Archivo de la etiqueta: Sound Money Project

SMP: Against the War on Cash

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Los últimos tiempos han mostrado un movimientos en contra del uso de efecto por parte de funcionarios públicos y de diversos economistas y banqueros centrales. Si bien hay varios argumentos, uno de ellos reside en que al eliminar las transacciones ne efectivo y llevar a una economía 100% bancarizada se combate tanto la evasión impositiva como mercados ilegales (drogas, armas, etc.) que se manejan por fuera del circuito bancario.

Estos y otros beneficios no son discutidos, pero parece ser que se obvian ciertos costos, en especial el costo institucional de invertir la carga de la prueba donde se toma la postura de que quien realizar una transacción en efectivo es culpable de algún delito hasta que demuestre lo contrario. A continuación mi comentario para Sound Money Project.

In recent years, economists and central bankers have been advocating moving away from cash transactions towards an economy relying fully on financial transactions. At prima facie, this seems to be a good idea. Using checks and financial transfers can be more secure; the fact that every transaction is recorded makes illegal transactions (drug deals, etc.) harder. Additionally, it makes tax evasion harder, which is a key selling point for government officials. Will Luther (here, here, and here) and Larry White (here) have already covered much of the ground.

No one denies that financial transactions come with these benefits. However, individuals still willingly choose to perform legal transactions in cash. Therefore, it follows benefits of using cash or costs of banks cash are being overlooked. Indeed, using cash can often be pragmatic. For instance, a low-income individual may prefer to withdrawal the amount of money he can use to buy, say, a beer after work every month. This person might find that it’s easier to control and monitor his spending this way than by checking his bank account to keep track of his transactions each month. His reasoning might also be that he prefers handling cash because he worries about having his credit card number stolen for second (or third) time.

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Essay: How has the Federal Reserve System helped or hurt the American economy?

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Gonzalo Macera es premiado por su breve ensayo a esta importante pregunta en Sound Money Defense League

-How has the Federal Reserve System helped or hurt the American economy?

Even though between the Federal Reserve System listed responsibilities one reads: “Maintaining the
stability of the financial system and containing systemic risk that may arise in financial markets.” It would
appear to be that unsound monetary policy from behalf of the FED has actually had the opposite effect in
more than one occasion. Between the various examples, a recent one was the 2008 crisis.

The explanation of what went wrong in the 2008 Financial Crisis by some authors was that the problem
could be traced back to a monetary policy that kept interest rates too low for too long (Diamond and Rajan
2009a; Dowd 2009; McKinnon 2010; Meltzer 2009; O’Driscoll 2011; Schwartz 2009; Taylor 2009), that it
could be argued that excess liquidity fueled by major central banks, among them the FED, generated an
accumulation of imbalances that led to the crisis.

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SMP: The Assymetry of Central Bank Power

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Comparto comentario en Sound Money Project sobre lo que es un asimetría en los argumentos a favor de la banca libre en general.

For some time now, a lot of attention has been put on the Federal Reserve’s decision on whether or not to increase the federal funds rate target or to leave it unchanged at its current level. The health of the U.S. economy (and a significant part of the world economy) seems to depend whether or not the FOMC decides to hike the Fed funds target, an overnight rate that U.S. banks charge each other (up to 0.25%.)

When the economy needs to be fixed, it seems that the federal funds rate is enough to do the trick. Investment that depends on long-run interest rates rather than short-run interest rates can be indirectly affected by the very short run interest rates that banks charge each other. This requires one to assume that such short-run interest rates have much more power than one might think as they can have a very real effect on the economy. Otherwise, why would so many central banks around the world target short-term interest rates of one kind or another? An increase by just 0.25% of the federal funds rate can be so powerful that FOMC members often hesitate to raise target rates. It could be too much for the economy.

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SMP: Natural Rate of Interest: Is it that low?

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Comparto mi último post en el Sound Money Project sobre si la tasa natural de interés efectivamente se encuentra en niveles tan bajos.

One of the open questions since the subprime crisis is whether or not the natural rate of interest is as low as the federal funds rate. The natural interest rate is the rate that equilibrates production over time. However, this concept is more subtle than output being equal to potential output– it also implies that production is distributed efficiently over time.

If it is the case that the natural rate of interest is, in effect, close to zero, then the Federal Reserve’s policy of maintaining a low federal funds rate target could be an adequate one. But, if this is not the case, then the Federal Reserve might be pushing interest rates below their equilibrium level and imposing costly imbalances on the economy.

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SMP: IMF Economists Criticize Neoliberalism

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Comparto mi último post en Sound Money Project.

In a recent Finance & Development piece, several IMF economists came together to criticize neoliberal reforms made by governments across the globe. Their main argument is that, “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.” More specifically, they criticize “capital account liberalization” and austerity reforms. These measures can harm both the economy and society as a whole.

Really, the problem lies in short-term financial investments, not in long-term or foreign direct investments. Short-term capital flows can add volatility to exchange rates, affect financial sector balance sheets, and even produce a sudden stop. Austerity reforms, on the other hand, can produce effects ranging from welfare costs to negative supply shocks. According to the authors, both capital account liberalization and austerity reforms, increase inequality.

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SMP: ABCT and the Marginal Entrepreneur

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Post en Sound Monery Project sobre expectativas racionales y teoría austriaca del ciclo económico.

A few days ago Alexander W. Salter wrote an interesting post on the problem of optimal resource allocation during an Austrian business cycle. His argument is that the Austrian business cycle theory (ABCT) can be understood within “a framework of rational expectations and ‘equilibrium always’ modeling conventions.” The argument against the ABCT based on rational expectations is that if we assume a representative agent, then it is not plausible to assume that he persistently errs on investing in projects that might be too long or roundabout. If the agent truly is rational, then he should be able to sort out the “model” and correct his mistakes rather than always erring on the “too long or “roundabout” side.

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SMP: The money supply and the price level: A broken link?

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Ultimo post en Sound Money Project, en reflexión al primer panel que asistí en APEE.

This past week, The Association of Private Enterprise Education (APEE) held its annual conference in Las Vegas, Nevada. As always, it was a very interesting event and I would like to take this opportunity to encourage young scholars who are serious about academic research and interested in promoting economic freedom to attend.

At the first monetary policy session that I attended, Sound Money: Are Central Banks Necessary?, it was said that the link between the money supply and the price level is broken. This really stood out to me. While this view wasn’t articulated by all of the presenters, it was certainly held by many of the economists in attendance.

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SMP: Why Sound Money

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Comparto mi último post en Sound Money Project.

In recent posts, George Selgin (here and here) criticizes anthropologist David Graeber for sustaining that anthropological discoveries debunk long standing core economic beliefs. A superficial reading of economics might suggest that this discipline upholds that transactions occur either in the form of barter or with the aid of money. The reason for this dichotomy is not to reject the idea of any other type of exchange (for instance, through gifts), but to emphasize the role of money in a large society. While Selgin is very clear in answering to Graeber’s position, his posts got me thinking about why money is so important in economics and why sound money is so important.

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SMP: The never-ending Argentine fiscal business cycle

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Post en Sound Money Project sobre el eterno problema del deficit fiscal en Argentina y el nuevo gobierno de Cambiemos.

15 years after carrying out the biggest sovereign default in its history, Argentina finally reached a debt accord with its holdouts. The agreement between Mauricio Macri’s administration and the holdout litigants in the U.S. Court of Law has finally been reached. This is good news for the country. The government can resort, if needed, to international financial markets and issue government debt. Until now this possibility was constrained to only a few creditors like Venezuela, who would charge a considerably high interest rate to lend money to the Kirchner administration, its political ally.

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SMP: Taylor, Sumner and Selgin at the Cato Monetary Conference

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Tercer post resumen del Cato Monetary Conference en Sound Money Project.

In this post I want to briefly comment on three points raised by J. B. Taylor, George Selgin, and Scott Sumner. Though these points have been raised before in the literature, they are certainly worth reviewing.

J. B. Taylor delivered his lecture on the challenges of monetary policy in an international context. The first challenge, of course, is that the strategy, or policy decision, of a major central bank affects the decision making of other major central banks. This could result in unintended loose policies at the international level as central banks around the world react to an expansionary policy by a major central bank like the Federal Reserve. Say, for instance, that after 2001 the Fed would have decided to reduce the federal funds rate target and expanded the monetary supply. In response, a major trade partner like China might have decided to peg its exchange rate to the U.S. dollar in order to avoid the effects on its trade with the U.S. To do this, China would have to mimic the Fed’s policy. The international effects of the Fed’s policies are certainly significant. It is worth noting that two largest crises in Latin America happened after the two largest deviations by the Fed from Taylor’s rule (here). But to be conscious of these issues does not mean that the solution is easy. Leith and Wren-Lewin (2009) show that when assuming open economies, the Taylor rule may be indeterminate or produce spill over to other economies.

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