Credit Expansion and Submarginal Investments

Markets are ruthlessly efficient, meaning in large part that people will not undertake investment projects with risk characteristics that are not aligned with savers’ preferences. All profitable opportunities will be exploited in equilibrium, and no potentially profitable projects will be left undone.

One of the unfortunate consequences of credit expansion is that many projects which were formerly passed over by investors will be undertaken because of the incorrect signal sent into capital markets by artificially reduced interest rates. These problems will be compounded by the fact that savers will pull real resources out of the capital market, meaning that previously profitable investment projects will now be unprofitable malinvestments.

The Mirage of the Mortgage Fix

Joy, joy, the Fed has cut rates again. Picture the Joker from the movie Batman throwing money from his float on the parade and you can see where this is going. Or imagine the alchemist of medieval lore, attempting to conjure up wealth from chemical mixtures.

The sea of inflationary credit is the core problem behind the falling dollar, the subprime crisis, the housing meltdown, not to mention the rise in the national debt and a thousand other problems.

The Mirage of the Mortgage Fix

The sea of inflationary credit is the core problem behind the falling dollar, the subprime crisis, the housing meltdown, not to mention the rise in the national debt and a thousand other problems. No one in Washington seems to understand the reason for the crisis, much less how to fix it. A good indication is President Bush’s freeze on subprime mortgage rates. It is a classic case that provides serious lessons for all of us.

The Fed Tried to Inflate in 1930-32

The rate cut today is a good reminder that the Fed can’t always get its way. It is usually assumed that the trouble with the Fed in 1930 was that it failed to attempt to expand money and credit. In fact, Bernanke himself has made this argument and sworn it will never happen again. Rothbard, in America’s Great Depression, makes the opposite case: the Fed tried to flood the market with money but could not:

Manipulating the Interest Rate: a Recipe for Disaster

The turmoil in the US subprime mortgage market has developed into an international credit crisis. It is eroding investor confidence in credit and credit-related products and, most important, raising concerns about the solidity of the banking sector, as evidenced by banks’ elevated funding terms and diminished stock prices. As a direct response to the credit crisis, the US Federal Reserve Bank first pared the Federal Funds Target Rate twice — by 50bp on September 18, another 25bp on October 31, and another 25bp on December 11 — bringing the official rate to 4.25%. The lowering of borrowing costs came despite the fact that the FOMC had been stressing “inflation risks” since early 2006. The cause of the international credit crisis has a name: the government-controlled paper-money regime.

Are Carbon Emissions the Cause of Global Warming?

The natural science of climatology and the social science of economics find themselves bound up with each other in the debate on global warming. There are many economic issues to discuss concerning the government’s ability to control the future of weather patterns through regulation and the like. But so far, the debate has focused on the natural-science question of whether global warming is actually occurring, and, if so, what its cause is. Here is where the popular understanding is very much in need of correction. FULL ARTICLE

“Whining” Patent Victims

In “The Still-Starved Patent Office,” from the December IP Today, patent attorney Joseph Hosteny argues against PTO “fee diversion” and also takes a few swipes at Patent Reform and victims of patent suits. As noted in Troll Tracker [Why People Hate Lawyers, Hosteny’s patent law firm, Niro, Scavone, is a well-known patent plaintiffs firm, and they do not like being called “patent trolls”, even though Hosteny has written in

Freedom of Satire

On December 15, America celebrates the anniversary of the Bill of Rights. Of those rights, the 1st Amendment’s guarantee of freedom of speech is perhaps the most celebrated.

If so, there is a good reason. After surviving a critical test from the Sedition Act of 1798, which tried to muzzle political opposition by making it illegal to ‘combine or conspire together, with intent to oppose any measure or measures of the government,’ it has marked America as a country where people could openly criticize those in government power without ending up in jail or worse.

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