Monday, March 03, 2008

The Federal Reserve's rescue has failed

I think all the Keynesians out there are finally beginning to get it. It has taken the death of Keynesianism many times to finally get them to see the light, including its prolonged state of rigor mortis in the 1970s, when stagflation (you would have thought) disproved this idiotic religion. However, even for Keynesians like Ambrose Evans-Pritchard, the endless Buddhist life-cycle may be drawing to an ultimate close as the Keynesian greenback turtle of fiat creation swims into the Austrian supernova of fiscal reality. Let's spell it out again, for those remaining Keynesians still out there who want to go on believing. I'll make it simple for you, fellas, with J. Maturin's Law I of the Bleedin' Obvious:
It is impossible to generate real wealth by the means of printing extra fiat money on a press, or by adding extra numbers to the columns of electronic accounts held at a central bank
There, doesn't that feel better?

Even Evans-Pritchard, in his latest article on the credit crunch, despite desperately trying to slip back into the old "there must be more aggression - i.e. even lower interest rates - by the Fed", mode, recognises the reality of this end-game:

But this is not a normal downturn, subject to normal recovery. Leverage is too extreme. Bank capital is too eroded. Monetary traction eludes the Fed. An "Austrian" purge is underway.

It's typical that Austrianism is only mentioned in this deeply negative context, but still, the truth will out, boys, despite this defiant piece of spite. Only negative interest rates can save you now. Though I don't see too many takers, except at the end of a gun barrel. And it still won't work anyway. What we have here is a real full-blown depression, and only way we will reach a solution is by the world's governments getting out of the way and letting the voluntary market of human desires work its magic, over one or two year's of real pain as the market corrects this enormous cacophony of ongoing government error.

(Or by the world's governments deliberately inducing World War III, and removing voluntary human needs by removing humans - they did it before in the 1930s. Who's to say they won't try it again?)

Idiotic actions such as the nationalisation of failed banks, as we fools in Britain let ourselves get sleepwalked into two weeks ago, are exactly the wrong kind of thing we should be doing, which will simply prolong and worsen the agony. In the meantime, let's pick over this quote by Mr Evans-Pritchard:
For the first time since this Greek tragedy began, I am now really frightened.
If you want to know exactly how frightened we should all be, Ambrose, the book to get hold of is The Dollar Crisis, by Richard Duncan. The Keynesian party is finally over. But the price of 40 years of heavy drinking at the printing press saloon is going to be one heck of a hangover.

It's time to get the Nurofen in. Lots of them.

But then, just as a terrible hangover never seems to prevent people hitting the booze again on New Year's Eve, if we do manage to get through this depression without World War III being used as the cure, no doubt the Keynesians will resume hitting the Galbraithian whisky as soon as it's over.

There truly is no helping some people.


John East said...

I think the future is cast in stone. More may be realising the folly of Keynsianism, but it will make no difference, there is no poosible way to get from an indebted post industrial society surviving on increasing injections of freshly printed fiat to a balanced society supported by savings and productive industry.

Attempting to make this transition would precipitate a generational depression. What politician would dare to do this, and if they did attempt it, along would come a Clinton, or an Obama to promise the impossible and seize power at the next election.

The best we can hope for is an orderly decline, but how it can be managed in an orderly manner is a mystery to me.

Jack Maturin said...

The answer is simply to accept that the credit card bill is finally due, and get on with paying it. We need absolutely no government "help" at all; we all just need to tighten our belts (substantially), cut down on the trips to Mali, let the BMW last five years rather than one, and thank our lucky stars we're not (yet) living in Zimbabwe. Governments positively just need to get out of the way. A free market will correct this mess. It won't even take that long, relatively speaking, though a lot of people are going to feel spanked or even wiped out by the end of the correction, and a lot of government bums are going to have to find something useful to do, to get fed in the evening, rather than mooching off the rest of us. The dollar, of course, is finished, along with all of its related currencies, and will need to be replaced by something else. How about a currency where 1 oz of gold is set to be equivalent to 20 m.u. (monetary units)? Or a currency where 113 grains of gold equals 1 m.u.?

Though sadly, I think your prediction will be more the path followed. There's no way here in Britain the Labour Party is going to stand by in the face of millions of voters and lobbyists feeling financial pain. They will come wading in, all fists blazing to "sort out" this mess "created by capitalism" (witness, the Northern Rock debacle). Obviously, this will make things much worse and lead to either more fascism or more socialism, probably the former, and many more people dependent upon governmental largesse. You can see the process now where Gordon is "ordering" energy company bosses to attend the Bunker in Berlin, sorry, Downing Street, to "obey their orders from Der Fuhren-Meister". That energy prices are stable against gold, and only rocketing against the fiat currency managed by Gordon, is absolutely irrelevant. What Gordon Brown is falling into is the same fascist trap that all tyrants fall into. He's so dim he probably doesn't even realise. If he does, he's even more evil than I realised.

Capitalism will be blamed, and he hopes the masses will herd themselves even more firmly into his state laager. Or will they?

The best we Austrians can do is keep pointing out the Emperor's lack of clothes and the real reasons why all of this is happening. Governments get away with terrible mistakes if the free market can compensate and still keep growing people's wealth. Once government becomes so strong that even the free market cannot ease its errors, and innovation and industry go into freefall, as they did when the Roman Emperors became too strong, then people will have a choice. They may choose our way. They may be forced to choose our way by circumstance, and complete Weimar-like or Zimbabwe-like collapse.

Let us hope that they recognise that there is a choice and that they choose liberty rather than tyranny. And it is at this point, that I have to pray that Uncle Murray's eternal optimism that in the short term it always looks terrible for liberty, but in the long term it looks fantastic, is borne out! ;-)