'I am reminded of an invaluable “Austrian” insight (paraphrased): “The scope of the down cycle is proportional to the excesses of the preceding Credit boom.” From this perspective, there is major problem with conventional “logic.” These so-called “proportional” monetary and fiscal responses have over the past 25 years fueled serial Bubbles - and attendant progressively more dangerous Boom and Bust Dynamics. Especially when it comes to monetary policy, it was recognized a long time ago that the problem with giving central bankers too much discretion was that policy mistakes would invariably be followed by greater blunders.'<blockquote>'Blinder and Zandi: “Logic dictates that the size of any stimulus be proportional to the expected decline in economic activity—which was enormous in the Great Recession.”
I am reminded of an invaluable “Austrian” insight (paraphrased): “The scope of the down cycle is proportional to the excesses of the preceding Credit boom.” From this perspective, there is major problem with conventional “logic.” These so-called “proportional” monetary and fiscal responses have over the past 25 years fueled serial Bubbles - and attendant progressively more dangerous Boom and Bust Dynamics. Especially when it comes to monetary policy, it was recognized a long time ago that the problem with giving central bankers too much discretion was that policy mistakes would invariably be followed by greater blunders.
It’s sad to see Capitalism under such attack in the national discourse. Washington seems only somewhat less despised than Wall Street. Somehow socialist ideas appeal to a growing number of Americans – especially the young. On this score, I’m content to be repetitive: Federal Reserve activism and inflationism bear primary responsibility.
In this week’s Democratic debate, Hillary Clinton stated, “Sometimes Capitalism must be saved from itself” and “It’s our job to rein in the excesses of capitalism so that it doesn’t run amok and doesn’t cause the kind of inequities that were seeing in our economic system.”
I’ll argue passionately the notion that politicians must save Capitalism from itself is the materialization of a dreadful “negative side-effect” of monetary mismanagement. If politicians are determined to get involved, they should foremost insist on sound money. Since politicians have throughout history demonstrated their proclivity for the exact opposite, Capitalism has been essentially entrusted to sound central bank principles. And while this may have not yet materialized to most, central banking has failed. It goes back to flawed doctrine where the Federal Reserve refused to address inflating Bubbles, preferring instead a policy of aggressive post-Bubble reflationary “mopping up.” It goes back to the Greenspan Fed’s tinkering with the markets to the Bernanke Fed’s crisis management QE to the Bernanke/Yellen/Kuroda/Draghi central bank non-crisis open-ended QE.
Regrettably, I fully expect to be defending Capitalism throughout the remainder of my life. I’ll try to explain how Capitalism isn’t – wasn’t – the problem. The culprit instead was unsound finance and deeply flawed monetary management. In short, Capitalism cannot function effectively within a backdrop of unfettered cheap finance. Things appear miraculous during the boom, and then the bust discombobulates.
Contemporary central bank rate administration essentially abandoned the self-adjusting and regulating market system of determining the price of finance – so fundamental to Capitalism. The results have been predictable: gross misallocation of real and financial resources, economic stagnation, financial fragility, wealth redistribution, rising social and geopolitical tension and central bankers absolutely incapable of extricating themselves from inflationism and market manipulation.'
- Doug Noland,
Look Back in Anger, October 17, 2015</blockquote>
<blockquote>
'..I'm sticking with my forecast of $10 to $20 a barrel..''..inflating an especially dangerous Bubble at the heart of “money” and Credit..'Can the Fed Really Print Money? What Would Negative Interest Rates Do? October 16, 2015
Headline #1: "Most Americans Have Less than $1,000 in Savings"; Headline #2: People Saving Too Much is Now a Problem, October 18, 2015
Mises - Money and Credit - '..the recession was a problem of under-saving, and over-consumption..''..monetary policies for almost 30 years now have been disastrous..'</blockquote>