The financial crisis is not over. Neither tax rebates nor low interest rates nor higher or lower exchange rates can do the job of reviving an economy that is burdened by debt loads that are too high. On the contrary: the policy measures that the US authorities have been applying will prolong the agony. Be prepared for the challenges of extended financial turmoil and economic stagnation. FULL ARTICLE

The record of modern central banking is bleak. Serving as a bailout machine for the financial markets and as a reliable financier of the state, modern central banks by the very nature of their origin and existence do not curb the booms (which they could) and do not prevent recessions or depressions (which they would wish to do but cannot). Monetary policy suffers from the same faults as any other centralized economic policy and other forms of interventionism, and like all centralized economic policies and interventionist measures, the monetary policy of active central banks has been failing again and again. FULL ARTICLE

The performance of the US economy in the 20th century owes much to the predominant role of the US dollar in the international monetary system, and a large part of attaining this role was the result of the political and military supremacy that the United States had gained after World War I. However, in a world where the economic strength of the United States is diminishing relative to other countries and regions, there will be less and less of a place for US dollar privilege. FULL ARTICLE

Trade deficits indeed present no problem as long as they get financed, writes Antony Mueller. What will happen, however, when the United States is forced to reduce the deficit and needs to obtain surpluses in its foreign trade? The problem is not the trade deficit per se but how to get rid of it when foreign financing stops. FULL ARTICLE

The talk I gave at the UFM on “Inflation and Deflation in Capital-based Macroeconomics” is now available online together with the slides.

In the ppt slides I present models that adress the problems of so-called “inflation targeting” and the unsustainable production structure that comes along with a growth-cum.debt strategy.

The presentation that I gave last week at the Universidad Francisco Marroquin on “Inflation and Deflation in Capital-based Macroeconomics” is now available at the Internet as a video for downloading. See

http://www.newmedia.ufm.edu.gt/pagina.asp?nom=muellerinflationmacroeconomic

I modified in various ways the origianl Garrison model, and apply the new model to a number of real world situations in order to show its applicability beyond pure theoretical cases. Any comments will be welcome.

I have the great pleasure to report that I am currently at the Universidad Francisco Marroquin (www.ufm.edu.gt) as a visiting professor teaching three courses on Austrian Economics.

While I teach advanced courses on Austrian Economics, mainly dedicated to capital-based macroeconomics and its application to monetary policy and business cycle studies for students in the final semesters of economics and business, it is worth mentioning that at the UFM the students from all of its eleven schools and departments have to take obligatory courses on Mises’ social philosophy based on “Human Action” along with lectures based on Hayek’s “Constitution of Liberty”. Additionally, the UFM offers a program to all students called “Socratic Dialogues” and is the host of many programs of the Liberty Fund. The Mont Pèlerin Society will hold its 2006 meeting here.

Ludwig von Mises visited the forerunner of the UFM, when he was a guest at the Center for Economic and Social Studies in November 1964, and a year later Friedrich Hayek paid a visit to this institution. In 1968 Ludwig Erhard was here. Since the UFM was established as a full university in 1971, many more numerous foreign visitors — including Milton Friedman, James Buchanan, and Vernon Smith — have come to give lectures and to receive honorary degrees. The New Media Center of the UFM (www.newmedia.ufm.edu.gt) manages a vast on-line video library from where the lectures can be downloaded.

The UFM maintains two museums and an arboretum. The university campus is beautifully integrated into the lavish nature reflecting Guatemala’s climate of having an “eternal spring”.

Contact: antonymueller@yahoo.com

Why do mainstream economists attempt to measure in one number the the aggregate production of automobiles, refrigerators, and personal computers with the output of teachers, nurses, songwriters and software programmers? Measuring the economy as a whole owes its popularity to the Cold War — that the origin of the GDP lies in the management of the war economies of the first half of the 20th century. Before World War I, economists worked in a tradition that was mainly for peace, free trade, and limited government. Thereafter, the outlook changed. FULL ARTICLE

The term “hedonics” is derived from ancient Greek and basically means “pleasure doctrine”. It is also the doctrine which the Bureau of Labor Statistics (BLS) applies when calculating the price indices and for the computation of the real gross domestic product and of productivity. Because of it and the inherent impossibility of generating a truly scientific number, what is published as the number for inflation is highly crude at best and a very deceiving one at worst. When taken naively at its face value, the inflation rate as it gets published not only distorts policy decisions, but also those of the private investor. FULL ARTICLE

The U.S. trade deficit is an American problem. It is the result of insufficient savings at home and a widening budget deficit. In structural terms, the U.S. trade deficit shows that the productive capacity of the U.S. economy is too small relative to spending. Foreign financing allows the government to expand its expenditures without putting too large a burden on the taxpayer. This way funds are set free for private consumption.

The U.S. economy is propped up by China and Japan, while at the same time these two countries depend on the United States. Japan is helped by its persistent trade surplus with the United States to soften the consequences of its economic stagnation, and China relies on its surplus in foreign trade with the U.S. in order to proceed with its development strategy. By this arrangement, Japan can maintain its level of wealth, while China is in a position to develop and accumulate wealth at a rapid pace. In this constellation, the United States is the beneficiary in terms of real goods and enjoys its present period of prosperity. [FULL ARTICLE]

Among the various schools of economics, Austrian economic theory stands largely alone in its insistence that economic problems, and social security in particular, cannot be properly understood without explicit attention to capital: its production, transformation, and purpose. In the perspective of Austrian economics, capital is not a simple lump sum called “K,” but a heterogeneous ensemble of production goods that has to be brought to life by entrepreneurial action. Coercive capital-based systems do not eliminate the vicious cycle of wealth destruction. FULL ARTICLE

Since the turn to the 21st century the factors that once supported dollar dominance have increasingly come under challenge. The mania of the New Economy has ended. The U.S. economy still registers high growth rates due to unrelenting consumption spending, but regarding its productive capacity, it is in a precarious state, as it is indicated by the persistence of high trade deficits. The military power of the United States in its present form is largely inefficient with respect to the relation between financial costs and political outcome. Finally, and probably most important, the dollar no longer holds the monopoly of being the only available international reserve currency. [Full Article]

Antony Mueller asks: Are central banks up to their job by now? Have they learned how to interpret statistics correctly? Have they gained true independence? A superficial answer may say yes. But a closer look shows that the awful turning point for the U.S. monetary system can be clearly defined in 1914 when the US central bank began its operations. We still live in the age of inflation. [Full Article]

Under Alan Greenspan’s rule at the Fed, the function of the central bank as a bailout institution has experienced a new golden age. The adoration that the chairman has earned from the financial markets and the various governments by which he was re-appointed a total of five times has come mainly from the expectation that he would stand ready to provide the liquidity the Fed’s clientele demands. [Full Article]

Cast aside all the trumped up claims concerning the power of the central bank to achieve price stability. Modern central banking is a hideous endeavor. The true dimension of the devastations caused by easy money policies become visible only in the longer run when inflation begins running wild and as such can only be stopped by a deflationary contraction. [Full article]

My presentation on “Financial Cycles, Business Activity and Asset Valuation” at the Universidad Francisco Marroquin on January 26th is now available as a video, along with presentations on “Do Current Account Deficits Matter?” and “Safeguarding the Independence of the European Central Bank”.