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Burning Down the House
by Sean Corrigan
Burning down the House
"But in today's world, the liquidation is never allowed to take place. Every single fiber of government and central bank policy is designed to avoid the liquidation. The literature is quite unclear about what will happen in this case. Rothbard, I think, said that new credit creates another boom on the back of the ruins of the old boom. But there is no clear guiding path. Richard Strigl deals with it a little bit. He says that we never quite liquidate the previous boom, and that seeds of another boom are always coming through. Some of Hayek's work deals with the concept of capital consumption, which is very relevant to where we are today. "
.....
"At the Fed and the Treasury, you have this Keynesian view that the economy operates like a toilet. You pull the handle and it empties, and then the water automatically fills back up. The view is that if consumers empty the stores of stuff, the stores will fill up again, and everyone will make money. So they don't understand the intricacies and complexities of what goes into a modern economy. To use another analogy, they believe that so long as the fire is burning in the house, the logs will be put on it. They don't seem to consider the possibility that you can be burning the furniture and, indeed, the house! "
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Mises Interviewee Compares Keynesianism To Toilet Beliefs
Stoolies will appreciate this on several levels.
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#1
Goldilocks 
- Master of Stock Proctology
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- Group: Members
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Posted 05 December 2002 - 05:27 PM
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#2
machinehead
- Dean of Stock Proctology
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- Group: Members
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Posted 05 December 2002 - 06:23 PM
Sean Corrigan is a gifted economist and a wonderful writer. Like many of us, he was astounded by Ben Bernanke's speech saying that the Fed is prepared to buy Treasury bonds -- hell, anything -- to prevent deflation at all costs.
Corrigan makes the point that either debt must be deflated, or incomes must be inflated. And that central banks clearly prefer the latter.
The low-growth Seventies put a huge dent in Social Security, moving up its eventual demise to nearly a decade earlier. This decade is the economy's last chance to grow before government Ponzi schemes go cash-flow-negative about 12 years from now, and start sucking the economy well and truly down the drain.
Accordingly, "you ain't seen nothin' yet" when it comes to reflationary efforts. $500 billion federal deficits, 5% inflation, and $500 gold all will seem ridiculously modest by the end of this decade.
"Borrow and spend" ... while you still can. It's only paper money. Or as Neil Young used to sing, "it's only castles burning."
Corrigan makes the point that either debt must be deflated, or incomes must be inflated. And that central banks clearly prefer the latter.
The low-growth Seventies put a huge dent in Social Security, moving up its eventual demise to nearly a decade earlier. This decade is the economy's last chance to grow before government Ponzi schemes go cash-flow-negative about 12 years from now, and start sucking the economy well and truly down the drain.
Accordingly, "you ain't seen nothin' yet" when it comes to reflationary efforts. $500 billion federal deficits, 5% inflation, and $500 gold all will seem ridiculously modest by the end of this decade.
"Borrow and spend" ... while you still can. It's only paper money. Or as Neil Young used to sing, "it's only castles burning."
"GOLD -- it's not just for misers anymore."
"Dollahs -- fire-starters for the K-wave winter." - Drano
"Three humps and a dump." - anotherone, 21 SEP 2004
"No gold was harmed in the making of this movie." - Bizarro Greenspan
[i]"Da Track. Da place where Morons bet on Animals Controlled by Criminals." - our jickiss
"Dollahs -- fire-starters for the K-wave winter." - Drano
"Three humps and a dump." - anotherone, 21 SEP 2004
"No gold was harmed in the making of this movie." - Bizarro Greenspan
[i]"Da Track. Da place where Morons bet on Animals Controlled by Criminals." - our jickiss
#3 Guest_Critical Juncture_*
Posted 05 December 2002 - 08:42 PM
Deflation is needed to reveal the excess capacity. No other catalyst will drive corporations into reorganization and eliminate the excess capacity.
The central bank speaks of principles: The bank, to justify its existence, must wage war. Yet, the Fed is reckless in an effort to bolster morale.
Principles do not win wars. Solutions win wars. The Fed's loose money supply simply fuels the problem.
The Fed plans to wage war. This shall come at considerable cost to our livelihoods, economic stability, and financial system. The Fed's plans merely exacerbate the harm's scope, duration, and magnitude.
There is no guarantee that the war against deflation can be won, not matter how high the price paid. Argentina was once where we are today: Vibrant.
Yet, worse than "just a depression" is a combined liquidity trap, debt-deflation, and depression. The depression is inevitable. The Fed’s policies simply make the other two outcomes unavoidable.
Regardless the ultimate path, remember small children, the disabled, and the elderly who shall suffer the most. Hunger and cold are unwelcome realities.
Our leadership may turn its back, but cannot turn back the clock. Victory comes when the enemy is understood: The Fed's loose money supply and reckless monetary policy.
The central bank speaks of principles: The bank, to justify its existence, must wage war. Yet, the Fed is reckless in an effort to bolster morale.
Principles do not win wars. Solutions win wars. The Fed's loose money supply simply fuels the problem.
The Fed plans to wage war. This shall come at considerable cost to our livelihoods, economic stability, and financial system. The Fed's plans merely exacerbate the harm's scope, duration, and magnitude.
There is no guarantee that the war against deflation can be won, not matter how high the price paid. Argentina was once where we are today: Vibrant.
Yet, worse than "just a depression" is a combined liquidity trap, debt-deflation, and depression. The depression is inevitable. The Fed’s policies simply make the other two outcomes unavoidable.
Regardless the ultimate path, remember small children, the disabled, and the elderly who shall suffer the most. Hunger and cold are unwelcome realities.
Our leadership may turn its back, but cannot turn back the clock. Victory comes when the enemy is understood: The Fed's loose money supply and reckless monetary policy.
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