The prolonged Japanese economic slump is not due to price deflation but is the product of aggressive fiscal and monetary policies aimed at arresting the general fall in prices of goods and services. Contrary to the popular view, as a rule, price deflation is always good news for the economy. Thus, when prices are falling in response to the expansion of real wealth, this means that people's living standards are rising.
While assorted financial journalists, market pundits, policy wonks, Fed governors and even mainstream macroeconomists have been thrown into a panic by the slight whiff of price deflation they detected in the last few months in the U.S. economy, they have almost completely ignored the wrenching confiscatory deflation that is now going on in Argentina
During the early 1800s, the U.S. paper money in circulation was issued by banks, most of which were privately owned and state-chartered. There were, in fact, hundreds of banks across the country that issued their own--often distinctive--paper money. From these banking practices arose the infamous $3 bill.
Far from an example of a market failure, Enron's saga shows that firms that invest too much in politics can easily become complacent in the face of changing market conditions. In economics, this is called government failure, and we can blame the growing requirement for firms to divert resources to grease palms in Washington as a necessary business investment for its occurrence.
The significance of Jesús Huerta de Soto's new 681-page book, Dinero, crédito bancario y ciclos económicos (Money, bank credit, and business cycles), is precisely that it is the first Misesian treatise on money and banking to appear since the publication of Mises's original work, Theory of Money and Credit, eighty-eight years ago. De Soto's work is the most comprehensive analysis of fractional-reserve banking and of business cycles in print.
In its original meaning, "crisis" signifies a turning point that can either lead to improvement and recovery or to more severe deterioration. In the case of Argentina, with the future of the Argentinean people in mind, one must hope for the abandonment of its interventionist economic system, with its reliance on a bureaucratic apparatus and its self-chosen dependency on foreign credits.
Debt is great on the way up. You buy a house or buy stocks and they rise and your debt stays the same, accruing as it does some interest rate that is well below the rate of your advancing stocks and appreciating home. But when prices fall, debt becomes a very cruel master.
The introduction of the euro consists simply of introducing another "managed" paper currency. Whether it will go up or down against other currencies will continue to depend on how it and the other ones are managed.
We will never resort to a bailout, said the Bush administration concerning the financial failures of the Argentinian government. That was one week before the same administration arranged an $8 billion line of credit for the same government.
Some are claiming that the attacks of September 11 triggered this latest economic slide, but all signs indicate that the U.S. economy already was in recession even before the attacks.
