Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Jacob Snyder who wrote (11725)	12/9/2001 1:42:15 AM
From: Don Lloyd	Read Replies (1) of 74559

Jacob - ...I see what Reisman is saying: that if only prices fall, (while wages don't fall, profits don't fall, and companies can produce and sell more goods and services through higher productivity) then it's not deflation. But, under a gold standard, how does a government smooth out the economic cycle? I suppose they still could do deficit spending during recessions (and surplusses in good times, if they are responsible). Your premise is wrong. Governments don't smooth out economic cycles, they create and exacerbate them by artificially forcing market interest rates below their normal levels and dangerously synchronizing economic activity in time across all sectors. This means that most production factors will either be in a condition of surplus or scarcity simultaneously and that one sector will not be able to sop up the factors released by another. This is done in an attempt to assure that the economy doesn't appear weak in the run-up to the next election, and thus endanger the re-election chances of the incumbents. Deflationary tendencies are the inevitable result of a prior inflation and the sequence is enabled both by fiat money and fractional reserve banking. Regards, Don

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