<<In sum, the behavior of the US economy in the past five years seems to fit the description of a textbook Austrian School business cycle about as tightly as the glove fit O.J.'s hand. The dot.com investment frenzy and the miles of empty bandwidth smack of what the Austrians refer to as malinvestment. Much of this malinvestment would not have taken place had the Fed not created as much credit as it did in recent years. According to the Austrians, increased doses of created credit now will only postpone, at best, the inevitable liquidation of these malinvestments that must take place in order to set the stage for a new business expansion based on the solid foundation of saving, or transfer credit. Rather than the Fed printing more money, a policy option the Austrians would recommend to encourage saving and profitable investment is a cut in marginal income tax rates. This might not eliminate an economic downturn, but it would mitigate the severity of a downturn.>>
Paul Kasriel
Head of Economic Research
Northern Trust
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Jill: Great link....I heard Paul speak up here in Chicago early in the year and he predicted we had a good chance of 'a soft landing'. Yet, he contended that the FED's actions exacerbated our economic cycles (gives the US economy higher highs and lower lows than we really need). He even went as far as saying it might be wise to consider abolishing the FED <G>...I'm sure he and Jim (the Poultry Man) would connect on a number of levels. Paul Kasriel was an entertaining economist (quite unique, IMO)....He was concerned about the amount of debt that Americans were living with. He also predicted that Greenspeak would act aggressively in the first half of the year to try to jump start the economy. The jury's still out on the FED and as you know I'm NOT one of their biggest fans. IMHO, they should step up to the plate this week and cut rates another 50 basis pts. There will be plenty of economic evidence to justify this. The market needs reassurance, investors need more confidence, and corporate purchasing execs need access to cheaper capital and motivation to improve 'their visibility'...=)
Enjoy the rest of the weekend.
Best Regards,
Scott |
