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We live in an age of grave economic ignorance, if central-bank policy is an indication of prevailing economic theory. It is apparent that we’ve learned nothing from several millennia of monetary destruction. The persistent demonstration that capital, not paper, is the basis for prosperity has fallen on deaf ears. Daily, we face the sad spectacle

In his Wall Street Journal article from March 11, 2009, former Fed chairman Alan Greenspan rejects the idea that the Fed’s low-interest-rate policy between December 2000 and June 2004 fueled the housing bubble, which in turn laid the foundation for the current economic crisis. (The federal funds rate was lowered from 6.5% in December 2000 to 1% by

US Treasury Unveils Plan to Buy Banks’ Troubled Assets Last Monday the US Treasury presented a plan that is aimed at cleaning toxic assets from banks’ balance sheets. The Treasury is to take over up to $1 trillion in bad assets (such as mortgage securities) with the help of private investors. According to the plan, for every $100 of bad mortgages

Since the end of February when the S&P 500 closed at 735.09, the index has been pushing strongly ahead, closing on Friday, May 8, at 929.23 — an increase of 26.4%. We suggest that the key driving force behind this strong bounce is a massive increase in liquidity. What is it all about, and how do changes in liquidity drive the stock market? In a

In his interview with the New York Times on May 3, 2009, President Obama said, I know how to ask good questions of my doctor. But ultimately, he’s the guy with the medical degree. So, if he tells me, you know what, you’ve got such-and-such and you need to take such-and-such, I don’t go around arguing with him or go online to see if I can find a

The fall in the headline consumer price index (CPI) in April for the second consecutive month has raised concern that the US economy might have fallen into a deflationary black hole. Year on year, the CPI fell by 0.7% in April after declining by 0.4% in the month before. For most experts, the emergence of deflation poses a serious threat to the

A growing concern for Fed policy makers is a weakening in the US dollar against major currencies. The price of the euro in US-dollar terms climbed from a low of $1.27 in November last year to around $1.41 in May and $1.43 in early June — an increase of 12.6% from November. The major currencies dollar index fell to 78.89 in May from 82.3 in April —

Most experts and commentators are of the view that the worst of the US recession may be over by year’s end. My own prediction is for an illusory recovery of government-constructed economic indicators, but nothing more than that.    It is held by most experts that a recession is typically set in motion by various unpredictable shocks. For instance,

In his speech at the BIS conference in Basel, Switzerland, the president of the New York Federal Reserve, William Dudley, argued that asset bubbles pose a serious threat to real economic activity. He holds the view that the US central bank should develop effective tools to counter this menace. As things stand at present, said Dudley, a monetary

According to the latest government data, the personal saving rate has eased to 4.6% in June from 6.2% in the month before. Despite the fall in the personal saving rate from May to June, the saving rate of 4.6% must be contrasted with the rate of 0.4% in June of just last year. In terms of the dollar, personal saving climbed from an annual $46