Thursday, May 27, 2010

M3 Disappearing; So? Keynes v. Friedman v. Hayek

Not exactly surprising. "Stimulus" doesn't work, White House goes ballistic, ......

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

...The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

According to the article, this has caused near-panic in the White House and has made inoperative Obama's yappaflappa about reining in the deficit. (So that 'promise' joins the closing-Gitmo promise--and the 'no taxes on little guys' promise, and the 'transparent and open Gummint' promise......)

One econo-guru disagrees with the Keynesian "load up with debt" formula.

Professor Tim Congdon from International Monetary Research:

'...the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.'

"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.

Congdon bewails the fact that Obama-ites are ignoring Friedman.

Others are just as unhappy that Hayek is ignored. His economic theory recognizes the existence of debt in the PRIVATE sector as a factor--and arguably has the best of the argument when he proposes that credit-expansion beyond productivity-expansion is dangerous.

No kidding, hey....

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