When Ben Bernanke ballooned the level of total reserves in the banking system, he did two things. First, he made the amount of excess reserves totally irrelevant. Second, he revealed that the dollars created by the Federal Reserve, contrary to popular belief, have never acted as money. The following chart provides a visual depiction of … Continue reading Wizard Revealed

I realize that on Thanksgiving weekend, people are either eating, sleeping, or traveling. More than likely, very few people are interested in reading newsletters from a voice in the wilderness. I'm giving myself this long weekend to catch up on a lot of work that I have ignored. I will see you back here early … Continue reading See You Next Week

The role of bank reserves requires frequent explanation, because of widespread misunderstanding. Bank reserves do not act as a form of money. They never have. When people used gold as a form of money, and banks had 100% reserves, banks would hold gold to back the claims represented by banknotes or checks. While held as … Continue reading The Role of Bank Reserves

Consumers play a critical role in a well-functioning market. Consumers consisted of a byproduct of production. Consumers can neither consume nor acquire things to consume without first producing. These facts might lead one to assume that centralized control might make a more efficient market. Before I continue and describe why this cannot work, I would … Continue reading Market Complexity

The words stabilization and stimulation encapsulate what the Federal Reserve and the Federal Government are trying to do to resolve the economic uncertainties. Entire textbooks have been written about each of these topics separately. I just want to introduce the concepts and open the door for numerous articles in the future. Briefly, these words refer … Continue reading Stabilization and Stimulation

Introduction The principle of exchange might seem obvious. It gets ignored, however, in many discussions of "buying," "selling," "international trade," and other market activities. These terms all represent internal references. (Left and right are internal references; north and south are external references.) Accurate discussions of market transactions require using an external reference: "exchange." A consciousness … Continue reading Description of Exchange

Fallacies of Equality and Equity It seems that many people are concerned about promoting either equality or equity. If you believe in either equality or equity, you're living in a fantasy land — a land that only exists in your imagination. A perfect circle, for example, can only exist in the mind of a human. … Continue reading Division of Labor and Comparative Advantage

A Review Before I continue discussing the allocation of resources in a free market, I would like to recap some of the points that I have made in other blog posts. First, the concept of consumer sovereignty means that the whole purpose of production and markets consists of satisfying the needs of consumers. Second, because … Continue reading Resource Allocation

Principles play a critical role in the development of any theory. Including economic theory. Definition Principle:“A fundamental truth or proposition that serves as the foundation for a system of belief or behavior or a chain of reasoning.” from Oxford Dictionary Introduction Reasoning begins with principles. We tend to ignore principles because, frequently, they seem so obvious. … Continue reading Describe Economic Principles

Despite all the noise politicians make about the importance of education, they have a significant incentive to keep the electorate ignorant. That provides the reasoning behind their wanting to maintain control of the education system and the process of education itself. Introduction Keeping the electorate ignorant has paid politicians substantial political dividends for many generations. … Continue reading Political Justification for Ignorance