tag:blogger.com,1999:blog-8897997766931633186.post7318377006417188137..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: ABCT SkepticBill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-8897997766931633186.post-50569248192981247392016-10-29T16:21:52.736-04:002016-10-29T16:21:52.736-04:00Frankly speaking, I have absolutely no idea about ...Frankly speaking, I have absolutely no idea about Australian business cycle or as such, but I just love reading all the unique and different articles on this blog. I find it extremely love able because it guides me to many things and gives me good ideas on how to go about doing business. I am already enjoy things a lot thanks to broker like OctaFX which is extra-ordinary and that’s by all means having lowest possible spread available here from 0.1 pips to high leverage up to 1.500 while there are many other benefits too!Arunnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-41662542866308901192011-08-19T09:19:34.141-04:002011-08-19T09:19:34.141-04:00Catalan:
I don't think you understand the Aus...Catalan:<br /><br />I don't think you understand the Austrian Business Cycle Theory. <br /><br />Capital and saving are different things.<br /><br />Not enough capital (saving) makes little sense.<br /><br />By the way, I don't deny that inability to complete projects is part of the traditional story, but you are wrong that the distortion of market and the natural interest rate is beside the point.<br /><br />The interest rate is the market price that provides intertemporal coordination (or not,<br />if something goes wrong.)<br /><br />The actual changes in the prices of consumer and capital goods aren't essential to the process. That depends on the elasticities of supply. Oddly enough, little actual change in prices, and more change in the composition of output--more malinvestment.<br /><br />I understand that stories about incomplete projects are part of the tradition. I think that is mostly an error, but even to the degree it is true, you are wrong to identify that as the Austrian Business Cycle Theory.<br /><br />The "you can't finish the dam" story is probably false. The problem is that after you finish the dam, you have a lot of dam producing capital goods that you have nothing to do with. The complementary factors (other things you need to use with them) have more valued uses. Constructing other sorts of capital goods that help produce goods and services for the nearer future. <br /><br />But this story very much has to do with interest rates. It takes a couple of years to get any electricity from the dam, and some of the electricity from the dam won't be produced and paid for for decades. At a higher interest rate, this delay makes the make the present value of those revenues too low to cover the cost. But the cost is the opportunity cost, the value of the goods that could be produced in the nearer future with the resources needed to produce a dam. But the problem is that some of the resources don't have alternative uses. <br /><br />I would suggest focusing less on Austrian Business Cycle Theory and more on basic micro. Then return to it.<br /><br />By the way, don't forget that the lower purchasing power of money raises the price of future electricity that the dam will produce. <br /><br />Are you taking that into account when thinking about the process?Mayor Bill Woolseyhttps://www.blogger.com/profile/15439136665155575382noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-32658699119496811182011-08-19T08:56:02.826-04:002011-08-19T08:56:02.826-04:00Tapp:
I agree with Gorton that there was a run on...Tapp:<br /><br />I agree with Gorton that there was a run on the shadow banking system. Unlike Gorton, I don't think that the loss benefits of that system for the distribution of credit is the source of our current economic difficulties.<br /><br />It is troubling that for only a slightly higher yield, depositors were willing to put their funds in poorly diversified and poorly capitalized institutions. Why don't they have some kind of option clause on repurchase agreements? It all seemed to be based on the illusion that a depositor can solve any problem by getting out first. Not everyone can do that.<br /><br />My response to the situation is that it is very important to have a system of rapid bankruptcy for institutions issuing money. I hadn't worried much about massive insolvency of banks before. I was more worried about liquidity issues.Mayor Bill Woolseyhttps://www.blogger.com/profile/15439136665155575382noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-44649461094279568512011-08-18T14:17:40.828-04:002011-08-18T14:17:40.828-04:00Bill,
I did not read your entire post, so I apolo...Bill,<br /><br />I did not read your entire post, so I apologize in advance if this response misses anything you covered.<br /><br />You write,<br /><br />"Malinvestment is the construction of capital goods that are only profitable with interest rates lower than the natural interest rate."<br /><br />This is not true. If interest rates remained low, it would not make the investment any more profitable. The entire focus on "natural rate", in any case, in my opinion misses the point. It's not about interest rates; a falling interest rate just causes an increase in investment in second order goods (which, in turn, leads to an increase in earlier order goods).<br /><br />The focus on interest rates misses what really matters, which is a distortion of prices. These investments aren't profitable under any interest rate (except a naturally lowered interest rate), because what is occurring is an increase in investment without the required increase in capital goods (savings). That's why they are malinvestments; they are unprofitable because the necessary savings don't exist for their completion.Jonathan M.F. Catalánhttp://blog.mises.org/author/catalan/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-84461483561763098762011-08-16T11:33:47.145-04:002011-08-16T11:33:47.145-04:00Bill,
I'm not very convinced about your reaso...Bill,<br /><br />I'm not very convinced about your reasons to be sceptical.<br /><br />I don't think that the real interest rate can be as easily speculated about as you suggest.<br /><br />I don't think that monetary policy manifests itself in NGDP straight away. Especially when a change isn't expected. So, there is plenty of time for an injection to cause malinvestments before the rise in prices becomes clear.<br /><br />I think concentrating on bond markets where high-level financial agents make decisions tells only part of the picture. If there is a money injection beyond demand then plenty of ordinary people will recieve it and consider it a rise in real income.<br /><br />Funnily enough I'm not so sure about the Fed's recent policy. If they succeed in creating price inflation then there's the possibility of ABCT. But since they keep paying interest on reserves and keep supporting near-zombie banks will that actually happen?Currenthttps://www.blogger.com/profile/08645195276844244481noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-52593794836721842942011-08-15T21:27:39.989-04:002011-08-15T21:27:39.989-04:00Prof. Woolsey, I asked this question of Selgin and...Prof. Woolsey, I asked this question of Selgin and thought I'd run it by you: <br />What do you think of Gary Gorton's work regarding the crisis (and other monetary history as well)? In his research, he hardly mentions monetary policy, and points out that empirical evidence suggest loosening lending standards aren't to blame either. Banks made loans completely dependent on house prices rising in order for those loans to be profitable. When house prices quit rising those loans, which had been securitized into instruments being used as risk-free collateral in the repo market, turned highly unprofitable. How does one see this through the lens of free banking? Thanks.Justin D. Tapphttps://www.blogger.com/profile/12618278252714742391noreply@blogger.com