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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Doug Noland
April 6, 2012
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As I’ve argued over the years (in the “Austrian” tradition), it is indeed the deficit countries that, in the process of borrowing to finance consumption above their capacity to produce, create/inject new monetary claims into the system.  Persistent Current Account Deficits matter tremendously.  For one, they disturb monetary stability and nurture disorder.  Attendant monetary inflation fuels self-reinforcing dynamics, including asset inflation (and only more consumption!), a massive accumulation of global financial claims, and attendant economic maladjustment and imbalances.  The German/“Austrian” view holds that real economic wealth is created by an economy producing more than it consumes.  Credit excess leads to little more than financial, economic and policymaking trouble.  And I fully expect the Germans, more confident in their framework than ever, to be increasingly forceful in defending their position now that they have become a lightning rod for global pressure and ridicule.

I would prefer to take Bernanke at his word:  “Central banks and other regulators should try to anticipate and defuse threats to financial stability…”  To begin with, there’s his important qualification “as much as possible.”  And today he shows nothing but dogged determination to move forward with his “activist” (inflationist) monetary experiment.

Somehow, he’s yet to be convinced of the merits of preempting Bubbles.   If he or other members of the Fed are really interested in defusing threats, I would first and foremost point them to the massive federal deficits that their policymaking is complicit in fostering (both through slashing rates and enormous Treasury and security purchases).  Second, they might want to take a look at the tripling of FHA insurance over the past few years (to surpass $1.0 TN).  And then they might consider trying to defuse the unprecedented expansion of student loans that poses risk to millions of borrowers as well as the American taxpayer.  They might ponder the underlying issue of rampant inflation in the cost of higher education.  I would also suggest taking a deep dive into “derivatives,” although I am confident they don’t want to go there.  How about the hedge funds and speculative leveraging in the Treasury and agency securities markets? 

And, in the final analysis, if the Federal Reserve ever gets serious about promoting financial stability they’ll want to rethink their proclivity for pegging interest rates at low levels, intervening in the marketplace and grossly distorting the financial markets.