While the Federal Reserve is desperate to depict an optimistic vision for the global economy, their fellow central bankers aren’t buying it. Earlier this week Mark Carney of the Bank of England shutdown talk of the BOE possibly following the Fed’s lead in raising interest rates.

The economic arguments against central banks are numerous to say the least. Through the writings of Ludwig von Mises and Murray Rothbard we have a wide variety of critiques that explain the many ways the central banks distort economies, cause booms and busts, punish savers, and chose winners and losers through monetary policy. 

But, even if confronted with these arguments, and one remains supportive of central banks, other non-economic arguments must still be addressed.

Derek Carr has just signed the most lucrative deal in NFL history, receiving a five-year extension worth $125 million with the soon-to-be Las Vegas Raiders. At $25 million per year, Carr edges out Indianapolis Colts quarterback Andrew Luck (though Luck’s contract did reward him with over twice as much in guaranteed money).

For most financial commentators an important factor that either reinforces or weakens the effect of changes in money supply on economic activity and prices is a velocity of money.

It is alleged that when the velocity of money rises, all other thing being equal, the buying power of money declines (i.e., the prices of goods and services rise). The opposite occurs when velocity declines.

Is the Bank of Canada going to raise its overnight benchmark rate?

Since rising interest rates are decreed by the central bank, the real scarcity of capital in which major financial institutions can borrow and lend out overnight amongst themselves is unknown. Disconnected from any real savings, we expect the Bank of Canada to manually raise rates when the going gets good.

This is flawed thinking. Clearly, the rag-tag team at the BoC has confused cause and effect once again.

The very sluggish recovery of the economy since the financial crisis — despite zero and near zero interest rates — presents the dominant school of New Keynesian macroeconomists with a conundrum. Many have attempted to resolve the riddle by arguing that such unprecedentedly low interest rates are not the doing of the Fed and therefore do not indicate an expansionary monetary policy. Although not formally a New Keynesian, George Selgin has taken up and vigorously defended this position.