Forstmann Calls for Competition in Education In USA

Europe's bank money blues Globe Asia December 2013

In his December 2013 Globe Asia article Professor Hanke describes how prudent fiscal management has come to be described as “austerity” and Germany creating surpluses is placing a “burden” on other countries, including the United States. “Well, it’s official, the economic talkinghead establishment has declared war on Germany. The opening

Yellen, the Hawk? – Globe Asia – November 2013

In the November 2013 issue of Globe Asia, Professor Steve Hanke discusses Dr Janet Yelland, who has been nominated by President Obama to become the new US Federal Reserve Chairman. “Is Janet Yellen really the dove she is made out to be? Well, when it comes to the money supply,

Feature Article: Inflation is a form of theft

Stopping price inflation by halting the inflation of the rand would give pensioners, savers and low income people a break. It would halt the perpetual price increases that make their lives miserable. The action of curbing this form of theft is entirely in the hands of the SA Reserve Bank

Money, central banking and monetary policy in the global financial arena

(This policy bulletin is an extract from an FMF monograph published in 2001, written by Jerry L Jordan) Benefits of stable money The economic efficiency that comes from a stable monetary unit of account is one of the pieces of a Hayekian infrastructure that a market economy requires. That is, a market

Chronically large federal budget deficits:The American experience

(This policy bulletin is extracted from FMF monograph published 1998 written by Roger W Garrison.) The unified budget One issue relevant for gauging the current fiscal excesses – but also of a more general relevance in understanding the nature of government debt – is the issue of what debt counts in assessing

Syria’s other problem: Inflation – Globe Asia – October 2013

In his October Globe Asia article, Professor Steve Hanke, Professor of Applied Economics at the Johns Hopkins University, Baltimore, Maryland, describes the consequences of a protracted civil war, such as Syria’s, for its economy; high inflation and the erosion of capital assets. As there are no reliable figures available for

Feature Article: Whether the rand rises or falls, exchange controls continue to fail

Perhaps the greatest irony of the recent case, Shuttleworth v South African Reserve Bank and Others, was that the laws relevant to the contest were themselves the cause of the very actions they were intended to prevent. In other words, had exchange controls not existed, Mark Shuttleworth might still be

North Korea: From hyperinflation to dollarization? – Globe Asia – July 2013

North Korea: From Hyperinflation to Dollarization?   Following North Korean supreme leader Kim Jong-il’s death in December 2011, many around the world had high hopes that his successor (and son), Kim Jong-un, would launch economic and political reforms. Unfortunately, in the year and a half since he assumed power, the new supreme

Hot money, cold credit – Globe Asia – June 2013

In his latest article in Globe Asia, Professor Steve Hanke discusses the strange anomaly that increases in money supply do not lead to commensurate increases in lending by banks to private borrowers. “In the Eurozone, the growth rate in the money supply has historically moved in the same direction as private

Europe, a troubled region – Globe Asia – May, 2013

Professor Steve Hanke explains how exchange controls are exacerbating and not improving financial conditions in Cyprus. “The most recent banking crisis in Europe erupted on the Island of Cyprus. Among other things, one result of the final EU-IMF bailout package was the imposition of capital controls, or restrictions on currency convertibility.” “Full

Monetary policy

(This policy bulletin is extracted from FMF monograph Money, central banking and monetary policy in the global financial arena, published by the FMF in 2001.) In the not too distant future, I hope young people studying economics in our colleges and universities will find it humorous at best when the professor

Feature Article: Bretton Woods to a gold-backed currency for South Africa

  Every nation has a choice between having either a closed, highly regulated and stagnant economy or an open, free and rapidly growing economy. It is time for SA to choose freedom over repression, starting with a sound currency as a basis for building a thriving economy. One country after another is

Money, central banking and monetary policy in the global financial arena

(This policy bulletin is extracted from FMF monograph Money, central banking and monetary policy in the global financial arena, published by the FMF in 2001.) Money and exchange-rate regimes No modern economy functions well without a stable standard of value. One job of money is to provide a standard of value, or unit

Hyperinflation? No. Inflation? Yes. – Globe Asia – April 2013

Is hyperinflation coming to the U.S.?No. Hyperinflation arises only under the most extreme conditions, such as war, political mismanagement, or the transition from a command economy to a market-based economy. If you compare the U.S. to countries that have experienced hyperinflation – think Iran, North Korea, Zimbabwe, and the former

Feature Article: The false choice in Europe between austerity and growth

The debate in Europe over what policies the debt ridden countries should pursue is being falsely constructed as a choice between austerity and growth.  Not only is there another, more appropriate alternative, but these two alternatives themselves are not properly defined. The misconstruction of the euro has led to unsustainable debt

Money and inflation

The price of any good is a reflection of the supply of, and demand for, that good. It is important to recognise the manner in which this holds true for money. If the supply of money rises faster than its demand, then the purchasing power of money (the quantity of

Attaining high economic growth through zero inflation

Government voices have become muted as evidence piles up that the root causes of the world’s economic problems are not free markets but the debasement of currencies by central banks, high taxes, excessive regulation and profligate government. In fact, few countries can claim to have free markets in the true

An age of illusionists

In his latest Globe Asia article Professor Hanke describes the acceleration in government spending that has occurred during the Obama presidency and its effects. “The economic cost of a dollar’s worth of government expenditures is more than a dollar, because taxes must be imposed to finance government expenditures. These taxes

How Bulgaria brought an end to hyperinflation

Bulgaria 15 years later The world has experienced 56 well-documented cases of hyperinflation -- when prices rise by at least 50% in one month. Professor Steve Hanke has been involved in bringing an end to 10 of these hyperinflation episodes -- including Bulgaria's, which peaked at 242% per month, in February

Money: West vs. East

A country’s money supply is made up of two distinct components. State money – the monetary liabilities of a central bank (typically referred to as base, or high-powered, money) – is one element, and is by far the smallest component of the money supply. The second and most important component

Money, where's the money?

Since September 2007, when the British Government and the Bank of England bungled the Northern Rock affair, one government after another has sent in the boy scouts in an attempt to douse what has become an international economic wildfire. Their efforts haven’t worked. Indeed, they have often made matters worse

A Gold-Based Currency Board, Please, Globe Asia, May 2012

The death of the euro - Leon Louw

The death of the euro 2 - Leon Louw

Capitalism needs a sound money foundation

Should we return to the gold standard? With Congress getting ready to pay for 40 per cent of 2009 federal budget expenditures with money created from thin air, inflation is imminent. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account or to

Malfeasant Central Bankers, Again - Globe Asia - November 2011

The Government Shouldn't Guarantee Mortgages or Mortgage-Backed Securities

One of the arguments occasionally put forward by proponents of a government housing market guarantee is that the government will always come in and rescue the housing market, so we might as well start with a government guarantee and charge for it. That way, it's argued, the taxpayers will at

Infrastructure Bank Will Not Aid Economic Revival

In response to the United States’ credit downgrade by Standard & Poor's in August, the grim reports on the state of the economy and the collapse of the stock and financial markets in the week after the downgrade, President Barack Obama has re-engaged with the issue of America's faltering economy.

Monetary Misjudgments and Malfeasance - Cato Journal - Fall 2011

More Stimulus Spending Is Not the Answer

With the US economy once again teetering on the edge of recession, policymakers will inevitably propose another round of stimulus spending. You can bet on it – just as you can bet that any such spending won't help the economy. From the beginning, the Obama administration has misdiagnosed the problem

The Facts about Spending Cuts, the Debt and Gross Domestic Product

Veronique de Rugy, a senior research fellow at the Mercatus Centre at George Mason University, discusses the facts and myths surrounding spending cuts, the debt and gross domestic product (GDP). Myth 1: You cannot reduce the deficit to an appropriate level without also raising taxes. Fact 1: Spending cuts are the

Debt Ceiling Myths

Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, dispels some common debt ceiling myths. Myth 1: If a deal is not reached by August 2, the United States will default on its debt. Fact 1: The Treasury Department can prioritise payments in order to avoid

Stimulus Spending Facts and Myths

Veronique de Rugy, a senior research fellow at the Mercatus Center, dispels three myths about federal government stimulus spending. Myth 1: Stimulus spending can jump start the economy and fix unemployment. Fact 1: Recent experience suggests stimulus spending won't help. The unemployment rate started at 7.6 per cent when President Obama took

'Stronger' Banks Weaker Economies - Globe Asia - August 2011

Five Facts about the US Debt Limit

It's all debt limit, all the time, it seems. Everyone's talking about what may or may not happen when the U.S. government finally butts up against its legal borrowing limit on August 2. That's the date that Treasury Secretary Timothy Geithner says the feds will max out the credit lines

A brief history of the gold standard

The US Congress established a mint in 1792 and defined the dollar in terms of a specific weight in both gold and silver. This put the new republic on a bimetallic standard, common at the time, says Robert McTeer, a distinguished fellow with the National Center for Policy Analysis. Initially,

Does gold live up to its hype?

Recent concern over the 2008 stock market crash, potential inflation and doubts about the strength of the dollar have led many investors to buy gold. Indeed, gold is at its highest price in history, over $1,400 an ounce, says Pamela Villarreal, a senior fellow with the National Center for Policy

Money Matters in Slumping US - OMFIF Bulletin - July-August 2011

Time to sell Fort Knox?

The United States may have run up a huge debt, but it is not a poor country by any stretch of the imagination. The federal government owns roughly 650 million acres of land, close to a third of the nation's total land mass. Plus a million buildings. Plus electrical utilities

Fiscal Factoid - Globe Asia - June 2011

Inflation rate in China reaches tipping point

Despite efforts to rein it in, China's inflation rate has reached a point where it is sparking social unrest. Chinese premier Wen Jiabao's recent comment that inflation is a tiger that "once set free is very difficult to put back in its cage" aptly characterises the current inflation in his

SA should think big and establish a gold-backed rand

South Africa has joined Brazil, Russia, India and China in the “BRICS” co-operative alliance. It now has a chance to play a big role in the world’s markets. If it has the courage to adopt one strategic policy, it could become a world leader. On 17 February 2009, I wrote that

US Monetary Policy is Abnormal and Deviant - Credit - May 2011

The Weak Dollar Problem - Globe Asia - May 2011

On the Paradox of Excessive Bank Regulation - Globe Asia - April 2011

Let the markets dictate the exchange rate of the currency

In “No action can be better than the wrong action,” (Business Day, Feb. 28, 2011) professor Gavin Keeton from Rhodes University argues, “In recent times the [SA] government recognised the limitations of its abilities in one important policy area, namely trying to weaken an overvalued exchange rate”. Indeed, no

Fear of Inflation Spreads Throughout Emerging Markets

Inflation jitters spread through emerging markets earlier this week, prompting China's central bank to raise interest rates for the third time in four months amid worries that a drought threatening the country's wheat crop will put further pressure on global food prices. China's move is just the latest by emerging-market

Buckle up – it’s budget time

It’s time for Finance Minister Pravin Gordhan to again walk a tightrope as he tries to balance the country’s books. On the one hand, he will be under pressure from those on the left to substantially increase government spending on social welfare. On the other, there will be those hoping

SA and US Central Bank’s Gold Holdings

On the face of it, the SA Reserve Bank (Resbank) 1.5 per cent as much gold as the US Federal Reserve (Fed); about 4 million ounces by the Resbank and 261.5 million by the Fed. This is illusory. The Fed does not own any gold; it owns Gold Certificates. The

Zero Sum Game for US Policy - OMFIF Bulletin - February 2011

Distinguishing between government failure, rent-seeking and economic freedom

In the March 2, 2009 edition of Fortune magazine, Katie Benner provides a vivid description of the activities of Pimco (a subsidiary of the German company Allianz), “the world’s largest and most influential bond investment house”. It has total assets of $747 billion under management, its own assets are valued

Fed Up, Again - Globe Asia - January 2011

Bullying Ireland

The Irish bailout recently approved by the European Union and the International Monetary Fund is serving as a pretext for governments (France, Germany), multilateral institutions (the Organization for Economic Cooperation and Development) and others to bully Dublin into raising its corporate tax rate, currently set at 12.5 per cent. Ireland

Ireland's Reality Is Every Country’s Reality

As the government of Ireland undergoes scrutiny and criticism for its mismanaged fiscal house, the media risks missing the primary lesson, says Emily Skarbek, a research fellow and director of the Center on Entrepreneurial Innovation at the Independent Institute. Poor public sector incentives drive politicians to enact policies that defy the

Why the Spending Stimulus Failed

In the US the intellectual and political left argues that the failed $814 billion stimulus in 2009 wasn't big enough, and that spending control any time soon will derail the economy. But economic theory, history and statistical studies reveal that more taxes and spending are more likely to harm than

How the US Government Is Creating another Housing Bubble

It looks like the government will soon use the taxpayers' check book again to create a vast market for mortgages with low or no down payments and for overstretched borrowers with blemished credit, say Peter J. Wallison, a senior fellow, and Edward J. Pinto, a resident fellow, at the American

Stimulus: Still Not Working!

When the American Recovery and Reinvestment Act was signed on February 13, 2009, it became the biggest spending bill in the history of the country, says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University. The stimulus was divided into three main pieces: $288

Debt Solution Lies in Success of Europe

The Boston Globe wonders, should Washington order another hefty round of Keynesian deficit spending in order to spur the limping U.S. economy? Absolutely, say many prominent economists. So a big new stimulus package is the way to go? Absolutely not, say many prominent economists. In short, there is no consensus. And if

French Protests, British Austerity Give U.S. Glimpse of Its Future

The French government has increased the age for a minimum pension to 62 and to 67 for full benefits, sparking furious protests in France. Americans already have to work to age 62 to qualify for early Social Security benefits and to 66 (eventually to 67) to get full benefits, says

Saving South Africa from monetary mayhem

Now that the government has become serious about eliminating exchange controls, a simpler solution becomes available to deal with the “strong” rand problem troubling exporters. All government has to do is offer them a choice of currencies. Exporters should be allowed to conduct their business in a currency of their

The Not-So-Great Recession

In an economic climate that is characterised by recession, not depression, President Obama's aggregate-demand-driven approach to recovery is suspect. Recessions are typically caused by industrial restructuring or realigning supply and demand, not massive, across-the-board declines in output or income (as it was during the Great Depression), says Samuel R. Staley,

Economists Ignore the Facts in Supporting Chinese Currency Legislation

The recently passed Currency Reform for Fair Trade Act of 2010 rests upon the faulty premise that Yuan appreciation will significantly reduce the bilateral trade deficit, says Daniel Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute. The premise seems plausible enough. At least, the economics

Exchange controls are an apartheid relic and should be abolished

In November 2005 the Reserve Bank Governor at the time, Tito Mboweni said, “For all intents and purposes exchange controls have become purposeless … the cost of exchange control administration and the inconvenience that goes with managing (it) might not be worth the exercise”. New calls to scrap the last

John Maynard Keynes, R.I.P.

The basic Keynesian stimulus argument goes something like this: If the US federal government engages in deficit spending during a recession, the added government expenditures (unaccompanied by tax increases) will boost "aggregate demand." Greater federal spending on a road, for instance, will create jobs for construction workers, who can then

A Stimulus Project Gets All Caulked Up

When President Obama’s administration officials were selling the idea of a huge federal stimulus program to buoy the U.S. economy, they talked about a plan that would get money into the economy quickly. Instead, spending stimulus dollars fast has turned out to be surprisingly hard, says the Wall Street Journal. The

Obstacle to Deficit Cutting: A Nation on Entitlements

The US Treasury recently reported that the government ran a $1.26 trillion deficit for the first 11 months of the fiscal year, on pace to be the second-biggest on record. Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in

The Naked Stimulus: Why Savings Stimulate More Than Spending

Despite the struggling economy, United States President Obama argues that his stimulus package is producing gross domestic product (GDP) growth that is far better than the disaster that would have ensued without the $862 billion in emergency spending. The reason, he and his advisors maintain, is that what really counts

For Certain Is Debt for the Born

Is the United States on a certain path toward a debt crisis? And if so, at what point will it strike? Economists disagree on the details, but the best answers we have to these questions right now are: "It sure looks that way" and "sooner or later...probably." In a recent

How to greatly reduce the fiscal burden of entitlements

Despite the seriousness of the rapid increase in government spending and fiscal deficits, the main budgetary issue facing all developed countries during the next couple of decades is the expected growth in spending on entitlements: mainly, spending on retirement incomes and medical care given to the elderly, says Gary Becker,

The myth of US financial reregulation

The regulatory reform bill currently before the US Congress will supposedly impose financial reregulation, reversing the alleged deregulation of the past 30 years. What deregulation? Can anyone point to the removal of a particular legal or regulatory barrier in the last two decades as a cause of the recent financial

The Dead Hand of Exchange Controls - Globe Asia - July 2010

Politicians should abandon their search for a quick financial fix

The Greek financial crisis revealed that nation's path to destruction much earlier than otherwise because it was on the Euro and could not hide its problems by debasing the drachma. This was a Greek financial crisis that is merely denominated in Euros; it was not a Euro crisis. It became

Budget lessons from Canada

Canada was called an "honorary member of the Third World" by the Wall Street Journal in 1995, and for good reason. Out-of-control spending, soaring debt and the government's bite of the country's gross domestic product (GDP) growing at a furious pace prompted the Journal's harsh putdown. Sound familiar? Those are

Pay attention to Greece (but not too much attention)

So the European Union has just written a 145 billion dollar check to bailout the bankrupt nation of Greece. What can we take away from it? How can the United States learn from one government's total financial failure, asks Scott Hennen, a radio broadcaster at WDAY in Fargo, North Dakota.

Ruth Richardson: The Queen of Fiscal Squeezes

America's approaching debt disaster

When the Greek economy melted down recently its citizens rioted in the streets. Some have called it "the death-spiral of a welfare state" – too much borrowing for too many social programs for too long. Eventually, the bottom falls out, says the Christian Broadcasting Network. But if you don't think the

Myths about the European debt crisis

Greece's debt crisis is neither a new phenomena, nor a uniquely Greek problem, say Vincent Reinhart, a resident scholar at the American Enterprise Institute, and Carmen Reinhart, an economist at the University of Maryland. Greece's difficulty in financing its bloated budget deficit has caused a global crisis that has prompted the

Is Greece just the tip of the iceberg?

Greece got its $146 billion bailout, which the United States will help pay for. But anyone who believes the Western world's financial crisis is over doesn't understand what's really happening, says Investor's Business Daily (IBD). Unfortunately, no problem has yet been solved, and more problems likely loom – not just in

To deliberately weaken the rand is a recipe for disaster

Those who favour the deliberate weakening of the rand are, in effect, proposing in principle that the SA Reserve Bank should set a similar monetary management course to the one followed by the Reserve Bank of Zimbabwe. Of course, it is not their intention to create the same magnitude of

Interview with Gavin Ray - The National Credit Act

In Kenya, new banking technology is paying dividends

Warren Coats writes in the Daily Caller, that some years ago, DFID—the UK Department for International Development — partnered with Vodafone to develop a secure software platform for performing a number of basic payment functions on mobile phones. These included transferring “E-Money” to anyone with a mobile phone and paying

US National debt up $2 trillion on Obama's watch

The latest posting from the Treasury Department shows the national debt has increased over $2 trillion since President Obama took office. Consider: The debt now stands at $12.6 trillion. On the day Obama took office it was $10.6 trillion. President George W. Bush still holds the record for the most

Financial Crisis: Lessons Learned

The federal government responded aggressively -- at a huge cost -- to the financial crisis that began in the fall of 2008, says Laurence J. Kotlikoff, a professor of economics at Boston University and a senior fellow with the National Center for Policy Analysis. But nearly two

The irresistible sirens’ song of inflation

In The Odyssey, Homer’s second epic poem of the Trojan War (The Iliad was the first), Greek hero Odysseus, sacker of Troy, must endure many challenges before he can return to his homeland. Some challenges were new and unexpected, but, as an experienced sailor, Odysseus was aware of the terrible

Abandon apartheid’s counter-productive forex controls

Modern foreign exchange (forex) controls were introduced in Nazi Germany just before the Second World War in a vain attempt to stop fleeing Jews from taking their assets with them. Hitler’s gold and foreign currency reserves then dwindled faster than ever and his decision to go to war was in

Commentary on the Medium Term Budget Policy Speech

On Tuesday, Minister of Finance, Pravin Gordhan, completed his inaugural medium term budget policy speech (MTBPS) when every South African citizen, as well as foreign investors, would have avidly tuned in to gauge the direction of economic policy in SA. The MTBPS has come at a time when SA is facing

The money that government is spending comes from you

Government budgets tell citizens a great deal about the kind of government they have. Does the wording of the budget speech reflect a recognition that it is taxpayers and not government that must take the credit for the building of infrastructure, provision of services, and anything else listed on the

The fate of the rand

Some people believe that the rand is strong. Sorry folks, it's not. And it won't be strong any time soon. “Wait!” you may say. “Hasn't the rand been rising compared to the dollar?” Yes it has, but what has the dollar been doing? The dollar itself has been falling against

How South Africa can lead the world out of the global financial crisis

Professor Friedrich Hayek, 1974 Nobel Laureate, foresaw the calamitous situations that governments could create through their insistence on establishing national currencies under their total control. He wrote of “the source and root of all monetary evil, the government monopoly of the issue and control of money”. He also wrote that:

How to cause inflation and get away with it

Causing inflation is a no-brainer. Getting away with it is even easier. The only small hiccup is having to callously disregard the somewhat dire consequences for your fellow-citizens. Clear that hurdle and you qualify for the job. But qualifying does not mean you will get it – not many qualifiers

High inflation, same solution

Ultimately, all monetary policy must concern itself with the rate of domestic price inflation. This is true even when a central bank does not have a formal policy called “inflation targeting.” The South African Reserve Bank does have such a policy framework, which explicitly calls for the CPIX price index

The Government-Created Subprime Crisis

Half the mortgages in the world’s biggest economy have been re-nationalised. That’s right re-nationalised. Fannie Mae and Freddie Mac, principal players in America’s ‘subprime crisis’, were created by the US government as government enterprises, then semi-privatised, pending supposedly full privatisation in 1996, and re-nationalisation this week. Confusion about the nature and causes

Prudent Fiscal and Monetary Policies will get SA through the Current Crisis

The fiscal and monetary policies of the SA government have cushioned this country to a certain extent from the worst repercussions of the worldwide financial crisis. However, in its efforts to deal with the burden of mass unemployment, the government has chosen to follow the path of least resistance rather

Increasing national US debt positioned to drown next generation

According to the Lariat (Baylor University) the United States is beginning to drown in our national debt. Many people don't understand the implications of the debt crisis, but it will drastically impact the lives of all Americans in the near future. According to the National Center for Policy Analysis:   By 2012, the

Explaining the credit crunch

The current economic downturn – the worst in at least three decades – began with the bursting of the U.S. housing bubble, when mortgage delinquencies forced banks to write down several hundred billion dollars in bad loans. But those overall mortgage losses, while large on an absolute scale, are modest

Bank nationalisation isn’t the answer

Nationalisation appears to have worked well during the US banking crisis of the 1980s when the Federal Deposit Insurance Corporation (FDIC) recapitalised and took control of Continental Illinois Bank, which was then the country's seventh largest bank. Today, however, the US’ 10 largest banking companies hold some two-thirds of the

Indonesia's Monetary Muddle - Feb 2009

Zimbabwe unveils 100-trillion dollar note

Zimbabwe will introduce a 100-trillion dollar note, in its latest attempt to keep pace with hyperinflation that has left its once-vibrant economy in tatters, state media said today. The new 100,000,000,000,000 Zim-dollar bill would have been worth about 300 US dollars (225 euros) at yesterday’s exchange rate on the informal

The Credit Triangle - January 2009

Pakistan’s bailout

The International Monetary Fund (IMF) is expected to approve an aid package for Pakistan making it the first country to succumb to the IMF in the current economic crunch. A lot is riding on whether the Fund's policy conditions help or hurt the economy – and early signs are mixed,

Fiscal stimulus, just say no

One of President Bush's most lasting economic legacies will be his use of temporary, Keynesian, fiscal stimulus measures in an attempt to manage the economy and offset recessions, says the Chicago Daily Observer. Below is a brief summary of the Bush tax cuts: In 2001, the first round of Bush tax

Distasteful Capital – US government buying shares in banks

The U.S. Treasury recently announced that it will inject $125 billion into the country's nine largest banks; thus, temporarily easing fears of insolvency. Even though this gives the government ownership stakes in banks, directly re-capitalising banks is likely to prove a better tool than buying up "troubled assets," says

Governments, free markets, and the financial crisis

Politicians worldwide are running for cover as their machinations have led to the mother of all crises. Australian Prime Minister, Kevin Rudd, is reported to have declared that the 'comprehensive failure of extreme capitalism' has required government to step in to stem the damage. He blames the meltdown on failures in

Expensive mistakes

Since 1981, 423 U.S. companies with assets of more than $500 million filed for bankruptcy, with total assets exceeding $1.5 trillion. What lessons can we learn from such colossal business failures? According to Paul Carroll and Chunka Mui, authors of "Billion-Dollar Lessons," plenty. The current emphasis in business literature suggests that

Reckless mortgagees brought financial market to its knees

With the government takeover of Freddie Mac and Fannie Mae as well as other bankruptcies in the financial sector, there are a lot of questions. The strangest fact is that the housing sector is having such problems when the economy otherwise has been doing well. Why have there been so

Stopping a financial crisis the Swedish way

A banking system in crisis; an economy hemorrhaging jobs; a market-orientated government struggling to stem panic; sound familiar? It does to Sweden, but luckily they survived it, and are offering their advice to Washington, says the New York Times. The Swedish crisis has strikingly similar origins to the American one, says

How the US government stoked the subprime mania

Many believe that wild greed and market failure led America into this sorry mess. What is missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets, says Russell Roberts, a professor of economics at George Mason

Evidently money does buy happiness

Economic growth has long been considered an important goal of economic policy, yet in recent years some have begun to argue against raising the material standard of living, claiming that it will do little to raise well-being. These arguments are based on the "Easterlin paradox," which suggests that there is

Why mark to market for asset valuations?

Mark to market accounting, which forces firms to revalue their assets to current market values even when the market is frozen or dysfunctional, and even when the assets could be held to maturity and redeemed at face value, could be the prime suspect in the downward spiral of our credit

A new life for Fannie and Freddie

By "federalising" Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson wants to prop up the two mortgage giants – albeit at great expense to taxpayers – so the world keeps buying their mortgaged-backed securities (MBSs). The tragedy is that Paulson didn't do something 18 months earlier when the cost

Canadian taxpayers are each responsible for C$150,000 of debt

Each Canadian taxpayer is on the hook for C$150,211 (about R845,300) that their government has racked up in debt and unfunded programme obligations. The combined total debt is C$1.3 trillion (about R7.32 trillion). The problem stems from the fact that the governments in each province have committed themselves to programmes

The Greenback and Commodity Prices - 11 September 2008.

How to Kill Zimbabwe's Hyperinflation - Global Dialogue - August 2008.

Hyperinflation - Mugabe versus Milosevic - August 2008

Zimbabwe can’t paper over its million per cent inflation anymore

Robert Mugabe has kept his embattled regime in Zimbabwe afloat on a sea of paper money. Now he'll have to try to do it without the paper, says the Wall Street Journal. The Munich-based company, Giesecke & Devrient, that has supplied Zimbabwe with the special blank sheets to print its increasingly

The Euro has slowed Europe’s economic growth

The euro is currently approaching its tenth anniversary, yet it remains a contentious issue in the European Union (EU). Marek Louzek, an analyst with the Center for Economics and Politics in Prague and advisor to the President of the Czech Republic, investigates the impact of the euro to see whether

Greenspan's Bubbles (Finance Asia) - June 2008

Panic Time At The Fed - April 2008

Why is the rand falling now?

With the CPIX inflation rate now flying high above its official target range, we can’t avoid noticing that the rand is a weak currency. The latest CPIX inflation rate, as of December 2007, is 8.5%. That is 2.5 percentage points above the Reserve Bank’s target range of 6%. Current expectations

Sri Lanka - Slaying the bogey of inflation - February 2008

Who benefits from inflation targeting?

Many nations are warming to the idea of inflation targeting. By looking carefully at a broad sample of industrial and emerging-economy inflation-targeting countries over time, and comparing them with a control group of industrial non-targeters, it can be concluded that while a target does indeed improve economic performance, its effects

Current account surpluses and the correction of global imbalances

In "On Current Account Surpluses and the Correction of Global Imbalances," Sebastian Edwards analyses the nature of external adjustments in current account surplus countries. He asks if a realignment of world growth rates – with Japan and Europe growing faster, and the United States growing more slowly – is likely

Sound dollar dynamics

Last month the U.S. government released another report that the value of foreign-owned assets in the United States exceeds the value of U.S.-owned foreign assets (by $2.5 trillion) and the dollar has dropped to record lows against the euro. Some politicians and media folk treated these news events as a

Income inequality writ larger

The orthodoxy surrounding income inequality is being undermined by research that looks at institutional issues, namely, changes in the way the corporate world measures the performance of workers, says columnist Daniel Gross. One big change in recent decades has been a rise in performance-based pay, say professors W. Bentley MacLeod (Columbia

Fewer Central Banks Please - June 2007

Forbes - Hyperinflation - June 2007

India: feeling like a trillion dollars

India recently became the 12th country in the world to have an economy worth a trillion dollars. If the growth figures are the sunny side of the economy, the rise of the rupee is the darkening edge, says Pramit Pal Chaudhuri, a Bernard Schwartz Fellow at the Asia Society and

The World's Greatest Unreported Hyperinflation - May 2007

Down the road to France

The United States has consistently outgrown its European allies, and there is little dispute among economists that the United State's big advantage is its relatively small government. But the latest budgetary manoeuvring’s have virtually guaranteed that a good bit of that advantage will disappear, at least if Democrats remain in

Don’t mess with success

Despite campaign promises not to raise taxes, the new Democratic majority's budget fails to keep existing tax policies in place, which amounts to a $900 billion tax hike over five years, the largest tax increase ever, say Senators Judd Gregg (R-N.H.) and Chuck Grassley (R-Iowa). For instance: Under a Democratic budget

Constitutional Court clips the wings of the Assets Forfeiture Unit

The Constitutional Court case of Mohunram and Another vs The National Director of Public Prosecution (NDPP) and Another is a breath of fresh air. It enjoins our courts to be vigilant in the protection of human rights in relation to their properties. Organised crime is rife in South Africa and

Asset forfeiture cases violate constitutional safeguards

The Prophet series of court cases illustrate how the operation of South Africa’s pernicious asset forfeiture legislation violates the most fundamental constitutional safeguards, intended to protect South Africans and their property from violent state action and seizure. Prophet had his house seized as being ‘an instrumentality of an offence’ but

Observer - Money - Bulgaria Bosnia and Jamaica - September 2007

New China, old ways

Despite the laminate of reform pasted onto Chinese banks in preparation for their public offerings, behaviour inside looks quite familiar, says Austan Goolsbee, professor of economics at the University of Chicago Graduate School of Business. In their study, Anil Kashyap of the University of Chicago and Wendy Dobson of the University

Tales from the crypt

A key assumption for those who believe the U.S. economy will continue to slide as a result of the mounting deficit, is that balancing the national budget is itself a great good, no matter how it's done, says the Wall Street Journal. Some are even pointing to the Nordic model of

Forbes - Bet on Rubles and Francs - September 2006

Does financial integration spur economic growth?

Does international financial integration boost economic growth? According to a recent study by economists Moritx Schularick and Thomas M. Steger, international capital market integration fostered economic growth significantly in the historical period, but no longer does so today. Schularick and Steger argue that the historical period (roughly 1870 - 1914),

Financial bias in Europe

Redlining – or the practice of refusing people bank loans based on their address – has long been outlawed in the United States as discriminatory. But in Europe, although many countries are facing increasingly tense relations with their minority populations, there has been little debate about how financial discrimination –

A critique of US Federal Reserve Board policy

It's too early to tell what course new U.S. Federal Reserve Board Chairman Ben Bernanke will follow, but the Fed staff still believes in the Phillips Curve – the idea that low unemployment causes inflation – says economist Brian S. Wesbury. Economic growth and low unemployment do not cause inflation, and

Fiscal storm clouds gathering in USA

In the United States health care and retirement account for half of all federal spending – and that figure is rising. The problem has long been recognised, but it got dramatically worse with the passage of a Medicare drug benefit and will head into crisis with the baby boomers' retirement.

Money buys happiness

The percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3 per cent. Social critics of "consumerism" claim that what makes rich people happy is not money per se, but rather the fact that they have more of

Mboweni defends a stable rand

Sectors of the economy that were taking financial strain from the rand at its current levels should “learn to live with reality”, Reserve Bank governor Tito Mboweni said last week. He told business leaders and government officials at a round-table conference organised by the Economist Intelligence Unit research company that

Could the Euro surpass the Dollar?

The dollar is the world's number one reserve currency. However, recent changes in the economic world may change that. A new article from the Economist argues that the euro may eventually equal the dollar as a reserve currency or even surpass it. Reserve currencies need to have a home economy

Abolish exchange controls now

Tito Mboweni, Governor of the SA Reserve Bank, recently lamented the harmful consequences of the labour laws that he himself introduced as Labour Minister. If the Government were to heed his calls for labour law reform they would empower the individual and reduce unemployment, both of which would benefit

South Africa bags hat trick of credit upgrades

SA has scored a ratings hat trick, with Fitch Ratings becoming the third of the major international agencies to upgrade SA’s sovereign credit ratings this year. But the clear message from all three agencies is that any further upgrades will depend on SA making progress on its socio-economic objectives of

Monkey business: Can capuchins understand money?

Like humans, monkeys respond to economic incentives, says behavioural economist Keith Chen (Yale University School of Management). Moreover, the data generated by the monkeys makes them statistically indistinguishable from most stock-market investors. Chen’s initial monkey experiments concerned altruism, where two monkeys faced each other in adjoining cages, each equipped with a

The Euro is no cure-all

When the euro was introduced in 1999, critics warned that it would cause economic problems because individual countries could not tailor their monetary policy to fit their own problems. According to the Economist magazine, this is exactly what has happened over the past five years. For example: Since the single

The benefits of opening financial markets

Many developing countries fear opening their financial markets to foreign investors because it would expose them to volatile swings in fortune. They worry that riches will rush in one day, only to suddenly rush out the next, leaving economic ruin. A new paper from the U.S. National Bureau of Economic

Which way to greater prosperity for all?

Trevor Manuel has once again produced a budget that pleases many people. As the government’s financial messenger, he has every right to take pride, not only in the country’s improved economic performance but also in his own prudent fiscal management. South Africa is one of very few countries that managed during

Brazil needs tax cuts to improve economy

Brazil requires structural reforms, such as deep cuts in taxes, in order to sustain long-term growth and broad economic development, says Thomas McLarty III, president of Kissinger McLarty Associates. While Brazil's national income is expected to rise by about 5 percent this year, the high cost of doing business, caused in

It’s all a matter of incentives

Here is one of the easiest ways to remember economics and the incentives created by different policies. Always ask yourself who is spending the money and on whom they are spending it. Don’t let that sound complicated because it isn’t. There are two options for each. Either you are spending your

The flat-tax club grows

On New Year's Day two more countries hopped on the flat-tax bandwagon – Romania and Georgia. That brings to eight the number of nations in Old Europe that believe a flat tax is the way to a new economy. Romania's new rate of 16 percent applies to both personal and