Saturday, August 29, 2015

A Hint of Austrian Business Cycle Theory in NYT?

Pretty damn close.

At one point, William D. Cohan writes on current Fed interest rate policy in an essay that is awesomely titled, Show Some Spine, Federal Reserve:
 Like any commodity, the price of borrowing money — interest rates — should be determined by supply and demand, not by manipulation by a market behemoth. Essentially, the clever Q.E. program caused a widespread mispricing of risk, deluding investors into underestimating the risk of various financial assets they were buying.

The only way to return the assessment of risk to something resembling normalcy is to stop the manipulation.


  1. Let me see if I've got this right...a short while ago the BIS said there's too much debt, two former Fed chairs said QE was wrong, the St. Louis Fed said the other week that QE didn't deliver intended results, now the paper of record, (i.e. the American Establishment), prints an article that says money is a commodity and it's cost should be determined by a free market?

    What the heck's going on with all this truth telling all of a sudden? Are TPTB getting ready to burn the house down or what??

    1. Probably part of the set up to blame the free market. They'll inject a little free market economics just before the bust phase and they'll a scapegoat. They'll then have academics blame the Austrian school for the crash.

    2. Astute observation that you smell policy change in the air. Being principled ourselves, we sometimes mistakenly presume TPTB and their minions are principled as well. We give them too much credit as being committed Keynesian ideologues. They are, but only at the times and to the extent it suits them to be. I.e., they want to publicly justify printing some money.

      When they no longer want to print money because they are smart enough to realize doing so would likely backfire in the current state of the market, then they start looking around for a narrative to justify not printing money. Such as, "The labor market is approaching our maximum employment objective." Or concluding of inscrutable macroeconomic calculus equations that, "Inflation is now on track for 2%." Or if all else fails, employing the classic catch-all, "Being flexible in response to changing conditions." This mentality is exemplified in Bush’s classic, “I’ve abandoned free market principles to save the free market system.”

      In other words none of them are principled. They simply shift to adopt a narrative that is expedient at the moment for maximizing their personal prestige, power, or wealth.

      Slides have been unearthed from Krugman’s economic classes years ago in which he taught the primacy of supply and demand and derided demand manipulation and price controls. At that time, in his job of basic Economics teacher, it was expedient for his reputation and employment prospects that he respect such concepts. Now, in his job of government intervention apologist and liberal establishment darling, it is expedient for his reputation and employment prospects that he reject them.

  2. Ohhh...this is so fun...Cohan's write up actually pissed off Krugman:

    Here's the funniest statement the Nobel Prize winner makes in his rant against Cohan:

    "OK, there are arguments that the Fed should be willing to abandon its inflation target so as to discourage bubbles. I think those arguments are wrong — but in any case they have nothing to do with the notion that current rates are somehow artificial, that we should let rates be determined by “supply and demand”. "

    Wow...that's all I can say at the moment..."wow".

    1. Funny isn't it? This so-called economist (Krugman) is such a joke.

  3. Interest rates are determined by supply and demand. There are many govt programs that increase demand for money You have the Fed buying bonds, you have mortgage interest deduction, you have bankruptcy courts that provide debt relief. But make no mistake that the laws of supply and demand determine the interest rate. The Fed does not simply dictate a interest rate other than the discount rate. Also, the Fed sells bonds whenever it raises the federal funds target. It increases supply as well as demand. Most of the "market types" who want an interest rate hike want the Fed to increase the supply of bonds.

    1. "Interest rates are determined by supply and demand."

      Interest rates are determined by MANIPULATED supply & demand, hence the interest rates themselves are manipulated.

      Really, who seriously thinks the actions the Fed and various gov't appendages take in regard to supply/demand isn't specifically targeting interest rates?

      I guess Krugman for one, but it's either disingenuous or stupidity to suggest that interest rates in the US are not artificial, and I don't give a damn if he's a Nobel Prize winner or not.

  4. FYI:

    In a post yesterday commenting on Paul Krugman’s takedown of a silly and ignorant piece of writing about monetary policy by William Cohan, Scott Sumner expressed his annoyance at the level of ignorance displayed people writing for supposedly elite publications like the New York Times which published Cohan’s rant about how it’s time for the Fed to show some spine and stop manipulating interest rates. Scott, ever vigilant, noticed that another elite publication the Financial Times published an equally silly rant by Avinah Persaud exhorting the Fed to show steel and raise rates.