This should teach you not to mess with Milton Friedman

This is Argentine central bank governor Mercedes Marcó del Pont in an interview on March 26 2012:

“We’re recovering the sovereign capacity to formulate and implement economic policy”, said Marcó del Pont who anticipated some pictures will be coming down from the bank’s hall of fame “beginning with Milton Friedman.”

Now take a look at what have happened to the Argentine peso since these “brilliant” comments.

Peso crash

I leave it to my readers to figure out whether del Pont made a massive policy mistake when she ordered Uncle Milty’s picture removed….


PS take a look at this very interesting interview with the Argentine Minister of Economy Hernán Lorenzino about Argentine inflation. Lets just say Mr. Lorenzino seems a bit unsecure about how to present the “facts”

Euro crisis on a napkin

Euro crisis on a napkin

Greece in the news – 81 years ago…

This is from the “The Brisbane Courier” April 18 1932

Suspension by Greece

GENEVA, April 15

M. Venizelos, the Prime Minister of Greece, told the League of Nations today that Greece would be unable to balance her budget without suspending her debt payments abroad. He hoped the necessity for such suspension would be only temporary.

LONDON, April 16

The Greek Legation announces that in accordance with M Venizelos’s explanation the bond holders are to be requested to consent to the suspension of payments on account of loans and sinking fund for five years and to the non-transfer of the payment coupons of these loans, which are due on May 1 until the Powers have granted Greece assistance in accordance with the recommendations of the League of Nations’ Finance Committee

Two weeks later Greece defaulted and gave up the gold standard…


Depression Remedy – what we can learn from old newspaper articles

I strongly believe that we can learn a lot about the present crisis from studying economic and monetary history. Particularly the study of the Great Depression should be of interest to anybody who is interested in the causes of the present crisis and how to get us out of the crisis.

Scott Sumner would hence tell you that he has read most of what was printed in the financial section of the New York Times in early 1930s. I think Scott is right when he is telling us that we should read old newspaper articles. My favourite source for Great Depression newspaper articles is the National Library of Australia’s newspaper database Trove.

The Trove newspaper database makes it possible to follow the discussion about economic and financial matters for example during the 1930s.  It is amazing how many interesting articles one will find there. The latest piece I have found is a very good article about Irving Fisher’s Compensated dollar plan. Below I have reproduced parts of the article. You can read it all on Trove. The article appeared in The Mercury on May 18 1933. I have added my own comments.

Depression Remedy: Professor Irving Fisher’s Plan for a Compensated Currency

In “Booms and Depressions” Professor Irving Fisher of Yale University (U.S.A.). has… set out to discover the causes of depressions and their cures. He is best known internationally as the originator of a plan whose object is to keep prices stable by varying as may be required the gold content of legal tender money. In his preface he indicates that the main conclusion of his book is that depressions are for the most part preventable, and that their prevention requires a definite policy, in which the central banking system of each country must play an important role. Such knowledge as he has obtained on the subject, he declares, he has only recently acquired.

That over-production is the cause of depressions he will not have. There is no over-production, nor is there anything wrong with the mechanical means of the distribution of production, nor with the roads, the bridges, or the transport systems by land or sea. But he asks as to the other distributive mechanism – the money mechanism – is there any more reason why the money mechanism should be proof against getting out of order than a railroad or a ship canal. Profits are measured in money, and if money should become deranged, is it not at least probable that the derangement would affect all profits in one way at one time? This is what he sets out to prove.

LC: Hence, you here see that Fisher’s view is that recessions are caused by a monetary disequilibrium. This of course is exactly what Market Monetarists argue today. The problem is not some inherent instability of the market system,  but rather instability created by monetary policy failure.

Disaster of over-indebtedness

Debts are a necessary part of the establishment of business. For business to be carried out in volume as we know it today debts must be incurred. Debts may lead to over-indebtedness, which he defines as that degree of in-debtedness which multiplies unduly the chances of becoming insolvent. Pressure caused by over-indebtedness leads to distress selling, which prevents the operations of the law of supply and demand, and when a whole community is involved in distress selling the effect is to lower the general price level. It does this because the stampede liquidation involved there by actually shrinks the volume of currency, that is, deposit currency.

Three of the main factors causing depressions are in this manner shortly stated-debts, currency volume, price level. The al- teration of tho price level causes an alteration of the real measures of money-dollar in tho United States, pound in Great Britain and Australia. When the price level falls in the manner stated it reacts on the debt situation, which first caused the alteration.

“When a whole community is in a state of over-indebtedness” Professor Fisher states, “the dollar reacts in such a way that the very act of liquidation may sometimes enlarge the real debts, instead of reducing them. Nominally every liquidation must reduce debts, but really by swelling the worth of every dollar in the country it may swell the unpaid balance of every debt in the country, because the dollar which has to be paid may increase in size faster than the number of dollars in the debt decreases, and when this process starts It must go on, much after the fashion of a vicious spiral . . . downward into the trough of depression.”

So he concludes that when the expanding dollar (that is when the value of the dollar increases) grows faster than the reduction of the number of dollars of debt, liquidation docs not really liquidate, so that the depression goes right on, until there are sufficient bankruptcies to wipe out the activating cause the debts.

LC: Fisher’s comments about indebtedness seem highly relevant today. What Fisher is arguing is that deleveraging is a necessary evil if we have become over-indebted, but if the price level is allowed to contract at during the deleveraging process (the “liquidation”) then the desirable process of “liquidation” will become depressionary. This of course is the argument that Market Monetarists make today when we argue that the euro crisis is not a debt crisis, but a monetary crisis. Yes, it is necessary to reduce debt levels in parts of the euro zone but this process is unlikely to end well if monetary policy remains too tight.

Similarly Fischer’s discussion shows that the debate between one the one hand Keynesian fiscalists and the ‘Austerians’ on the other hand is a phony debate. The Austerians are of course right when they argue that if you have become overly indebted you have to reduce debts, but the Keynesians are equally right that the collapse in aggregate demand is the main cause of the present crisis. Where both sides are wrong is their common focus on fiscal policy. Irving Fisher would have told them to focus on monetary policy instead. Yes, we should reduce debt levels (if we are overly indebted), but the central bank needs to ensure nominal stability so this process does not become deflationary.

Correcting the Price Level

But Why, he asks, suffer from this dollar disease, this variation in the value of the dollar? Should gold coin become copious in the nick of time the gold inflation might counteract the credit deflation. The same result might come from paper inflation for instance, by way of financing a war. That inflation would be a matter ot exercising control of the currency. It should be equally clear, Professor Irving Fisher considers, that deflation or dollar bulging is not an “act of God.” We need not wait for a happy accident to neutralise deflation; we may frustrate, it by design. Man has, or should have, control of his own currency. If we must suffer from the debt disease, why also catch the dollar disease?

LC: Deflation is not a necessary outcome of the “bust”. Deflation is a result of overly tight monetary policy. Irving Fischer knew this very well. Friedman learned that from studying Fisher and Market Monetarists know that today.

The remedy, Professor Fisher declares is first a correction of the price-level by reflation and then henceforward its safe-guarding. He admits that the problem of “what price-level?” is difficult, because the matter what year may be chosen as the year whose level should be restored, it will do injustice. He proposes, therefore, as between the years from 1929 to 1932 to put the price-level part of the way back, so that the injustice would be shared by a great part of two groups, the debtors and the creditors.

…Reflation is the duty of Central Banks, he considers, through expanding thc currency and credit, and when sufficient reflation has been obtained to serve the purpose sought, the currency and credit should be so managed that the general price index after it has been raised to the height required should be maintained at that height.

LC: While Fisher focused on the price level Market Monetarists today focus on the level of nominal GDP,  but the policy message is basically the same – a monetary contraction caused the crisis so monetary policy needs to be eased to “undo” the damage done by monetary tightening. The question then is how much? What level of prices/NGDP should be targeted? This was a challenge to Fisher and that is a challenge to Market Monetarists today.

The Other Means

If, in spite of all other efforts to regulate the price level, the purchasing power of gold over goods should fall, the weight of the gold dollar or sovereign should be increased; or if the purchasing power of gold should rise, the weight of the dollar or sovereign would be correspondingly reduced. Under this plan the actual coinage of gold would be abandoned, and instead of gold I coins, gold bars would be used to redeem the gold certificates. Only gold certificates would circulate, and the price of the bars in terms of these certificates I would be varied from time to time. One advantage of the compensated gold coin plan would be that any nation could operate it alone. The inconvenience of each alteration in the gold coin’s weight causing a corresponding alteration in the foreign exchange would be, he considers, a small matter.

LC: Hence, Irving Fisher was suggesting to revalue or devalue the dollar against the price of gold to ensure a stable price level. Hence, if the price level dropped below the targeted level then the dollar would be devalued against gold, while if prices rose above the targeted level then the dollar would be revalued. The Market Monetarist proposal that central banks should use an NGDP future to conduct monetary policy is very much in the spirit of Fisher’s compensated dollar plan. Both are rule based policies that ensures nominal stability and at the same time strongly limits the central bank’s discretionary powers.

We can learn a lot from history so I encourage everybody interested in monetary history to have a look at the Trove database and similar newspaper archives and please let me know if you find something interesting that can teach us more about how to get out of the present crisis.

Thinking about monetary policy in Russia – a useful DSGE model?

I am going to Moscow in a couple of weeks. Going to Russia always inspires me to think about monetary policy in commodity exporting countries. I recently found what looks to be an interesting paper on monetary policy in commodity exporting countries – Monetary Policy in an Economy Sick with Dutch Disease”. The paper is from 2007.

I have started reading the paper, but as usual I want to share my joy of having found the paper with my readers before actually having read the entire paper. Here is the abstract:

“The paper studies monetary policy in an economy, in which the manufacturing sector is ousted completely by the presence of a large natural resource industry. Thus, the economy produces only non-tradable goods, which can complement or substitute imported goods, and the primary shock to the economy comes from the fluctuations in the world price of the exported commodity. A model of such an economy is calibrated using parameters relevant for Russia, which is an example of an economy sick with Dutch Disease, and several conventional policy rules are considered. It is shown that in absence of a well-functioning fiscal stabilization fund, it may be optimal for monetary authorities to respond to the real exchange rate, as the Bank of Russia allegedly does, using purchases of foreign reserves as the policy instrument. The logic of these actions is to replace the absent fiscal stabilization policy. In case monetary policy is conducted using an interest rate instrument, there should be no reaction to the real exchange rate and only slight one – to inflation.”

In the paper the authors Kirill Sosunov and Oleg Zamulin present a DSGE model for the Russian economy. The model in many ways is similar to my own thinking of the Russian economy and I therefore think it would be interesting to update Zamulin and Sosunov’s work. It would for example be extremely interesting to simulate the 2008-9 shock in the model under different monetary policy rules and what rules would have done the least harm to the Russian economy. Would my suggestion that Russia should have followed an Export Price Norm for example have prevented the crisis?

I have earlier claimed the sharp contraction in the Russian economy in 2008-9 was due to monetary policy failure. My feeling is that Zamulin and Sosunov’s model would yield a similar result, but I am not sure.

Anyway, I hope to be able to do some work on that model myself – with the help of my colleague Jens Pedersen – in the coming weeks. Then we will see what we manage to get out of the model and I would of course encourage others out there with interest in DGSE model and particularly with interest in monetary policy in commodity exporting countries to have a look at the model for yourself (please drop me a mail if you are doing work on monetary policy in commodity exporting countries as well –

Now back to reading the paper…

Bryan Caplan is right – free market economists should worry deeply about unemployment

Bryan Caplan has a very good blog post over at Econlog on “The Grave Evil of Unemployment” and on why free market economists should be deeply concerned about unemployment. I strongly agree with Bryan on this topic (and most other topics) – free market economists are often far too nonchalant about unemployment.

This is Bryan:

I know hundreds of free-market economists.  They’re friends of mine.  Indeed, I’m a free-market economist myself.  It saddens me to say, then, that our critics are often right.  While some free-market economists merely doubt the efficacy of policies intended to alleviate unemployment, the average free-market economist doesn’t take the unemployment problem seriously.

Why not?  At the level of high theory, free-market economists love market-clearing models.  If there’s surplus wheat, the price of wheat will fall to clear the market.  If there’s surplus labor, similarly, the wage will fall to eliminate unemployment.  What about nominal wage rigidity?  Most free-market economists concede that nominal wage rigidity exists to some degree, but think the problem is mild and short-lived: “It’s been three years.  The labor market must have fully adjusted by now.”

High theory aside, though, free-market economists have a toolbox of quips they use to belittle the problem of unemployment.

There’s the argument from the safety net: “Why would anyone want to go back to work when he can collect 99 weeks of unemployment insurance?”

There’s the argument from relocation: “There are plenty of jobs in North Dakota.  Anyone who refuses to move there is therefore voluntarily unemployed.”

There’s the argument from worker hubris: “If he’s an ‘unemployed carpenter,’ then I’m an ‘unemployed astronaut.'”

There’s the argument from Zero Marginal Product: “If the guy can’t find a job, his labor must be worthless.”

I am afraid Bryan is right – most free market economists tend to belittle the problem of unemployment. That is too bad as unemployment is a massive economic and social problem both in the US and particularly in Europe. In fact it is likely the most important economic problem of the day. No matter the causes unemployment is a grave evil and free market economists should be deeply concerned about the rise in unemployment over the past five years.

Among the reasons why many free market economists seem careless about unemployment is that many of them tend to think of unemployment as a necessary evil – this especially seem to be the case for some Austrian school economists. Hence, they tend to think that rising unemployment is a natural consequence of reallocation of economic resources after an unsustainable boom has come to an end. That might very well  sometimes be the case, but that does not make unemployment less of a problem.

I would further add that free market economists tend to think of unemployment as a result of “government failure” – too high taxation, overly generous welfare benefits, minimum wages, rigid firing and hiring rules etc. I agree that unemployment both in the US and Europe is higher because of such failed regulation. However, the present unemployment problem in both the US and Europe is not a supply side problem, but rather a demand side problem and it is clear that many free market economists have a hard time dealing with demand side problems as they tend to think that if we have a demand side problem then it is a justification of Keynesian demand management policies (fiscal policy).

Obviously Market Monetarists like myself would – in line with Keynesian economists – argue that the rise in unemployment over the past five years primarily is a result of a collapse in aggregate demand. This drop has, however, not been caused by an inherent instability of free markets, but is a result of “government failure” or more precisely is a result of monetary policy failure.

Market Monetarists argue that we can avoid monetary policy failure if central banks adopt an NGDP level target and that would also minimize involuntary (demand side) unemployment (that is an positive side-effect rather than the main purpose however).  There is nothing “Keynesian” about this, but it acknowledges the fact that failed monetary policy can lead to involuntary unemployment.

Bryan’s solution to the unemployment problem is the following:

“Instead of downplaying the grave evil of unemployment, we free-market economists should urge governments to redouble their efforts to fight it.  How can we do so and remain free-market economists?  First and foremost, by emphasizing the obvious: Every government imposes a vast array of employment-destroying regulations.  Minimum wages.  Licensing laws.  Pro-union laws.  Mandated benefits – especially mandated health insurance.  Anyone who appreciates the grave evil of unemployment should bitterly oppose these regulations – and vigorously reject the cavalier, callous view that a heavy-duty safety net is a good substitute for a job.  Government regulation is hardly the sole cause of nominal wage rigidity, but it definitely makes a bad situation worse.”

I wholeheartedly agree with Bryan on this. So while I believe that most of the rise in unemployment in particularly Europe has been caused by a collapse in aggregate demand I also think that countries like Spain have  massive structural problems that causes unemployment – particularly youth unemployment – to be much higher than it should be.

However, Bryan also acknowledges the demand side problem:

Isn’t monetary policy is a far more effective and sustainable way to boost Aggregate Demand?  Sure.  Given the existence of a central bank, though, it’s hard to see why free-market economists should run away from this conclusion.  How is Nominal GDP targeting any less free-market than constant growth in M2, or a frozen monetary base, or short-run interest-rate targeting?  I think this is the closest Bryan has ever come to endorse NGDP targeting and I like the way he do it: Given the existence of a central bank (Free Banking would be preferable) then NGDP targeting is no less of a free-market alternative than constant money supply growth or a frozen monetary base.

I certainly agreee or rather I think that NGDP targeting is the true free market alternative and is significantly more free market than other central bank based “solutions”. I have explained this position in a number of blog posts. See for example here and here.

Finally Bryan touches on what I would consider a very Friedmanite argument for NGDP targeting:

If, as seems highly likelyScott Sumner is right to blame the Great Recession on central banks’ tight monetary policies, free-market economists should not be afraid to honor him.  Imagine how much statist legislation could have been averted if the world’s central banks had kept NGDP on a steady course from 2008 to the present.

This I think is an extremely strong argument for NGDP targeting. As a consequence of overly tight monetary policies in Europe and the US unemployment has spiked and economic activity has slumped – and caused serious financial distress. These evils are now being blamed by policy makers across the world as being a result of the failure of free markets. Nothing could of course be further from truth, but that does not change the fact that interventionists policies are now been introduced in both the US and in Europe to curb the “excesses of free markets”. I doubt for example that US minimum wages would have been increased to the extent we have seen had we the rise in unemployment been curbed by an NGDP targeting policy and fiscal policy would certainly not have been eased to the extent we have seen. Not to talk about that draconian financial market regulation being passed these days.

NGDP targeting seriously reduces the problem of involuntary unemployment and as such a consequence undermines the case interventionist policy. Therefore, any free market economist who are concerned about the economic and social implications of high and rising unemployment should of course endorse NGDP level targeting. I think Bryan just did even though he is reluctant to admit it.

Dear Northern Europeans – Monetary easing is not a bailout

If we want to explain the Market Monetarist position on banking crisis then it would probably be that banking crisis primarily is a result of monetary policy, but also that moral hazard should be avoided and a strict ‘no bailout’ policy should be implemented. However, the fact that Market Monetarists now for example favour aggressive monetary easing in the euro zone, but at the same time are highly skeptical about bailouts of countries and banks might confuse some.

I have noticed that there generally is a problem for a lot of people to differentiate between monetary easing and bailouts. Often when one argues for monetary easing the reply is “we should stop bailing out banks and countries and if we do it we will just create an even bigger bubble”. The problem here is that Market Monetarists certainly do not favour bailouts – we favour nominal stability.

I think that at the core of the problem is that people have a very hard time figuring out what monetary policy is. Most people – including I believe most central bankers – think that credit policy is monetary policy. Just take the Federal Reserve’s attempt to distort relative prices in the financial markets in connection with QE2 or the ECB’s OMT program where the purpose is to support the price of government bonds in certain South European countries without increasing the euro zone money base. Hence, the primary purpose of these policies is not to increase nominal GDP or stabilise NGDP growth, but rather to change market prices. That is not monetary policy. That is credit policy and worse – it is in fact bailouts.

As the ECB’s OMT and Fed’s QE2 to a large extent have been focused on changing relative prices in the financial markets they can rightly be – and should be – criticized for leading to moral hazard. When the ECB artificially keeps for example Spanish government bond yields from increasing above a certain level then the ECB clearly is encouraging excessive risk taking. Spanish bond yields have been rising during the Great Recession because investors rightly have been fearing a Spanish government default. This is an entirely rational reaction by investors to a sharp deterioration of the outlook for the Spanish economy. Obviously if the ECB curb the rise in Spanish bond yields the ECB are telling investors to disregard these credit risks. This clearly is moral hazard.

The problem here is that a monetary authority – the ECB – is engaged in something that is not monetary policy, but people will not surprisingly think of what a central bank do as monetary policy, but the ECB’s attempts to distort relative prices in the financial markets have very little to do with monetary policy as it do not lead to a change in the money base or to a change in the expectation for future changes in the money base.

That is not to say that the ECB’s credit policies do not have monetary impact. They likely have. Hence, it is clear that the so-called OMT has reduced financial distress in the euro zone, which likely have increased the money-multiplier and money-velocity in the euro zone, but it has also (significantly?) increased moral hazard problems. So the paradox here is that the ECB really has done very little to ease monetary policy, but a lot to increase moral hazard problems.

Unfortunately many of those policy makers who rightly are very fearful of moral hazard – normally Northern European policy makers – fail to realise the difference between monetary policy and credit policy. German, Finnish and Dutch policy makers are right in opposing a credit based bailout of South European “sinners”, but they are equally wrong in opposing an monetary expansion.

The paradox here is that Northern European policy markets by opposing monetary easing in the euro zone actually are increasing the problem with moral hazard and bailouts. Hence, when monetary policy is too tight nominal GDP (and likely also real GDP) collapses. As a result debt ratios increase – and this goes for both private and public debt. That will cause both sovereign debt crisis and banking crisis, which is perceived to threaten the future of the euro. The threat to the future of the euro so far has convinced Northern European policy makers to going along with bailouts and implicit and explicit guarantees to banks and countries around the euro zone. Hence, the ECB’s overly tight monetary policy likely have INCREASED moral hazard problems.

Europe needs to return to a system where insolvent banks and countries are allowed to default. We need to end the bailouts. The Northern Europeans are completely right about that. However, we also need to end the deflationary policies of the ECB, which greatly increases public debt and banking problems.

It is certainly not given that even if the ECB brought the NGDP level back to the pre-crisis trend everything would be fine. I am fairly convinced that the removal of implicit and explicit guarantees would force banks and countries to deleverage further.  Moral hazard problems and bailouts have led to excessive risk taking. There is no doubt about that, but if the ECB (and the Fed!) focuses on maintaining nominal stability we can get an orderly return to a market based financial system where credit risks are correctly priced.

And finally solvency problems should not be dealt with through monetary or credit policy. If a country is insolvent then the only answer is an orderly debt restructuring. Similarly if banks are insolvent orderly bank resolution is needed. Monetary policy at the same time should ensure that bank resolution and debt restructuring do not lead to a negative shock to monetary conditions. The best way to do that is to keep NGDP on track.


Update: This is a greeting to the University of Chicago Monetary Policy Reading Group. This week the group is reading and discussing Ben Bernanke’s classic 1983 paper “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression”. In this paper Bernanke discusses his creditist view of the Great Depression. I believe that  these views are what led the Bernanke Fed to initially response to the Great Depression with credit policies (trying to “fix” the banks) rather than through a focused increase in the money base and the money supply.

My challenge to the UoC Monetary Policy Reading Group they should discuss how Fed policy has evolved from initially to be strongly focused on credit policies (QE2) to moving towards a monetary expansion (the Bernanke-Evans rule) and comparing the Bank of Japan’s new policy which is much more focused on an expansion of the money base rather than an attempt to distort relative prices in the financial markets. This is Friedman versus Bernanke.

“Fragile by design” – the political causes of banking crisis

Charles Calomiris undoubtedly is one of the leading experts on banking crisis in the world. Calomiris has a new book coming out – co-authored with Stephen Haber. The main thesis in the book – “Fragile by Design: Banking Crises, Scarce Credit,and Political Bargains” – is that banking crisis is not an inherent characteristic of a free-market financial system, but rather the outcome of what Calomiris and Haber terms the “Game of Bank Bargains” between the government and special interests and how this game lead to different incentives for excessive risk taking or not.

For natural reasons I have not read the book yet, but in a couple of recent papers and presentations by Calomiris and Haber have spelled out the main ideas of the book (See for example here, here, here and here). I find their large survey of history of banking crisis tremendously interesting and I find it particularly interesting that Calomiris and Haber conclude that the root cause of banking crisis has to be found in what political institutions different countries have. Said in another way the main cause banking crisis is one of “political design”.

One of the main views of Calomiris and Haber is that some countries are a lot more prone to banking crisis than other. Calomiris and Haber list the following countries as particularly prone to banking crisis: Argentina, the Democratic Republic of the Congo, Chad, the Central African Republic, Cameroon, Guinea, Kenya, the Philippines, Nicaragua, Brazil, Bolivia, Costa Rica, Thailand, Mexico, Ecuador, Colombia, Uruguay, Chile, Turkey, Spain, Sweden and the United States.

Similarly Calomiris and Haber list a number of countries that in general have been crisis free (despite abundant credit):  Bahamas, Malta, Cyprus, Brunei, Singapore, Hong Kong, Macao, South Africa, Italy, Austria, New Zealand, Australia, and Canada.

The differences between USA and Canada seem to be particularly interesting (discussed in Chapter six of the book). Hence, since 1840 the US have had 14 banking crisis, while Canada have had none and this despite of the fact that credit have been as abundant in Canada as in the US. While the two countries have the a very similar cultural and colonial  history the political institutions in Canada and the USA are very different. These differences in political institutions according to Calomiris and the US have lead to the development of vastly different banking systems in the two countries – “branch banking” in Canada and “unit banking” in the US.

There are a lot more in the book than what I have discussed above and the papers that Haber and Calomiris already have put out are extremely interesting and insightful so I can’t wait to read the book! The book unfortunately is not available on Amazon yet so I haven’t ordered it yet, but I hope that that will soon change.

PS If there is one thing that seems to be missing in Calomiris and Haber’s discussion of the causes of banking crisis then it is a discussion of monetary policy regimes. That is unfortunate in my opinion as there is no doubt that monetary policy failure has played a huge role in the present crisis and in historical crises – something I know at least Calomiris acknowledges.

Update: Charles Calomiris has informed me that “Fragile by Design” also include a discussion of monetary policy regime – for example in the case of Brazil.

Update 2: Here is an recent interview with Charles on Bloomberg TV.

Should PBoC be blamed for the collapse in gold prices?

The graph below shows the yearly growth rate of Chinese currency reserves and the yearly change in the gold price. If the Chinese central banks stops intervening in the currency markets to curb the strengthening the yuan then it effectively is monetary tightening – the FX reserve accumulation will slow as will money supply growth. 



I will leave it to my readers to speculate whether the People Bank’s of China should be blamed for the drop in gold prices. 


Travis, Gold and Nikkei

This is commentator Travis:

Dear Market Monetarists,

Could someone please post a chart comparing gold prices to the Nikkei over the past eight months? This represents a huge defeat for those who claim that inflationary policies are enormously dangerous!

Here you go Travis…

Nikkei Gold