Liabridge's Economics Commentary

The Importance of Production, Savings, and Investments: A Tale of Two Islands

Day 1 Imagine a group of ten people getting stranded empty-handed, but with enough fresh water to last them a week or so, on a remote island they decide to name Prosperity Island, or Prosperity for short. A few miles south, another group of ten people get stranded on another island, identical to the other island in all aspects. Like the other group, they arrive empty-handed, except for having enough water also lasting for a week. This group names the island Poverty Island, Poverty for short. Both groups’ consolation price…

The Banking Crisis

At the end of the 1990s and early 2000s we had the dot-com and telecom bubbles. Later on that decade we had the housing bubble. To many, these bubbles might be viewed as totally separate and unrelated events that had nothing in common other than being bubbles. However, these (and most other major bubbles during the last hundred years in the U.S. and many other countries) all had two things in common. Firstly, they all popped. Secondly, there was one major player that could always be found in the center…

The “Austrian” Theory of the Business Cycle

The roots of the Austrian theory of the business cycle can be traced back centuries. Our focus here will however be the theory as initially put forth by Ludwig von Mises and further developed by Friedrich Hayek and others. Over the years, this theory has been referred to by many names. In his 1912 book The Theory of Money and Credit, Mises coined it the “trade-cycle theory,” a doctrine he stated “is called the monetary or circulation credit theory, sometimes also the Austrian theory.” [1] In this book we refer to this theory…

Economic Policies Gone Wrong

“But the problem [with monetary policy] is not so much what we can do, but what we ought to do in the short run, and on this point a most harmful doctrine has gained ground in the last few years which can only be explained by a complete neglect – or complete lack of understanding – of the real forces at work. A policy has been advocated which at any moment aims at the maximum short-run effect of monetary policy, completely disregarding the fact that what is best in the…

The Economic Significance of Saving

This article first appeared in The Crank Report, Issue #7 (29 June 2015). In the previous issue of The Crank Report, an attempt was made to reintroduce the very old notion of “forced saving” (The Crank Report, Issue #6, 3 June 2015). In this section, we’ll take a closer look at “good old-fashioned” saving and why saving is as timeless as the most novel Shakespearean ideas. Saving is defined as a surplus of production over consumption; it is the difference between what we earn and what we spend. It is the portion…

The Economic Meaning and Consequences of Debt

This article first appeared in The Crank Report, Issue #5 (5 May 2015). Debt, debt, yet more debt. Politics, mainstream economics and other popular arenas dominated by feelings and collective notions of what should be right or wrong for all suffer from one major flaw: the inability and inherent reluctance to think critically and learn from fundamentally sound theory and history. For decades, western economies, the economic powerhouses of the world, have wrecked their economies with faulty economic doctrines making but one thing possible: an ever growing mountain of money….

The Crank Report, Issue #1 (29 March 2015)

In this weeks issue: But who’s issuing the newly created money? Bank Capital: Déjà vu September 2008 The Austrian True Money Supply Weekly – 19 years of inflationary policies The U.S. Stock Market – Catch me if you can When the Monetary Crank Gets His Will – Take-off for Eurozone Monetary Base and Money Supply U.S. Economy: Say No to Thrift!   Download the pdf version.

Natural Economic Growth and The Role of Savings

Natural economic growth, or a rise in living standards, which we might also refer to as sustainable economic growth, comes about as a result of production, saving and investment. Savings can only accumulate if less is consumed (spent) than is produced (earned). Real saving therefore cannot be generated through inflating the money supply as both assets and liabilities increase simultaneously when it does. Taking up a loan and depositing it in a savings account therefore does not qualify as real saving.  The higher savings are in relation to consumption, which…

Welcome to A Very Dislocated 2015

The economy is pushed forward through people working, investing, spending and saving. For an economy to progress saving is key as without it there would be no spare resources set aside that can be channeled towards investments. And without investments, there can be no economic progress. There are however economic pundits who claim that a “shortage” of money is the real economic problem to be solved, and not a lack of saving. There can be few doubts that the Federal Reserve belongs in that particular camp championing easy money. Following…

The Short Version of the “Austrian” True Money Supply (TMS), as of 17 November 2014

This report is published weekly on EcPoFi. The short version of the Austrian True Money Supply for the U.S. increased 0.26% on last week for the week ending 17 November 2014. At $10.4593 trillion, a new high for the third consecutive week, the money supply is now up $576.0 billion, or 5.83%, year to date. The money supply has now increased $5.0370 trillion, or 92.89%, since Lehman Brothers filed for bankruptcy on 15 September 2008. The 1-year growth rate in the money supply of 7.29% for the week was unchanged from last week….