Capital for Living a More Practical Life
Almost every single mainstream economic textbook teaches some version of the money multiplier theory of banking. In short, this is the view that $1 of central bank reserves allows a bank to make $10 of loans or something like that. The basic premise works from the causation that Central Banks control the money supply. Of course,… Read More
The gold standard is silly. No one should be in favor of going back to it. Here’s why:
Sorry for the blunt title, but I couldn’t think of anything more appropriate….
I see this question more and more as indexing grows in popularity. People generally think that more indexing will make the markets function less efficiently . I don’t think this is true at all. Unfortunately, the question and its answers are usually shrouded in misunderstandings about how assets are priced and myths about what it… Read More
Over the course of the last seven years many market pundits have relied on Tobin’s Q to argue that the stock market is overvalued and I’ve argued that the indicator is misleading (see here for a sampling of the many predictions made with this metric). And then today I noticed this piece on MarketWatch arguing… Read More
I’m pulling this one out of the AMA section because it’s a common question I see. Reader Oshe asked about the Equation of Exchange otherwise known as MV=Py, where M is the quantity of money, P is the price level, Y is total output and V is velocity, or the number of times that a dollar is used… Read More
The FT ran a piece about the fiscal union in the USA and why this system couldn’t be replicated in Europe to help resolve the Euro crisis. I wanted to touch on the author’s main points to highlight some of the errors in the thinking there. Myth # 1 – “So let’s state three facts… Read More
“The process by which money is created is so simple the mind is repelled.” – JK Galbraith There’s a reason why myth # 1 in my “biggest myths in economics” is “the government prints money”. It is, by far, the most pernicious and misleading of the economic myths that exists. I was reminded of this today… Read More
I turned on some financial TV last week only to find a well known pundit talking about all that “cash on the sidelines”. It’s been a long time since I reiterated this myth so I went back in the archives and cleaned up my old debunking of this myth. The following is the result. Hopefully… Read More