The economist is puzzled that the very rational Fed is having such difficulty bringing rationality to those terribly irrational markets: the more frightening tremors in the system are those generated by the seemingly irrational unwillingness to hold safe investments, thereby making the safe unsafe. And to cure this terrible irrationality, the Fed is injecting liquidity buying dud mortgages. Hang on. Dud mortgates are not safe investments. They are extremely speculative …
Category: economics
Cause of International Inequality
Arnold Kling is much puzzled by the inequality of nations. I don’t know why. The answer is pretty obvious. Firstly, you require capitalism, which requires not mere formal laws recognizing private property, but a culture of respect for entrepreneurship, for property rights in productive capital and freedom to do business. With that respect, the laws are unnecessary, as in today’s China. Without that respect, the laws are useless, as in …
commodity money
The subprime crisis represents massive unpunished malfeasance by financial intermediaries managing US dollars. This discourages people from using US dollars as money. In 2008 January, the fed drove real dollar interest rates negative – only slightly negative, but negative interest rates suggest an intent to inflate away the dollar denominated liabilities of financial intermediaries until the real assets cover the dollar denominated liabilities. In the ensuing two months, all commodities …