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Fear-of-floating, misallocation and the law of comparative advantages

Fear-of-floating, misallocation and the law of comparative advantages

The first commandment of central banking should be thou shall not distort relative prices. However, central bankers often tend to forget this – knowingly or unknowingly. How often have we not heard stern warnings from central bankers that property prices are too high or too low - or that a currency is overvalued or undervalued. And in the last couple of years central bankers have even tried to manipulate the shape of the bond yield curve – just think of the Fed’s “operation twist”.

Hjalmar Schacht's echo - it all feels a lot more like 1932 than 1923

Hjalmar Schacht's echo - it all feels a lot more like 1932 than 1923

The weekend's Greek elections brought a neo-nazi party ("Golden Dawn") into the Greek parliament. The outcome of the Greek elections made me think about the German parliament elections in July 1932 which gave a stunning victory to Hitler's nazi party. The Communist Party and other extreme leftist also did well in the Greek elections as they did in Germany in 1932. I am tempted to say that fascism is always and everywhere a monetary phenomenon. At least that was the case in Germany in 1932 as it is today in Greece. And as in 1932 central bankers does not seem to realise the connection between monetary strangulation and the rise of extremist political forces.

Exchange rates are not truly floating when we target inflation

Exchange rates are not truly floating when we target inflation

There is a couple of topics that have been on my mind lately and they have made me want to write this post. In the post I will claim that inflation targeting is a soft-version of what economists have called the fear-of-floating. But before getting to that let me run through the topics on my mind.

Greek and French political news slipped into the financial section

Greek and French political news slipped into the financial section

The political effects of monetary strangulation never fails to show up. That was the case during the 1930s and that is the case today.

Forget about those black swans

Forget about those black swans

It has become highly fashionable to talk about "black swans" since the crisis began in 2008 and now even Scott Sumner talks about it in his recent post "Don't forget about those black swans". Ok, Scott is actually not obsessed with black swans, but his headline reminded me how much focus there is on "black swans" these days - especially among central bankers and regulators and to some extent also among market participants.

Interview with Christensen

Interview with Christensen

Back home from Dublin. Here is an interview I did about the European situation during my stay in Dublin.

Imagine if Charles Evans was on the ECB's Executive Board

Imagine if Charles Evans was on the ECB's Executive Board

Yesterday, I did a (very short) post about Irish deflation and there is no doubt that the euro crisis continues. Depressingly there is no really appetite among ECB policy maker to fundamentally have a change of monetary policy to change the status quo and while there is a (misguided) debate going on about fiscal austerity in Europe there is still no real debate about the monetary policy set-up in Europe. On the other hand in the US we are having a real debate among academics, commentators and central bankers about US monetary policy. In the US fed economists like Robert Hetzel are allowed to publish book about how monetary policy mistakes cause the Great Recession. In Europe there is no debate. That is very unfortunate.

A picture of the Irish economy...

A picture of the Irish economy...

I have been busy, busy in Dublin today. No time (or energy) for a lot of blogging. But here is a picture of the Irish economy - the Irish price level is down 10% since the end of 2007.

Allen Sanderson on Milton Friedman

Allen Sanderson on Milton Friedman

Allen Sanderson has collected a number of anecdotes and stories about Milton Friedman. I most admit reading stories like this about Milton Friedman always make me smile.

Daniel Lin will be teaching Intermediate Micro - Robert Clower would have told him to be happy about it

Daniel Lin will be teaching Intermediate Micro - Robert Clower would have told him to be happy about it

See this Facebook update from Daniel Lin who teaches at American University:

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