Patterico's Pontifications


He Says What He Means and He Means What He Says

Filed under: General — Patterico @ 2:27 pm

Obama Wants Revenge

Filed under: General — Patterico @ 12:35 pm

Nice (and quick) ad from Romney:

Always remember: if we point out your mistakes, it’s our fault:

Romney’s message is revenge, you say. Your guy said it, but it’s our guy’s message.


Incredible dishonesty — but it helps keep the focus on Obama’s comment. Thanks, Jimbo!

Romney seems to have some momentum in Ohio, if this photo is any indication:

L.A. Times: Romney Will Repeal Those Wall Street Reforms!!! Patterico: I Hope He Does!!!

Filed under: General — Patterico @ 2:06 am

The L.A. Times reports: Romney victory would probably weaken Wall Street reforms. The deck headline: “If elected president, Mitt Romney could appoint new leaders at several agencies who would take a less aggressive approach to financial regulation.”

If Republican Mitt Romney wins the presidency next week, enough Democrats probably would be left in Congress to block his promise to roll back the slew of Wall Street rules enacted in response to the financial crisis.

But when it comes to regulations, a president doesn’t have to change the laws.

He can simply change the people enforcing them.

Oh. My. God. Scary, huh? It sure would be awful to do away with those awesome reforms, wouldn’t it? Barack Obama made that clear in the first debate:

Obama has touted the financial regulatory overhaul as the “toughest reforms on Wall Street since the 1930s.”

“Does anybody out there think that the big problem we had is that there was too much oversight and regulation of Wall Street?” Obama said during last month’s first debate. “Because if you do, then Gov. Romney is your candidate. But that’s not what I believe.”

Guess what? That’s very close to what I believe. I don’t think excessive regulation got us into this mess — but it sure is keeping us from getting out of it. Some of the regulations in Dodd-Frank, as well as similar regulations, are indeed currently at the root of many of our problems.

Stick with me for a second. We’re going to discuss monetary policy. It won’t hurt a bit, I promise.

Simply put: inflation occurs when money is “loose” — when there is a lot of money in the “money supply.” Deflation can occur when money is excessively “tight” — when the money supply contracts and banks aren’t lending. Econ 101, right?

This means that when you’re in a recession or depression, you don’t want to make things “tight.” The great Milton Friedman taught us that the likely cause of the Great Depression was the Fed’s action in contracting the money supply at our first economic downturn. The contraction of the money supply took what might have been a minor disaster, and ensured that it would be devastating for years to come.

Fed Chairman Ben Bernanke is a student of the Great Depression and completely agrees with Friedman’s thesis. So much so, in fact, that Bernanke told Friedman in 2002, on the occasion of Friedman’s 90th birthday:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

And yet . . . we are. Right now.

Bernanke’s singular goal in dealing with the financial crisis was to avoid repeating the mistake of the Great Depression, and Bernanke instituted a policy of slashing interest rates, and injecting money into the economy through “quantitative easing” (buying financial assets from banks, similar to printing money but no printing press is involved) to expand the money supply, with the goal of preventing us from going into a deflationary spiral.

Wonderful. Except, Dodd-Frank and other regulations are countering the Fed’s actions. Let’s have Steve Hanke explain. This passage is worth re-reading 2-3 times until it makes sense, because this is important:

[M]ost people believe that monetary policy has been ultra-loose since the collapse of Lehman Brothers in September 2008. Well, by standard accounts, it has been – the quantity of state money has almost tripled since September 2008. When looked at through the proper lens, however, the picture is quite different.

The policies that affect bank money – like the Basel III capital requirements and the Dodd-Frank financial regulatory legislation, for example – have forced banks to de-leverage and contract their lending. Indeed, monetary policy, as it affects bank money, has been tight, and the quantity of bank money in the U.S. has fallen by 9.54% since Lehman Brothers collapsed.

With bank money making up 94% of the total money supply at the onset of the crisis, it is easy to see why its decline has been difficult for the producers of state money (the Fed) to offset. Not surprisingly, the explosion in state money has failed to overcome the decline in bank money.

In consequence, and contrary to the conventional view, the overall monetary stance in the U.S. – thanks largely to draconian bank regulations – has been tight since the financial crisis began.

Got that? The quantity of bank money is waaaay bigger than the quantity of state money. You can be as loose as you like with state money, and quantitatively ease on down the road all you want — but if you have regulations in place that contract the supply of bank money, you’re not going to be able to expand the money supply properly. And the regulations Obama loves so much are have exactly this effect. The requirement that banks raise their capital asset ratios causes banks to stop lending. And so, whatever actions the Fed takes vis-a-vis state money are getting drowned out by excessive regulation of bank money.

In essence, we are repeating the mistake of the Great Depression.

And President Dumbo, who can’t help his kid do grade school math, doesn’t get it. The quote above proves it. Romney the businessman does get it.

For God’s sake, can we finally get somebody into office who understands this stuff?

UPDATE: Foo Bar convincingly argues in comments that Romney also favors the sort of regulations that this post decries. At the same time, he is looking to rewrite Dodd-Frank. I’d like to see more concreteness in his positions, and repealing Dodd-Frank is a positive step, but the reader should be aware that Romney in fact does not appear to be a subscriber to the Hanke analysis and solutions I set forth in this post.

UPDATE 6-16-14: Well, live and learn. Since beginning to study Austrian economics, I have encountered another theory for what caused the Great Depression which is pretty much the opposite of the Keynesian one advocated by Friedman. I think the Austrian one makes more sense. To explain why would require its own post, but I think it’s incumbent on me to append this footnote to register my disagreement with the Friedman/Bernanke perspective.

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