Wednesday round up.

At Smart Money, Don Luskin argues quantitative easing won’t help the economy.

On Bloomberg TV, David Malpass discusses gold, but doesn’t correct the moderator’s attempt to adjust the gold price for inflation.

The WSJ asks, Are we in a currency war?



On Asia Times, David Goldman suggests quantative easing is forcing increased savings, but that Obamacare is the big impediment to jobs.

The Atlas Sound Money Project reruns a 2006 Reuven Brenner and Martin Fridson article on why the Fed’s interest-rate targeting is flawed.

Cato’s Dan Mitchell chides liberal Keynesian Paul Krugman and conservative Keynesian Martin Feldstein for suggesting a major war would stimulate the economy.

On The Kudlow Report, David Goldman analyzes stock prices:



The WSJ examines Republican ideas for budget reform.

On RCM, Larry Kudlow sees bullish signs in a GOP takeover of Congress.

Boehner also made it clear that he was unhappy with the 99 Republicans who just voted -- along with most Democrats -- to pass the China trade-and-currency-protection bill. He basically said, "No, we must not go in that direction." And he believes the bill will come to nothing, in particular under Republican leadership.

Boehner understands that such a bill would take a toll on middle- and lower-income people. Indeed, a massive price increase on Chinese imports brought on by protectionist tariffs, or a whopping hike in the value of the Chinese yuan, would slam all the folks who shop at Wal-Mart and Dollar General.

John Boehner himself has a strong free-trade record, and he grasps the need for a stable dollar. When asked about the plunging dollar during the 2000s, and how higher interest rates and inflation subverted the Bush tax cuts, he nodded in agreement. Boehner seems to get it.

Also on Kudlow, Brian Wesbury discusses the GOP agenda:



The Small Business Chronicle offers a good summary of supply-side economics, except for the line about supply-side as a “complement to monetarism.”

Weekend update.

In The WSJ, Steve Moore interviews House GOP chief Eric Cantor on the party's election message. No mention of sound money.

Another concern is that Republicans lack a coherent growth agenda beyond simply cutting spending. To this, Mr. Cantor objects: "We will start by unraveling the economic damage that has been done by their agenda, whether it's health care, or whether it's the financial reg reform or regulations from EPA that are strangling businesses."

On The Kudlow Report, Don Luskin is optimistic about the economy:



At RCM, Larry Kudlow sees few improvements coming from the President’s staff shakeup.

Also in The Journal, Charles Schwab suggests the Federal Reserve’s low interest rate policy is damaging savers and reducing the availability of credit.

The negative impact of current policy is clear. The near-zero interest rate experiment is weighing on consumer and investor confidence, and the Fed signals its lack of confidence with each "extended period" proclamation. It is providing banks with low-interest financing that can be used to create modest returns through a carry-trade in U.S. Treasurys but is adding nothing to the velocity of money, which is what actually generates economic growth.

The Fed's super-loose policy has driven down the security and spending power of savers, particularly those in retirement who played by the rules during their working years and now depend on the earnings from their savings for a decent quality of life. As a result, savers and investors are being forced to take more risk with their money as they hunt for higher yields.

The extreme monetary policy is also having no positive impact on the availability of consumer or business credit, job growth or consumer and business spending.

At Market Oracle (UK), Barry Grey summarizes the emerging global currency war.

The Las Vegas Review Journal reports on a Steve Forbes speech.

On Kudlow, Larry debates Sec. Geithner’s call for more stimulus spending:



Robert Reich likens today’s Republicans to Herbert Hoover. He omits that the Great Depression’s main causes – an unstable dollar, a large tariff, and tax rate increases – are items on his party's current agenda.

Thursday items.

The NY Sun rolls its eyes at Alan Greenspan's recent remarks that gold is the canary in the currency coal mine.

At Investor's Business Daily, Cato's Alan Reynolds analyzes Keynesian spending vs supply-side tax cuts.

The WSJ's Dan Henninger sees spending as the election's main issue.

At The Kudlow Report, Larry examines Japan's currency fluctuations.

At The WSJ, a collection of conservative Keynesians and monetarists offer a mixed agenda for economic growth (cutting spending and entitlements, freezing regulations, and maintaining current tax rates). Most problematic is the fifth point, which calls for a Taylor Rule-style monetary policy rather than a commodity price rule.

The WSJ reports on Treasury Secretary Tim Geithner's call for a higher yuan at a House hearing.

At The Money Illusion, Scott Sumner points out that currency revaluations don't necessarily improve trade deficits.

Steve Forbes discusses successful investment strategies of the past decade.

A note on David Malpass's Senate race: Earlier this week, supply-sider Malpass lost his Republican primary bid for the U.S. Senate in New York. While I followed the campaign from afar, I can't help but note that Malpass seemed to cast himself most clearly as a spending hawk, rather than focusing his campaign on tax cutting, sound money and economic growth. Running as a budget cutter, Malpass was one of the crowd rather than a standout candidate for growth; an odd strategy.

Domitrovic on Mundell-Fleming.

Yesterday, historian and Econoclasts author Brian Domitrovic added a comment on Paul Krugman's summary of the Mundell-Fleming model that was so interesting I'm giving it its own post. Thanks Brian.

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Krugman doesn't get the Mundell-Fleming model right. Here's Mundell in 1963, in the paper that won him the Nobel and founded the model: "fiscal policy has no effect on unemployment under flexible exchange rates."

Furthermore, Krugman makes no mention of the major control in Mundell's model, namely that the major countries have seignorage rights and the minor ones don't. Major country currencies don't depreciate at the rate minor country currencies do in the event of manifestly currency-weakening moves such as the debasement of the currency or extreme budget deficits. (Witness the dollar in the face of near-zero interest rates and the outsized deficits of the last 2 years).

That's why Mundelll said that for major currency issuers (the US and the EU qualify today), the policy toward crisis should be tight money and tax cuts. Tight money incurs a rush of foreign capital into countries with seignorage rights. This money will not merely sit in banks earning the nice new interest but will be lent out if there is a new higher rate of return in the real economy thanks to tax cuts. In turn the major economy will grow, necessitating new net monetary creation. Monetary tightness, it turns out, will not be monetary tightness at all, on account of the accommodation of real growth.

So: stabilize the currency and cut taxes, with no "austerity." This is the solution that the US and the EU could coordinate today and put to pasture this crisis for good.