Category Archives: Inflation

UPDATED: John Maynard Keynes: Where’s The Genius? (Part 1)

Capitalism, Celebrity, Classical Liberalism, Communism, Debt, Economy, History, Inflation, Intellectualism, Left-Liberalism, libertarianism, Media

“John Maynard Keynes: Where’s The Genius?! (Part 1)” is the first part of my conversation with Benn Steil. Dr. Steil is senior fellow and director of international economics at the Council on Foreign Relations. His latest book is “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order”:

1) ILANA MERCER: Congratulations on a beautifully written book, so carefully researched, with both archival and secondary material. Followers of the Austrian School of economics, as I believe we both are, have a reflexive disdain for John Maynard Keynes. Nevertheless, the portrait you drew of him was powerful and persuasive. For example, it is easy to sympathize with Keynes’ frustration with the American mind—so prosaic and anti-intellectual—during the critical Bretton-Woods negotiations. There is much to admire too about Keynes’ “unrelenting nationalism.” I had never before thought of Keynes as an English patriot, first. You, a Hayekian thinker, managed to humanize J. M. Keynes. How did that happen?

BENN STEIL: Thanks Ilana. I’m a great admirer of Hayek’s writing, as you know, but I’ve never been one to wear the Austrian (or any other) label. More importantly, “The Battle of Bretton Woods” is in large measure a parallel biography of Keynes and Harry Dexter White, and no biographer succeeds in engaging readers of any stripe without empathy towards his subjects. In the case of Keynes, I may not sympathize with his economics in the way that his greatest biographer, Robert Skidelsky, does, but I found it not in the least bit difficult to admire him as a gifted public intellectual and to warm to him as a human being, with all his obvious flaws and foibles. One aspect of Keynes that I tried to bring out is how fundamental his English upbringing and nationalism were to shaping both his economic and political thinking. He was a defective diplomat, no doubt, but he took to the role with ease and enthusiasm.

2) MERCER: My mistake. You were awarded the 2010 Hayek Book Prize, so I presumed you favored Austrian economics. But back to Keynes. As you reveal, he “never bothered with a [doctorate]; he hadn’t even a degree in economics,” and “he formally studied economics for a brief period” only. (page 61) His election to “a life fellowship at Kings College, Cambridge, at twenty-six” seemed to rely on familial membership in Britain’s intellectual peerage. Yet, as you contend, he amalgamated the qualities of “mathematician, historian, statesman, philosopher” “with a genius that no economist has ever matched.” (page 62) Guide the perplexed, please.

STEIL: It’s important to understand that in Keynes’s day, …”

Read the rest of the conversation, “John Maynard Keynes: Where’s The Genius?! (Part 1),” on WND. Stay tuned for the conclusion, next week, of the Steil-Mercer conversation about Keynes.

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UPDATE (8/15): I forewarned Benn Steil, who is the nicest gentleman—and, unlike J. M. Keynes, a jolly good sport—that our readers are hard-core. If only these readers used respectful language, but there is nothing I can do about the conduct of others.

It has to be obvious from my questions to Dr. Steil (part 2 is still to come) that I have the utmost respect for his scholarship and that I enjoyed what was an impressively researched, beautifully written book. I am not one of those tinny ideologues who’d rather miss out on an important intellectual contribution just because it doesn’t comport 100% with my philosophy. I’m too curious for that.

Benn Steil and I began communicating when I penned an irate blog about a negative review of his book in The Times Literary Supplement.

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Indian Savings Grace

Capitalism, Debt, Economy, Inflation, Morality

I watched Indian Finance Minister P. Chidambaram’s interview, some months back, on the Charlie Rose Show. Mr. Rose scolded Chidambaram for his countrymen’s high savings rate, mouthing the Keynesian mantra about the need for non-stop spending so as to keep demand from falling. I recall thinking how morally bankrupt was Mr. Rose’s advocacy of micro-bankruptcy, in the face of the Indian minister’s savings grace.

I have been unable to locate the transcripts for the segment (help?), but in The Hindu (a newspaper), Mr. Chidambaram is quoted as proudly talking up the thing Keynesians shun: savings.

“See, our savings rate in the worst year was 30 percent. In the best year, was 36 percent of GDP. Pick any number between 30 and 36 for incremental capital output ratio, what economists call ICOR, is about 4. Our potential growth rate is about 8 percent.”

The above excerpt is from the Charlies-Rose interview mentioned. The minister did look flabbergast at Rose’s suggestion that savings were a bad thing, explaining ever-so politely that this was a tradition in India.

Rose had smiled patronizingly, as liberals like him do about ethnic exotica.

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The Fed Tapeworm Is ‘Tapering,’ Or So We’re Told

Debt, Economy, Federal Reserve Bank, Inflation

As if Quantitative Easing were not deceptive enough a term, now we have “tapering.”

The money mafia had been “easing” to the tune of $85 billion in monthly bond purchases. If they’ve admitted to this much, you can be sure it’s much more.

Now Federal Reserve watchers are suggesting that the Fed’s “$85 billion a month bond buying program” may be winding down to … “$75 billion a month.”

The consequence of Ben Bernanke’s non-stop monetary stimulus, of course, is a rise in prices, stocks included. Homes too. It should be obvious too that an increase in the price of an item is not the same as an appreciation in it value.

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Easy Money, Soaring Stocks & A Stagnant Economy

Business, Debt, Federal Reserve Bank, Inflation, Middle East

Some in mainstream media are making good progress in connecting Ben Bernanke’s non-stop monetary stimulus to a rise in all prices, stock-market prices included.

The Fed’s monthly confetti of funny-money stands at “$85 billion total every month.” The Fed’s balance sheet reflects “more than $3 trillion.”

The Fed, explains Elizabeth MacDonald (Fox Business News), purchases mortgage-backed and Treasury securities from Fed dealers.”

You can see how hooked the market is to the central bank’s money printing — the correlation in fact is rather astonishing. It shows the government and the central bank’s power to create money, manipulate market prices, and transfer wealth. The market is powered ahead by a growing strength in corporate profits, too.

Richard Fisher, president of the Federal Reserve Bank of Dallas, is more than hip to the “monetary Ritalin” scam:

…And, for some, there is a deeply imbedded worry that the Fed’s contortion of the yield curve and cost of money cannot last forever, or, if it lasts too long, will eventually result in financial bubbles and/or uncontrollable inflation, adding another uncertainty to the plethora of uncertain factors that already plague them. “Credit is super-abundant and stock market behavior is conditioned not so much by the fundamental performance of its underlying companies but by increasing doses of monetary Ritalin.

Then again, if you listen to the likes of Shepard Smith (also on Fox News) or Brooke Baldwin (CNN) expatiate on the topic of a stagnant economy against the backdrop of soaring stocks—you’ll hear their extra curricula exhortation for The Ben Bernanke to keep those interest rates low. Lovely!

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Some Economic Fundamentals

Barack Obama, Business, Debt, Economy, Inflation

Against the backdrop of the White House’s budget, a “$3.778 trillion spending plan for the year that begins in October, which called for about $1 trillion in tax increases over 10 years and higher spending on programs such as education, transportation and mental-health services” (WSJ), consider the following:

* “The top 1 percent of Americans in income pays 37 percent of all income taxes. The top half of wage earners pays 98 percent of all income taxes” (Pat Buchanan).

* “9 million Americans ages 20 to 64 years old – nearly 5 percent of the working-age population – is receiving disability pay (Pat Buchanan). 81,000 Americans went on disability just last month. The government is spending $260 billion a year on disability programs, more than it spends on food stamps and welfare combined (Lou Dobbs).

* 47.8 million Americans receive food stamps, “at a cost of $80 billion” (Pat Buchanan). The percentage of Americans on food stamps has risen by 70 percent since 2008.

* 90 million Americans have dropped out of the labor force (Here).

* 50 million Americans are living below the poverty line (Lou Dobbs).

* And who can forget the national debt? It’s $16.8 trillion.

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Happy Days Are Here Again In … La-La Land

Britain, Debt, Economy, Government, Inflation

Across the pond, U.K. Chancellor of the Exchequer George Osborne is singing from the Bush and Obama hymn sheet. A neo- Keynesian naturally, Osborne is intent on excessive spending as a model of economic growth. What better way than a housing bubble to bring about that brief burst of spending before the bust?

Tightening credit conditions and foreclosures signal to this man (counter-intuitively, of course) that it is time for the debt-laden borrower to borrow more money he can’t repay; that it is time for those who do not spend money they don’t have, to subsidize those who do.

It’s all good, promises

Osborne yesterday pledged 3.5 billion pounds ($5.3 billion) to help buyers of new homes with loans of as much as 20 percent of the property’s value, broadening an existing program beyond first-time purchasers. He also announced a plan to guarantee as much as 130 billion pounds of new mortgages to fuel demand from purchasers with limited cash for a deposit.

At least the chancellor delivered a 2013 budget. At a glance, here are “the key points of Chancellor George Osborne’s Budget,” via BBC News (a doff of the hat to our friend in the UK):

September’s 3p fuel duty rise scrapped
April’s 3p rise in beer duty scrapped. Instead, beer duty to be cut by 1p
Annual inflation +2% rise in beer duty to be ended but “duty escalator” to remain in place for wine, cider and spirits
Cigarette duties unchanged – continuing to rise by inflation +5%

Limit at which people start paying tax to be raised to £10,000 in 2014 – a year earlier than planned

Shared equity schemes extended, with interest-free loans for homebuyers up to 20% of value of new-build properties
Bank guarantees to underpin £130bn of new mortgage lending for three years from 2014

Growth forecast for 2013 halved to 0.6% from 1.2% in December
Office for Budget Responsibility watchdog predicts UK will escape recession this year
Growth predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017.

Borrowing of £114bn this year, up from previous £108bn forecast
Borrowing set to fall to £108bn, £97bn and £87bn, £61bn and £42bn in subsequent years
Borrowing as share of GDP to fall from 7.4% in 2013-14 to 5% in 2015-16
Debt as a share of GDP to increase from 75.9% in 2012-13 to 85.6% in 2016-17

Most government departments to see budgets cut by 1% in each of next two years
Schools and NHS will be protected
£11.5bn in further cuts earmarked in 2015-16 Spending Review, up from £10bn
1% cap on public sector pay extended to 2015-16 and limits on “progression” pay rises in the sector
Military to be exempt from “progression” pay limits.
Proceeds of Libor banking fines to be given to good military causes, including Combat Stress charity

600,000 more jobs expected this year than at same time last year
Claimant count to fall by 60,000

An extra £15bn for new road, rail and construction projects by 2020, starting with £3bn in 2015-16

Corporation tax to be cut by 1% to 20% in 2015
New employment allowance to cut National Insurance bills cut by £2,000 for every firm
450,000 small firms will pay no employer National Insurance
Government procurement from small firms to rise fivefold
Tax relief for investment in social enterprises
Stamp duty axed on shares traded on growth markets like Aim.
Tax avoidance and evasion measures, including agreements with Isle of Man, Guernsey and Jersey, aimed at recouping £3bn in unpaid taxes

Tax incentives for ultra low-emission cars
Pottery industry in Midlands to be exempt from climate change levy
Tax allowances for investment in shale gas

2% Bank of England inflation target to stay in place
Bank remit to be changed to focus on growth as well as inflation

Single flat-rate pension of £144 a week brought forward a year to 2016
Cap on social care costs confirmed

20% tax relief on childcare up to £6,000 per child from 2015
£5,000 payments for those who lost money on Equitable Life policies bought before 1992. Extra money for those on low incomes

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