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Archive for March, 2010

Economic Musings V: Subsidies, Brothers and Nannies

2010-03-29 2 comments

There are a thousand-and-one reasons why states “need” to subsidise economic activities. And there are at least as many critiques as to how the money was wisely spent, should not have been spent, should have been spent on something else, was too little, too much, at the wrong time, too early, too late, wasted or wonderful. Any policy that meets with such contradicting praise or censure is worth a deeper look. Read more…

Economic Fallacy VI: The Divisive Multiplier

2010-03-28 5 comments

There is a widespread believe that if governments inject a certain amount of money into “an” or “their” economy, it will miraculously multiply and bear fruit beyond what was invested. This is one of the mainstays of Keynesian economics in that it justifies state subsidies, public works, in short just any intervention by a state in the realm of private enterprise on the expenditure side. Read more…

Economic Laws I: The Division of Labour

2010-03-26 4 comments

There’s probably not one concept in economics that’s credited more with being the underpinning of society as the division of labour. By which is meant a process whereby two agents, each producing one thing, together produce more if they specialise than if both had produced each of both goods on their own.

Let’s make up an example: Read more…

Categories: Economic Laws, Economics, Trade

Bloom of Doom VII: The Borrower of last Resort

Not so very long ago the idea had firmly taken root that the Fed was the “lender of the last resort”, meaning that if no one else would lend to banks, the Fed would, thus preventing bank runs. Now it always struck CrisisMaven as odd that banks under any circumstance should be so little creditworthy that they couldn’t get credit. After all, aren’t banks the “eponym” of creditworthy, so to speak? But that the Fed one day would need to borrow from these banks no one else would lend to is an irony of fate we need to chew on a little to fathom all its dire implications.

Read more…

Economic Fallacy V: Can CPI measure Deflation?

2010-03-23 1 comment

In a recent post Woodford warns of deflation threat as CPI drops to 3% CrisisMaven found another instance of the widespread belief that not only sinking prices (misspelt “deflation”) are harmful as they cause buyers “to strike” but that the housing market has “deflated”. Read more…

Economic Fallacy IV: Buyers’ Strike during Deflation?

2010-03-21 2 comments

If buyers don’t buy during a period of deflation why would sellers sell during periods of inflation? Read more…

Economic Musings IV: How Bank Robbers cause Inflation

2010-03-20 6 comments

If a robber robs a bank and runs away with the money, never gets caught or if he gets caught has spent the money before that, has that caused inflation? No – the bank now has less money and thus its money holdings have decreased exactly as much as the robber’s holdings increased. But what if the bank gets “recapitalised”? Read more…

Economic Musings III: The Bubble Analogy

2010-03-19 5 comments

There’s this fear that if a financial bubble bursts this would be tantamount to deflation (after all, when an inflatable dinghy bursts it’s called deflation). And because deflation is deemed to be a bad thing the panacea must be (re)inflation of “the” economy. Well, let’s look at what happens when a balloon bursts … Read more…

Economic Fallacy III: Looming Deflation?

There is a wide-spread fear, not the least among leading Fed staff and many economic pundits, that we are in a period of deflation, not inflation, or, when it comes to testifying in Congress, we are only not in a period of deflation because the Fed, unlike 1929 and the years following, actively prevented it by (re)inflating the money supply, stimulating credit etc.

However, they say, things haven’t yet worked out so well that the threat of deflation has already been banned successfully. But was there ever any threat? Read more…

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