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1,682 is the number of days that the Dow Jones Industrial Average has spent rising since hitting rock bottom back in March 6, 2009. It also happens to be the number of days between the Dow's July 8, 1932 bottom and its March 10, 1937 top. From that very day the Dow would begin to decline, at first slowly, and then dramatically from August to November when it white-knuckled almost 50%, marking one of the fastest bear market declines in history. Comparisons of our era to 1937 seems apropos. Both eras exhibit near zero interest rates, excess reserves, and a tepid economic recovery characterized by chronic unemployment. Are the same sorts of conditions that caused the 1937 downturn likely to arise 1,682 days into our current bull market? The classic monetary explanation for 1937 can be found in Friedman & Schwartz's Monetary History . Beginning in August 1936, the Fed announced three successive reserve requirement increases, pushing requirements on checking accounts from 13% t...

The Telegraph's Willard Foxton writes that Silk Road, a venue where people exchange drugs for bitcoin, is in a recession of sorts. He blames this on higher bitcoin prices: Following the recent surges in the value of Bitcoin, people have been selling less and less, initially because the value of the Bitcoins was going up so fast people were unwilling to part with them; then, once the Bitcoin price started crashing, dealers were unwilling to part with valuable drugs for Bitcoins worth who-knows-what. I find Foxton's claim unlikely. Yes, in a regular economy, soaring demand for dollars may cause recessions because certain prices are sticky. But the bitcoin universe isn't a sticky price universe. Silk Road sellers will quickly reprice their product in order to convince buyers to part with their bitcoin. Buyers will modify their bids in order to convince sellers to part with their drugs. As bitcoin prices rise or fall, the real value of transactions in the Bitcoin universe sho...

Bill Woolsey , Scott Sumner ( here and here ), and Nick Rowe and a debate that was fun to follow. It seems to me that they more or less end up on the same page. Here's my rough synopsis. The argument seems to have started as a semantic battle over the definition of the word money. Scott holds that money is the medium of account (MOA), Nick and Bill say it's the medium of exchange (MOE). I say ignore this part of the conflict. Pretend the word money doesn't exist. Money . The semantics detract from the main points of the debate which, to me at least, is about how price rigidity, MOA, and MOE interact to cause recessions. Scott's point centres around the following example. The MOA in Zimbabwe is gold. This means that the sticker prices of goods and services are set in gold ounces. But Zimbabweans pay for these things using a central bank issued Zim$. Shopkeepers keep a sign at the till showing the current exchange rate between an ounce of gold and Zim$ so people who hav...

Garett Jones did a podcast on Irving Fisher at Econtalk last week. He talked about the Great Depression and Fisher's debt deflation theory. Jonathan Catalan and Daniel Kuehn also discuss the podcast. Jones focuses on Fisher's 1933 paper The Debt Deflation Theory of Great Depressions . Two interesting quotes from Fisher's paper popped out at me: Those who imagine that Roosevelt's avowed reflation is not the cause of our recovery but that we had "reached the bottom anyway" are very much mistaken. At any rate, they have given no evidence, so far as I have seen, that we had reached the bottom. And if they are right, my analysis must be woefully wrong. According to all the evidence, under that analysis, debt and deflation, which had wrought havoc up to March 4, 1933, were then stronger than ever and, if let alone, would have wreaked greater wreckage than ever, after March 4. Had no "artificial respiration" been applied, we would soon have seen general ...

David Glasner had some recent posts ( here and here ) on Ludwig von Mises and Austrian Business Cycle Theory (ABCT). Bob Murphy pushed back here with a good rebuttal. But David's general point still stands: what necessarily forces a central bank that has adopted the practice of lending at a rate below the natural rate to ever cease this practice? Why does there have to be an inevitable bust? I consider myself an Austrian in that one of my favorite economists is Carl Menger. I've also written a thing or two for the Mises Institute, my most recent being on Menger and Leon Walras and how the two would have differed on the phenomenon of high frequency trading. On the other hand, when it comes to macroeconomics, I remain a business cycle agnostic. I'm willing to be converted though. All you've got to do is answer a few questions of mine. Say a central bank decides to reduce the rate at which it lends below the natural rate. Businesses can come to it for cheap loans -- and...

Having read Larry White's book on free banking ( pdf ) and a number of George Selgin's papers I consider myself to be an advocate of free banking. That being said, I can't help but wonder about a few of George's recent points in his post on Intermediate Spending Booms , the most recent in a series of posts that trains a critical eye on market monetarists. Here is George: But in seeking to free monetary theory and policy from the Keynesian overemphasis on interest rates, the Market Monetarists tend to downplay the extent to which central banks can cause or aggravate unsustainable asset price movements by means of policies that drive interest rates away from their "natural" values. Such distortions can be significant even when they don’t involve exceptionally rapid growth in nominal income, because measures of nominal income, including nominal GDP, do not measure financial activity or activity at early stages of production. George is saying that nominal GDP migh...

David Glasner recently posted on the economist William Hutt and his book A Rehabilitation of Say's Law : Hutt’s insight was to interpret Say’s Law differently from the way in which most previous writers, including Keynes, had interpreted it, by focusing on “supply failures” rather than “demand failures” as the cause of total output and income falling short of the full-employment level. Every failure of supply, in other words every failure to achieve market equilibrium, means that the total effective supply in that market is less than it would have been had the market cleared. So a failure of supply (a failure to reach the maximum output of a particular product or service, given the outputs of all other products and services) implies a restriction of demand, because all the factors engaged in producing the product whose effective supply is less than its market-clearing level are generating less demand for other products than if they were producing the market-clearing level of output...