost worthless figures. As the man said "you can't eat an Ipad"

  12. The old question...evil or stupid? Can Roubini really be that ignorant? Central banking or government meddling in banking was involved in almost all of the calamities listed. Just because it wasn't called "Federal Reserve Bank" at that time doesn't mean it wasn't a central bank.

    Also, what's up with the central banking or barter economy argument? Shouldn't a man who teaches at his level have to have a grasp on logic and argument?

    The Federal Reserve provides currency. People trade with currency. Thus, if there is no Federal Reserve, there will be no trade!

    I think I can spot a fallacy or two...

    Sure, you can count the number of recessions before after the Fed was formed, then tweet that over and over again and throw in some words like voodoo and deregulation, but unless you examine the causes and effects of each, it won't teach you much.

  13. Ron Paul is crazy for wanting competition in currency. Doesn’t he know there can only be one money in the country, and that the government has to print it?

    Meanwhile, I’m going to Starbucks to get a Latte. I’ll pay for it with cash, check, Visa, Mastercard, AmEx, Discover…

  14. "The M2 increase is a shitload of cash being poured into connected fatcat's pockets whichever way you slice it."

    Go to FRED and pull up M2. Then make the scale logarithmic. Rather than the parabolic increase depicted in the linear graph, you'll see that the growth rate has been very consistent since about 1995. What would Friedman say about that?

    The growth trend is higher than the 1987-95 period, but lower than the 1980-87 period.

    "And real GDP and the price level are aggregates of goods and services in many different categories over the entire economy and as such a almost worthless figures."

    Really? "Almost worthless"? How do you measure growth in the economy and price level? And if you find "aggregates over the entire economy" problematic, why would you find M2 (or any other monetary aggregate) to be meaningful?

  15. "Read Murray Rothbard's America's Great Depression and Robert Murphy's The Politically Correct Guide to the Great Depression and the New Deal for the Fed's key role in the Great Depression."

    Did Murphy write a politically correct guide? How disappointing.

  16. "Roubini then intensifies his attack even further. He throws this whopper out:

    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"

    I can understand a guy being clueless enough to think that the late 90's tech bubble was a private sector mania. But Roubini must be smoking crack if he thinks the S&L and housing bubbles were initiated by a private sector mania. The guy must be delusional.

  17. I charge:

    "@Nouriel, enough with the pro-Fed propaganda already."

    @Nouriel responds:

    "Am critical of Fed in sensible,not wacko, "End the Fed", way. Read my book @JDGOLDBLOG:@Nouriel, enough with the pro-Fed propaganda already"

    I reply:

    "@Nouriel @JDGOLDBLOG Wacko = new black. Sensible = status quo. Your facts ≠ straight.…"

  18. anon@9:49 Its a matter of complete indifference to me what Friedman, the creater of income tax withholding, may have thought about things.

  19. ZH just tweeted:

    zerohedge: Robert Wenzel on the History of financial crashes

  20. It is also always left out of these discussions how often the recessions/depressions of the 1800s were caused by severe regulation in terms of branch banking. When banks in states were only allowed to have one, or just two or three banks, they were far more likely to be taken down in regional disasters or areas that would have otherwise been spread out had multiple bank branches been allowed.

  21. Just point Roubini to Panama. Founded just a few years before the Fed with a constitution that forbids forced fiat currencies and, as a result, central banking. They also have no capital controls and no government FDIC-style bailout guarantees. How does their number of financial crises (hint: ZERO!) over the past century stack up to the U.S.'s?

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  23. He is simply a bald faced liar, in one way or another on the payroll of the predators.

  24. Anon@1122AM- that should read "politically INCORRECT guide to the great depression..."

    Awesome tweet from ZH! Wenzel be makin' wavz!!!

    Dale fitz