A soundbyte from the soundbitten for the soundbiter

Today the chairman practiced for his upcoming "Town Hall" gig in Kansas, to be moderated by Jim Lehrer on PBS. I gave the chairman some soundbyte practice:

I hear a lot of talk about increasing regulation to fix the economy. It seems ironic that we are looking to regulation as the solution even though over-regulation may have been part of what created this crisis. For example, government sponsored enterprises such as Fannie and Freddie created much of the toxic debt by purchasing subprime mortgages. Do you see a place for deregulation as a tool for addressing the crisis?

The chairman's response was polished and lame, as if had given some thought ahead of time about how to avoid this question. He had two points.

First he agreed that it is correct to put some blame on Fannie and Freddie; they should not have been buying some of those mortgages. Then he said that the problem is not the quantity of regulation, but the quality. He leaned heavily on this point through the rest of the Q&A, even referring back to my question at one point to restate his answer. He said it's not a question of how much regulation we have, but instead it is a question of whether we are making smart regulation.

Duh? Yes, duh. This was soundbyte time. What else could have he said? Did I expect him to commit political suicide and provide a list of ongoing government programs that are currently planting the seeds of the next great crisis? Of course not. But he could have taken the opportunity to promote my libertarian creed:

• Federal programs are easy to create, costly to run, highly fallible, and difficult to kill.
• We must take every opportunity to kill unnecessary regulation.
• Existing government regulations should be constantly examined for unintended consequences.

Maybe he will do better in Kansas, after reading this post.

Light on the Face of the Earth

Willie Nelson does reggae, and the internets will let you hear it. We used to have seeqpod.com to let us listen to most any song. A while ago seeqpod became "cocooned for metamorphosis," never to emerge, probably taken down by lawsuits. But grooveshark.com has brought light (in the form of free music) back on the face of the earth.

Bernanke Takes Questions

The chairman of the Federal Reserve may be taking questions from the crowd in the near future. Anyone have a question I should relay?

The financial crisis explained

This is paws-down the best explanation of our economy that I've seen. Thanks to Mankiw for mentioning it.

Opportunity to Cry

Willie Nelson sings this:

Just watched the sunrise on the other side of town
Once more I've waited and once more you've let me down
This would be a perfect time for me to die,
I'd like to take this opportunity to cry

You gave your word now I return it to you with this suggestion as to what you can do
Just exchange the words I love you for goodbye while I take this opportunity to cry
I'd like to see you but I'm afraid that I don't know wrong from right
And if I saw you would I kiss you or wanna kill you out of sight

It's been a long night so I think I'll go home,
And feed my nightmares they've been waiting all night long
They'll be the last ones to tell me goodbye
And they'll give me many opportunities to cry
They'll give me many opportunities to cry

To whom it concerns

Submitted today:

I hereby declare my resignation from my position as research assistant at the Board of Governors. My last work day will be Thursday, July 23, 2009. This is the best job I've ever had. I'll regret leaving this position for the rest of my life, unless, of course, I return as an economist or governor. My next step is to begin studies toward a Ph.D. in statistics at Carnegie Mellon University.

Where does money come from?

I'm no money-mommy, but I nevertheless get asked occasionally where money comes from. And when I am asked the question, I clear my throat, cough, sniff, and shuffle. The question embarrasses me not because I know how to make money and am ashamed to admit it, but rather because I call my myself an economist and don't know what money is.

Until now. Here is a storky story.

In the beginning, there was gold. People found gold in the ground, and the gold was money. And the money was good.

Then there were banks. People put gold in banks to get paid interest and to keep the gold money safe. The bank printed gold receipts to hand out to people who put gold in the bank. These receipts came to be known as money, and the receipts were exchanged like money because they were as good as gold, as long as the bank followed good business practices such as not loaning out too many gold receipts for gold that didn't exist in the vault.

Then the government printed a bunch of Federal Reserve Notes (normal modern currency) and forced banks to give up all the gold that had accumulated in the vaults in exchange for the new federal currency. Now banks had federal currency in the vault instead of gold, and when people came to the bank to withdraw savings, all they could get was federal currency, so it quickly replaced most other forms of money for everyday transactions.

Nowadays, the Federal Reserve makes money by instructing banks to write big numbers in the banks' customer accounts. Suppose I am poor and I've just convinced the Fed to bail me out. My bank account at Bank of America has no more money in it. The Fed loans me $1,000 by telling the bank to type "$1,000" into the file that says how much money I have in my account. This gives the bank permission to call up the US Bureau of Engraving and Printing and order in $1,000 in fresh crisp twenties. When the twenties arrive at the bank in the armored vehicle, the bank writes a note for the auditors. The note says, "That $1,000 in currency we received now represents the $1,000 that the Fed told us to write in that guy's bank account." Now I can go pick up my money at the bank whenever I want.

A growing problem

The article states that we have a "growing" problem. http://www.reuters.com/article/domesticNews/idUSTRE5603EG20090701