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Tuesday, April 28, 2009
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  • How libertarian dogma led the Fed astray: "The Fed's increasingly libertarian philosophy underpinned its view that it could not know how to recognise a credit bubble but knew what to do once a bubble burst."
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This news story has 13 comments:

     
  • This story is nothing but a lie.

    Libertarians have nothing to do with the Fed. If it was up to them, they would repeat the Federal Reserve Act tomorrow morning. Ron Paul has put in the bill to do just this.

    Furthermore, the Laisser Faire policy that they claim in the article would mean that the Federal Reserve did not pump the inflation rate down to unrealistically values resulting in the classic pattern of the Austrian Business Cycle Theory.. Instead the Fed undertook a 20 year policy of stimulating bubble on top of bubble to culminate decades of bubbles into the crash we have today.

    This is a flagrant attempt at mis-information and is frighteningly familiar to anyone who knows of the Ministry of Truth in "1984". I'm appalled that anyone would be so blatant at their attempts to reshape the truth.

    Disgusting!
    2009 Apr 28 06:10 PM Reply
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  • >Libertarians have nothing to do with the Fed. If it was up to them, they would repeat the Federal Reserve Act tomorrow morning. Ron Paul has put in the bill to do just this.

    And just what brilliant plan does Dr. No have as an alternative to the Fed?

    Gold! And Private banks! Just like we had during the last 2 Depressions?

    So....Ron Paul probably knows that Gold and Private Banks don't stop bubbles from bursting and causing great economic pain and damage to millions of people.

    But he just doesn't care--because he's a "One Note Wonder" who keeps on pimping the stupid notion that our entire economy could be based on gold with zero inflation!

    What drivel!

    Why..there was ENORMOUS inflation when ONE SILVER MINE in Bolivia was discovered by Spainards, which would go on to produce 95%+ of the entire silver now present in the entire world.

    So...precious metals instead of currency doesn't prevent inflation?

    So, according to Paul, we need to suffer from inflation & Depressions just to "prove" his political point?

    What's the purpose of that?
    2009 Apr 28 06:37 PM Reply
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  • On so many levels in the article the FT shows their bias toward EU socialism... Sad truth is, many ignorant will read the article and think it portrays Libertarian economic thought correctly and the ideological "whys" that underlay the financial crisis.

    Very sad day for FT.
    2009 Apr 28 06:39 PM Reply
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  • The very existence of the Federal Reserve is contrary to libertarian beliefs. So how could libertarianism possibly be blamed for anything the Fed did?
    2009 Apr 28 07:22 PM Reply
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  • The author is either being disingenuous or is idiotic beyond belief! How controlling the money supply and trying to micromanage inflation and recessions can be considered libertarian or lassiez faire anywhere but bizzaro world is beyond me.
    And just say whoa, you are right. Thank god we have the Fed to protect us from suffering through any inflation or depressions. We have only had one Great Depression so far in US history, which the Fed took responsibility for. They have also managed to devalue the dollar 96% or so. Are you from the Bizarro world also?
    2009 Apr 28 08:08 PM Reply
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  • What good would it have done for the Fed to oppose Glass-Steagall? Congress would have passed it anyway.

    Greenspan is a libertarian and blindly followed the dogma of market fundamentalism. He now famously regrets this former position of his. By easing too much too fast (to 1%) in 2002 he inflated the housing and credit bubbles more than any sensible Austrian would have.

    Economic growth during the mid to late 90s was never damped by a Fed funds rate that never went below 4.75%.

    A lax (libertarian) SEC and lax (libertarian) capital ratio rules that let financial institutions blow up their leverage were the other main sources of the credit bubble.

    Wall Street needed more regulation - not less. Ask any Lehman, Bear, or Merrill bagholder.
    2009 Apr 28 08:14 PM Reply
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  • Libertarians want to get rid of the Fed completely. If they truly acted with Libertarian views in mind, they would cease to exist.
    2009 Apr 28 08:33 PM Reply
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  • It is popular nowadays to blame the crisis on lack of regulation or supervision, and to ignore the elephant in the room. That elephant is within plain sight, but never mentioned, and he is loose monetary conditions creating speculative and wasteful bubbles.

    Natural interest rates, if set by the market, would self-stabilize at a level that gives a depositor a small but positive risk premium, after taxes at the highest bracket. This would require the borrower to pay a positive, real interest rate, after taking his tax deduction on interest paid, also at the highest tax bracket. In such a natural market-driven environment, the borrower must have a more efficient use of the borrowed money than the lender. This would preclude borrowing for inefficient, illogical, speculative or wasteful activities; whilst ensuring funding for worthwhile, productive, profitable economic activities. Such a natural, market-driven environment, would be self-regulating, and needs no supervision or regulation, as funds can only flow to efficient uses.

    The need for supervision and regulation arises solely from the artificial economy created by unnaturally low interest rates.
    2009 Apr 28 08:47 PM Reply
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  • How Libertarian is trying to tame the business cycle "at all costs?"

    Libertarian Dogma sounds to me like Military Intelligence or Honest Politician. Libertarians have no dogmas. Everything has to be challenged.

    "If reality does not conform to Soviet dogma, then lets ignore reality" J.Stalin.
    2009 Apr 28 10:23 PM Reply
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  • This article misrepresents the values of Libertarians. I agree with the author, as would famous economist Anna Schwartz, that the FED's mistakes led us to this crisis. But to label the FED as Libertarian is outrageous. The term "Libertarian FED" is an oxymoron. There is no such thing. Libertarians want the FED abolished! So if Libertarians did have as much influence on the FED as the author claims, the FED would not have existed, and it would not have been able to make all those mistakes that led us here. So when Henry Kaufman blames both the FED and Libertarianism for today's problems, he is contradicting himself.
    2009 Apr 28 11:40 PM Reply
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  • Please study up on what the Austrian School is all about. Rather than using the Federal Reserve as a means to manipulate or stimulate the economy, if required, the move would have been to raise rates to slow down the bubble almost ten years ago. But that's not politically popular. At the very least, you must understand that Austrians have a very strong case against the very existence of the Federal Reserve and would take measure to seperate the dependency between banking and the Fed.

    If an Austrian was required to use the Federal Reserve they would probably choose the path of making the Fed a last option by setting rates arbitrarily higher (eg: Prime + 20%) than natural interest rates and pushing the banks to figure out how to do business on their own, allowing them to establish their own lending rates below the Federal Reserve. This is how the Fed operated in it's infancy. This would have brought in a natural lending rate increase over the last decade bringing the housing bubble to a slower close.

    Had the banks been pushed into this, they would probably adopt a different lending rate for each bank. I'll charge less to lend money to a "good bank" rather than a "bad bank" which naturally limits how deep of a hole the "bad bank" can dig before (if) it goes into insolvency.


    On Apr 28 08:14 PM shrike wrote:

    > Greenspan is a libertarian and blindly followed the dogma of market
    > fundamentalism. He now famously regrets this former position of
    > his. By easing too much too fast (to 1%) in 2002 he inflated the
    > housing and credit bubbles more than any sensible Austrian would
    > have.
    >
    > Economic growth during the mid to late 90s was never damped by a
    > Fed funds rate that never went below 4.75%.
    2009 Apr 29 06:14 AM Reply
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  • Actually it would require two things to prevent bubbles or boom/bust cycles: A commodity money which cannot be easily inflated; A full reserve banking system.

    You're comment about the inflation from discovery of a silver mine is valid. But it takes a lot more work and time to create that money then it did the Federal Reserve to create trillions of dollars. However, as time passes on, it's less and less likely that someone will dig a hole and find billions of ounces of gold for the taking. This makes the process of natural inflation very unlikely albeit not always impossible. But much less likely than printing trillions of dollars.

    The depressions under Gold Standard currency did not come from the currency itself. It came from how the banks were using that money via fractional reserve banking practices. This used to be considered fraud or counterfeit until the banking industry essentially legalized it. But the problem is that, as I bank, I may have $100 on hand from deposits, but I will lend out $10,000 in lending. As long as no one shows up and asks for a total of more than $100 I'm good. As soon as they do, which I claim they can, I'm insolvent.

    Depressions come from banks not keeping the money they claim they have available.

    I recommend The Mystery of Banking by Murray Rothbard to understand this better. It's free at mises.org.

    On Apr 28 06:37 PM Just Say Whoa! wrote:

    > Gold! And Private banks! Just like we had during the last 2 Depressions?
    2009 Apr 29 06:24 AM Reply
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  • Mr. Kaufman has created quite a strawman. Libertarianism is not practiced by either of the major political parties in the U.S. Libertarianism was not practiced, nor likely understood, by those operating the banks and other financial institutions. Libertarianism is not a concept that drives the individual actions of marginal borrowers and the lenders who service them. To whatever extent the Fed espoused and acted on libertarian principles (and that point is highly debatable), the Fed cannot be held responsible for the outcomes caused by the selfish actions of others. Mr. Kaufman would do well to understand libertarianism before he blames today's economic woes on a philosophy that, unfortunately, has few adherents and, sadly, fewer still practitioners.
    2009 Apr 29 11:48 AM Reply
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