The weather has been great in the Grand Tetons. Sunny, highs in the 80s, lows in the 40s with a chance of thunderstorms (always a possibility when central bankers gather). Grand Teton, Mt. Owen, and Teewinot look down in all their majesty on Jackson Lake Lodge, where the world top financial officials can try to spot moose feeding in Willow Flats below, sip a merlot on the Sunset Terrace, and contemplate the limitations of their tools to manipulate the world’s financial problems while meeting in the Explorers Room.
One thing the central bankers will be unlikely to do – mingle with the millions of people around the world who have become unemployed because of their policies. Theoretically, they will be looking ahead to a better more, prosperous world. Fat chance. "When Kansas City Fed leaders decided months ago on the topic of this year's conference — "Achieving Maximum Long-Run Growth" — they did so advisedly," wrote the Washington Post'sNeil Irwin. "The implicit message was that the focus of the world's economic policymakers was no longer about financial crisis firefighting, but about laying the groundwork for a stronger global economy over the longer run. It's not about growth in the next quarter but in the next decade, or three. In hindsight, the topic seems almost aspirational. If only the world were in position to worry about the long term, rather than the short term!"
For Fed Chairman Ben Bernanke, the annual conclave offers him the opportunity to give a sort of “State of the World Economy” address. In advance of his speech Friday, the markets gave a thumbs down to what he might say and the dollar fell against the euro and the yen. Friday morning, Bernanke announced essentially a wait-and see approach to monetary policy without closing the door to the quantitative easy that has flooded the world with U.S. dollars: “We will continue to consider those and other pertinent issues, including, of course, economic financial developments, at our meeting in September.”
Unhelpfully, Bernanke observed: "Fortunately, the two goals of achieving fiscal sustainability — which is the result of responsible policies set in place for the longer term — and avoiding the creation of fiscal head winds for the current recovery are not incompatible." But he batted the ball for fiscal recovery to Congress and the Executive branch for them to devise "policies that support robust economic growth in the long term."
A bit more clearly, he said of the problems of European governments and banks: "It's difficult to judge how much these developments have affected economic activity so far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth."
So, while the East Coast battened down for a hurricane, out west it was policy as usual, the same ones that got us in this mess. Have another merlot. Thunderstorms predicted for Saturday.
... While the Fed's easy-money policies have not produced many jobs, they have produced a persistent, low rate of inflation that is choking the American middle class. Since the asset purchases began five years ago, the average American family has experienced rising prices and stagnant wages. The resulting decline in living standards explains why voters ranked rising prices nearly tied with unemployment as their top economic concern during the 2012 election.
... It is difficult to interpret [Jeb] Hensarling’s declaration to hold hearings on “the entirety of their hundred year history and what America has looked like since adopting a fiat currency” as anything but an intention to bring the Commission up for a vote. Hensarling promises to process vast amounts of information. The constraints on a committee hearing, and on a committee staff, cannot do such a huge topic justice. As Rep. Kevin Brady put it in his own remarks at Cato, a “brutally bipartisan” Commission — with Hensarling a Commissioner — is called for.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
The Problem of the Quantity Theory of Money
Rueff’s first work in monetary theory, Theorie des Phenomenes Monetaires (1927), was devoted partly to examining the theories put forward by Irving Fisher in The Purchasing Power of Money (1911). Rueff himself owed a large debt to Fisher, as does all of economics, for ideas like the modern understanding of income and capital. But Fisher is best remembered for his famous Equation of Exchange:
MV + M’V’ = PT
where M is the supply of money, M’ the supply of bank credit, and V and V’ referred to the “velocity of circulation” of money and bank credit, respectively.
"By means of the lawful stamp of convertibility to gold, a near-worthless paper was suffused with a monetary life of its own. It circulated in place of coins and bullion because it was even more convenient, equally divisible, and above all secured by the substance of real money. Moreover, convertible paper and deposit currencies conserved still further the scarce mineral, labor, and capital resources previously invested in the production and circulation of precious bullion or coins. One sees in the evolution of this extraordinary commercial institution of exchange that money became a unique conservator, and the effective mechanism of growth of a civilization born of scarcity."
Two erudite and discerning officials affiliated with the Federal Reserve Bank of New York -- the bellwether of the Federal Reserve System -- have posted another scholarly essay in their series entitled "Crisis Chronicles." An excerpt from the fine, and immediately relevant, work of James Narron, senior vice president and...
India is getting ready for elections next year that could end a decade of rule by the Congress Party. Corruption plus economic stagnation may make it hard for the Congress Party to win a third straight term. As Wieland Wagner wrote in Der Spiegel: “India's economy is growing only half...