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From Axel Leijonhufvud’s INET Berlin paper “The Unstable Web of Contracts”: “The bubble that burst was caused by a lengthy period of interest rates that were too low. We are now trying to cure the consequences by maintaining still lower interest rates for a lengthy period.6 6Ludwig Mises and Friedrich Hayek would have told . . . → Read More: Axel Leijonhufvud on the Causes of the Current Crisis
Beginning at about the 5:30 mark former BIS chief economists William White explains why the Keynesian “solution” has failed and why the “Hayek vs Keynes” debate is one again: I’d also recommend Roman Frydman’s case against the Phelps / Lucas macroeconomic modeling strategy, for those with a technical / mathematical bent: And an . . . → Read More: VIDEO – William White at the Berlin INET Conference
I recently came across a terrific Bloomberg On The Economy podcast with James Sweeney and Carl Lantz on “shadow money” — assets which are used as the equivalent of money during the snowball of the asset bubble / artificial boom. The problem Sweeney and Lantz identify is that the stock of money expands and contracts . . . → Read More: An important podcast on shadow money & the boom and bust cycle
Economist John Cochran explains the significance of Hayek’s macroeconomics for understanding the boom of the ’00s’ and ongoing bust of the ’10s.
“A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses: An Overinvestment View” by Andreas Hoffmann & Gunther Schnabi. Abstract: Over the past three decades, we find that asymmetric policy responses heavily contributed to manias and bursting bubbles that eventually trapped the major industrial economies into near zero short-term interest rates with rapidly rising public . . . → Read More: ARTICLE: OVERINVESTMENT & THE VICIOUS CYCLE OF MANIAS & CRISES
It would be very hard to explain the current recession using Hayek’s macroeconomics in fewer words than has been achieved by Hayekian macroeconomist Brad DeLong: After the most recent downturn, however .. things have been different. The downturn was not caused by a liquidity squeeze. The Federal Reserve cannot wave is wand and return asset . . . → Read More: HAYEK’S MACRO IS THE BEST EXPLANATION — BRAD DELONG
Otmar Issing: Quite a number of studies, now libraries almost, from the BIS and also from the European Central Bank have clearly shown that there is hardly any bubble in history which was not accompanied if not proceeded by strong growth in money and/or credit. So looking into money and credit will help you to . . . → Read More: IT’S BACK TO HAYEK ALL OVER AGAIN — OTMAR ISSING EDITION
From John Taylor’s Getting Off Track via The Everyday Economist.
“Slumps can occur because discovery takes time.” – Arnold Kling
NYU finance professor Viral Acharya points to Hayek, Smith, Arrow, & Diamond. Snippet: Governments intervene in banks and markets when crises take place to save the systemic failure costs. This leads to the lack of a private market for generating information on systemic failures, especially in debt markets that are guaranteed by the governments. This . . . → Read More: THE ECONOMIC CRISIS — WHO MATTERS?
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