The Greek crisis hasn't proved that the euro was a mistake. But the political reaction to it has placed the experiment in serious danger by abandoning the no-bailout principle and replacing it with a doctrine that sovereign default in a currency zone is unthinkable. This policy makes no more sense than saying that bankruptcy should be impossible, because no one will lend to a company if it might go bust. What's worse is that Europe's leadership has adopted this view for the sake of defending the Greek government from the consequences of its irresponsibility on spending and mendacity about its true level of deficit and debt.
From Heritage, Derek Scissors explains the likely futility of exchange rate manipulation on China’s trade surplus.
At NRO, Larry Kudlow suggests the President’s populist tactics demoralize the economy.
On The Kudlow Report, James Pethokoukis discusses the President’s populist turn:
At The American Spectator, Ross Kaminsky debunks the China currency debate.
From Cato, Gerald P. O’Driscoll, Jr. links currency instability to financial bubbles.
At The Frum Forum, Noah Kristula-Green reports on last week’s Heritage sound money conference.
On The Kudlow Report, Don Luskin analyzes the economy:
In The American Spectator, Stephen Moore argues Keynesianism is dead.
At NRO, Michael Potemra notes Steve Jobs’ supply-side brilliance.
On TGSN, Ralph Benko reports gold standard support from Hippy icon Ralph Metzner.
The Sound Money Center features an interview with Charles Kadlec.
From The WSJ, Robert Frank discusses the rising zero-sum mentality concerning tax hikes:
On Asia Times, Reuven Brenner suggests demographic challenges make Greek’s future bleak.
The WSJargues Herman Cain’s plan to add a federal sales tax on top of the income tax is bad policy.
At COAL, Paul Krugman claims commodities indicate a reflation to 2007 levels, not a major inflation.
At Yahoo Finance, John Tamny debates Gary Shilling on inflation.
From Forbes, Rich Danker notes President Reagan’s unsuccessful effort to restore a gold-backed dollar.
On The Kudlow Report, Stephen Moore endorses entitlement cuts:
At Asia Times, David Goldman advocates a higher Fed funds rate.
On The Daily Reckoning, Charles Kadlec connects Egypt’s unrest to the dollar’s decline.
World Bank President (and sound money advocate) Robert Zoellick notes high food prices may push one billion people into hunger.
From the Institute for Humane Studies, Prof. Steve Horwitz refutes the claim that the poor are getting poorer:
At Daily Finance, Joseph Lazzaro makes the crucial points that exports are rising, but the trade deficit is also rising due to oil’s high price. Unfortunately, he goes on to argue the yuan should rise significantly which would likely lower the dollar, thereby raising oil even more.
From Heritage, Derek Scissors argues yuan convertability is more important than revaluation.
In The Pittsburgh-Tribune Review, Don Boudreaux explains different views of inflation, though he doesn’t use Robert Mundell’s formulation that inflation is a decline in the monetary standard.
On Capital Gains and Games, Bruce Bartlett cites a poll showing weak support for big spending cuts.
In The Weekly Standard, Jeffrey Bell and Sean Feiler argue the GOP doesn’t understand the monetary roots of the economic crisis.
At the moment, Republican leaders and policy elites are advancing exclusively fiscal solutions that address only the government response to the economic crisis and not the crisis itself. Fiscal deficits did not create the crisis, and reducing deficits won’t put our economy on a stable footing. From its inception in 2007 right up to the present, the crisis derived from the interaction between excessive investment leverage and dysfunctional interest-rate policy—in other words, a predominantly monetary phenomenon, albeit one that has had grave fiscal consequences.
As long as the GOP enjoys the luxury of being the only alternative to Barack Obama and the Democrats, the party is understandably reluctant to delve into the murky depths of monetary policy. But after November 2, the Republicans’ role will change. They could do worse than pay attention to the only public official, elected or unelected, who is speaking out against current monetary policy, telling anyone who will listen—including an increasingly impatient Tea Party movement—that the root of the crisis is monetary.
On Forbes, John Tamny suggests the President’s best chance for a comeback requires rejecting devaluationist ideas.
At CNBC, Peter Morici and former GW Bush official Tony Fratto discuss China’s currency:
At Classic Capital, Wayne Jett explains the role U.S. monetary authorities have played in destabilizing the world financial system.
Monetary inflation is an accomplished fact, and product prices will adjust accordingly as an added variant of supply-demand signals. So far, the CPI has adjusted only 16.6% since 2003, leaving nearly 60% in price rises still to be realized. This means price inflation of 6-12% annually over the next five to ten years is already built into the dollar. Talk of “deflation” is either ignorant or deceptive, because any downward pressure on prices comes not from monetary policy but from falling demand in relation to supplies of goods and services.
China pegs its currency to the dollar to avoid loss of U. S. markets. Duplicating the Fed’s money creation causes worse inflation in China than the Fed creates in the U. S. Congress was set to make matters worse in September by voting on a bill to allow penalties to be imposed on Chinese producers to compensate U. S. producers for China’s “weak” currency, but adjourned to avoid voting on extension of the Bush tax cuts.
The world’s best monetary theorist, Robert A. Mundell, declared such U. S. penalties would create a “disaster” which would create even greater instability in international relations. He further warned that the China penalty bill distracts from attention to the primary source of monetary instability, which is devaluation of the dollar relative to the euro. The recent dollar/euro ratio, Mundell declared, “is a terrible thing for the world economy. We’ve never been in this unstable position in the entire currency history of 3,000 years.” Since Mundell spoke in September, the dollar/euro ratio has worsened to $1.40, provoking European retaliation. Japan, too, is being priced out of the U. S. market, with the dollar now worth only 82 yen.
From last month, The NY Sunrecounts a prominent investor’s warning on the dollar and gold.
On Forbes, Steve Forbes interviews Albania’s prime minister about the flat tax.
At The Money Illusion, Scott Sumner discusses tax rates and incentives.
Also on The Weekly Standard, Matthew Continetti warns Republicans not to emphasize austerity over growth.
In The American Spectator, Stephen Moore debunks Green Jobs.
World Net Daily reports on financial industry calls for a single world currency.
On The NY Times, the Heritage Foundation’s Derek Scissors opposes Chinese devaluation.
At Globe Asia, Steve Hanke calculates President Obama’s misery rating (third after Carter and Nixon). One note is that Hanke refers to Fed rate policy as responsible for the last decade’s falling dollar; analysts including John Tamny argue Treasury jawboning was more responsible as the dollar declined in the 2000s when rates were falling and when rates were rising.
On The Kudlow Report, James Glassman debates Fed policy’s impact on markets:
In The WSJ, Stanford’s Ronald McKinnon counters the recent editorial on China’s monetary sterilization and suggests rising wages will improve trade imbalances.
At Bloomberg TV, David Malpass argues a yuan revaluation would hurt China and the U.S. From the Heritage Foundation, Derek Scissors discounts security concerns stemming from China trade.
On Kudlow, Larry Kudlow analyzes the GOP’s Pledge to America:
At Reason, Veronique de Rugy argues spending cuts won’t hurt the economy.
From the Mercatus Center, Matthew Mitchell and Jakina Debnam suggest government deficits crowd out private sector investment.
At The Weekly Standard, Jonathan V. Last notes the low American birth rate.
