March 31, 2017 Reading Time: 2 minutes

The Ludwig von Mises Institute hosted its annual Austrian Economics Research Conference earlier this month. The conference brings scholars together to discuss important issues facing the U.S. and global economies. Topics ranged from history to philosophy, the economy, and the financial system. Overall the conference focused on market distortions in the economy and the financial system.

The conference was held in Auburn, Al. The Mises Institute is right across the street from Auburn University. The vibe in Auburn is independent and optimistic. The energy in Auburn questions any centralized control of human action.

Louis Rouanet, of the Paris Institute of Political Studies, headlined the conference with an analysis of central banking. Rouanet looked at the policies of quantitative easing and low interest rates  implemented following the financial crisis and Great Recession. Quantitative easing and low interest rates helped push up the stock market. Low interest rates increase the present value of future cash flows from stocks. Therefore, low interest rates tend to lift stock prices. That helps wealthy Americans, who disproportionately own stocks.

Less fortunate Americans tend to owe debt. Low interest rates make it easier to service debt. However, low rates also incentivize borrowers to take on debt they cannot afford. Rouanet argues that Fed policies have created an uneven recovery. Looking ahead, if excess reserves are loaned out, then inflation is likely to spike, hurting all Americans.

Turning from central banking to financial innovation. Financial innovation might do more harm than good. Lucas C. Engelhardt of Kent State University presented evidence that financial innovation was most helpful for developing economies. When an economy matures, financial innovation can cause problems. Engelhardt focused on securitization, a widespread financial innovation.

Securitization allows banks to move risk off their balance sheet. For example, a bank might be more willing to make a risky loan if they can sell the loan to investors. Some economists argue that securitization was a cause of the financial crisis and subsequent Great Recession. AIER has looked at the double-edged sword of innovation in a recent report.

On the international side, Jayant Bhandari spoke about the demonetization of India. The Indian government hit the country with a surprise announcement when it declared the 500-rupee bill and the 1,000-rupee bill to be illegal. Narendra Modi, the prime minister, wanted to clamp down on corruption. Instead, Modi stalled daily economic life for many Indians. The surprise demonetization has caused widespread shortages and hunger. AIER has discussed the topic in a recent article.

The talk on the demonetization of India segued into discussions about blockchain and bitcoin. With many fiat currencies around the world on shaky ground, blockchain and bitcoin present an alternative. Throughout history, governments have debased currencies. Blockchain and bitcoin have no central authority dictating supply. Individuals in countries with shaky fiat currencies should consider storing some wealth in bitcoin.

Looking ahead, the recent presidential election in the United States has divided much of the country. Expectations among Republicans are high, while the Democrats’ are much lower. It is important that we come together to discuss the issues that are facing our economy. AIER will continue to build bridges with the American public to advance liberty and markets. 

 

 

 

 

Theodore Cangero

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