Monday, December 03, 2007

Why "Injections of Liquidity" Are Really "Injections of Fraud"

When you hear the bankers of the City and Wall St. scream out in pain (Oh no, my bonus is only going to be a measly half million, this year), they're usually screaming for "Injections of Liquidity", in the same manner that heroin addicts scream out for injections of diamorphine.

But what exactly is wrong with injecting "liquidity" into the market? Surely, if the banks are short of investment capital, with nobody willing to lend anything except overnight, and with LIBOR heading towards 7%, then surely it is the job of the central banks to ease this lending crisis?

Well, I could argue the toss with anyone over this, given a rather fine bottle of chianti and some fava beans, throwing in some references as to why it is obvious that a "private" counterfeiter is dysfunctional to an economy and then asking what makes it so wonderful for a socialist monetary committee to do the same thing? But why waste your time (and a fine bottle of chianti), when you could be reading a far greater master than I on the criminality of central banking "money market" operations. Who he? Well, Frank Shostak, of course, perhaps the finest writer alive on this cancerous malevolence of central banking.

If you really want to understand why injections of "liquidity" are such a terrible idea, then you can do no better than read the following article:

Does the Current Financial Crisis Vindicate the Economics of Hyman Minsky?

Tremendous. If I wasn't a convinced Austrian, just this article alone would make me one. Marvellous.