northerntrust.com
Is There A Painless Cure For Drug Addiction?
It is no secret that I believe that the buildup of debt in the U.S. economy will ultimately end in a
period of economic distress. When I relate this belief to audiences, a question that often arises is:
“What government policies can be implemented to avert this?” My reply, which is often not very
satisfying to the person who posed the question, is “not much.” The predicament that I see the U.S.
economy in is akin to the predicament of a drug addict. The addict can continue to take the drug,
which might allow him to be quasi-functional for the time being. Ultimately, however, continued use
of the drug will bring on premature death. If the addict stops using the drug, he might be nonfunctional
in the short run, but can look forward to longer and healthier life after this difficult
withdrawal period. For the U.S. economy, the drug it has become addicted to is cheap central bank
credit. The Fed has indicated that it will commence a phased withdrawal of this cheap credit on June
30. Although I do not know this for sure, my suspicion is that if the Fed does carryout this phased
withdrawal in more than a token amount, the U.S. economy could experience some severe
withdrawal symptoms next year. The alternative is for the Fed to keep supplying its drug, which
ultimately will require a cessation and even more severe withdrawal symptoms later on.
What really amazes me is how the populace looks to the government in general, and the Fed in
particular, to promote eternal economic sunshine. As I said before, if printing money created real
wealth, then all of the world’s economic problems could be solved at a near-zero real resource cost.
Would that it were.
Paul L. Kasriel plk1@ntrs.com) |
