Llewellyn H. Rockwell, Jr.
by Llewellyn H. Rockwell, Jr.: The
Other Captive Nations
economists have often explained the business cycle using the metaphor
of liquor or drugs. The expansion of paper money and credit gives
a sense of exuberance, an economic high that leads to excessive
risk-taking and ballooning production. But it canít be sustained.
There is a morning after.
There is a choice: more drugs and liquor or sobriety. Sadly, the
economy meaning the choices made by you, me, and billions of others is
not permitted to make the choice. It is made for us by our lords
and masters in Washington. Here are the meth dealers. Guess what
choice they make.
And so we had
Bushís QE1 (QE stands for "quantitative easing," a euphemism
for printing money), but the effects didnít last that long. Then
there was Obamaís QE2, the effects of which are likely to run out
sometime this summer. (As an aside, maybe we should just start referring
to the QE[n] administration, inserting the appropriate number, since
otherwise these presidents are mostly interchangeable.)
Note the following
important point. These various attempts to restore the inebriated
happy time have unpredictable and uncontrollable effects, and the
metaphor helps here, too. The body is weakened. It might take more
of the drug to get the same effect. The drug promotes underlying
disease. Each new dose makes the person ever less rational and coherent.
can land everywhere but where it is intended to land by the money
printers. The Fed wanted to lift housing prices and re-stimulate
the entire real estate sector. But guess what? Housing prices are
still falling, and new home construction just tanked at a faster
rate than at any time in 27 years.
What is being
stimulated? Stock prices, certainly, but that is not wealth. Stock
prices are just prices. They are no different from apple prices,
coffee prices, and gas prices. When these go up, do we say: fantastic
news, we are wealthier! Of course not. The belief that a rising
stock price is great news remains one of the most wicked of all
is the problem of price increases more generally. The producer price
index for February has generated terrifying results, though you
probably havenít heard about them. Predictions were for a 0.6% increase
but the reality was 1.6%, which points to double digits on an annualized
just the beginning. Food prices rose the most since November 1974.
Prices of raw materials rose by 3.4% in February from the previous
month. Intermediate prices climbed 2.0%, with diesel fuel up a monthly
12.6% in February. These huge increases were counterbalanced by
falling prices in cars, trucks, warehousing, and other areas that
are already showing signs of a post-boom slump.
be a QE3? Most likely. Look at this exchange with Bernanke at the
National Press Club:
Q: Will there
be a QE3?
In the end, we'll just ask the same questions. Where's the economy
going, and what do various inflation indicators look like? We'll
ask those questions. If unemployment is still too low, then we
may continue. If we're moving towards full employment, then we
won't need to stimulate more.
And what is
full employment? The Fedís statisticians believe that it is 6% or
so, and we are nowhere near headed that way. Plus, Bernanke is wholly
wrong to believe that somehow employment can be used as a measure
of economic health. For many decades, socialist economies bragged
about zero unemployment, but the economies regressed year after
year. Even in mixed economies like ours, high employment is most
often an effect of prosperity and never a cause.
Plus, we canít
believe Bernanke that employment data alone will drive the decision.
He is an errand boy for the big banks and Wall Street. That will
drive his decisions, along with politics. And we can be all-but-certain
that there will be plenty of bad news by the summer, which will
provide enough cover for another round of stimulus.
whatís anyone going to do about the problem of much higher prices,
which is the ghastly beast waiting around the corner? The truth
is that the Fed pretends as if it has nothing to do with this. Bernanke
routinely says that prices are formed by supply and demand
which is true enough in a free market, but money creation complicates
is that the Fed doesnít really care about inflation as much as it
cares about the solvency of the banking and financial systems. Bernanke
would drive us right into hyperinflation to save his industries.
Savers living on pensions just donít have the political clout to
stop the money machine.
to Bernankeís promises, he does not have the ability to turn off
the monetary spigot once prices start zooming. The economy is too
globalized for that. Keep in mind that though the Fed has loads
of power, it has no power to control inflationary expectations and
the demand for cash generally and in hyperinflationary environments
these are the driving factors.
littered with monetary managers who believed they were in total
control, until the disaster they caused hit. It is hubris of the
first order to believe themselves masters of the universe Ė but
hubris is epidemic in Washington.
is playing with fire. Or with a third dose of meth. Or another bottle
of Four Roses. Choose your metaphor. It is a bad and deeply dangerous
policy, all built on the insane view that if you stimulate a zombie
with enough fiat money, it will start to live and breathe on its
even more, consider: If you drink enough, does your body start to
generate its own liquor? The Fed and the government have hooked
the American economy on a wicked drug. Our job is to drive the dealers
from their seats of power.
March 17, 2011
H. Rockwell, Jr. [send him
mail], former editorial assistant to Ludwig von Mises and congressional
chief of staff to Ron Paul, is founder and chairman of the Mises
Institute, executor for the estate of Murray N. Rothbard, and
editor of LewRockwell.com.
© 2011 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.
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