[jmherbener]

Yes, this is wrong. The pre-World War I classic gold standard was destroyed. No country ever returned to it. The gold exchange standard of the interwar period was pegged exchange rate system in which each country pegged its exchange rate to the pound. the pound was no longer redeemable for gold coin, but only for bullion bars. Thus, it was effectively no longer redeemable for gold for the average person. Look at Part 4 in Rothbard’s book, A History of Money and Banking in the United States:

http://library.mises.org/books/Murray%20N%20Rothbard/History%20of%20Money%20and%20Banking%20in%20the%20United%20States%20The%20Colonial%20Era%20to%20World%20War%20II.pdf

It is true that after FDR devalued the dollar from $20.67 an ounce to $35 an ounce, that gold, which remained redeemable in the U.S. for foreigners, began to flow into the U.S. At the time, it was called the “golden avalanche.” But this steady, significant gold inflow began in 1934, too late to explain the downturn of the Great Depression which occurred from 1929-1933.

http://www.fee.org/the_freeman/detail/money-and-gold-in-the-1920s-and-1930s-an-austrian-view/#axzz2pkQnDlyD

[jmherbener]

As Salerno points out in chapter 16 of his book, the inter-war period monetary system was not a gold standard. The classic gold standard was destroyed by the belligerent countries in the First World War. Read Salerno’s chapter 23, “The Role of Gold in the Great Depression” for his analysis of the arguments that the “gold standard” caused the Great Depression. He cites Murray Rothbard’s books, America’s Great Depression and A History of Money and Banking in the United States for further analysis.

http://library.mises.org/books/Joseph%20T%20Salerno/Money,%20Sound%20and%20Unsound.pdf

To see how a true international gold standard would work, take a look at Salerno’s chapters 13 and 15.

[jmherbener]

If the minimum wage is raised to $15, then it would be a criminal offense for an employer to pay less than $15 to any of his workers regardless of when they were hired. So, there is no benefit to low-skilled workers who cannot generate at least $15 an hour in DMRP. Low-skilled workers who remained employed must be able to generate at least $15 an hour in DMRP. Otherwise the law makes it a crime to employ them. So, an effective minimum wage destroys all legal jobs for workers with DMRP below the minimum wage and entrepreneurs will abandon businesses that rely on labor that produces DMRP below the minimum wage. Unless they can adapt by restructuring in such a way that their lowest skilled workers produce at least $15 in DMRP, restaurants will go out of business. The lowest paid jobs, which pay $15 under the minimum wage, can only be filled by workers who generate at least $15 in DMRP. Free labor market provide the opportunity for entrepreneurs to configure their businesses in such a way as to employ lower-skilled workers at wages commensurate with their DRMPs.

[jmherbener]

Take a look at chapter 16 in Joe Salerno’s book, Money, Sound and Unsound:

http://mises.org/books/sound_money_salerno.pdf

[jmherbener]

I’m not familiar with Jensen’s work. He has taught at Harvard Business School since 1985. As a business professor, his work in leadership is not economic-theoretical.

http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6484&facInfo=res

For comparison and contrast, here is an economic-theoretical approach to entrepreneurship and business by Peter Klein:

http://library.mises.org/books/Peter%20G%20Klein/The%20Capitalist%20and%20the%20Entrepreneur%20Essays%20on%20Organizations%20and%20Markets.pdf

[jmherbener]

The enormous build-up by commercial banks of excess reserves afforded by Ben Bernanke’s QEs have created both a potential for hyperinflation on the one hand and radical bank reform on the other.

On Dec. 9, 2013, commercial banks had Total Checkable Deposits of $1,423.2 billion and Excess Reserves of $2,440.8 billion. Because the Fed has the authority to set the reserve requirement ratio for commercial banks, it could simply require them to hold 100 percent reserves. Their current Required Reserves are $124.5 billion. Thus, banks would have to convert $1,298.7 billion of their excess reserves into required reserves leaving them $1,142.1 billion in excess reserves. Then the Fed would need to convert the required reserves held by banks as deposits with the Fed into cash that commercial banks would hold in their vaults. At that point, commercial banks would be 100 percent reserve banks and deposit insurance and regulation could be removed without any possibility of adverse bank runs.

[jmherbener]

The Fed can finance its purchase of securities either by selling assets it owns and using those funds to buy the securities or incurring liabilities. One has to look at the evidence to see whether or not the Fed has expanded the money stock when buying securities. Often they do, but sometimes they don’t.

Among its liabilities, if the Fed incurs either the liability of printing new currency or of crediting deposits commercial banks hold at the Fed, then it has increased bank reserves and banks can issue additional fiduciary media and expand the money stock.

Among its assets, if the Fed sells reverse repurchase agreements to finance its purchase of securities, then it drains bank reserves.

Table 8 in the Fed Release H.4.1 has the statistics for the week of Dec. 11:

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9

[jmherbener]

When the crisis came, banks were illiquid and insolvent. The QEs were designed to provide them both liquidity and solvency. They are not lending because demand for credit has dried up and they want to remain liquid until demand returns.

[jmherbener]

One has to look at the evidence to see whether or not bank reserves expand when the Fed buys securities. Often they do, sometimes they don’t.

But in our current situation, in which banks are holding over $2 trillion in excess reserves, muted price inflation has little to do with the Fed using reverse repos to counter-balance a further increase in reserves from its securities purchases. Price inflation has been muted for two reasons. First, because banks have been building excess reserves instead of creating fiduciary media. And, second because the demand to hold money has been increasing.

[jmherbener]

Yes, just like anybody else, the Fed can finance its purchase of something by selling an asset it already owns and using the funds to buy what it wants or it can incur a liability to pay for what it buys.

When the Fed literally prints money or when it credits deposits that banks hold at the Fed it is incurring liabilities for itself. But the Fed can also fund its purchases by selling assets.

As I pointed out in a post above, the Fed bought $58 billion in securities in the week of Dec. 4 and created only $4 billion in new bank reserves.

So, the answer to your question is no the Fed does not necessarily print money or create bank reserves each time it purchases treasuries.

[jmherbener]

David Colander, “The Stories We Tell: A Reconsideration of AS/AD Analysis,” Journal of Economic Perspectives (Summer 1995), pp. 169-188.

http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.169

And here is his assessment of economists and the financial crisis, “The Financial Crisis and the Systemic Failure of Academic Economists.”

http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Dahlem_Report_EconCrisis021809.pdf

Colander is a professor of economics at Middlebury College:

http://www.middlebury.edu/academics/econ/facultyofficehours/node/51761

[jmherbener]

The $58 billion is for the week of Dec. 4-11. We will have to wait and see if the monthly total comes to $85 billion. (I inadvertently wrote “million” in my post, which is now corrected.)

[jmherbener]

Economizing has two dimensions: choosing higher valued ends to attain with given means and choosing lower-valued means to use to attain a given end. As long a stretching is just one alternative end you can pursue with given means and as long as using the boards in combination with other means is just one alternative combinations of means, then you have choice in both dimensions of the action.

Hypothetically, there could be actions for which there is only one combination of means that can attain the end. In that case, a person has only one dimension of choice. In choosing the end he simultaneously chooses the means. But, even in this case, the means are still scarce.

Every action takes place in the set of circumstances. These circumstances are either general conditions, i.e., elements of the situation that a person does not control in the action, or means, i.e., elements of the situation that a person does control in the action. If something is abundant to a person, i.e., if he has more than enough of it to satisfy all his ends, then it is a general condition. He does not need to integrate a general condition into his valuing and choosing when he acts. He may technically or physically employ it, but he does not act with respect to it. If we could imagine a situation in which all elements were general conditions for a person (which is obviously impossible in our world), then he would not engage in human action. He would be engaged in activity but his behavior would not be categorized as human action.

[jmherbener]

If we accept the premise of his argument that “we agree that children should not starve” then the libertarian solution of private charity will work to take care of the problem of the poor as best as it can be taken care of in a world of scarcity. This was, more or less, how America was before the welfare state. He should read de Tocqueville’s book, Democracy in America or Marvin Olasky’s book, The Tragedy of American Compassion.

[jmherbener]

To buy securities, the Fed must either sell other assets or incur liabilities. It has several asset categories it could use and a few liability categories. So, it can buy securities without expanding base money.

For the week Dec. 4-11, Federal Reserve Banks increased their Securities $58,443 million, The Federal Reserve Bank incurred liabilities of $26,149 in Reverse Repurchase Agreements and $29,095 in Deposits. Deposits Held by Depository Institutions (i.e., Commercial Bank Reserves) increased by $30,096.

http://www.federalreserve.gov/releases/h41/current/h41.htm (Table 8)

So the Fed’s purchase of securities of $58 billion was roughly neutral to base money. It expanded bank reserves by $30 billion and contracted them by $26 billion. In its reverse repos, the Fed sells securities to counter parties with an agreement to buy them back.

http://www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm

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