[jmherbener]

The money stock has been expanding, just not at the rate it could potentially expand.

http://research.stlouisfed.org/fred2/series/MZM?cid=30

Also, the demand to hold money is relaxing somewhat. The result has been asset price inflation instead of broad price inflation throughout the economy. In addition to stocks, luxury housing prices have skyrocketed.

http://www.bloomberg.com/news/2013-05-17/ackman-said-among-buyers-of-penthouse-at-nyc-s-one57.html

If the Fed’s official rationale is to be believed, having saved the banking system, it’s further expansion of the monetary base has the aim of pushing the unemployment rate down below 6.5 percent.

http://www.stlouisfed.org/newsroom/displayNews.cfm?article=1751

[jmherbener]

Your protagonist is completely mistaken. Shareholders have a legal claim to the equity of an enterprise. A shareholder who owns one percent of the shares has a legal claim to one percent of the equity of the enterprise. The claim can be exercised if the enterprise disbands. Of course a legal claim to equity that can be exercised only on condition that the enterprise goes out of business does not give the shareholder a legal claim on the inventory of the enterprise. Neither does a consumer get a claim on an enterprise’s “cash equivalent of his stock of inventory” by buying a tube of toothpaste. But, he does get a legal claim to the tube of toothpaste. In contrast, no person has a legal claim of ownership to the property of the state whatsoever. Citizens have no legal claim to any property owned by the state. Government officials have legal use of state owned property, but not full legal ownership.

On this point, take a look at Hans Hoppe:

http://library.mises.org/books/Hans-Hermann%20Hoppe/Economics%20and%20Ethics%20of%20Private%20Property%20Studies%20in%20Political%20Economy%20and%20Philosophy.pdf

[jmherbener]

The Fed has been buying Mortgage Backed Securities and other assets from commercial banks. It has paid with cash or by crediting checking accounts banks have at the Fed. Cash and checking account balances banks have at the Fed are reserves for banks against their issue of checking accounts held by their customers. Before the downturn, banks held less than 7 percent in reserves against the checkable accounts of their customers. Today they are holding 150 percent in reserves. Banks are holding excess reserves instead of making more loans by which they expand the money stock by placing the funds in their customers’ checking accounts.

Here is the monetary base, which reflects the Fed’s payment, (i.e., “printing money”) for its purchases:

http://research.stlouisfed.org/fred2/series/BASE?cid=124

Here are bank reserves (showing the banks’ holding of the “printed money”), which are Assets for banks:

http://research.stlouisfed.org/fred2/series/ADJRES?cid=123

[jmherbener]

Austrians hold that economic laws are universal, conceptual principles of human action. They exist as part of the cause and effect nature of the world. They can be discovered through deduction because we have basic knowledge of the nature of human action from introspection. From these beginning premises, we can deduce economic laws. Because we lack introspective knowledge of the nature and working of physical objects we cannot discover the laws of cause and effect in the natural world by praxeology. Forming abstract models which generate testable hypotheses seems to work in discovering laws of nature.

Austrians have nothing against deduction or induction when used in their proper realms. If neoclassicals think they can discover economic laws by applying the method of the natural sciences, Austrians say such laws can be discovered more definitively by praxeology. The analogy is that the Pythagorean Theorem can be proven by deduction from basic axioms, not by drawing and measuring the sides of all right triangles. If neoclassicals think they can discover economic regularities by applying the method of the natural sciences, Austrian say that there are no quantitative constants in human action. Any regularity in the past can change in the future and thus, past regularities cannot be the sole basis for making predictions.

Take a look at Hans Hoppe on method:

http://library.mises.org/books/Hans-Hermann%20Hoppe/Economic%20Science%20and%20the%20Austrian%20Method.pdf

[jmherbener]

Take a look at this article:

http://mises.org/daily/6402/Nominal-GDP-Targeting-NewFangled-Monetarism-or-OldFashioned-Keynesianism

[jmherbener]

The federal funds rate is the interest rate for inter-bank, overnight lending. Banks lend to other banks overnight mainly to provide reserves to the borrowing banks. So, the Fed manipulates the Federal Funds rate by purchasing assets from banks and thereby, increasing bank reserves. With a greater total stock of reserves, the Federal funds rate will be lower, given the total demand for reserves. The Fed adjusts its buying of assets to generate the amount of reserves to hit its target rate for the Federal Funds interest rate, currently 0-0.25 percent.

When banks have more reserves, they can create more credit by issuing fiduciary media. The additional supply of credit will lower interest rates. (Currently, banks are holding excess reserves instead of creating more credit.)

[jmherbener]

At the end of 2012, the Federal debt is $16.4 trillion, but the debt held by the public was $11.5 trillion. The Interest paid on treasuries held by the Fed go to the expenses of the Fed and any surplus is remitted back to the Treasury.

The interest paid on the federal debt in 2012 was $220 billion. Federal expenditures in 2012 were $3.6 trillion. So interest made up 6 percent of the Federal budget. Interest rates could double or even triple without initiating a nightmare scenario on the Federal budget.

Arbitrage does not eliminate the difference in interest rates between high-yield securities and AAA. So if Treasuries are further downgraded and command higher interest rates to entice lenders to buy them, then there will be no arbitrage between the higher interest rate Treasuries and higher rated securities.

[jmherbener]

I’m assuming that by “number” you mean the CPI increased in the last quarter at an annualized rate of, say 2 percent. And by “trend” you mean, the CPI trended upward as it increased last year by 2 percent and this year it has increased by 5 percent at an annualized rate.

Because the CPI is a political football, the number matters. Imagine how different the political treatment of monetary policy would be if the official CPI numbers were as Shadowstats calculates them.

[jmherbener]

Each government issued fiduciary media, holding only a fraction of gold money against its currency issue. International currency traders could, then, devalue any currency in exchange for another that they thought over inflated to the point of impending official devaluation .

[jmherbener]

Romer is a New Keynesian. So, the dispute you’re discussing is between Old Keynesians and New Keynesians.

Take a look at Mankiw on the New Keynesians and the macroeconnomic synthesis:

http://www.econlib.org/library/Enc/NewKeynesianEconomics.html

The literature has moved on from the monetarist-Keynesian debate.

[jmherbener]

Demand and supply analysis is done to explain the level of and changes in the price of a good. For this reason, the graph of demand (supply) is drawn to depict a person’s choice to buy (sell) a particular amount of a good at each of a series of prices. The law of demand (supply) states that at a lower price a person will buy (sell) not less (not more) of a good if all the other factors that affect his buying (selling) are kept the same. Because of the laws of demand and supply, the market will clear only at one price or a limited range of prices. The price of a good will be at the level that clears the market because doing so generates the greatest possible benefits to the traders. So to analyze the level of price, the economists holds all the factors affecting buying and selling the same except the price itself.

To analyze changes in the price of a good, the economist conjectures a change in one or more of the non-price factors affecting buying and selling. Let’s suppose the preferences of gun owners to buy 9mm ammunition increases, meaning they are willing to buy more ammunition at the current level of price. Then the entire demand curve will shift to the right. If the level of price fails to rise, the market will not clear, instead there will be excess demand. Sellers raise price in response to the increase demand and because the price is higher, they increase the quantity they supply. The market will then clear at a higher price.

[jmherbener]

Don’t make too much of the seeming emphasis of fiscal policy to Keynesians and monetary policy to Monetarists, Both agree on the importance of aggregate spending in determining the macro economy. Only in the special case of a liquidity trap, do Keynesians claim monetary policy is ineffective. Romer’s article focuses on monetary stimulus, not in contrast to fiscal, but in contrast to “self-correction” of the market.

http://www.nber.org/papers/w3829

[jmherbener]

The BEA has not yet changed the calculation of GDP.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Here is there press release on the change.

http://www.bea.gov/scb/pdf/2013/03%20March/0313_nipa_comprehensive_revision_preview.pdf

The major changes are including R&D expenditures in GDP. According to the BEA this would have added $300 billion to the $14 trillion GDP in 2007.

Capitalizaton of entertainment and literary products. BEA estimates this would have added $70 billion to GDP in 2007.

Capitalization of ownership transfer costs of residential fixed assets. BEA estimates this would have added another $60 billion to 2007 GDP.

Switch from cash to accrual account of pensions. BEA estimates this would have added another $30 billion to 2007 GDP.

So, the $14 trillion GDP would have been $460 billion, 3.3 percent, larger in 2007. Because the BEA plans to revise the figures back to 1929, I don’t think the changes will drastically affect measured growth rates.

The BEA methodology has always been littered with difficulties such as those highlighted by the changes it plans to make.

http://www.bea.gov/methodologies/index.htm#national_meth

[jmherbener]

Money is the general medium of exchange. It is the most widely-traded good in the economy. Because of this, economic calculation, i.e., accounting, is done in money. Bitcoins, then, are not money.

Money substitutes are at par, on demand redemption claims for money. Banks that issue checking accounts will redeem them at par (i.e., at the fixed, face value of the claim), on demand for cash. That’s why merchants throughout the economy accept them in lieu of money itself. Bitcoins, then, are not money substitutes.

In a market economy, people are free to try new mediums of exchange, If BTC is such an attempt, it is not the first and, presumably, will not be the last. Here are few articles giving economic analyses of bitcoins:

http://mises.org/daily/6399/The-Moneyness-of-Bitcoins

http://mises.org/daily/6401/Bitcoin-Money-of-the-Future-or-OldFashioned-Bubble

http://mises.org/daily/6411/The-Bitcoin-Money-Myth

[jmherbener]

Neoclassicals would advise the government on ways to improve the “efficiency” of the their micro-economic policies. For example, if the government nationalized the railroads during the war, neoclassicals might build models to find out the minimum distance trains can travel and deliver all their cargo.

The Rand Corporation had neoclassicals construct game theory models to learn about negotiation strategies during the war.

http://www.indepthinfo.com/rand/game-theory.htm

Perhaps the most famous example from WWII is Milton Friedman advising the Treasury department to institute income tax withholding to improve the efficiency of tax collection.

http://www.lewrockwell.com/rothbard/rothbard43.html

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