#monetary stimulus

[olduvai]

[uniteordie-usa]

How Government Inaction Ended the Depression of 1921

http://uniteordie-usa.com/how-government-inaction-ended-the-depression-of-1921/ http://uniteordie-usa.com/wp-content/uploads/2017/01/FEDlogo-1-300x300.gif How Government Inaction Ended the Depression of 1921 As the financial crisis of 2008 took shape, the policy recommendations were not slow in coming: why, economic stability and American prosperity demand fiscal and monetary stimulus to jump-start the sick economy back to life. And so we got fiscal stimulus, as well as a program of monetary...

As the financial crisis of 2008 took shape, the policy recommendations were not slow in coming: why, economic stability and American prosperity demand fiscal and monetary stimulus to jump-start the sick economy back to life. And so we got fiscal stimulus, as well as a program of monetary expansion without precedent in US history.

David Stockman recently noted that we have in effect had fifteen solid years of stimulus — not just the high-profile programs like the $700 billion TARP and the $800 billion in fiscal stimulus, but also $4 trillion of money printing and 165 out of 180 months in which interest rates were either falling or held at rock-bottom levels. The results have been underwhelming: the number of breadwinner jobs in the US is still two million lower than it was under Bill Clinton.

Economists of the Austrian school warned that this would happen. While other economists disagreed about whether fiscal or monetary stimulus would do the trick, the Austrians looked past this superficial debate and rejected intervention in all its forms.

The Austrians have very good theoretical reasons for opposing government stimulus programs, but those reasons are liable to remain unknown to the average person, who seldom studies economics and who even more seldom gives non-establishment opinion a fair hearing. That’s why it helps to be able to point to historical examples, which are more readily accessible to the non-specialist than is economic theory. If we can point to an economy correcting itself, this alone overturns the claim that government intervention is indispensable.

Possibly the most arresting (and overlooked) example of precisely this phenomenon is the case of the depression of 1920–21, which was characterized by a collapse in production and GDP and a spike in unemployment to double-digit levels. But by the time the federal government even began considering intervention, the crisis had ended. What Commerce Secretary Herbert Hoover deferentially called “The President’s Conference on Unemployment,” an idea he himself had cooked up to smooth out the business cycle, convened during what turned out to be the second month of the recovery, according to the National Bureau of Economic Research (NBER).

Indeed, according to the NBER, which announces the beginnings and ends of recessions, the depression began in January 1920 and ended in July 1921.

James Grant tells the story in his important and captivating new book The Forgotten Depression — 1921: The Crash That Cured Itself. A word about the author: Grant ranks among the most brilliant of financial experts. In addition to publishing his highly regarded newsletter, Grant’s Interest Rate Observer, for more than thirty years, Grant is a frequent (and anti-Fed) commentator on television and radio, the author of numerous other books, and a captivating speaker. We’ve been honored and delighted to feature him as a speaker at Mises Institute events.

What exactly were the Federal Reserve and the federal government doing during these eighteen months? The numbers don’t lie: monetary policy was contractionary during the period in question. Allan Meltzer, who is not an Austrian, wrote in A History of the Federal Reserve that “principal monetary aggregates fell throughout the recession.” He calculates a decline in M1 by 10.9 percent from March 1920 to January 1922, and in the monetary base by 6.4 percent from October 1920 to January 1922. “Quarterly average growth of the base,” he continues, “did not become positive until second quarter 1922, nine months after the NBER trough.”

The Fed raised its discount rate from 4 percent in 1919 to 7 percent in 1920 and 6 percent in 1921. By 1922, after the recovery was long since under way, it was reduced to 4 percent once again. Meanwhile, government spending also fell dramatically; as the economy emerged from the 1920–21 downturn, the budget was in the process of being reduced from $6.3 billion in 1920 to $3.2 billion in 1922. So the budget was being cut and the money supply was falling. “By the lights of Keynesian and monetarist doctrine alike,” writes Grant, “no more primitive or counterproductive policies could be imagined.” In addition, price deflation was more severe during 1920–21 than during any point in the Great Depression; from mid-1920 to mid-1921, the Consumer Price Index fell by 15.8 percent. We can only imagine the panic and the cries for intervention were we to observe such price movements today.

The episode fell down the proverbial memory hole, and Grant notes that he cannot find an example of a public figure ever having held up the 1920–21 example as a data point worth considering today. But although Keynesians today, now that the episode is being discussed once again, assure everyone that they are perfectly prepared to explain the episode away, in fact Keynesian economic historians in the past readily admitted that the swiftness of the recovery was something of a mystery to them, and that recovery had not been long in coming despite the absence of stimulus measures.

The policy of official inaction during the 1920–21 depression came about as a combination of circumstance and ideology. Woodrow Wilson had favored a more pronounced role for the federal government, but by the end of his term two factors made any such effort impossible. First, he was obsessed with the ratification of the Treaty of Versailles, and securing US membership in the League of Nations he had inspired. This concern eclipsed everything else. Second, a series of debilitating strokes left him unable to do much of anything by the fall of 1919, so any major domestic initiatives were out of the question. Because of the way fiscal years are dated, Wilson was in fact responsible for much of the postwar budget cutting, a substantial chunk of which occurred during the 1920–21 depression.

Warren Harding, meanwhile, was philosophically inclined to oppose government intervention and believed a downturn of this kind would work itself out if no obstacles were placed in its path. He declared in his acceptance speech at the 1920 Republican convention:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

Harding, that least fashionable of American presidents, was likewise able to look at falling prices soberly and without today’s hysteria. He insisted that the commodity price deflation was unavoidable, and perhaps even salutary. “We hold that the shrinkage which has taken place is somewhat analogous to that which occurs when a balloon is punctured and the air escapes.” Moreover, said Harding, depressions followed inflation “just as surely as the tides ebb and flow,” but spending taxpayer money was no way to deal with the situation. “The excess of stimulation from that source is to be reckoned a cause of trouble rather than a source of cure.”

Even John Skelton Williams, comptroller of the currency under Woodrow Wilson and no friend of Harding, observed that the price deflation was “inevitable,” and that in any case “the country is now [1921] in many respects on a sounder basis, economically, than it has been for years.” And we should look forward to the day when “the private citizen is able to acquire, at the expenditure of $1 of his hard-earned money, something approximating the quantity and quality which that dollar commanded in prewar times.”

Thankfully for the reader, not only is Grant right on the history and the economics, but he also writes with a literary flair one scarcely expects from the world of financial commentary. And although he has all the facts and figures a reader could ask for, Grant is also a storyteller. This is no dry sheaf of statistics. It is full of personalities — businessmen, union bosses, presidents, economists — and relates so much more than the bare outline of the depression. Grant gives us an expert’s insight into the stock market’s fortunes, and those of American agriculture, industry, and more. He writes so engagingly that the reader almost doesn’t realize how difficult it is to make a book about a single economic episode utterly absorbing.

The example of 1920–21 was largely overlooked, except in specialized treatments of American economic history, for many decades. The cynic may be forgiven for suspecting that its incompatibility with today’s conventional wisdom, which urges demand management by experts and an ever-expanding mandate for the Fed, might have had something to do with that. Whatever the reason, it’s back now, as a rebuke to the planners with their equations and the cronies with their bailouts.

The Forgotten Depression has taken its rightful place within the corpus of Austro-libertarian revisionist history, that library of works that will lead you from the dead end of conventional opinion to the fresh air of economic and historical truth.

Read More: https://www.mises.ca/how-government-inaction-ended-the-depression-of-1921-2/

[chrisinmaryville]

2016's Homeownership Rate Was the Lowest since 1965

2016’s Homeownership Rate Was the Lowest since 1965

By Ryan McMaken

Mises Institute

February 2, 2017

  2016’s Homeownership Rate Was the Lowest since 1965

  Yesterday, the Census Bureau released its measure of homeownership for 2016, and the annual average for 2016 was 63.4 percent. That’s the lowest rate measured since 1965 when the homeownership rate was 63 percent.

2016 was also the twelfth year in a row in which the homeownership rate was…

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[overallgoodjl]

Purposefulness QE help BoE towards bring interest rates verify on route to norm

After backing a 75 billion pound rise for quantitative easing programme, Miles expects that more tranquilization could help to provoke back normal rates but critics are disagreed with him.<\p>

David Miles, policymaker of Bank of England forementioned that chorographic easing could bring some galloping return till normal rates as it was erenow. Stopping place month, the Bank of England voted to increase its valuational easing programme by 50 a nonillion pounds, in any case a 75 infinity pound take rise was backed by Miles. He said that a bigger injection of monetary stimulus to boost Britain's husbandry could now enable the Bank of England to oust interest rates back to normal soon. <\p>

Since March 2009, the Ascend relative to England has kept interest rates at a record deep 0.5 percent, and has committed to a total 325 billion pounds relating to asset purchases, impressive UK government bonds. Gee further added that aggressively disappointing monetary policy now might breed us closer to the point at which Rampart Outrank could be tingly back towards a plurative normal level where Bank Rate is uncontrollably not at a normal level today.<\p>

A aficionado with regard to Miles for more monetary inflammation differs with comments by use of another member of Bank of England Monetary Policy Committee, Martin Weale stating that by itself current purchases are completed, he did not intellectualize there would be a pros for more quantitative easing. Then, the Safety plug in re Bank of England, Mervyn King told lawmakers that financial markets did not have strong expectations in behalf of further stimulus from the champion bank. There are some politicians who criticized the Bank of England so buying only gilts and same limited core of corporate bonds. But Miles materiality defensive said that innocently looking at government connection yields was a specious way until assess the impact in connection with quantitative easing. There was much as regards the fall regard show yields was due unto a global zestfulness as things go safe assets, while quantitative easing had been unerroneous instrumental in lowering the spreads of conjoint bonds over gilts and making it cheaper to borrow in furtherance of big companies. Are myself in need of cash urgently virtuous appoint regardless of short standard phrase loans for bad credit and get money disfavor having lacking credit score.<\p>

Miles vet resistant the criticism that these methods had been bad for those who are involving to retire. While these reductions had increased the cost of annuities that many British retirees could be puzzling so buy up-to-the-minute order to ensure a steady paper profits. This was a great deal offset by a rise in the value speaking of their investment funds. In addition, he explained that these decrescence meant that there was lower unemployment and stronger economic growth.<\p>

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[apacfinancialmarkets-blog-blog]

Low Prices Let China Blaze New Easing Path

APAC Financial Markets • China’s low inflation keeps the door open to novel forms of monetary stimulus.... more http://wp.me/p62aKF-8Xa #China, #LowInflation, #MonetaryStimulus #MarketNews

[customstoday]

Singapore stocks end higher, Straits Times Index jumps 0.8pc

Singapore stocks end higher, Straits Times Index jumps 0.8pc

SINGAPORE: Singapore stocks closed higher, with sponsors confident by official data that showed Asia’s largest economy extended at a strong clip in 4Q2014. The Chinese economy grew 7.3% y-o-y in the December quarter, bringing full-year expansion to 7.4%. “We still expect the People’s Bank of China to cut lending and deposit interest rates and reserve requirement ratios in the first half of this…

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[therakyatpost]

New Post has been published on The Rakyat Post

New Post has been published on http://www.therakyatpost.com/business/2014/03/11/boj-keeps-policy-on-hold-downgrades-exports/

BOJ keeps policy on hold, downgrades exports

TOKYO, March 11

The Bank of Japan kept its monetary stimulus in place on Tuesday as the overall economy is recovering but downgraded its view of exports given recent weak shipments to Asia.

The BOJ, as expected, voted unanimously to maintain its pledge of increasing base money, its key policy gauge, at an annual pace of 60 trillion to 70 trillion yen (US$589-US$687 billion).

The BOJ raised its assessment on industrial production, saying that pace of gains are increasing somewhat.

The central bank also raised its view of capital expenditure, saying the recovery is becoming more clear.

BOJ Governor Haruhiko Kuroda will hold an embargoed news conference from 3.30pm (0630 GMT) with his comments expected to come out any time after 4.15pm (0715 GMT).

The BOJ has stood pat since launching an intense burst of stimulus last April, when it pledged to accelerate inflation to 2% in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.

[denofcuriosity]

Krugman (Indirectly) Responds to Hans-Hermann Hoppe

Yesterday, I somewhat facetiously referred to economist Hans-Herman Hoppe as the worst economist ever for his ignorant remarks concerning what people like Paul Krugman (and the overwhelming majority of mainstream economists) believe regarding monetary stimulus. Krugman responded to Hoppe this morning (read the whole thing! It's short.). 

Here's an excerpt:

Aside from the silliness of the exercise, this little exchange is another illustration of a point I’ve noticed before: the way hard-right commentators assume that the other side must be their mirror image... They believe that deficits and printing money are always evil; liberals must be for deficits and money-printing under all circumstances...

...But obviously looking at what I actually write would just be too painful.

Anyway, thanks guys, you made my day.