Brendan Brown

Brendan Brown

Brendan Brown is senior fellow (non-resident) Hudson Institute. As an international monetary and financial economist, consultant, and author, his roles have included Head of Economic Research at Mitsubishi UFJ Financial Group.

Articles by Brendan Brown

The Death of Easy Money Has Been Greatly Exaggerated

Reports on the death of the present cycle of politically motivated monetary easing, in the words of Mark Twain, grossly exaggerated. Contemporary market analyses are full of how the Fed and ECB are dialing back on previous hints of Spring 2024 rate cuts. In tune with this, commentators are lauding the central banks, especially the Fed, for a show of political independence as elections approach.
The bigger picture though suggests otherwise. In the economic aftermath of the pandemic, monetary policy has again been blatantly political.
Yes, in both the US and Europe, central banks have had the chutzpah to claim credit for slowing down the rise of consumer prices. The truth is they have taken advantage of the supply boost from fading pandemic dislocations to pursue continued—but now partially

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The Dollar See-Saws between Two Views on Fiscal Explosion

As the Biden administration ramps up new government spending—and budget deficits—to unheard-of peacetime levels, reality sets in. No economy and no currency can withstand this explosive assault for very long.
Original Article: The Dollar See-Saws between Two Views on Fiscal Explosion

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The Dollar See-Saws between Two Views on Fiscal Explosion

Fiscal explosion is not in the economic dictionary. But in the foreign exchange markets and bond markets this intuitive concept has sometimes powered a narrative which drives long-term US interest rates and the dollar upward in tandem. The puzzle to explain at such times, whether the early 1980s, or autumn 2023, is why the dollar shrugs off the inflation danger of so much red ink in the government accounts.
Let’s start with the proposal for a new entry to the lexicon. A fiscal explosion is a suddenly perceived alarming deterioration in the public finances, now and in the future. Perceptions are the crucial element here. The underlying reality of government finances might have been deteriorating for some considerable time before this impacts investor analysis and decision making.
Fiscal

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The Great Phony Disinflation Enters Its Finale

Supposedly, the "big news" is the decline of inflation. However, the monetary and political forces driving the latest bout of inflation have not gone away.
Original Article: "The Great Phony Disinflation Enters Its Finale"

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The Great Phony Disinflation Enters Its Finale

“La commedia è finita!” summarizes where the United States and Europe now stand in the Great Phony Postpandemic Disinflation. Why phony? Reported consumer price index (CPI) inflation has been falling in the US and Europe; but this has little to do with the advertised monetary tightening by the Federal Reserve, European Central Bank (ECB), and Bank of England.
Rather, the decline in reported CPI inflation is consistent with a natural downward rhythm of prices, reflecting fading pandemic restraints on supply. In a good money system, the essence of which is the absence of monetary inflation, average consumer prices (as represented by the CPI) would have long ago returned to their prepandemic levels.
Instead, in the financial marketplace and its surroundings, where the propaganda of the

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A Guide to Good Money: An Interview with Brendan Brown

Ryan McMaken (RM): There is a lot of talk these days about the US losing its global monetary hegemony. But a lot needs to happen in terms of unwinding the present system before that can happen. At the heart of this seems to be what you call “globalized money without a global money.” What do you mean by that, and what does it have to do with the dollar’s global importance?
Brendan Brown (BB): Globalization of money under the fiat regime magnifies and extends national monetary power. The currency of the largest economy, so long as it is freely tradable and meets minimally sufficient standards as a store of value, becomes the dominant international money. Dominance brings hegemony. Smaller countries in defying the lead of the dominant money, whether by choosing an alternative type of monetary

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Default by Inflation Is the Real Drama in the Global Debt Market

The real drama of default in global markets has not been the federal debt ceiling negotiations in Washington but the write-off by inflation. The issue of whether it turns out that the US Treasury for a few weeks has been slow in servicing its debts—with all delays subsequently rectified—is a sideshow. We could regard this as camouflage for the ongoing real write-off operation. In this, countries led by the US, where a great inflation emerged during the pandemic and Ukraine war, have achieved big reductions in the real value of their debts.
The governments have also gained from a reduction in the total nominal market value of their fixed-rate debts due to the rise in interest rates. Those gains do not show up directly in national accounts. Rather, they are opportunity cost savings.

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A Pyrrhic End to 130 Years of Vicious Bad Money and Banking Crises

The original vicious circle starts with inflationary interventions in an up-to-then well-anchored monetary regime. Consequent asset inflation spawns a banking crisis. That leads to the installation of anticrisis safety structures (one illustration is a novel or enhanced lender of last resort). Alongside a possible monetary regime shift, these damage the money’s anchoring system. A great asset inflation emerges and leads on to an eruption of another banking crisis, devastating in comparison with the first.
An array of additional safety structures is put in place which makes the now-bad money worse than before. After a long and variable lag, a long and violent monetary storm means the safety structures fail, a banking crisis again erupts but this time milder than the previous.
Then a further

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The Chimera of a Postpandemic Postwar Return to Monetary Normal

The monetary regime in power now—the so-called 2 percent inflation standard—is promising us a “return to normal” after the great pandemic and war inflation of 2021–22. At this time of powerful propaganda—the dismal accompaniment of natural disaster and war—we should be on our guard against such messaging.

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The Fraudulent Social Contract of Bad Money Regimes

Bad money regimes base themselves on a dysfunctional social contract. You, the people, agree to put up with a “moderately good” money in return for us (the regime) providing benefits in terms of employment and economic prosperity which would be unavailable if you (the people) had insisted on a high-quality money.

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The Story of War and Peace in the Currency Markets

There is a story of war and peace in the contemporary currency markets. It has a main plot and many subplots. As yet, the story is without end. That may come sooner than many now expect.
The narrator today has a more challenging job than the teller of the story about neutral, Entente, and Central Power currencies during World War I. (See Brown, Brendan “Monetary Chaos in Europe” chapter 2 [Routledge, 2011].)

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Even When There Is Inflation, the Fed STILL Fights Falling Prices

Under any remotely sound money regime the aftermath of war and/or pandemic is highly likely to feature a sharp decline in the prices of goods and services on average. Even under unsound money regimes there are powerful forces operating towards lower prices once the war/pandemic recedes. Strong injections of monetary inflation, however, can overpower them.

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We Still Haven’t Reached the Inflation Finale

Inflations have an inbuilt mechanism which works to burn them out. Government (including the central bank) can thwart the mechanism if they resort to further monetary injections of sufficient power. Hence inflations can run for a long time and in virulent form. This occurs where the money issuers see net benefit from making new monetary injections even though likely to be less than for the initial one which took so many people by surprise.

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The West’s Russia Sanctions Could Lead to Many Unpredictable and Unpleasant Outcomes

Global supply shocks are historically rare events. All the more extraordinary to have two such shocks in quick succession—the second arriving even before the first has entirely faded away. That is what the world now experiences in the form of the Great Pandemic followed by the Great West-Russia economic war. The most visible symptom of the supply disruption is the sky-high price of energy and a range of other commodities.

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How Easy Money Inflated Corporate Profits

In the incessant media discussion about whether inflation is transitory there is a big elephant in the room about which all are silent. Perhaps strangely some do not see it. Others for whatever reason pretend it is not there. The elephant is the fantastic surge in US corporate profits that monetary inflation has fueled during the second year of the pandemic.

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This Is What Could Trigger Big Growth in CPI Inflation

Many episodes of monetary inflation, some even long and virulent, do not feature a denouement in a sustained high CPI inflation over many years. Instead, these episodes have the common characteristics of asset inflation and the monetary authority levying tax in various forms – principally inflation tax or monetary repression tax.

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Why the 2020s Won’t Be like the Roaring 20s

Audio Mises Wire

The 1920s featured political détente, debt liquidations by prior consumer price inflation, an introductory stalling of monetary inflation, a German economic miracle, and a broad-based technological revolution. The 2020s have none of these.

Original Article: "Why the 2020s Won’t Be like the Roaring 20s"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

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The Fed’s Latest Lie: It Can Make Everything Go Back to Normal

The Fed Emperor’s New Clothes Show is a continuous comedy without laughter. The latest act, the virtual Jackson Hole conference (August 27), was dreadful. The show’s audiences are accustomed to the Fed chair and his board delivering solemn pronouncements about their aims—low inflation, high employment, and financial stability.

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Narrative Economics: How Stories Go Viral and Drive Major Economic Events

Abstract: Much of Shiller’s new book is about how economic narratives form, spread, and fade. Drawing on medical evidence about the spread of infectious disease, Shiller argues that “economic fluctuations are substantially driven by contagion of oversimplified and easily transmitted variants of economic narratives.” But Shiller ignores the powerful role of monetary disorder, whether in forming the narrative or determining the contagion rate, or as a competitor to the narrative.

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The Prospects for a Sound-Money Revolt against the Dollar and Euro

In the last decade, the combination of virulent asset price inflation and low reported consumer price inflation crippled sound money as a political force in the US and globally. In the new decade, a different balance between monetary inflation’s “terrible twins” — asset inflation and goods inflation — will create an opportunity for that force to regain strength.

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