Before we all get too hysterical about Fukushima...

Before we all get too hysterical about Fukushima perhaps we should watch this BBC Horizon program from 2006 which suggests that low doses of radiation are not so bad, they could even be good for us!

Bernanke clarifies things...

Anyone looking for a lesson in oratory, need look no further than this part of Ben Bernanke's answer to the question "Would you attribute the stock markets rise to QE2?"

"...so yes I do think that er by taking these er securities out of the market and pushing investors into alternative assets erm we er we have led to higher er stock prices and to lower stock market volatility. By the way er when we the last time we did this in march 2009 was about a week before the absolute minimum where the standard and poor was in the six hundreds er and following our actions standard and poor, the stock market, rose quite considerably. So yes em the the policy is affecting the er er the stock market in really in two ways, one is by er, is by through, is by lowering essentially long term yields and forcing investors into alternative assets but also because er as this is process has been working through and as we have seen, er both in the earlier episode that a few months after we began the process we began to see a stronger economy this time we really began this process in August and now four or five months later, we’re seeing a stronger economy. As the markets see the stronger economy materialising that’s er incorporated into expectations about future profits and future economic activity and that causes the market to rise as well so it’s a virtuous circle in that respect. So as I described in my remarks, the whole idea here is to is to move interest rates and to move asset prices in a direction that will stimulate more economic activity, put more people back to work, and moo, and get rid of risk of deflation and create a stable price environment”


Don't worry, the world is in safe hands.

Martin Wolf’s talk - impossible government projections.

Last night I saw a presentation by Martin Wolf of the FT outlining the UK government's plans for reducing the deficit. At one point he produced some graphs showing the projections upon which the plans are based. They are based on an assumption that the rate of growth of GDP and the rate of growth of tax revenue will increase at the same rate as before the crash. I instantly realised that the projections were almost impossible to occur.

The problem revolves around the money supply. Currently the money supply is being held up by the issuance of government bonds which increases government debt. If the government reduces its borrowings, which is of course the plan, then the money supply will fall unless someone else starts borrowing on a massive scale. The question now is: Who's going to do all this borrowing? Surely it can't be borrowing for mortgages - unless the government is hoping that house prices as a multiple of earnings is going to head towards Japanese levels circa 1990. Another problem not mentioned is the paradox of thrift. When the news is filled with stories of government job losses, people respond by tightening their belts. Who wants to take out new loans when you are worried about job security?

Unless the government can find another bubble to blow up (and let us pray that they can't) then their plan for reduction of government debt is guaranteed to fail.

Now one mights say - who cares about the money supply - we can still pay our taxes even if the money supply remains constant. Well the problem is that part of the projections Martin showed was a graph predicting a steadily growing nominal tax income. But if the nominal tax income rises whilst the money supply is falling then the fraction of our income paid in tax is going to be growing at a quite alarming rate. There will necessarily be a significant shrinkage in the money available for spending in the private sector. How is our GDP expected to grow at a healthy rate while the amount of money available for consumption is shrinking fast?

It just doesn't add up.

Of course if the government just printed the money debt-free instead of via the mechanism of selling government bonds, then the government may stand a better chance.

Martin Wolf is supposed to be a great economist - have I made some mistake? Comments please...

Khan acadamy nails fractional reserve banking.

I don't know how I missed this video - it's excellent. Salman Khan shows how fractional reserve banking, combined with FDIC insurance, allows banks to "arbitrage the yield curve".

Kowabunga! Fractional Reserve Banking on the Telly!

Sadly this may only be visible to British viewers and even then only for the next seven days. If anyone knows of an alternative way to view this program, please tell me.

Britain's Banks: Too Big to Save?

Comedy of the week: A book on economics by Gordon Brown

I was looking in my local bookshop at the latest batch of books on economics. I did a double-take when I saw this:

Gordon Brown was one of the main cheerleaders of the financial bubble. How he has the cheek to lecture anyone on economics is beyond me!

Luckily the book has a reassuringly bad set of reviews on amazon.com.

Bill Black

Bill Black speaks with great authority about the Fed and the crash in this interview with the real news network here.