	AllExperts > Economics
	Search

About Warren D. Miller, CFA, ASA, CMA, CPA
Expertise
My in-depth knowledge of economics is confined to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Other questions dealing with macroeconomics, the traditional neoclassical paradigm, labor economics, environmental economics, agricultural economics, health economics, and so on should go to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should be shared, not hoarded. I also believe that such questions are likely to come those trying to cheat. Similarly, as one who was a full-time academic for half a decade, I can recognize test and homework questions several time zones away. Therefore, please do not demean yourself by submitting such questions to me. Those who do so are cheating, pure and simple, and I WILL call you out publicly if I believe you are doing so. I have a zero-tolerance policy where cheating and dishonesty are concerned. In addition, please don't imitate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it's big enough to pay for the kind of expert advice we provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 18 years. We know what we're doing. Finally, please DO NOT ask for investment advice. I am not licensed to provide such advice. If you want such advice, check with your financial planner or other financial adviser.

Experience
I work with Austrian economics (which is different in major respects from the traditional neoclassical model), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) everyday in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and clients to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.

Organizations
CFA Institute, Strategic Management Society, American Society of Appraisers, Institute of Management Accountants, Academy of Management, Culver Legion

Publications
CFA Magazine, Strategic Finance, Valuation Strategies, Value Examiner, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, and Business Valuation Review, among others

Education/Credentials
MBA - Oklahoma State (1991) BBA - U. of Oklahoma (1975) Chartered Financial Analyst designation (2006) Accredited Senior Appraiser (2006) Certified Management Accountant (1992) Certified Public Accountant (1992)

Past/Present Clients
Confidential

You are here: Experts > Arts/Humanities > Social Science > Economics > money creation during crises

Economics - money creation during crises

Expert: Warren D. Miller, CFA, ASA, CMA, CPA - 11/2/2009

Question
In cases of a huge banking crisis like the last one, where a lot of banks went through bankruptcy and lots of people's savings were endangered, why can't be the situation simply solved by money creation by the central bank, to guarantee all the endangered deposits and avoid bank runs? Wouldn't this money creation be immune from inflationary effects, since there would be a grave deflationary crisis otherwise?

Answer
Well, Robert, let me be candid: if the solution were as "simply solved" as you might think, obviously it would have happened. It didn't, and for good reason: it's not that simple. And let's remember that, whatever his deficiencies might be, Fed Chairman Ben Bernanke is the world greatest living scholar on the subject of the Great Depression. That IS when the deflation you describe occurred, but not just because the Fed contracted the money supply rather than expanded it.

Inflation and deflation aren't the only two choices, Robert. They just lie @ opposite ends of a continuum of outcomes.

I'm not aware of "a lot of banks" that "went through bankruptcy" recently, either. Yes, nearly 100 banks have been padlocked by the FDIC this year, but not one that I'm aware of went bankrupt, per se.

The money creation to which you refer has actually happened, perhaps more than most are aware. If you go to www.federalreserve.gov and poke around the Fed's balance sheets, you'll see that its assets have doubled in the last 18 months. That is because it did exactly what you suggest. However, the reason we haven't had skyrocketing inflation is that the banks haven't lent out all the money that was injected into the system. Bernanke's task, now that the immediate crisis has passed, is to siphon the excess liquidity OUT of the banking system but do it without creating inflation (which means the Fed didn't take enough money out of circulation soon enough) and without sending interest rates through the ceiling (which means the Fed took it out too fast). I don't think any human being--not Bernanke, not anyone--can do what he is responsible for doing. The situation is too complicated, we have 8,000 banks, and there are too many variables for one guy, or one group of people with all the computer power on the planet, to do what needs to be done. We'll see, won't we?

Hope this helps--

Warren

Ask a Question