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The Difference Between Money Supply & Liquidity
THE DIFFERENCE BETWEEN MONEY SUPPLY & LIQUIDITY The US debt ceiling suspension, signed on February 2018, expires in March this year. According to some experts, the US Treasury will have to carry out special measures because of possible delays in raising this ceiling. Treasury would need to draw down its deposits with the Fed and […]
Is an Increase in Demand Key for Economic Growth?
IS AN INCREASE IN DEMAND KEY FOR ECONOMIC GROWTH? Whenever the so-called economy shows signs of weakness most experts are of the view that what is required to prevent the economy sliding into recession is to boost the overall demand for goods and services. If the private sector fails to increase its demand then it […]
The Neutral Interest Rate Myth
THE NEUTRAL INTEREST RATE MYTH In his speech to the Economic Club of New York on November 28 2018, the Federal Reserve Board Chairman Jerome Powell said that the US central bank’s policy interest rate is just below the neutral rate. This prompted many commentators to suggest that a tighter interest rate stance of the […]
Can Consumer Surveys Help Ascertaining the Future Course of an Economy?
CAN CONSUMER SURVEYS HELP ASCERTAINING THE FUTURE COURSE OF AN ECONOMY? In order to gain insight into the future state of an economy, many economists refer to a variety of consumer and business surveys. Randomly selected consumers and businessmen are asked to provide their views about where the economy is heading. Thus if a survey […]
The Fed and Asset Bubbles
THE FED AND ASSET BUBBLES In his speech on April 7 2010 at the Economic Club of New York the President of the New York Fed, William Dudley argued that asset bubbles pose a serious threat to real economic activity. The New York Fed chief is of the view that the US central bank should […]
Fiscal Stimulus and Economic Growth–Are They Related?
FISCAL STIMULUS AND ECONOMIC GROWTH – ARE THEY RELATED? For most experts a key factor that policy makers should be watching is the gap between the actual real output and the potential real output. The potential output is the maximum output that the economy could attain if all the resources are used efficiently. The gap […]
What Causes the Acceptance of Paper Money?
WHAT CAUSES THE ACCEPTANCE OF PAPER MONEY? Demand for a good arises because of its perceived benefit. For instance, people demand food because of the nourishment it offers them. This is however not so, with regard to the pieces of paper we call money – why do we accept them? Following the view of Plato […]
The Fed and Interest Rates
THE FED AND INTEREST RATES Most experts agree that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy can also dictate the direction of long-term interest rates. On this way of thinking expectations regarding future short-term interest rates are instrumental in setting the long-term rates. […]
Can Sophisticated Technology Prevent Severe Economic Slump?
CAN SOPHISTICATED TECHNOLOGY PREVENT SEVERE ECONOMIC SLUMP? Most economic commentators are likely to agree that in relation to the period prior to the Great Depression, the present world is many times more sophisticated in terms of advanced technological knowledge. It is then tempted to suggest that with the present advanced technology we are in a […]
Why Gold Standard is Not Conducive of Boom-Bust Cycles?
WHY GOLD STANDARD IS NOT CONDUCIVE OF BOOM-BUST CYCLES? According to some commentators on the gold standard, an increase in the supply of gold generates similar distortions that money out of “thin air” does. Let us start with a barter economy. John the miner produces ten ounces of gold. The reason why he mines gold […]
Does Economic Growth Cause Inflation?
DOES ECONOMIC GROWTH CAUSE INFLATION? Most experts are of the view that as the economy gains strength the Fed must step in at some stage and introduce a tighter stance in order to prevent the rate of inflation getting out of control. Why however, should economic growth be positively associated with a general increase in […]
The Growing Pool of Real Savings Permits the Illusion That Central Bank Can Cause Economic Growth
THE GROWING POOL OF REAL SAVINGS PERMITS THE ILLUSION THAT CENTRAL BANK CAN CAUSE ECONOMIC GROWTH Many commentators are of the view that the US central bank should pursue policies that will prevent the possible decline of the economy into a liquidity trap hole. What is this all about? In the popular framework of thinking […]
Should the Fed Print Money to Accommodate Demand for Money?
SHOULD THE FED PRINT MONEY TO ACCOMMODATE DEMAND FOR MONEY? For most economists and commentators the main role of the Fed is to keep the supply and demand for money in equilibrium. Whenever an increase in the demand for money occurs, to maintain the state of equilibrium the accommodation of the demand for money by […]
Does Subjective Valuation Mean Arbitrary Valuation?
DOES SUBJECTIVE VALUATION MEAN ARBITRARY VALUATION? Why do individuals pay much higher prices for some goods versus other goods? The common reply to this is the law of supply and demand. However, what is behind this law? To provide an answer to this question economists refer to the law of diminishing marginal utility. Mainstream economics […]
