Good (short) video interview with Stanford economist John Taylor on increasing the money supply:

I'm a big fan of John Taylor, but he gets this wrong. Via Paul Kedrosky:

John Taylor on Increasing the Money Supply

Good (short) video interview with Stanford economist John Taylor on increasing the money supply:

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What we had following the mortgage foreclosure run was a Calling Run. The problem with a Calling run is that one of its causes is the inability of various investors to quickly get out of investments with which they could meet their calling requirements. I'm still puzzled why people believe that the government buying these calcified investments would be any easier than anyone else buying them, unless the government unfroze the market by vastly overpaying for the assets. Otherwise, the government doesn't know any more, and probably knows a lot less, than John Paulson, who is said to be buying them now that the government is out the picture. Excuse me if I think that Paulson is a better investor than the government. Paulson's actions tell me that the government would be overpaying for the assets.

In order to buy time for the investors to get out of their investments, the government stepped in to give these investors enough money to make it through this crisis and eventually unwind their investments. Think of AIG. This makes sense. It might even work. My point is that this government intervention should have been at the cost of seizing the businesses saved to be resold into private hands later. Only onerous conditions like this can honor Bagehot's Principles.

But the only way to stop a Calling Run is government intervention, because investors do not believe that anyone but the government can guarantee an orderly unwinding. Without that, it's every investor for its call. The result of that is a Proactivity Run, which we now have anyway, although not as bad as anticipated by some. The result of a prolonged Proactivity Run is very serious social unrest, whether in China, or here. Good luck if it comes to that.