Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (68309)	8/30/2007 7:29:59 PM
From: Elroy Jetson	Read Replies (3) of 116555

There's nothing wrong with a central bank if they operate the within the constraints of reality. It was fine for Greenspan to introduce a lot of money in the month after the Asia Crisis, just so long as the money is taken back over the next few months. This is what Greenspan failed to do, and it provoked a great deal of criticism by many economists. Central banks can effectively calm panics by providing liquidity, but they can't eliminate the economic decline resulting from the underlying problem. If they attempt to do so, they only postpone this downturn for later with the compound interest of additional misdirected investment. The money has to be taken back within a short period of time, or it merely enlarges the problem. As economist Joseph Schumpeter said, "Policy doesn't provide a choice between depression and no depression, but between depression and worse depression later. Greenspan ignored this and apparently believed he was pioneering a new economic theory. What ever his "theory" was,it has failed. .

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