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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (3437)	8/19/2003 1:57:29 PM
From: NOW	Respond to of 4905

“There can, of course, be little doubt that, at the present time, a deflationary process is going on and that an indefinite continuation of that deflation would do inestimable harm. But this does not, by any means, necessarily mean that the deflation is the original cause of our difficulties or that we could overcome these difficulties by compensating for deflationary tendencies, at present operative in our economic system, by forcing more money into circulation. There is no reason to assume that the crises was started by deliberate deflationary action on the part of the monetary authorities, or that the deflation itself is anything but a secondary phenomenon, a process induced by the maladjustment of industry left over from the boom.” “If, however, the deflation is not the cause but the effect of the unprofitableness of industry, then it is surely vain to hope that , by reversing the deflationary process, we can regain lasting prosperity. Far from following a deflationary policy, Central Banks, particularly in the United States, have been making earlier and far more far-reaching efforts than have ever been undertaken before to combat the depression by a policy of credit expansion – with the result that the depression has lasted longer and has become more sever than any preceding one. What we need is a readjustment of those elements in the structure of production and of prices which existed before the deflation began and which then made it unprofitable for industry to borrow.” “But, instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent the readjustment from taking place; and one of the these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been the deliberate policy of credit expansion. To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit creation comes to an end.” “We should merely be repeating, on a much larger scale, the course followed by the Federal Reserve system in 1927, an experiment which Mr AC Miller, the only economist on the Federal Reserve Board and, at the same time, its oldest member, has rightly characterised as ‘the greatest and boldest operation ever undertaken by the Federal reserve system’, an operation which ‘resulted in one of the most costly errors committed by it or any other banking system in the last 75 years’. It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression. We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done enough harm, should be overthrown.” Friedrich Hayek