“A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed;” Ludwig von Mises
In a Weekly Market Comment, John P. Hussman (www.hussmanfunds.com/wmc/wmc100823.htm) relies on this Mises’ insight to demonstrate why the new program of quantitative easing recently initiated by Ben Bernanke’s Federal Reserve is likely to trigger a collapse of the U.S. dollar. Hussman’s Comment extends Gerald O’Driscoll’s critique of President Obama’s economic policies beyond the level that I outlined in yesterday’s column.
Hussman points out that the Fed’s purchase of Treasury securities and creation of base money is occurring in an environment where fiscal deficits are already out of control. Two-third’s of the Fed’s balance sheet represents Fannie Mae and Freddie Mac bailed-out securities. The Fed essentially is printing new money to finance ongoing spending for fiscal deficits and for bailout of the GSEs, a policy that cannot easily be reversed, given the poor quality of its assets.
As a consequence, even though inflation is not yet manifest, inflationary expectations are escalating. In such a situation, foreign currencies will appreciate against the dollar, perhaps discretely rather than gradually, most particularly once other countries regain control over their budgets.
In my judgment, this policy reflects only in part an error in judgment by an administration that is perversely wedded to Keynesian economics. Progressive socialists have read their Lenin, and they are fully aware that the most effective way in which to destroy a market economy is to debauch its currency. Before long, Comrade Bernanke’s printing presses will be operational 24 hours a day. And anyone with the means and the common sense will have already purchased gold and taken urgent delivery.
Tags: Mises has it right and Keynes has it wrong, more Austrian insights into the US economic crisis, Obama administration set to debauch the currency
August 23, 2010 at 8:57 pm |
This morning, I watched the Dow Jones climb into positive territory for about an hour before it slid back down into the negative, even after reports of billions of dollars in merger acquisitions were made public. Such good news should have bolstered the markets, right? Well, it didn’t work out that way and I seriously doubt it will work out that way any time soon. There seems to be no traction at all in the markets these days: with rising unemployment, home foreclosures at an all-time high, and consumer confidence going down the toilet; even seasoned investors, used to the fickle nature of business, seem to be abandoning ship.
This economic slide into no-man’s land has been going on for quite some time now, yet brokerage houses, hawkish economists, and media outlets refuse to tell the truth: that America is in trouble. (And by trouble, I’m not talking about a “double-dip recession” or “depression”, but an ever-increasing and continued downward spiral into a dark economic abyss from which there is no return…)
Using an analogy, I’d say that our global economy is more akin to the Titanic right after hitting that iceberg: those in charge either refuse to believe what is happening, or have decided not to share it with the rest of us for fear of a panic. Naturally, there aren’t enough lifeboats to go around, so seating is limited: corporations get first dibs (bailout), followed by government officials and people of importance and then, finally, people like you and me (that is, if there are any more seats left).
And yes, just like in that ill-fated tale, wherein the band is told to continue to play to mollify passengers as that great ship sinks into the cold, dark oblivion, our media outlets will continue their vigil as well: soothing our anxiety-ridden nerves by serving up filth and fodder – both the glib and the non-sensicle – all in an effort to divert our attentions from the inevitable horrors yet to come. And when the need arises to actually explain to the masses what is happening with the economy, the talking heads will be instructed to say, “Don’t worry everyone. It’s just a small financial leak (er, dip)… Nothing to really worry about….”
August 25, 2010 at 8:07 am |
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