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Frank Shostak

Frank Shostak



Articles by Frank Shostak

Slowing Money Supply Growth May Trigger a Recession

7 days ago

A slight strengthening in the momentum of consumer expenditure has prompted many commentators to suggest that as long as the US consumer continues to spend there is no risk of a recession ahead. The yearly growth rate of consumer expenditure at current prices stood at 4.1% in July against 4% in June. Notwithstanding still buoyant …

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Does the Boom-Bust Cycle Ever Result from Commodity Money?

21 days ago

Following the Austrian Business Cycle Theory (ABCT), the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. As a rule it is held, the tampering with the market interest rates by the central bank sets the boom-bust cycle in motion. Would …

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Real Savings Are the Key for Economic Growth

25 days ago

As long as the pool of real wealth is expanding, easy monetary policy will appear to “work,” and  loose monetary policy is likely to be incorrectly held as generating economic growth. Once, however, the pool becomes stagnant or starts declining, the “music stops” and no amount of central bank monetary pumping is going to “work.” …

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GDP Growth Isn’t the Same Thing as Economic Growth

August 12, 2019

To gain insight into the state of an economy, most financial experts and commentators rely on a statistic called the Gross Domestic Product (GDP). The GDP framework looks at the value of final goods and services produced during a particular time interval, usually a quarter or a year. This statistic is constructed in accordance with …

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Price Stability Is Overrated

August 5, 2019

The idea of price stability originates from the view that volatile changes in the price level prevent individuals from clearly seeing market signals as conveyed by changes in the relative prices of goods and services. For instance, because of an increase in the demand for apples, the prices of apples increase relatively to the prices …

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The Fed Chairman and the Phillips Curve

July 30, 2019

On July 11, 2019, before the Senate Banking Committee, the Federal Reserve Board Chairman Jerome Powell said that the relationship between unemployment and inflation in the US has vanished. According to Powell, “The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago … and has gone …

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Are Expectations the Driving Force Behind Business Cycles?

July 22, 2019

According to Ludwig von Mises’s Austrian Business Cycle Theory (ABCT), the artificial lowering of interest rates by the central bank leads to a misallocation of resources due to the fact that businesses undertake various capital projects that prior to the lowering of interest rates weren’t considered viable. This misallocation of resources is commonly described as …

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Central Banks Aren’t Really In Control of Interest Rates

June 25, 2019

For most experts the central bank determines short-term interest rates by setting the target to the benchmark policy rate such as the federal funds rate in the US. Many economists are of the view that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy can …

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Money Velocity and Economic Growth

June 19, 2019

After rising to 2.198 in Q3 1997, the ratio of US Gross Domestic Product (GDP) to money supply M2 fell to 1.433 by Q3 2017. Since then the ratio has bounced slightly to 1.457 in Q1 2019. Economists label this ratio as the velocity of money. Some experts regard the steep decline in the ratio …

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Low Inflation Is No Threat to the Economy

June 19, 2019

“When interest rates are low central banks don’t have much room to maneuver to deal with a crisis,” the New York Fed President John Williams said on Wednesday, June 6, 2019. In addition, according to Williams “if inflation falls, central banks will have even less room to maneuver when faced with a slowdown.” Furthermore, said …

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Correlation ≠ Causation

June 2, 2019

Often we observe that two pieces of data, which are not supposed to have any relationship, appear to have very high visual correlation. For instance, we may discover strong correlation between the intensity of a dog barking and movements in stock prices. One is then tempted to take advantage of this discovery in order to …

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The Real Meaning of Deflation

May 26, 2019

For most experts, deflation is bad news since it generates expectations for a decline in prices. Because of this, it is held, consumers postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. Consequently, this weakens the overall flow of current spending and this in …

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The Balance-of-Payments Myth

May 21, 2019

In March, the US trade account balance stood at a deficit of $ 50 billion against a deficit of $49.28 billion in February and a deficit of $47.4 billion in March last year. Most commentators consider the trade account balance as the single most important piece of information regarding the health of the economy. According …

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The Subsistence Fund Is the Heart of Economic Growth

May 12, 2019

What characterizes the modern economy is its complex structure of production that seemingly generates an endless amount, and an endless variety, of goods. It seems that the production structure has, as it were, a self-generating mechanism. Careful examination, however, shows that without a key ingredient, the entire infrastructure could not have emerged. The ingredient that …

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Economic Models vs. The Real World

May 7, 2019

The government’s releases of various economic indicators such as GDP, CPI and unemployment receive wide coverage in the media. In a measured and authoritative voice, various economists and other experts who are interviewed discuss their views regarding the health of the economy. A rise in an indicator such as GDP is interpreted as good news …

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How Human Action and Human Values Determine Prices

April 20, 2019

Why do individuals pay much higher prices for some goods versus other goods? The common reply to this is the law of supply and demand. What is behind this law? To provide an answer to this question economists refer to the law of diminishing marginal utility. Mainstream economics explains the law of diminishing marginal utility …

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The Neutral Interest Rate: The Fed’s Impossible Goal

April 13, 2019

It is widely accepted that by means of suitable monetary policies the US central bank can navigate the economy towards a growth path of economic stability and prosperity. The key ingredient in achieving this is price stability. Most experts are of the view that what prevents the attainment of price stability are the fluctuations of …

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Does Economic Stability Contribute to Growth?

April 11, 2019

During the period 1920 to 1960, we can observe that the annual growth rate of production was more volatile than between the period 1961 to February 2019. During the first period the maximum growth rate stood at 62% and the minimum growth rate at minus 33.7%. Between 1961 to present, the maximum growth rate stood …

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Can Government Stimulus Bring Us Out of Recessions?

April 3, 2019

When signs of economic weakness emerge, most economics experts are quick to embrace the ideas of John Maynard Keynes. For most economists, the Keynesian remedy is always viewed with positive benefits — if in doubt just push more money and boost government spending to resolve any possible economic crisis. In this way of thinking, economic …

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Central Banks Shouldn’t Fight Deflation

March 29, 2019

The real problem was the money supply inflation that happened during the boom phase. Combating deflation in the bust phase only superficially treats a symptom of the boom-bust cycle. Original Article: “Central Banks Shouldn’t Fight Deflation”.

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Central Banks Shouldn’t Fight Deflation

March 27, 2019

Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. For instance the yearly growth rate of the US consumer price index (CPI) fell to 1.5% in February from 1.6% in January and 2.2% in February last year. In Europe, the yearly growth rate …

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Why Economics Needs Good Theory: Facts and Figures Aren’t Enough

March 20, 2019

Could historical data by itself serve as the basis for the factual assessments of the world of economics? It is believed that through the application of statistical methods on historical data, or just by gazing at the data, one could extract the facts of reality regarding the world of economics. But in order to really …

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The Problem with Modern Monetary Theory

March 20, 2019

According to the Modern Money Theory (MMT), money is a thing that the State decides upon. Following the ideas of the German economist Georg Knapp, the MMT simply regards money as a token. For instance, when an individual places a coat in the cloakroom of a theatre, he receives a tin disc or a paper receipt. …

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Government Spending Isn’t Always Inflationary

February 24, 2019

The US debt ceiling suspension, signed in February 2018, expires at the beginning of March this year. Some commentators are of the view that the US Treasury must carry out special measures if it expects a delay in raising the debt ceiling in March. In this view, the Treasury would have to draw down its …

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The Problem with Cutting Taxes without Reducing Spending

February 16, 2019

According to many economic experts and commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, is going to place more money in consumer’s pockets thereby setting in motion an economic growth. This way of thinking is based on the popular view that a …

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The Pseudo-Psychology Behind Monetary Policy

February 10, 2019

In his various writings, the champion of the monetarist school, Milton Friedman, argued that there is a variable time lag between changes in money supply and its effect on real output and prices. Friedman holds that in the short run changes in money supply will be followed by changes in real output. However, in the …

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The Difference between Money Supply & Liquidity

February 3, 2019

The US debt ceiling suspension, signed on February 2018, expires in March this year. According to some experts, the US Treasury will have to carry out special measures because of possible delays in raising this ceiling. Treasury would need to draw down its deposits with the Fed and deposit the money in various banks for …

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