9 April 2009
Economic Collapse 101
Posted by Joy Bischoff under: World Economy .
I could not resist posting so much of this fun exchange. Thanks to Peter Anderson for sending the Financial Sense article. Even those who do not like Ron Paul should be able to appreciate the obvious truth when they hear it.
It’s Time to Wake up America
by Michael Pollaro | April 9, 2009
Free markets don’t work, says Tim Geithner and Ben Bernanke. Indeed nearly all our government leaders say so; the G-20 too. The economy is a mess, but no worries because we got your back. We’ll spend and print our way out of this economic crisis, then slap a whole heap of regulation on the bad guys to make sure they never hurt us again.
I say, no thanks. And you should too. As my dad used to say, “It’s time to wake up America.” These people may be smart, but they are bad economists. Worse yet, they were and still are the epicenter of this mess, no matter how much they deny it. And they are causing havoc with the economy. Yes, Wall Street had its role, but it was big government lending institutions like Fannie Mae and Freddie Mac, so called deposit insurers like the FDIC, cartelization agencies like the SEC and, most importantly, the easy monetary policy of the Federal Reserve that ultimately gave us this economic crisis. Free markets didn’t fail. Free markets didn’t cause this mess – government intervention did.
You think I’m nuts, right? You say, what in God’s name is he talking about! Well, I’m not nuts, and I’m talking good economics – Austrian economics. What does Austrian economics say about all this, you ask? Listen in on my mock Congressional Joint Economic Committee Q&A session, between fellow “nut” Congressman Ron Paul and Ben Bernanke: **
Ron: Chairman Bernanke, you consider yourself an expert on the Great Depression, is that true?
Ben: Yes, I have devoted a substantial part of my career to the study of the Great Depression.
Ron: I too have spent some time studying the Great Depression. Please, as succinctly as you can, tell me what you think caused the Depression.
Ben: It was Federal Reserve policy mistakes that caused the Great Depression, ones that I intend not to repeat. First, they precipitated the 1929 stock market crash and subsequent recession by tightening monetary policy in 1928. Then, they helped turn a recession into a depression with yet two more mistakes. First, they let the money supply contract very sharply. Prices fell. Deflation. So monetary policy was, in fact, very contractionary. Very tight during that period. And then the second mistake they made was they let the banks fail. They didn’t make any strong effort to prevent the failure of thousands of banks. And that failure had terrible effects on credit and on the ability of the economy to right itself. The answer was to stabilize the financial system by providing liquidity to the system via low interest rates, loans to the banks and generally easy monetary policies. They did not, and the result was the Great Depression.
Ron: Thank you Chairman. How familiar are you with the Austrian theory of the boom bust cycle, specifically the work of Mises and Hayek?
Ben: I am familiar with their position, yes. But it is not a viable theory.
Ron: Chairman, in all candor, I couldn’t disagree more. According to Mises and Hayek, the Depression was caused by the low interest rate and loose monetary policies of the Federal Reserve in the 1920’s. These policies created the1920’s boom which NECCESITATED the stock market crash of 1929 and economic bust of the early 1930’s. You see, by lowering interest rates and increasing the money supply, the Federal Reserve creates economic and financial distortions – malinvestments, which eventually must be liquidated. The mistake was the Federal Reserve’s easy monetary policy of the 1920’s. The bust was the economy cleansing itself of these mistakes. Sooner or later, the Federal Reserve induced boom REQUIRED a bust. Chairman, the Federal Reserve did indeed cause the stock market crash of 1929 and the subsequent Depression, but through EASY money policies, the same policies that caused today’s economic mess and the same policies you still continue to advocate.
Chairman, did you know that Mises and Hayek predicted the 1929 stock market crash and 1930’s bust?
Ben: I don’t recall.
Ron: As far as I know, no one other than the Austrians did. And Chairman Bernanke, did you know that many of today’s Austrian economists predicted the current housing bust and financial crisis, because of the Federal Reserve’s loose monetary policies? Are you familiar with any of these Austrian theorists?
Ben: I am not familiar with any credible economist that predicted the depth and breath of the current financial crisis.
Ron: These economists are quite credible. Indeed, while these economists were warning of a coming debacle, you were telling us that everything was fine. Chairman, if you had been reading these economists, perhaps you would have realized that easy monetary policies are the problem, not the solution. Then we could have avoided this whole mess and saved the taxpayer trillions of dollars. Maybe you should add these economists to your reading list. I’ll get you their names.
http://www.financialsense.com/fsu/editorials/2009/0409.html
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Economic Collapse 101 | Live Well With Bad Credit Says:
9 April 2009 at 7:20 pm.
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