Archivos Mensuales: diciembre 2011

Los austriacos entregan su cabeza a Paul Krugman

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Paul Krugman escribió un artículo en el New York Times denunciando las predicciones inflacionistas que Peter Schiff realizó en 2009.   Normalmente estoy en desacuerdo con Paul Krugman, pero esta vez lamento decir que sus quejas están justificadas.

Peter Schiff
Peter Schiff

Lo primero que me gustaría destacar sobre el artículo de Paul Krugman, es que sorprendentemente Schiff desprecia casi totalmente la posibilidad de deflación, que es uno de los resultados más probables del estallido de cualquier burbuja de crédito.

Segundo, Schiff asume que la Fed emite dinero, pero eso no es demasiado riguroso.  Para evitar que personas como el Dr. Krugman desmonten facilmente los argumentos de los austriacos habría que expresarse con rigor, y lo que la Fed emite es crédito que nosotros utilizamos como moneda.   Esta diferencia entre dinero y crédito es extremadamente importante, ya que el dinero (entendido como un bien presente) permanece indefinidamente en el sistema a no ser que se decida retirarlo, mientras que el crédito siempre es temporal.  La monetización del crédito es inflacionaria en un primer momento, pero es deflacionaria durante el resto de la existencia del crédito que sirvió para dar origen a la moneda a medida que se amortiza, o peor aun a medida que se impaga.

Tercero, desde el momento en que la moneda es un pasivo (crédito), esta burbuja de crédito es un sinónimo perfecto de una toma masiva de posiciones cortas contra la moneda por parte de todos los agentes.  Creo que Schiff no se da cuenta de que los planificadores centrales son los últimos agentes en apuntarse a la burbuja de crédito.  Sencillamente son el primo en una partida de poker, y la razón principal es que en ningún caso serán ellos quienes pierdan, sino el contribuyente.   Cuando los Bancos Centrales y el Gobierno entran en la burbuja de crédito cuando ésta ya está en un estadio de avance tan extremo, lo que están haciendo es adoptar posiciones cortas contra la moneda cuando practicamente todos los demás agentes (el mercado) se ha dado cuenta de que es el momento de hacer totalmente lo contrario, que es cerrar esas posiciones cortas y reducir por tanto el tamaño de sus balances.   La Fed y el Gobierno fueron los últimos agentes en entrar de lleno en la burbuja con su “all-ín” de endeudamiento durante 2008 / 2009 expandiendo de forma dramática sus balances.  Creo que es más que posible que los Planificadores Centrales acabarán por seguir al mercado de nuevo y finalmente comenzarán a dejar que sus balances se contraigan, o como mucho conseguir que su tamaño se mantenga,   La “Operación Twist” es hasta el momento la primera prueba de esta actitud.

Cuarto, me sorprende el poder que Schiff otorga a los órganos de planificación central, dando por hecho que serían capaces de resolver cualquier problema al que se enfrenten, incluso si se trata de revertir la contracción crediticia (deflación) provocada por la mayor burbuja de crédito de la historia de la humanidad.

Quinto, Schiff precide alta inflación o incluso hiperinflación, pero esto es lo que ha venido pasando ya durante los últimos 40 años a medida que la burbuja de crédito crecía!!!  Está prediciendo lo que ya ha pasado!!! Precisamente el gran problema de la Fed es que apenas está “consiguiendo” que la burbuja de crédito crezca más.

Paul Krugman

Y en lo que concierne a la propuesta de Krugman para evitar su “trampa de liquidez”, creo que no podía haber optado por una estrategia más suicida.   Aunque es cierto que monetizar deuda puede servir para contrarrestar la deflación en un primer momento, esa deuda que se monetiza alimentará un potencial deflacionario aun mayor en el futuro.   Además, no es posible crear cantidades de deuda infinita, porque ningún agente puede expandir su balance hasta el inifinito.    Si el Gobierno de los Estados Unidos siguiese endeudándose, podría hacer que el mercado de bonos se desplomase de la misma forma que lo hizo el de Islandia o el de Grecia. La Reserva Federal no puede suplantar a todo el mercado de bonos y convertirse en el único acreedor del Gobierno, es una idea ridícula e inasumible para la Fed.   Si la Fed sigue comprando bonos, es porque el mercado considera que los Estados Unidos aun son solventes.  Es el mercado quien decide si el Estado es solvente o no, no la Fed.    Una vez que el mercado de bonos comenzase a colapsar, será un asunto extremadamente espinoso para la Fed seguir monetizando esos bonos, especialmente teniendo en cuenta lo extremadamente abultado del balance de la Reserva Federal.

Cuando una burbuja de crédito alcanza el tamaño de la actual, afrontar una fuerte contración del crédito es inevitable.   Cuanto más tarde lo asumamos, mayor será la contracción que tendremos que sufrir.   La consecuencia natural de una contracción crediticia es deflación, que teoricamente podría transformarse en hiperinflación por el Banco Central.  Pero me cuesta muchísimo ver a la Fed inmolándose y sacrificando el dólar, que significaría destruir deliberadamente su propio negocio.   En cualquier caso, como se trata de una decisión política, y en política todo es posible, debo admitir que tanto un escenario Deflacionario como otro de Alta Inflación son posibles.

Pero desde luego, lo que si creo es que los economistas no deberían despreciar la posibilidad de deflación, y deberían recomendar que se afronte la contracción del crédito lo antes posible, en lugar de recomendar imprudentemente mayor endeudamiento (en esto estoy de acuerdo con el Sr. Schiff), que solo servirá para alimentar una contracción crediticia aun mayor en el futuro.

Austrians surrender their head to Paul Krugman

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Paul Krugman wrote an article in the New York Times dennouncing Peter Schiff´s predictions about inflation in 2009.   I normally disagree on Paul Krugman´s views 90% of the time. But in this case, I regret to say that his complains are justified.

Peter Schiff
Peter Schiff

First of all, Schiff amazingly disregards the possibility of deflation, which is one of the most possible outcomes of any credit bubble.

Second, Schiff assumes that the Fed is issuing money, but this is not true, they are issuing credit that we use as currency.   This differentiation between money and credit is extremely important, since money (understood as a present good) remains forever in the system unless the issuer decides to withdraw it, while credit is always temporary.  Credit monetization is inflationary in a very first stage, but it is deflationary the rest of  that credit´s existence as it is paid down, or even worse as it is defaulted.

Third, since our currencies are liabilities (credit), this credit bubble is a perfect sinonymous of a massive short sell against the currency.  Schiff doesn´t realize that central planners are being the last agents to board in the credit bubble.  They are just the sucker in the poker game, and the main reason for their attitude is that is not  their money what they loose, it is the taxpayer´s money.   When Central Banks and Government are entering the credit bubble at this late stages, they are just shorting the currency when everybody else (the market) has realized that is time to do the complete opposite covering their short positions in currency and therefore reducing their balance sheets.   The Fed and the Government were the very last agents to follow the market in 2008 / 2009 with their “all-in” bet  by dramatically expanding their balance sheets.  The Central Planners will follow again the market and eventually will begin to let their balance sheets contract, or at the “best” case, maintaining its size.  Operation Twist is the first proof of this attitude so far.

Fourth, Schiff awards an amazing power to central planning institutions, given for granted that they are able to solve any problem they face, no matter if the problem is reversing the credit contraction caused by the greatest credit bubble in humankind´s history.

Fifth, Schiff is predicting high inflation, but this is what already has happend during the last 40 years, as the credit bubble grew!!!.   The Fed´s problem is that the bubble is not growing anymore.

New York Times columnist, Paul Krugman.

Paul Krugman

Now, regarding Krugman´s proposal to avoid his “liquidity trap”, he could not have thinked of a more self-defeating strategy.   While it is true that monetizing debt might offset deflation at a first stage, this debt will feed a greater deflationary potential for the future.      Besides, it is not possible to create infinite debt, no agent´s balance sheet can be expanded ad infinitum.    If the government keeps expanding its balance sheet by issuing additional debt, the bond market will collapse just the same way it collapsed in Iceland or Greece.   The Federal Reserve cannot impersonate the full bond market as a creditor, it is just such a inmensely big task for the Fed.    And if the Fed is still buying bonds, is because the market still considers that the US are creditworthy.   Once the bond market begins to collapse it will be an extremely thorny business for the Fed to monetize those bonds, specially taking in account the current situation of the Fed´s balance sheet.

When a credit bubble gets to the size of  the current credit bubble, credit contraction is unavoidable. The later we face it, the greater the credit contraction will be.   The “natural” outcome of a credit contraction is Deflation, which theoretically could be turned into hyperinflation by the Central Bank.  I can´t see the Fed delibilerately sacrificing the dollar and therefore destroying its own business, but that depends on their political will, so I must admit that both Deflation and High Inflation are possible outcomes.   Anyway, I dont´think that economists should disregard the possibility of deflation, they should  advise to face smaller credit contraction as soon as possible, instead of foolishly feeding future greater credit contraction by throwing in more debt into the monetary system.

Response to Robert Blumen on Deflation: Money is not Credit

Robert Blumen wrote an article at the Mises Institute about Deflation  mainly discussing Robert Prechter views, here is the link:  Deflation Confusion: Money is not credit.

Robert Blumen is right, Money is not Credit.  But the problem is that the current economic theories do not differenciate them properly, including the classic austrian school of economics.  In fact Mises did include Credit “Money” within the same category of Commodity Money (Money Proper or Money in the narrower sense).   Indeed, just the term Credit “Money” is really confusing, that´s why I am quoting the word money in that context.

Considering credit “money“, which is a future good, within the same category of commodity money, which is a present good, leads to tremendous errors.   For example, it leads to consider that someone lending out new credit “money” is granting new credit when is totally the opposite, he is receiving credit because he is issuing debt.

Only the owners of present goods shall grant new credit.   The definition of credit is lending out present goods in exchange of future goods (promises to deliver present goods in the future).

Once you are aware of this, it is very easy to see how Central Banks are not lenders of last resort but first instance borrowers, and that commercial banks are mainly debtors.  Just have a look at their balance sheet, their equity is ridiculous.  Banks are way more than 90% indebted.   Who are the creditors then? The creditors are the agents that give away present goods in exchange of Dollars, Sterling or Euros, which are future goods (bank liabilities), and those agents are mainly the “free” market (i.e. almost everyone except the banking system and the State).

So, I think that Robert Prechter´s understanding of  current monetary system is superior than that of many austrian scholars, because he has noticed that today´s money is not money, it´s credit used as a medium of exchange.  Unfortunately there´s been a long time since we don´t use money anymore (money understood as a present good).   By the way, Mises failed on providing a monetary theory that clearly separates money from credit, but at least he noted 100 years ago that most fiat currency systems are in fact credit currency systems (p. 61 of Theory of Money and Credit).  It is unbelievable how most austrians scholars describe our current monetary system as fiat!!

If we have a huge credit contraction, banks are not going to be able to issue new currency, because banks issue additional new currency when they “lend” (monetize) new credit.  But if agents are not borrowing from other agents (through bank intermediation) and instead they are paying down debts, then dollars are being withdrawn from the system, these dollars will just disappear when used to pay down debts the same way they were created.

Remember, credit is inflationary at the moment of its monetization, but it is deflationary for the rest of its existence.   There is a crucial difference between pure fiat currency and credit currency, the former will always remain in the system unless the issuer withdraws it, the later will always expire at some point in the future.

But all this credit contraction won´t happen as long as the main credit bubble, which is the Bond market, does not implode, because the Bond market is still allowing the government to issue new debt, so the banking system still has fresh new debt to be monetized and therefore pump new dollars into the system.  These new dollars are still enough to offset the destruction of dollars caused by maturing outstanding debt.

So the Bond Market is the last bastion of the credit bubble, once it bursts, deflation will enter full throttle in the monetary system.

Regarding the classic austrian monetary theory not drawing a crystal clear line between money and credit, the austrian (“mengerian”) economist Carlos Bondone provides the solution.  Departing from Carl Menger and disregarding the errors of Mises and Hayek, he proposes the following new monetary structure:

Currency:  Indirect medium of exchange and unit of account.  Currency Types:

  • Money: Present good when it is used as currency (wheat, cattle, gold, silver, deposit certificates of gold or silver, etc.).
  • Credit currency:  Any currency that is not money, it can only be credit.  Then there are the following types of credit currencies:
    • Regular Credit currency:  When the present good that cancels the debt is specified, and so is its quality, quantity and due date.  This is the case for real bills maturing in gold or old bank bills that where redeemable for gold or silver.
    • Irregular Credit Currency:  When the present good that cancels the debt is not specifed or its quality or its quantity or its due date.  This is the case for today´s currencies such as dollars or euros.

It is extremely important to clearly separate money from credit, so everyone can understand that credit currency is not money regardless that both of them may be used as currency (medium of exchange).   Considering credit as a perfect substitute of money is as dangerous as using vacuum instead of air to keep a ship afloat.