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May 19, 2011

Credit Growth Drives Economic Growth, Until It Doesn’t

The single most important thing to understand about economics in the age of paper money is that credit growth drives economic growth. Before the breakdown of the Bretton Woods international monetary system in 1971, there was a difference between money and credit. There no longer is. Paper dollars and US treasury bonds denominated in paper…
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May 3, 2011

China: Every Boom Busts

Since the beginning of the Industrial Revolution, every economic boom has been followed by an economic bust. The bigger the boom, the bigger the bust. Over the past 20 years, China has experienced the greatest economic boom in history. It is only a matter of time before the great Chinese bubble pops. China’s economic model…
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April 26, 2011

Birth Of The Debt Culture

Once US dollars ceased to be convertible into gold at the beginning of the 1970s, there was no longer any constraint on the amount of dollar-denominated debt that could be created by the Federal Reserve system or the Treasury Department, or, for that matter, the private sector. For the next decade, fear of inflation and…
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April 19, 2011

A New Economic Paradigm

Since the 1980s, a culture of debt has arisen in the United States. That change was the consequence of a misguided trade policy that gave rise to a current account deficit of unprecedented size. Between 1982 and 2008, the United States imported $7.4 trillion more than it exported. It financed the shortfall on credit. That…
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April 9, 2011

The Loose Cannon Credit Crisis

Starting in the 1970s, international credit flows began to destabilize the global economy. One country after another was plunged into crisis as dollar-denominated credit from abroad produced short-term booms followed by longer-lasting busts. Each crisis threatened the solvency of the international financial system; and in each crisis the large international banks that had made the…
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April 4, 2011

ABANDONED PRINCIPLES

There should be no confusion as to the origins of the global economic crisis that began in 2008. This crisis was set in motion in the 1960s, when policymakers in the United States abandoned the core principles of economic orthodoxy: balanced government budgets and sound money backed by gold. Large budget deficits and the possibility…
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March 21, 2011

BERNANKE’S CHOICE

For twelve years the US trade deficit financed the US budget deficit and held down US interest rates. From 1996 to 2008, the US trade deficit exceeded the government’s budget deficit every year. The dollars sent abroad to pay for the trade deficit were accumulated by the central banks of the trade surplus countries, who…
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March 9, 2011

Why Won't Bernanke Come Clean on Glut?

Perhaps the greatest mystery in the world of finance and economics is why Fed Chairman Ben Bernanke refuses to acknowledge that paper money creation by central banks produced the “global savings glut” which, according to him, destabilized the global economy and led to the crisis of 2008. Six years ago, Bernanke unleashed his Global Savings…
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February 21, 2011

The Great Depression and The New Depression

A worldwide economic depression began in 2008. This New Depression was caused by the same factors as the Great Depression and followed exactly the same pattern. Thus far, however, the New Depression has been milder than the Great Depression because the policy response this time has been completely different. Both depressions were caused because governments…
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February 12, 2011

Currency Manipulators Created $7 Trillion, Causing The Global Economic Bubble

The single most important development affecting the global economy over the past decade has been the creation of $7 trillion worth of paper money by central banks in developing countries. This explosion of money creation drove up the price of stocks, bonds and commodities – and drove down yields – all around the planet. It…
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February 5, 2011

Debt-Financed Trade Caused The New Depression

The United States trade deficit hit $2 million A MINUTE in 2006. That was the rate ($800 billion that year) at which the US was going into debt to the rest of the world. When Adam Smith (1723 – 1790) and David Ricardo (1772 – 1823) wrote about the benefits of free trade, they could…
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January 19, 2011

What Every American Needs To Understand About The Economy

As the United States debates its economic future in light of large government budget deficits, it is important that the public has a clear understanding of how the economy works. A good starting point for understanding how the economy works is to understand how it is measured. Economies are measured in terms of their Gross…
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January 13, 2011

Why Chairman Bernanke Is Wrong [Part One]

There are many areas where my views differ from those of Ben Bernanke. Here is the first. Fed Chairman Bernanke believes in the Monetary Theory of the Great Depression, which holds that the Federal Reserve could have prevented the Great Depression by stopping the US money supply from contracting during the early 1930s. This is…
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January 6, 2011

Economics In The Age Of Paper Money

“Irredeemable paper money has almost invariably proved a curse to the country employing it.” So wrote America’s greatest economist, Irving Fisher, in 1911. Sixty years later President Nixon severed the last remaining link between US dollars and gold, leaving not only the United States but the entire world on an irredeemable paper money standard. Since…
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December 22, 2010

THE FUTURE: AVERTING DISASTER

The future – the happiness and prosperity of mankind – will be determined by how global supply and global demand are brought back into balance. If the means are found to expand aggregate demand sufficiently and sustainably, then the global excess supply will be absorbed and the global economy will begin to grow again. If,…
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December 15, 2010

THE PRESENT: ON THE BRINK OF DISASTER

The global economy is in crisis. Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression. This crisis is structural, not cyclical. At its core is the fact that global production, swollen by limitless credit denominated in fiat money, greatly exceeds the consumption that can…
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December 11, 2010

THE PAST: ABANDONED PRINCIPLES AND MISGUIDED POLICIES

When I was born in 1960, the political leaders of the United States believed very strongly that it was their duty to balance the government’s budget and to ensure that the country’s money was sound, in other words backed by gold. They believed these things just as their fathers, grandfathers and great-grandfathers before them had;…
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November 26, 2010

How My Views Differ From:

Keynesians Bernanke and the Monetarists Free Traders The Libertarians The Tea Party The Democrats The Republicans The Bulls/the optimists The Bears/the pessimists China Bulls China’s policymakers

November 26, 2010

Economics In The Age Of Paper Money

The economic ecosystem, laissez-faire and exogenous shocks. Globalization and the collapse in the cost of labor Three kinds of Inflation Why Interest Rates are zero: What determines interest rates in the age of paper money Understanding the Flow of Funds The End of Crowding Out Quantitative Easing and Crowding In The US trade deficit: the…
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November 25, 2010

The Past: Abandoned principles and misguided policies

Policy Mistakes Unbalanced Budgets The End of Sound Money Promoting Trade with no concern for the balance of trade Financial Sector Deregulation Economic Management through bubble creation. Trade The collapse of Bretton Woods Trade Imbalances Flaws in The Dollar Standard: no automatic adjustment mechanism. Globalization: trade imbalances, disinflation, interest rates Financing the trade imbalances with…
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