AUSTRIAN ECONOMICS ADDICT

Host Lauren Lyster interviews Jim Grant on The Daily Ticker in this video from economicpolicyjurnal.com.

Here is a quote from the article, “…the Fed intends to buy 85 billion, with a B, in securities every month. What you might ask is where does it get that money. It creates it, it didn’t exist before the Fed materialized it through the very humble action of a keyboard and a computer, that’s the way it does it. But notice that this money is coming into the system without any commensurate increase in production. This is money in search of mischief, and it is likely to find it. The Feds actions are counterproductive.”

If the Feds injecting 85 billion counterfeit dollars a month into the economy (QE3,4), since September, is considered counter productive, how much more counter productive was QE1 and QE2’s injection of 2.3 trillion total dollars since 2008. An even better question is how counter productive was the Fed’s cheap credit policies that lead to the real estate bubble which burst in 2008. The Fed’s policies created the tech bubble of 2000. The Fed not letting the natural sell off of the tech bubble happen, through the continuing policy of artificially lowering interest rates, and injecting more counterfeit dollars into the loan market, created the ensuing housing bubble. These same policies have been accelerated since the housing bubble collapse in 08.

Setting interest rates below where they would have been set according to people’s time preferences in the market, and providing the counterfeit money to be loaned out under these artificially low-interest rates, are the only policies the Fed knows. These policies were and are the cause of our economic problems.  For some strange reason the Fed thinks that they are also the cure for our economic problems, just like smoking is the cause and the cure for lung cancer, overeating is the cause and cure for obesity, and injecting heroin is the cause and the cure for heroin addiction. Obviously their policies can’t be the cure for a problem that these very policies created. If only people were curious enough to ask the question, if counterfeiting money is theft when an individual engages in the activity, how can counterfeiting by the Fed be anything but theft on a much larger scale? Unfortunately most individuals are caught up in their day-to-day lives and don’t have enough time, or are not curious enough to invest the time to learn about how these counterfeiting policies by the Fed affect their daily lives. They are influenced by the spin coming from the Fed, the politicians, and the media, because this spin is presented in easily digestible sound bites that seem plausible under shallow analysis.

Whether it’s taxes, regulation, transfer payments, investment, spending, mandates, debt, price controls, or especially setting interest rates, and counterfeiting, these Government interventions into the free decision making of individuals on the market brings about a situation where scarce resources are funneled into less productive areas. Many of these resources will be wasted, scraped, or reallocated to more productive uses, if at all possible, once the endless supply of counterfeit money ceases.

Our last three of four posts have talked about the same thing, the consequences of the Fed’s policies of artificially low interest rates, and injecting counterfeit dollars into the economy. This can’t be talked about enough because it is the driving force behind our economic problems. These policies lead to the  misallocation of scarce resources, and eventually capital consumption. Educating the public about the consequences of these policies is the only chance we have to roll back these counterproductive interventions in the free market.

Related articles

• Capital Consumption, aka, Eating Our Seed Corn. (austrianaddict.com)
• Walter E. Williams Talks About The Role Of Profits And Losses. (austrianaddict.com)
• Federal Reserve Policy Makers Have An Incestuous Intellectual Relationship With Each Other. (austrianaddict.com)

This entry was posted on February 4, 2013 at 12:25 am and is filed under Econ. 201, Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Counterfeit money, Credit Expansion, Free market, Jim Grant, Lauren Lyster, The Fed