Author: Joseph T. Salerno

A recent op-ed piece in The New York Times urged the Republican Party not to “throw away free enterprise” and embrace populism. Arthur C. Brooks, the author of the article, makes two bold but erroneous claims. First, he asserts that populist moments throughout history — including the Trumpian moment in the US — are triggered by severe financial crises that result in protracted and uneven recoveries that exacerbate existing income and wealth disparities. In resorting to naïve economic determinism to explain populism, Brooks completely overlooks the awakening of the broad American middle class to political institutions and policies that have … Continue reading →

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It is no secret that secret Swiss bank accounts are not so secret anymore, as political elites throughout the world led by the U.S. government wage an all-out war against financial privacy, even to the point of scheming to stamp out cash.   But Swiss financial innovation knows no bounds.  To meet the intensifying demand for financial privacy and for protection against unstable banks, negative interest rates and other “unconventional” monetary policies, Swiss entrepreneurs have purchased and refurbished former military bunkers hidden deep in the bowels of the Swiss Alps and transformed them into huge warehouses for storing gold.  Unlike banks, these warehousing firms are not obliged to report suspicious … Continue reading →

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For the past thirty or so years, I have made a small annual donation to my alma mater, Boston College. I usually earmark a part or all of the donation for BC’s athletic programs, which, outside of hockey — and football for a few glorious years in the early 1980s when Doug Flutie played — have been decidedly mediocre. In recognition of my modest donations, I just received an emailed brochure from BC entitled “A Guide to NCAA Regulations for Donors, Alumni, and Friends of Boston College Athletics.” To my surprise, the brochure informed me that I am a “representative … Continue reading →

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Donald Trump has announced his economic advisory team and unveiled a preliminary broad brush economic program that his prospective administration would implement. He has promised to fill in the details of his America First Economic Plan as the election approaches. So how should we grade his choice of advisers and his economic plan at this point? Trump’s thirteen-man economic advisory team has more current or former CEOs (4), more billionaires (5), and more guys named Steve (6) than it does former academic economists with a PhD (1). And the lone academic economist, Peter Navarro, while a Harvard PhD is a … Continue reading →

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The Forgotten Depression is a narrative history of the depression of 1920–21. Although it is informed by a very definite theory—the Austrian business cycle theory—it is not a standard work in applied economics. It does not first present the theory in a rigorous formulation and then move on to apply the theory by adducing pertinent qualitative facts and statistical data to explain a complex historical event such as a depression. It instead proceeds by way of anecdotes and contemporary media accounts liberally seasoned with telling quotations from politicians, policy makers, economists, business leaders, and other contemporary observers of the unfolding … Continue reading →

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A few days before the last FOMC meeting The Wall Street Journal  reported on the Fed’s hand-wringing over its inability to identify the “natural rate of interest” and explain its recent movements. According to the report, the Fed uses the “mysterious natural rate” to guide its decisions in setting the target for the fed funds rate. Modern macroeconomics defines the natural rate of interest as the (real) rate of interest that maintains the economy in a Keynesian state of bliss, with stable prices (or moderate inflation) and actual real GDP equal to “potential” or full-employment GDP. According to Fed economists, the natural rate is “unobserved” and therefore “has to … Continue reading →

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In thinking about strategies for abolishing or radically diminishing government, many libertarians are led astray by predicating a false dichotomy.  The State, they say, can either be smashed in one swift, fell blow or it can be rolled back gradually according to a predetermined plan. These are the only two alternatives.  They then go on to consider the advantages and disadvantages of gradually rolling back versus demolishing the State.  Not surprisingly, they usually arrive at the conclusion that “gradualism” is likely to be a more successful and humane strategy than, for lack of a better term, demolitionism.  Steve Horwitz falls … Continue reading →

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The Swedish government abetted by its fractional-reserve banking system is moving relentlessly toward a completely cashless economy.  Swedish banks have begun removing ATMs even in remote rural areas, and according to Credit Suisse the rule of thumb in Scandinavia is “If you have to pay in cash, something is wrong.”  Since 2009 the average annual value of notes and coins in circulation in Sweden has fallen more than 20 percent from over 100 billion to 80 billion kronor.  What is driving this movement to destroy cash is the desire to unleash the Swedish central bank to drive the interest rate down even further into negative territory.  Currently, it stands at -0.35 percent, but … Continue reading →

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100 percent-reserve banking is being introduced through the backdoor by U.S. regulators who remain queasy about banks runs in a future crisis.  Under rules instituted in September 2014 by the Fed and other financial regulators, banks are mandated to hold only high-grade liquid assets against risky large demand deposits in order to cover estimated deposit losses for 30 days.  These so-called “hot-money deposits” are those that are most likely to be suddenly withdrawn at the onset of a crisis. The required backing assets consist of  bank reserves held at the Fed and short-term U.S. government securities. The new rules require banks to hold up to 40 percent reserves–versus the standard 10 percent–against certain corporate … Continue reading →

In April it was announced that Greece was imposing a surcharge for all cash withdrawals from bank accounts to deter citizens from clearing out their accounts. So now the Greeks will have to pay one euro per 1,000 euros that they withdraw, which is one-tenth of a percent. It doesn’t seem very big, but the principle at work is extremely big because what they’re in effect doing is breaking the exchange rate between a unit of bank deposits and a unit of currency. Why would they do this? Why would they want to do this? Well, it’s one of the … Continue reading →

There is an interesting article in the NYT on the emergence of alternative paper currencies. “Artisanal” or “low-batch” currencies have been popping up all over in the past decade.  They have been issued by municipal governments in Great Britain, a private nonprofit entity in Amsterdam, and a regional network of businesses, nonprofits, and consumers in Bavaria.  One of the most successful low-volume currencies is the BerkShare,  issued and accepted by a consortium of 400 participating businesses and banks in Berkshire area of western Massachusetts.  There is $138,000 worth of BerkShares currently in circulation and $1 million worth has been printed since 2006. Now, it is true that … Continue reading →

Last week the Greek government imposed capital controls to prevent cash from escaping from the Greek banking system, which is on the brink of collapse.  These repressive financial measures, which were invented by “Hitler’s banker” Hjalmar Schacht in the 1930s, include the closing of banks,  limiting cash withdrawals from ATMs to 60 euros ($67) per day, and the banning of all money transfers via credit and debit cards to accounts held in foreign countries.  Despite these Draconian controls, Greek banks continue to hemorrhage cash and, after yesterday’s referendum, it is probable that the daily limit on withdrawals from ATMs will be tightened.  Worse yet, the reeling Greek public suffered another … Continue reading →

The manager of one of Great Britain’s biggest bond funds, which has £4 billion under management, is now advising investors that the time has come “to hold physical cash,” along with gold and silver.  He sees “systemic risk in the system” and is concerned that global debt, particularly mortgage debt, has been inflated to record levels by extraordinarily  low interest rates that will soon come to an end.  He is especially worried about whether banks will be able to withstand such a financial shock.  Deposits in British banks are only insured up to £85,000 by the FSCS (the U.K.’s FDIC) and the British … Continue reading →

As I reported recently, banks are beginning to collaborate in the campaign by governments to stamp out the use of cash among the public.  Chase, for example, rolled out a new program in several markets in March that restricts borrowers from using cash for making payments on credit cards, equity lines, mortgages and auto loans.  Even more troubling is Chases’ revised policy governing the use of its safe deposit boxes.  In a letter dated April 1, Chase informed its customers of the new policy, which included the following provision:  “You agree not to store any cash or coins other than those found to have … Continue reading →

Lyndon McClellan is a small entrepreneur who owns and operates L & M Convenience Mart in Fairmont, North Carolina.  L & M comprises a gas station, convenience store, and a small restaurant serving hot dogs, hamburgers, and catfish sandwiches.  One day last July, more than a dozen federal, state and local law enforcement agents swarmed Mr. McClellan’s business, including agents from the FBI and the North Carolina Alcohol and Law Enforcement agency—and they were “asking” for him.  When Mr. McClellan arrived, he was escorted by two federal agents into his stock room for a private chat.  The agents showed him … Continue reading →