Iceland Ponders Radical Money Plan Including Elimination of Fractional Reserve Lending and Deposit Insurance

I have long railed against fractional reserve lending, duration mismatches (e.g. banks issuing 2-year CDs and lending money for 15-year mortgages), bank's ability to lend money into existence, and deposit insurance.  Fractional reserve lending allows banks to lend out a near infinite amount of credit with essentially no backing. Money inevitable creates asset bubbles, but as long as the bubbles are expanding it appears the system is solvent. Money that depositors believe is available on demand in their checking accounts is not actually present at all. And banks are not required to hold any reserves on savings accounts at all. Deposit insurance is the epitome of moral hazard. It guarantees money will flow to banks offering the highest yield. Of course, banks offering the highest yields...

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If It Ain't Broken, Don't Fix It: Religious Freedom Act Take II

Religious Freedom Act Take III received a number of emails in response to Indiana Legalizes Discrimination on Grounds of "Religious Freedom". The bill, signed by Indiana Governor Mike Pence openly encourages discrimination based on sexual preference although Pence incredulously denies that claim. Pence now recognizes the need to "clarify" the legislation.One of the better email responses came from reader Mark who wrote ... The Constitution plainly states "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof."The Constitutional guarantee of religious freedom is sacrosanct. The only restrictions placed on religious freedom are those religious practices that harm others.And I would say “Yes” if you wanted to post a “No Catholics” or “No...

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Downside Data Surprises in Canada; Bad Weather Up North? How About Recession?

The string of bad data reports not only applies to the US, economists up North appear to be no better at predicting the weather than US economists.Variant Perception reports Downside Data Surprises Continue in Canada. For the past 6 months, we have been alerting clients to the persistent decline in our Canada leading indicator. This is now showing up in numerous Canadian coincident data releases, with retail sales being the latest to miss expectations last Friday.  The economic surprise index is now declining sharply and there is little sign of immediate improvement ahead.PMIs continue to fall whilst building permits and housing starts (some...

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Economists Fail to Predict Weather Once Again: Chicago PMI Disappoints

Chicago PMI DisappointsEconomists expected a rebound in the Chicago PMI index this month following its collapse last month. Alas, once again the weather was much worse in Chicago than economists thought.The Bloomberg Consensus was for a rebound from last month's dismal print of 45.8 back into positive territory of 50.2"Companies sampled in the Chicago PMI report continue to report a lull in activity, at a sub-50 March index of 46.3 following 45.8 in February. On a quarterly basis, the index averaged only 50.5 in the first quarter, down steeply from 61.3 in the fourth quarter for the weakest reading since the third quarter of 2009. Respondents...

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Historical Perspective on CPI Deflations: How Damaging are They?

Yet another central bank has announced a warning about the perils of deflation. Please consider China Central Bank Calls for Vigilance on Deflation. China's central bank governor Zhou Xiaochuan warned on Sunday that the country needs to be vigilant for signs of deflation and said policymakers were closely watching slowing global economic growth and declining commodity prices.Zhou's comments are likely to add to concerns that China is in danger of slipping into deflation and underline increasing nervousness among policymakers as the economy continues to lose momentum despite a raft of stimulus measures."Inflation in China is also declining. We need to have vigilance if this can go further to reach some sort of deflation or not," Zhou said at a high-level forum in Boao, on the southern Chinese...

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Indiana Legalizes Discrimination on Grounds of "Religious Freedom"

Can you refuse service to gays and lesbians? You can in Indiana thanks to the "Religious Freedom" Bill. Indiana Governor Mike Pence has signed a bill that would allow businesses to refuse service to gay and lesbian patrons on the grounds of “religious freedom”, even as some of the state’s largest business interests oppose the measure.Mr Pence, a potential 2016 presidential contender, said he signed the bill because “many people of faith feel their religious liberty is under attack by government action”.Proving that he cannot think, Pence quipped "If I thought it legalised discrimination in any way in Indiana, I would have vetoed it."And what...

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Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It

Ben Bernanke just started his own blog at the Brookings Institute. His first post, from today, Inaugurating a New Blog is the announcement. Let's dive into Bernanke's second post of the day: Why are Interest Rates So Low? Bernanke: Low interest rates are not a short-term aberration, but part of a long-term trend. As the figure below shows, ten-year government bond yields in the United States were relatively low in the 1960s, rose to a peak above 15 percent in 1981, and have been declining ever since. That pattern is partly explained by the rise and fall of inflation, also shown in the figure. Mish: Inflation is only low if one ignores asset bubbles....

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