Video: Ferguson, Rattner, Murray, etc. on What's Happened to the American Dream?

Video: Keynes on Britain's Departure from the Gold Standard

Keynes on Printing Money, and Do Loss-Suffering Central Banks (i.e., ECB, SNB) Need Capital?

Weimar Germany during the early-1920s hyperinflation

A 1924 quote from John Maynard Keynes reflecting on events in Weimar Germany and Lenin's Russia:

"A government can live for a long time, even the German Government or the Russian Government, by printing paper money." 

However, "In the last phase, when the use of the legal tender money has been discarded for all purposes except trifling out-of-pocket expenditure, inflationary taxation has at last defeated itself."

The above quote was excerpted from a 1997 paper by the IMF's Peter Stella titled 'Do Central Banks Need Capital?'

Can Central Banks Go Bust?

Technically speaking, the answer according to Stella is no, central banks do not require a capital buffer to absorb losses in the same sense that a commercial bank does. However, Stella states:

"Weak central bank balance sheets invariably lead to chronic losses, the abandonment of price stability as a primary policy goal, a decline in central bank operational independence, and the imposition of inefficient restrictions on the financial system to suppress inflation. 

...if society values an operationally independent central bank capable of attaining price stability without resorting to financial repression, the transfer of real resources to recapitalize the central bank becomes necessary when chronic losses are sizeable."

In other words, the overarching reason for central banks to hold sufficient capital is that it helps maintain confidence in the soundness of the central bank and the value of the currency it issues.

Has the ECB Become Europe's 'Bad' Bank?

As the European debt crisis has spread and intensified, central banks in Europe have been suffering heavy losses for over a year now.

The Swiss National Bank has reported losses in the tens of billions of swiss francs on its euro purchases over the past 12+ months. Whether or not the Swiss government will move to recapitalize the bank is unclear. So far as I know the Swiss central bank is unique among major world central banks in that it is publicly-traded with both government and private shareholders.

There has also recently been speculation that the relatively thinly-capitalized European Central Bank will need to be recapitalized again if it were to continue to suffer heavy losses on its purchase of European sovereign debt. The ECB recently began purchasing tens of billions in Italian and Spanish debt, which comes on top of the tens of billions in Greek, Irish and Portuguese debt it already holds. The prospect of the ECB needing additional funding is not sitting well with Germany and other rich European nations which will have to foot the bulk of the bill.

Interesting times in the world of central banking.

Video: Author Sylvia Nasar's 4-Minute Illustrated History of Economics

I'm a huge fan of Nasar's book A Beautiful Mind and am very much looking forward to her latest work, Grand Pursuit: The Story of Economic Genius.

Below is a video of a presentation on A Beautiful Mind Nasar gave at MIT on October 28, 2002, where at the end she makes a reference to her upcoming history of economic thought.

Video: The Commanding Heights - the battle between government and the marketplace

No less relevant today than it was roughly ten years ago when it first premiered, below is Part 1 of the must watch video series The Commanding Heights. Globalization, Keynes vs. Hayek, the future capitalism -- it's all here. Especially recommended for those interested in intellectual history. You'll find the remainder of the episodes at PBS here.

Podcast: Keynes vs. Hayek Debate at LSE

Here's the podcast.

Framing Keynes vs. Hayek is a bit simplistic and perhaps even somewhat counter productive. Of Keynes, Hayek wrote posthumously "he was the one really great men I ever knew, and for whom I had unbounded admiration". Keynes was no socialist, and there is much these two great thinkers agreed upon.

For more on this and the type of thinker it would be more appropriate to contrast with Hayek see here and here.

Reinhart and Rogoff on Why Heavily Indebted Economies Can't Grow

Coinciding with Moody's placing the U.S. debt rating on negative review, Carmen Reinhart and Ken Rogofff remind us that country's will high debt levels often struggle to grow (attention Paul Krugman, they're talking to you!):

Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP. Nevertheless, many prominent public intellectuals continue to argue that debt phobia is wildly overblown. Countries such as the U.S., Japan and the U.K. aren’t like Greece, nor does the market treat them as such. 

Indeed, there is a growing perception that today’s low interest rates for the debt of advanced economies offer a compelling reason to begin another round of massive fiscal stimulus. If Asian nations are spinning off huge excess savings partly as a byproduct of measures that effectively force low- income savers to put their money in bank accounts with low government-imposed interest-rate ceilings -- why not take advantage of the cheap money? 

Although we agree that governments must exercise caution in gradually reducing crisis-response spending, we think it would be folly to take comfort in today’s low borrowing costs, much less to interpret them as an “all clear” signal for a further explosion of debt. 

Several studies of financial crises show that interest rates seldom indicate problems long in advance. In fact, we should probably be particularly concerned today because a growing share of advanced country debt is held by official creditors whose current willingness to forego short-term returns doesn’t guarantee there will be a captive audience for debt in perpetuity. 

Those who would point to low servicing costs should remember that market interest rates can change like the weather. Debt levels, by contrast, can’t be brought down quickly. Even though politicians everywhere like to argue that their country will expand its way out of debt, our historical research suggests that growth alone is rarely enough to achieve that with the debt levels we are experiencing today. 

The full Reinhart and Rogoff article can be found here.

Fareed Zakaria Needs to Study More History

Fareed Zakaria

A good geopolitical discussion with CNN host and Time magazine editor Fareed Zakaria on Charlie Rose, although I take issue with one of Zakaria's suggestions:

Charlie asked him for his prescription for preventing conflict between the U.S. and China, and his response smacked of the same arguments and thinking which were prevalent prior to World War I.

Fareed stated that if the U.S. and China can increase their "dependencies" then this would prevent war from occurring. I was surprised to hear Fareed say this as he generally gives off the impression as someone who is well versed in history.

Fareed's thinking about what will prevent conflict is identical to what was said prior to World War I, the original era of globalization when arguably the world was even more interconnected by trade than it is today. Because everything was so interconnected, because nations like Britain and Germany traded as much as they did, war was considered impossible.

Many people are not aware of the fact that today's interconnected world is not our first experience with globalization. One of the better quotes on just how bound up the world was prior to WWI comes from John Maynard Keynes. Below he describes just how eerily similar life in early 20th century London was to today:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.

Speaking of history, if you have a little extra time there was another excellent interview on Charlie Rose with the historian David McCullough about his new book, The Greater Journey: An American in Paris.

Video: Cowen's Great Stagnation vs. Kurzweil's Singularity

Ray Kurzweil vs. Tyler Cowen. The inventor vs. the economist. Which one is right about the speed of technological change and progress? It would be interesting to see these two on stage together ala Keynes vs. Hayek.



Upon closer inspection of the specifics of their respective arguments, the initially perceived differences may prove somewhat of a false dichotomy. But in terms of which narrative, or meta idea, is better supported, at this point I'd say Kurzweil's case is more compelling.

Video: Keynes vs. Hayek, Round Two

Below is the third installment in the fantastic Keynes vs. Hayek rap-offs. For the original and follow-up click here.

Video: Niall Ferguson -- Empires on the Edge of Chaos

Featured on FORA.tv, broken out in subject chapters in the links below. Be sure to check out the Q&A.


01.    Introduction    09 min 09 sec
02.    Niall Ferguson Opening Remarks    01 min 40 sec
03.    Historical Cycles of Empire Decline    07 min 07 sec
04.    Complexity Theory    08 min 20 sec
05.    Implications for the United States    06 min 22 sec
06.    Interest Payments as a Share of US Revenue    01 min 56 sec
07.    Failure of Perception    02 min 43 sec
08.    Debt Payment Overtaking Defense Spending    06 min 58 sec
09.    Q1: Healthcare Reform    04 min 10 sec
10.    Q2: China's Military Sustainability    02 min 38 sec
11.    Q3: Gold Investing    01 min 24 sec
12.    Q4: Political Stability of China    02 min 42 sec
13.    Q5: Children Teaching You About Debt / Radical Islam    03 min 57 sec
14.    Q6: Advice to Obama    02 min 40 sec
15.    Q7: Limits of Keynesian Stimulus    03 min 46 sec
16.    Q8: Better Leadership in the West    03 min 27 sec
17.    Q9: Fear of Hyperinflation    05 min 09 sec

Common Ground in Krugman vs. Ferguson

Paul Krugman & Niall Ferguson

Hard as it may seem to believe in today's world, there was a time when not all bankers were reviled.

Equally shocking, perhaps, is that prior to the 1980s the U.S. financial system really didn't experience a major financial crisis for the previous half century. This also was an era of significant economic progress for America as a whole.

For several months now Professors Paul Krugman and Niall Ferguson have been squaring off on camera and in print over whether the U.S. needs a second government stimulus to kickstart the economy. You can check out videos of their their respective arguments on CNN here and here.

While there is a large gap on where they stand in the fiscal debate, there is a topic where they appear to share common ground, and that is the need to fix banking.

Video: Keynes vs. Hayek Rapoff (Round 1.5)

From the Economist's recent conference in New York. Update: this post was originally titled 'Round 2' as it was the second rapoff, but a new 'Round 2' was just released here.



Here's the original Keynes vs. Hayek, which is coming up on close to 2 million views on YouTube.

"Modern Keynesianism works great until it doesn’t" -David Einhorn

An interesting read in today's op-ed section of the NY Times from the man who called Lehman's bankruptcy and prominent gold bull, David Einhorn.

One of Einhorn's claims is that inflation, according to the conspiratorial sounding website Shadow Government Statistics, is actually running at 9% if you use the pre-1980 calculation method, as compared to the current 2% calculated via the current CPI method.