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Frank Hollenbeck

Frank Hollenbeck

Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank.

Articles by Frank Hollenbeck

Decades of Productivity Gains Have Made Our Debt Bomb Manageable (For Now)

26 days ago

Listen to the Audio Mises Wire version of this article. Listening to the news, you might have the impression that its Christmas and the government is Santa Claus. Under legislation recently introduced in Congress, Americans over the age of sixteen would receive $2,000 per month for at least six months. This follows the government’s $1200 …

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Decades of Productivity Gains Have Made Our Debt Bomb Manageable (For Now)

26 days ago

Although the money supply has greatly increased, accompanying growth in production has it possible to keep the current system of immense debt increase going for a long time. This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros. Original Article: “Decades of Productivity Gains Have Made Our Debt Bomb Manageable (For …

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Why Americans Don’t Have Any Savings

April 27, 2020

Central bankers think too much saving is a problem that must be solved with more money creation. But the real problem is the Keynesian-style fractional reserve banking system. This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros. Original Article: “Why Americans Don’t Have Any Savings”

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Why Americans Don’t Have Any Savings

April 15, 2020

In response to a likely worldwide recession, governments have turned on full blast the fiscal and monetary spigots. A $2 trillion spending plan has just been approved in the USA, central banks are on a buying spree, and the $1200 stimulus payment is just helicopter money. Since the government does not have a magical tree …

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The Government’s Pandemic Strategy Is a Reckless One

March 25, 2020

The current coronavirus strategy of most governments is a recipe for a worldwide economic disaster. In many countries, the strategy of confinement and forcing shops to close is a surefire path to large-scale business failures. The cascade of economic and financial repercussions to come is likely to lead to another Great Depression. Italy, for example, …

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Intellectual Property as the New Guild System

November 15, 2019

The standard justification for intellectual property — i.e., patents and copyrights and trademarks — is that the creative process would be significantly reduced if such protection did not exist. The underlying assumption is that the financial reward must be augmented by a grant of exclusivity enforced by the coercive power of government. Because we can …

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There Are Two Sides to Every Trade. And Both Sides Benefit.

September 25, 2019

In a recent tweet, the US president said, “When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The U.S. has been ripped off by other countries for years on Trade.” Trump continues to ratchet up tariffs on China claiming it is stealing billions of dollars by running …

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The High Price of a “Free Lunch”

September 6, 2019

One of the Ten Commandments is “thou shalt not steal,” and theft is generally condemned in most religions, yet our religious leaders and followers have essentially turned a blind eye to government theft. Based on a policy of envy, Bernie Sanders, for example, has bluntly stated he intends to tax the rich to fund his …

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Bastiat Knew the Proper Limits of Government Force

March 12, 2018

Reprinted from FEE.org
High school students in the United States are usually required to take a course in government. They learn about the structure of government but rarely discover the appropriate role of government or the justifiable limits for the use of force in our society. If they did, one of their required readings would be Frédéric Bastiat’s treatise The Law, a seminal mid-Nineteenth-century work that describes eternal truths about life and how we pursue justice. These truths are just as valid today as they were then.
Natural Rights and the Role of Government
Bastiat states that individuals are born with the natural rights of life, liberty, and property. From this notion, the only proper function of the use of force or the law is the collective organization of the natural right to

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We Need Bastiat’s The Law More than Ever

February 24, 2018

High school students in the United States are usually required to take a course in government where they learn about the structure of government but rarely discover the appropriate role of government or the justifiable limits for the use of force in our society. If they did, one of their required readings would be Frédéric Bastiat’s essay, The Law, a seminal mid-nineteenth century work that describes eternal truths about life and how we pursue justice. These truths are just as valid today as they were then.Bastiat states that individuals are born with natural rights of life, liberty, and property. From this notion, the only proper function of the use of force or the law is the collective organization of the natural right to self-defense of these rights:Every individual

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What is Capitalism?

November 16, 2016

In a recent Harvard study, 51% of millennials said they did not support capitalism, while 33% advocated socialism. Do these millennial really reject free markets or are they simply confusing capitalism with our current system of crony capitalism, corporatism, mercantilism, or some other “ism”?
What exactly is true capitalism?
We’ll begin with this truth: We cannot snap our fingers and have “wants” immediately transformed into “satisfactions.” We are born having to struggle to survive. We must take atomic elements, which are provided gratuitously by nature, and transform them into the goods and services that give us satisfaction. Everything used to build an Italian sports car is provided by nature, but not in a form that can be used directly without modifications. The raw material must be combined by our labor and know-how. Wants require efforts to obtain satisfaction. Man is constantly striving to reduce these painful efforts that consume so much of his energy and time. Unfortunately, the history of mankind has been one of pillage: A plan for less efforts. It is far easier to steal a sack of corn than take the effort to grow it.
One can imagine an infinite number of social systems but one cannot ignore or repeal the reality that wants, which are infinite, need many efforts to overcome obstacles before reaching limited satisfactions.

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The Empirical Limits of Economics

November 14, 2016

Two separate economic developments over the last 100 years have caused macroeconomics to regress instead of progress. The first is the Keynesian, or more accurately Malthusian, notion of aggregate demand. The second is Milton Friedman’s positive empiricism, emphasizing the importance of empirical verification of economic theory.
According to positive empiricism, adherence to economic facts is the only way to validate economic theories.
“Viewed as a body of substantive hypotheses, theory is to be judged by its predictive power for the class of phenomena which it is intended to ‘explain.’ Only factual evidence can show whether it is ‘right’ or ‘wrong’ or, better, tentatively ‘accepted’ as valid or ‘rejected.’ …. the only relevant test of the validity of a hypothesis is comparison of its predictions with experience.”1
Economic theory is to be judged by its predictive power supported by empirical regularity. Only factual or empirical evidence can make a theory go from a “meaningless”2 hypotheses to part of man’s accumulated knowledge. The only relevant test of the validity of a hypothesis is its predictive powers.
Friedman expanded on Popper’s “falsification principle” that a theory can never be verified but can be falsified if one finds one counter-instance that the theory fails.

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Our Current Keynesian Nightmare

October 13, 2016

It is not an understatement to say that the economic policy of the United States since 2008 has been purely Keynesian. Interest rates are near zero and the national debt stands at nearly $20 trillion. This is a direct result of applying the policy prescription recommended in Keynes’ General Theory. One day, his book will likely sit next to Karl Marx’s Communist Manifesto as works that generated dangerously false notions of reality with disastrous consequences.
Keynes obtains most of his conclusions against capitalism by gutting its essential characteristic, i.e. adjusting prices to allocate resources where society deems most urgent. His theory assumes price inflexibility (wages being a price).
Suppose someone claimed that gravity doesn’t hold us to the planet like Newton told us, and that people would float off into space unless we build large nets to save humanity. Such a person would normally be hauled off to the asylum–if it were not for Keynes. By assuming price inflexibility, Keynes concludes that unemployment can be a permanent fixture of a capitalist economy and that legal counterfeiting (monetary policy) and robbing Peter to pay Paul (fiscal policy) are sound economic policies. Instead of being discarded as a crackpot economist, monetary crank, or ignorant zealot, Keynes was given the status of economic genius.

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The Chimera Of Stable Money

September 1, 2016

Reprinted from Forbes
Since the early 19th century, economists have consistently preached that the value of money or its purchasing power should be stable or relatively stable. David Ricardo, in 1817, said: “A currency, to be perfect, should be absolutely invariable in value.”
According to this view, money as a unit of account should be equivalent to a yardstick measuring an immutable distance. Over the last century, this view of money has led economists to suggest that prices, reflecting the purchasing power of money, as measured by a price index [1], should also be stable and that central banks should actively interfere with the market economy to bring stability to such an index. The U.S. Central bank has essentially been following such a policy since its inception in 1913. Price stability is inscribed in the Maastricht Treaty, and the goal of hitting a 2% CPI inflation target is a variant of this widely-held view.
Yet, this policy has been mostly responsible for the great depression that started in 1929 and the great recession that began in 2008. It is responsible for the widening growth in income inequalities (here) and the mass economic distortions of the last century. When you do not recognize your errors of the past, you are condemned to repeat them!
The purchasing power of money is determined, like most things in a capitalist system, by supply and demand.

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The economic reality of Brexit

June 22, 2016

The United Kingdom will shortly (June 23) vote either leave or remain in the European Union. This is the most important European event of this century since a vote to leave will likely have important domino effects for the rest of Europe.
A recent poll showed that if the UK could keep free trade with EU nations, the British people would vote overwhelmingly to leave the EU. To drum up support for staying in the EU, the UK Government and quasi-government agencies, like the IMF and OECD, have issue continuous warnings about the costs of such a divorce. The IMF recently reiterated its forecasts that Brexit would have a significant negative effect on the UK economy with a drop in GDP anywhere between 1% and 9% over the long term. The reality is that Brexit would probably only have a minor initial impact on trade or GDP and, on the contrary, would open up vast possibilities for the UK to exploit trade relations with other faster growing regions of the world without having to reach complex trade agreements that satisfy the vested interests of the other 28 members of the EU.
The impact of Brexit on trade has been grossly exaggerated. In today’s world, a product has parts coming from all over the world. A BMW is only called German because of historical association.

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Britain Doesn’t Need the EU to Thrive

June 21, 2016

Tags
Global EconomyTaxes and SpendingWorld HistoryThe United Kingdom will on Thursday vote either to leave or remain in the European Union. This is the most important European event of this century since it will likely have important domino effects for the rest of Europe.A recent poll showed that if the UK could keep free trade with EU nations, the British people would vote overwhelmingly to leave the EU. To drum up support for staying in the EU, the UK government and quasi-government agencies, like the IMF and OECD, have issued continuous warnings about the costs of such a divorce. The IMF recently reiterated its forecasts that Brexit would have a significant negative effect on the UK economy with a drop in GDP anywhere between 1% and 9% over the long term.The reality is that Brexit would probably only have a minor initial impact on trade or GDP and, on the contrary, would open up vast possibilities for the UK to exploit trade relations with other faster growing regions of the world without having to reach complex trade agreements that satisfy the vested interests of the other 28 members of the EU. The impact of Brexit on trade has been grossly exaggerated. In today’s world, a product has parts coming from all over the world. A BMW is only called German because of historical association.

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Helicopter Money to the Rescue

April 18, 2016

Tags The FedMoney and BanksMoney and Banking

Following the unconventional monetary policy of negative interest rates, central banks are now considering an even more desperate measure: “helicopter money.” Milton Friedman is credited with this idea:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.

The goal of such a policy is to put money directly into people’s pockets to boost aggregate demand. The post-2008 QE policy had similar objectives. The lowering of interest rates was intended to boost bank lending and indirectly consumer spending. Instead, the result was a boom in asset prices and a surge in excess reserves. The idea of helicopter money — in contrast — is to bypass the middleman, the banks, and provide funds directly to consumers.
How would such a policy be implemented? One idea is for a tax rebate financed by more government bonds purchased by the central bank. The tax cuts would be financed by printing money. The only real difference between helicopter money and the QE implemented since 2008, is that the private sector would be spending the money instead of the government.

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Climate Change, Renewable Resources and Economics

October 13, 2015

Many socialists have conveniently repackaged themselves as environmentalists and latched onto climate change as a convenient means to preach the standard socialist agenda of planning and control.
These socialists will talk about glaciers retreating and the need to force farmers in Normandy, for example, to stop running their tractors on Tuesday. Anyone who questions the basic precepts of climate change are instantly viewed as ignoramuses who deny the overwhelming scientific evidence that climate change exists.
Yet, what we have learned from economics is that these claims about climate change cannot scientifically be made. It is beyond man’s scientific abilities to do so, just like it is impossible for economists to draw conclusion of causality from empirical data. Empiricism can support a theoretical argument in economics but empiricism can never prove or disprove an economic theory.
In the past, economists were the intellectual roadblock to popular misconceptions, bad ideas, or more importantly, government policies sold to the public on false assumptions. But today, few economists challenge many of the environmentalists’ essential precepts about climate change or discuss the logic behind the environmentalists’ positions on renewable resources.

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Confusions About Interest Rates Part 2

September 10, 2015

Following the 2001 dot-com crisis, interest rates were lowered to 1% and then slowly raised to 5% over a 4-year period. This timid policy still created a massive bubble in housing that finally bust in 2008. Instead of learning from the past, we doubled down on this same failed policy. Interest rates were then lowered to 0% and have been held there with little political will to raise them one iota.
We are now on the eve of another major financial crisis, yet economists (except Austrians) still don’t really understand the role played by interest rates in a capitalist economy. To avoid repeating economic mistakes of the past, we must understand the faulty logic that led us to these errors.
The role of interest rates is by far the most important and misunderstand concept in macroeconomics. Most PhD programs should (but don’t) have a course entirely devoted to the history, significance, and economic consequences of manipulating interest rates. Instead, interest rates are primarily taught as just one, amongst many, of the necessary tools in a central bank’s policy tool kit.
However, the economy is not a car and interest rates are not the gas petal. Interest rates are the economy’s most important prices since they align output with society’s time preference of consumption across time.

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Confusion About Interest Rates Part 1

September 9, 2015

Since 2008, central banks have rushed to lower interest rates to spur growth. This has induced mal-investments in almost all asset classes. For example, with oil prices below $50 a barrel and trending lower, the shale oil industry is in serious trouble as is the banking industry that lent it over $1 trillion.
Of course, economists and faulty economic theory are 100% responsible for what is to come. The professional economist today is like the doctor of the past whose prescription to bleed the patient was considered state-of-the-art medicine; the cure, of course, being much worse than the disease. 
This century has witnessed two devastating financial crises, with a third shortly on the horizon. When writing about this era, historians will conclude that these booms and busts could have been avoided had politicians not been swayed by economic misconceptions about the true role of interest rates in a capitalist economy. 
The history of interest rates (yield curve) is a fascinating one. It all started with Aristotle who strongly condemned charging interest as contrary to nature since money is a medium of exchange and is not, in itself, productive or adding to wealth. Money is sterile and bears no fruit, and therefore cannot lawfully command interest. This view of interest rates was held by most theologians even up to the modern era.

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