Tag Archives: austrian economics

Will the commercial paper facility work? Just google “pushing on a string.”

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You can’t (shouldn’t) fight gravity.

The damage to the economy was done in the boom. The bust is simply the market’s way of taking account of what was wasted. This process cannot be stopped, but it can be twisted from something healthy into something perverse, and Bernanke and Paulson are wringing the guts out of what is left of the US economy. What is even more perverse is that everyone except the Austrian School, who saw this coming (Rogers, Prechter, Mish, Schiff, Tice, Faber, Grant, Bonner, and Ron Paul, take a bow), keep crying out “More! Harder!”

Nobody who is worthy of debt wants a loan in this environment. Where can you invest the money to generate a positive return? The commercial paper market will continue to shrink as corporations scale down with layoffs and asset sales. The Fed can’t print up a renewed appetite for debt and risk.

“To believe, to obey, to combat”

So how will we eventually reflate? Government will spend the money into circulation, not lend it, as it takes over enormous sections of the economy, more on the scale of Mussolini’s programs than FDR’s. What little wealth and savings are left will be taxed and inflated away to support the Great Common Effort, until the Effort and War have hollowed out the nation unto utter collapse.

Poor America. It is clamoring for change, and as Mencken put it: “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”

Take it from Murray Rothbard; this is no market failure.

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Austrian economics has the answers to all your boom-bust questions (and can make you money — try that with Keynesianism or whatever they are calling today’s brand of socialist economics).

I am just going to quote the incomparable Murray Rothbard here (source):

 

“We can only sum up the correct answer to the problem of the business cycle. We have already seen a hint of the solution: that inflation and the inflationary boom are caused by bank credit expansion generated by governments. In fact, government’s central banking system provides the key causal element for all business cycles, a cause exogenous to the market economy. Continuing government intervention sets in motion business cycles by generating inflationary booms. Because these booms distort the signals of the market place in interest rates and in relative prices they bring about grave distortions of production and prices, which must be corrected by recessions and depressions.

In short, government intervention cripples the market economy, and recession or depression is the painful but necessary adjustment by which the market reasserts itself, and liquidates the distortions committed by the government’s inflationary boom. After each depression, the government generates inflation once again, because it is the government’s natural tendency to inflate. Why? Quite simply, whoever is granted a monopoly of printing money (e.g., the Fed, the Bank of England) will use that monopoly and print – to finance government deficits, or to subsidize favored economic groups. Power will tend to be used, and the power to create money out of thin air is no exception to the rule.

And so we see – and this is the great insight of the “Austrian” theory of the trade cycle – that micro and macro economics are in harmony after all. The free market does tend to adjust harmoniously without boom and bust, without incurring clusters of severe business losses. It is government intervention in the market that creates the business cycle, and unfortunately makes the corrective adjustment of recessions necessary. The cause of the boom-bust cycle is not some mystical periodic Force to which man must bend his will; the fault, dear Brutus, is not in our stars but in ourselves, that we are underlings.”

Murray was a fearless enemy of the state and prolific writer. You can find tons of good stuff from him here on LewRockwell.com.