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Source link: http://archive.mises.org/15738/more-austro-speak-from-regional-fed/

More Austro-speak from regional Fed

February 18, 2011 by

A reader writes to point out that it’s not just Charles Plosser who’s saying Austrian-like things. According to the President of the Kansas City Fed, Thomas Hoenig, soaring farmland prices may be the result of an “unsustainable bubble” that could damage the U.S. economy “when” it bursts.

“My nagging concern remains that current distortions in financial markets are increasing the risk that imbalances in asset markets will catch agriculture — and the U.S. economy more generally — by surprise once again,” Hoenig told the Senate Agriculture Committee today.

{ 5 comments }

Daniel Kuehn February 18, 2011 at 10:13 am

I am genuinely seeking clarity on this – are you saying that noting that bubbles can happen in response to monetary policy is “Austrian-like” economics?

That would seem to erect a ridiculously big tent.

A. Viirlaid February 18, 2011 at 11:15 am

Hi Daniel, I agree with your sentiment, and I would agree with you that this “farmland bubble” can be properly classified as an “Austrian-like” or “Austrian-Economics” Bubble ONLY IF the President of the Kansas City Fed, Thomas Hoenig, is himself suggesting that this farmland bubble is being caused by monetary ‘stimulation’ (like QE-1 and QE-2) from The FED. (That IMHO would be a Breakthrough of Historic Proportions, if FED members, even logical ones like Thomas Hoenig, are starting to apply Austrian Economic Theory.)

In my own opinion, this farmland bubble is of course an Austrian-explained Bubble caused by the idiotic policies of The FED. But my opinion is not important here — it is the idiots at The FED we are concerned about.

You are right to imply that ‘Bubbles’ in neo-Keynesian economics seem to be attributed by that Economic ‘School’ as coming from ‘natural’ causes (or from ‘Acts of God’) like food shortages caused by switching grain crops to feeding beef cattle instead of people (as China gets richer), or from switching maize crops to feeding fuel production instead of people, or from ‘bad weather’ around the world in all the major crop-growing regions.

Keynesians are generally woefully hard-pressed (given the inadequacy of their theories) and terribly reluctant (given their personal prejudices against the Austrian Business Cycle Theory) to use ‘Austrian Bubbles’ as the explanation for any financial bubbles they might trip over. Just refer to people like Bernanke and his predecessor, Alan Greenspan (supposedly a Libertarian, but in actuality, the furthest thing from a true Libertarian and the closest to an Interventionist Central Banker that you will ever meet.)

Farmland Bubbles (or —— more critically for human welfare —— food shortages overseas in countries that have had a lot of Bernankian Easy Money recently flood into their nations) are of course always caused by Austrian-explained bubbles, even if Keynesian Economists do not acknowledge that cause.

When farmers in developing countries start to see that their nations are printing money like crazy to “absorb” that easy Bernanke-Money, then they withhold their food from market, because that carefully-raised food is then more like Money than is the Paper Money their own central banks are pumping out. This is old hat. Please read up on Burke at http://mises.org/daily/1504

Until those poor farmers know what they should get for their hard work, they will not easily (or cheaply) sell the output of their blood and sweat —— you would not either in their shoes (if they have shoes).

Please understand that Bernanke is THE MOST ignorant of them all when it comes to explaining “bubbles” —— or, if not ignorant, terribly disingenuous.

Please see the link to —— “Bernanke defends QE2 on global stage: Fed is not cause of destabilizing capital flows, he says” at

http://www.marketwatch.com/story/bernanke-defends-qe2-on-global-stage-2011-02-18

For his remarkable and disjointed view of reality, please refer especially to the last paragraph:

“To be clear, these findings are not to be read as assigning responsibility for the breakdown in U.S. financial intermediation to factors outside the U.S. Instead, in analogy to the Asian crisis, the primary cause of the breakdown was the poor performance of the financial system and financial regulation in the country receiving the capital inflows, not the inflows themselves,” Bernanke said.

Also my prior comment at http://blog.mises.org/8748/a-time-to-praise-central-banking/

Now we have the FED exporting inflation to the world. Of course, many nations willingly import that inflation, so as to artificially stimulate their own economies, and provide ‘vendor-financing’ to America. We saw how that scheme ended with the Nortels of the world in the dot-com bust in 2000.

What revolutions will occur as people cannot buy food?

Edmund Burke believed “the rise of prices…would render it unprofitable for farmers to take crops to market. They would stay home and produce only for themselves or for barter with their neighbors. The government would then send troops into the countryside to confiscate grain and other foodstuffs. It happened exactly as he foretold.”

Mr. Gordon seems to share his view of Central Banking with Chris Farrell of BusinessWeek:
http://www.businessweek.com/investor/content/jun2008/pi20080611_987593.htm

Bruce Koerber February 18, 2011 at 12:52 pm

Causal-Realistic Empirical Economists Are Still Ego-Driven.

The ‘big tent’ is a causal-realistic understanding of economic phenomena. And since Austrian economics is a causal-realistic approach there seems to be a relationship.

Do some empiricists view economics causal-realistically? Yes. Does that mean that empiricism is scientific? No. Even those empiricists who use a causal-realistic approach ultimately have to act as ego-driven interpreters to justify their ego-driven interventionism!

Lee February 18, 2011 at 1:10 pm

Since most of the small farmers have long since been wiped out and their farms taken by giant corporations (Stalin’s capitalist twins), should this be taken as a warning for the few small farms left, or for government taking over ALL farms_to “save” them from Socialism?

A. Viirlaid February 18, 2011 at 3:33 pm

So True, so TRAGICALLY true, Bruce and Lee.

For one of the most honest and heartfelt pleas (and perhaps patriotic, for an American business journalist) that I have recently read, addressed to Ben Bernanke, pleading to Bernanke to please stop doing his idiotic charade, please see:

By Paul B. Farrell, on Feb. 15, 2011, 12:01 a.m. EST, in his article “Fed dictator Bernanke needs to be toppled” at

http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15

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