The Continuation of Economic Insanity

This is what Mises wrote exactly a century ago in The Theory of Money and Credit. Once the central bank inflates, it cannot cease inflating without causing an economic contraction…That was what Mises taught. The capital market will require ever-greater infusions of fiat money in order to keep it from going into what we call a depression.[1]

Anyone willing to learn something about economics today, is living through a learning opportunity. The West has a love affair with the manipulation of money by central banks, and it will end tearfully. We’ve been riding this train since before the Great Depression, and even after ninety years, only the Austrian School economists have got the message.[2]

What is it? The free-market will always be the best. When central banks try to mess with the money supply, it only creates greater economic problems. They crank up the supply through loose monetary policy, create a boom, and a series of bubbles. They turn off the supply, and then risk a bust-a Depression. We head for 1929’s experience, all over again.

The princes of Zoan are mere fools; the advice of Pharoah’s wisest advisers has become stupid. How can you men say to Pharaoh, ‘I am a son of the wise, a son of ancient kings’? Well then, where are your wise men? Please let them tell you, and let them understand what the Lord of hosts has purposed against Egypt (Isa.19:11-12).

What should happen to central banks? The employees should all be sacked and the institutions closed down.

This is unprecedented action from a central banker [Ben Bernanke] and it will no doubt have unprecedented and unintended consequences. Nothing good can come from a policy of unlimited money printing. Longer term, this policy will prove to be a disaster.[3]

There really aren’t a lot of people in the West who really believe in a free market. They may say they do, but when it comes to the money supply, the so-called free-market people (like the late Milton Friedman) generally turn to water. “Give us those Reserve Banks,” they proclaim, “so monetary policy can be manipulated (sorry, controlled) intelligently. Then we will have economic prosperity.”

But central banks are not independent. They represent a banking cartel, and to claim that they are in the business independently “for the good of the country,” is an absolute furphy.

Not only that, they are not experts. Ben Bernanke (the Chairman of the US Federal Reserve) prides himself in being an expert on the Great Depression, but he learnt nothing from it. The Great Depression was preceded throughout the 1920’s by a loose monetary policy in the US. Reckless lending by banks to doubtful individuals and companies. “Happy days are here again!”

When the stock-market collapsed in 1929, those reckless lending policies were exposed, and there was a massive correction. Unemployment rose, and people who had borrowed foolishly were in trouble. And what did the governments do. Why, they meddled of course! All of it was counter-productive, and prolonged the agony.

This is what has been happening in the US this time around, for 5 years. True, there isn’t a Depression yet, but unemployment is at 8% and won’t diminish.

Bernanke’s solution? “Stimulate the economy!” But economies don’t need stimulating. They need to be left alone, and to grow with the normal processes of the free-market’s supply and demand at work. They don’t need manipulation by so-called “experts,” who meddle with the fundamentals of the free-market.

…we do not have a market economy. We have a rigged economy through central economic planning by central banking. The system is failing, it was doomed to fail and we have to wake up to that fact.[4]

The hardest thing to get governments and central banks to do in the modern era, is to get them to leave economies alone. They all want to meddle. They all want to help, and then say, “we fixed it, vote for us.” And their “help” is always counterproductive. You cannot solve a debt problem with more debt.

Another stimulus package becomes like another heroin shot for a drug addict. Yes, it seems to solve a problem temporarily, but at the end of the day he comes back for another shot; he’s got to have more. Continuing the process will ultimately kill him.

I think Ben Bernanke has lost his mind.[5]



[1] Gary North, “Bernanke Admits Defeat. Mises was Right,” 14/9/2012,  www.garynorth.com

[2] The most famous of these were Ludwig von Mises (1881-1973) and Friedrich von Hayek (1889-1992).

[3] Greg Canavan, “Sound Money. Sound Investments,” 14/9/2012.

[4] Ron Paul, (US Congressman), quoted in ‘The Country Should Panic over Fed Decision,’ Tim Brown, “Freedom Outpost,” 14/9/2012.

[5] Dan Denning, “Australian Wealth Gameplan,” 14/9/2012.

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