The problem with the money printing, low interest rate thesis that you always seem to be defending (are you defending, or just predicting it, I'm never quite clear about this with you?), is that it trashes the economy by wrecking what's called the "pool of funding". It diverts funds away from productive and into consumptive activities. You seem to feel that the solution is just to print more money, and that's the Fed's mistake. I feel the pool of funding crisis is beyond repair now,
bea.gov
and only much higher interest rates will cure what's left of the patient.
Frank Shostak in his great series discusses this once again. You need to understand this concept to have even a faint idea of what I'm always talking about, otherwise our debate is circular.
mises.org
His conclusion:
Most individuals in the western world take the ample availability of goods and services for granted. Indeed, the complex structure of production gives the impression that what is required is simply the existence of demand and the rest will follow suit.
It is, however, much less appreciated that the sophisticated structure of production, which generates seemingly unlimited goods and services, does not have life of its own. In order that the production structure can continue to supply the great variety of goods that it does requires a key ingredient, which is the pool of funding. It is the pool of funding which not only maintains, but also enhances the production structure and thereby promotes our lives and well being.
There is, however, a growing threat to this pool and to the high living standards that we have become accustomed to. This threat emanates from the view that there is no need to worry about the supply of goods, and that what matters is only demand. These ideas, which were popularized by John Maynard Keynes, dominate the thinking of today’s western economists.
Given the assumption that goods will always be there, most economists are preoccupied with how the demand for goods and services can be boosted. When asked how demand is going to be funded most modern economists reply: by means of monetary pumping and low interest rate policies of the central bank. For them funding is something that can be created out of "thin air." Cheap monetary and fiscal policies, which masquerade as policies that aim to grow the economy, are in fact achieving the exact opposite.
The only reason why economies are still growing is not because of central bank and government policies but in spite of these policies. So long as the pool of funding is still big enough to support various economic activities, the central bank and government can give the false impression that it is their policies that made economic growth possible. Once, however, the pool of funding becomes stagnant or begins to shrink, economic growth follows suit and the myth that government and central bank policies can grow the economy is shattered.
On this Mises wrote,
An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.
Since early 2001 the US pool of funding has been subjected to the most vicious attack in the form of the aggressive lowering of interest rates. Yet despite all the monetary pumping and the aggressive lowering of interest rates the economy has continued to struggle. The fact that the economy has failed to respond as in the past to aggressive loose monetary and fiscal policies should be seen as an indication that the pool of funding is in serious trouble. This in turn means that all the aggression against this pool must be stopped as soon as possible in order to prevent the unpleasant economic side effects that are the inevitable results. |
