Argentina and now Brazil are the latest chapters in Latin America's long financial history of foreign debt and default, writes Antony Mueller. It is a consequence of bad policy, underwritten by international financial institutions and subsidized from a pervasive culture of debt.
Popular thinking about economic growth is still strongly influenced by the productivity theory of capital, which presumes that capital engenders a yield like the fruits from a tree, writes Antony P. Mueller. If it were merely aggregate investment that mattered, economic development and continuous wealth creation would be child's play.
Fannie Mae's monopoly privileges have given it an ever-increasing share of the secondary conforming mortgage market, writes Robert Blumen, and it currently is seeking to expand into other parts of the mortgage market. The net result has been a nightmare of resource misallocation and massive systemic risk.
The quirky nature of credit is that it is not necessarily better in abundance, writes Christopher Mayer. It's not like beer, butter, and bananas--where more means cheaper and cheaper is good. Credit is like money; it represents buying power. More credit means more buying power, which means a bidding up of assets and a spark for an unsustainable boom.
The burdens imposed upon producers by easy money and their consequent lack of profitability are among the main reasons why there is no significant capital expenditure. The overhang from the 2000 capital-spending boom only partly exacerbates this, since much of the outlay undertaken then was wastefully misallocated and is not germane to the needs of the current economy anyway.
The monetary situation in Argentina is a glaring example of confiscatory deflation. In 1992, after yet another bout of hyperinflation, Argentina pegged its new currency, the peso, to the US dollar at the rate of 1-to-1. In order to maintain this fixed peso/dollar peg, the Argentine central bank pledged to freely exchange dollars for pesos on demand and to back its own liabilities, consisting of peso notes and commercial bank reserve deposits denominated in pesos, almost 100 percent by dollars.
More than two centuries before our federal budget sped past the $2 trillion mark, those known as anti-federalists warned us that the price we would have to pay for government would rise. So as you struggle to understand the latest IRS forms, and particularly as you write that big check to the United States Treasury, it is worth remembering what they said.
It has been said that the stock market is not an actuarial table. The same can be said of the bond market. Rather than an infallible guide to the future, the bond market embodies the best guesses, hopes, dreams, and fears of many investors. Hence, the bond market can be fallible and, in fact, has been so—in spectacular fashion—in the past.
While it is perfectly clear that an individual capitalist or speculator may make losses on the stock exchange, it is very doubtful whether "society" can make such losses. The question with which we are concerned here is whether an individual's losses from domestic stock exchange transactions represent a loss to the society to which that individual belongs.
The standard interpretation of the Panic of 1837 and subsequent recession blamed state bank monetary inflation abetted by President Jackson's removal of the federal deposits from the Bank of the United States.
