Feed aggregator

When History Didn't End in Germany

TownHall Latest columns - 15 hours 12 min ago
RUGEN, Germany. Americans groove on the exhilaration of argument and accusation as the midterm elections finally approach, but here in Germany there's the bitter remembrance of what it was like to have none of the above. Trading barbs and insults is the American way of campaigning, but East Germans recall fear, not free speech, as reams of barbed wire and blocks of cement turned into a wall and lookouts with guards who were ordered to shoot any of their own people trying to flee their encircled prison of a country. 2014-10-31T00:01:00-04:00 2014-10-31T14:35:04Z Suzanne Fields

Obama adviser likened Iran nuclear deal to ObamaCare

Fox News (Politics) - 15 hours 36 min ago
Deputy National Security Adviser and MFA in creative writing Ben Rhodes likened an Iranian nuclear deal to ObamaCare in a talk to progressive activists last January, according to audio obtained by the Washington Free Beacon.

Judge rejects Ebola quarantine for Maine nurse

Fox News (Politics) - 16 hours 1 min ago
A Maine judge has rejected a request by state officials to quarantine and restrict the movements of nurse Kaci Hickox, who after returning from treating Ebola patients in West Africa defied the state's quarantine.

Debate moderator apologizes for accusing Scott Brown of botching NH geography

Fox News (Politics) - 16 hours 9 min ago
A debate moderator apologized to Republican New Hampshire Senate candidate Scott Brown Thursday night after accusing him on-air of botching his state geography -- though Brown technically was correct.

Earnings Cheating Season

TownHall Latest columns - 16 hours 12 min ago
Is Your Favorite Company Cooking the Books? 2014-10-31T00:01:00-04:00 2014-10-31T13:35:04Z Mike Shedlock

Welcome to the World of Volatility

Cato Recent Op Eds - 16 hours 24 min ago

Steve H. Hanke

My last column “Regime Uncertainty Weighs on Growth” (October 2014) stressed that market participants do not know what the Big Players (Read: governments and central banks) will do next. This regime uncertainty is creating an economic undertow. No wonder there have been so many recovery false dawns.

In the past month, markets have become very volatile. Equity and oil markets are the most notable. Why? Well, regime uncertainty continues to be ramped up. Indeed, Berlin-bashing by Paris and Rome over fiscal austerity has become the latest political rage. On top of that, weak economic data from the Continent and a spat of surprisingly weak U.S. data moved the world’s stock markets. If that wasn’t enough, there were some so-called mixed economic signals emitted from China. We must not forget the International Monetary Fund’s (IMF) World Economic Outlook report that was unveiled at the World Bank — IMF meetings in Washington, D.C. The report contained a major policy flip-flop, switching mantras from fiscal austerity to fiscal stimulus. The volatility mixer was stirred further when the Saudis clarified that they would not cut back on oil production to prop up crude prices. The Kingdom wants to retain, or increase, its market share. To top it off, Ebola has reared its ugly head. All of this confirms what I call the School Boy’s Theory of History: it’s just one damn thing after another.

Let’s examine some of these factors to see just how they contribute to the world of volatility. The relatively weak U.S. economic data are no surprise. The best proxy for nominal aggregate demand is measured by final sales to domestic purchasers (FSDP). Nominal FSDP has never recovered to its longrun trend of 5% since the crisis of 2009. Indeed, aggregate demand is growing at an anemic year-over-year rate of only 3.9%.

Anyone who is properly informed about the economics of money and banking knows why nominal aggregate demand has not bounced back to a trend rate of growth. The money supply, correctly measured by Prof. William A. Barnett’s Divisia M4, is only growing at a year-over-year rate of 2.0%. Money fuels the economy and without fuel, the economy eventually stalls.

In the U.S., bank regulations since the collapse of Lehman Brothers have been ill-conceived, draconian, and pro-cyclical. In consequence, bank money has shrunk in both relative and absolute terms since 2009 (see the accompanying chart). This has forced the Federal Reserve to engage in a massive quantitative easing program. As the chart shows, the state money produced by the central bank has exploded, growing from less than 10% of M4 to 21.7%. But, since bank money is the elephant in the room, the growth in total broad money has been slow. Therefore, it’s predictable that there is weak nominal growth and a very low inflation rate in the U.S.


The state of money and banking in Europe is even more problematic than in the U.S. Regulators on the Continent have made a strong push to force banks to deleverage, which is why private credit has been contracting in the Eurozone for over a year (see the accompanying chart). Presently, the authorities have an army of approximately 6,000 bureaucrats combing through 135,000 loan files at 130 of Europe’s largest banks. This is all part of Europe’s stress test exercise. The main goal is to make Europe “safe” from bankers and banks. Bankers who have been covering up bad loans will be discovered and taken to the woodshed; zombie banks will be liquidated or recapitalized. If that is not enough, the Single Supervisory Mechanism, a pan-European bank regulator, will be unveiled, on November 4th. This will usher in stress tests as far as the eye can see (Read: tight bank money).


There has been a great deal of non-sense coming from the Continent, too. French President Hollande and Italian Prime Minister Renzi, as well as their followers, have been shouting from the rooftops that Europe has had enough fiscal austerity. They claim that austerity is killing economic growth.

Most of their rhetoric is aimed at Germany, a country in which fiscal austerity is a hallmark. Well, the anti-austerity rhetoric does not match reality. The accompanying chart shows that government expenditures in all but five of the countries in the European Union have seen their government expenditures as a percent of GDP rise since 2007. It is interesting that all of the countries that witnessed real fiscal austerity were former communist states. And two of them (Bulgaria and Lithuania) were countries in which I installed currency boards to discipline monetary and fiscal operations. So, where is all the austerity that Messrs. Hollande, Renzi, and company are screaming about?


Turning to China, we see that the authorities understand money. They have kept the supply growing at close to a trend rate for some time (see the accompanying chart). Yes, the money supply measured by M2 is currently a bit below trend. That’s why the recent injection of 200 billion yuan ($32.8 billion) into twenty of China’s largest banks is no surprise, and why China’s third quarter growth of 7.3% beat the consensus forecast of 7.2%.


Moving from regime uncertainty to the uncertainty caused by Ebola, we find a grim state of affairs. When anticipating economic activity, money matters. When anticipating, the state of health in a country, doctors matter. If a country has few doctors, it will have relatively high mortality rates (see the accompanying chart).


As it turns out, the three countries in which Ebola is concentrated — Guinea, Liberia, and Sierra Leone — have few doctors. This is a bad sign since there is little indigenous capacity to fight the disease. And that’s not all, the governments in these three countries have virtually no capacity to deliver much of anything. Indeed, the World Bank’s Worldwide Governance Indicators Project reports on six broad measures of government effectiveness for 215 countries. Let’s look at a country’s “Government Effectiveness,” which is a broad aggregate that includes public perception of the quality of civil service and government credibility. In 2013, the most effective governments were Finland, Singapore, Denmark, and Sweden. In contrast, Liberia’s government is only more effective than 8.6% of all the governments in the world. Guinea and Sierra Leone were not much better, with percentile rankings of 9.1% and 12.4%, respectively. These data suggest that an indigenous solution to the Ebola crisis is not in the cards.

Most outside governments, as well as the United Nations’ World Health Organization (WHO), have displayed a great deal of incompetence in addressing the Ebola crisis. The only exception seems to be the capable Médecins Sans Frontières, which is also known as Doctors Without Borders. Welcome to the world of volatility.

Steve H. Hanke is Professor of Applied Economics at the Johns Hopkins University in Baltimore, MD. He is also a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, D.C. You can follow him on Twitter: @Steve_Hanke. Sign up to receive Prof. Hanke’s articles and distributions.

Fast and Furious II? Justice Department watchdog faults agency over grenade probe

Fox News (Politics) - 16 hours 31 min ago
Federal agents and prosecutors in Arizona made multiple errors in their investigation of a U.S. citizen who was suspected of smuggling grenade components to Mexico, including failing to arrest him when there was more than enough evidence to do so, the Justice Department watchdog said in a harshly critical report Thursday.

GOP senators urge Obama to hold off on immigration exec action

Fox News (Politics) - 17 hours 4 min ago
The three Republican senators responsible for comprehensive immigration legislation, which remains stalled in Congress, on Thursday urged President Barack Obama to hold off on any steps to shield millions of people from deportation.

Money meant for undercover drug ops goes to ladies’ golf instead

Fox News (Politics) - 17 hours 18 min ago
The Lewis County Sheriff’s Department in Tennessee gave confidential sums of money earmarked for undercover drug buys to the Ladies Golf Association and the American Legion Youth Program.

'Stock up on condoms': Campaign ads go for shock value in final blitz

Fox News (Politics) - 17 hours 47 min ago
Condom shortages. A drowning child. Drug-addled monkeys. These are just a few of the topics tackled in the final batch of campaign ads being aired ahead of next week's elections, as political campaigns and allied groups push the envelope in pursuit of undecided voters and perhaps those who hadn't been paying attention until now.

The Playbook Against Hillary: Can Obama operatives inoculate her?

Fox News (Politics) - 20 hours 46 min ago
As the Republicans contemplate how to beat Clinton, who better to consult than the only folks who’ve beaten her at the presidential campaign level: Barack Obama’s team.

Colorado election law prompts concerns about voter fraud

Fox News (Politics) - Fri, 10/31/2014 - 00:45
Colorado's new election system is being panned by critics as a "ridiculous experiment" that could lead to more voter fraud -- in a year of very tight races with nothing less than control of the Senate on the line.

The Coming November Wars

TownHall Latest columns - Thu, 10/30/2014 - 23:35
As it stands today, Republicans will add seats in the House and recapture the Senate on Tuesday. 2014-10-31T00:01:00-04:00 2014-10-31T04:35:04Z Pat Buchanan

Dem Sen. Landrieu takes heat for comments on Southern voters, race

Fox News (Politics) - Thu, 10/30/2014 - 23:15
Speaking with NBC’s Chuck Todd, Landrieu said, “I’ll be very, very honest with you. The South has not always been the friendliest place for African-Americans.”

GOP lawmakers urge administration to suspend Gitmo transfers over ISIS concerns

Fox News (Politics) - Thu, 10/30/2014 - 23:15
GOP lawmakers called for the administration to suspend detainee transfers from Guantanamo Bay following a Fox News report that as many as 20 to 30 former prisoners are suspected of having joined forces with the Islamic State and other groups inside Syria.

The Era of Trust in Government Is Over

TownHall Latest columns - Thu, 10/30/2014 - 22:35
Barack Obama proves Ronald Reagan was Right 2014-10-30T16:59:00-04:00 2014-10-31T03:35:04Z William Jacobson

Sharing the Danger

TownHall Latest columns - Thu, 10/30/2014 - 22:35
The issue is mandatory isolation - quarantine - of doctors, nurses, and military personnel who have been in the Ebola area of West Africa. I have unending respect for Americans who make the decision go into dangerous places to help try to save people's lives. 2014-10-30T13:23:00-04:00 2014-10-31T03:35:04Z Rich Galen

Obama’s Dove Crows: Israel’s Hawk a Chicken****!”

TownHall Latest columns - Thu, 10/30/2014 - 22:35
Feathers are flyingin Washington and in Jerusalemover the off-the-record comments by a senior Obama administration official to the respected Jeffrey Goldberg of The Atlantic. The unnamed dovish Obama policy maker said the thing about Bibi [Netanyahu] is hes a chicken****! Direct quote, characterization included. 2014-10-30T13:10:00-04:00 2014-10-31T03:35:04Z Ken Blackwell

The Other Side of Technology

TownHall Latest columns - Thu, 10/30/2014 - 22:35
While the wizards of new technology wax lyrically about the wonders of technological development, there is another side, one often overlooked in the avalanche of new products. 2014-10-30T12:18:00-04:00 2014-10-31T03:35:04Z Herb London

Restaurant Chain Makes Karl Marx Look Like a Capitalist Pig

TownHall Latest columns - Thu, 10/30/2014 - 22:35
Stop the planet, please. I would like to get off the ride now. 2014-10-30T00:55:00-04:00 2014-10-31T03:35:04Z Michael Schaus


Syndicate content
Syndicate content