AUSTRIAN ECONOMICS ADDICT

John Maynard Keynes (Photo credit: Steve Hunnisett)

When Keynes wrote in “The Economic Consequences of the Peace”,  (1919) “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” , little did he or we know how correct he was.

The Feds policy of counterfeiting money, and artificially lowering interest rates, created and grew the U.S.’s housing bubble from 2000 to 2007. Market forces tried to liquidate this misallocation of scarce resources (the bubble, which was the result of the Feds policies), starting in late 2007, but the Fed wouldn’t allow the correction to happen. It propped up a false bottom by counterfeiting and injecting more money into financial markets, and artificially lowering interest rates even farther. The continued counterfeiting through all the Quantitative Easing’s, which started in Dec. of 08, have now started to inflate the housing bubble again. The result will be the same, the misallocation of resources, caused by the Fed’s policies, will have to be liquidated eventually. Economic forces are always at work no matter how hard the Fed tries to fight their corrective cleansing.

This same thing has and is happening in China, as you can read about in the articles below. Unfortunately for the planners in both countries, economic forces are always at work, no matter if the economy is a free market economy with massive government intervention, like our’s, or it’s a centrally planned economy with some free market reforms, like China’s.

This article, “China’s Housing Bubble Goes Mainstream America” at zerohedge.com and the CBS 60 Minutes video segment in the article, proves Keynes correct when he states, “…not one in a  million is able to diagnose”. They have no understanding of what caused the bubble, or why it’s starting to collapse.

Article from Zerohedge.com “Dylan Grace Explains How “Cradkpot” Central Bankers Are Destroying Society”, talks about the same thing,”.…not one in a million is able to diagnose“.

Quote from the article,”

So now we know we have a slightly better understanding of who pays: whoever is furthest away from the newly created money. And we have a better understanding of how they pay: through a reduction in their own spending power. The problem is that while they will be acutely aware of the reduction in their own spending power, they will be less aware of why their spending power has declined. So if they find groceries becoming more expensive they blame the retailers for raising prices; if they find petrol unaffordable, they blame the oil companies; if they find rents too expensive they blame landlords, and so on. So now we see the mechanism by which debasing money debases trust. The unaware victims of this accidental redistribution don’t know who the enemy is, so they create an enemy.

I quote Keynes at the beginning of the post. To put this quote in better context, here is the paragraph before the quote.

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”

“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

If you click on the title at the top of the page you will go to the chapter of the book, The Economic Consequences of the Peace, from which this quote is taken.

Related articles

• A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road. (austrianaddict.com)
• The Fed’s Policies Are Counterproductive. (austrianaddict.com)
• Capital Consumption, aka, Eating Our Seed Corn. (austrianaddict.com)

This entry was posted on March 30, 2013 at 11:14 am and is filed under Econ. 201. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: China's Housing Bubble, Currency Debasement, Federal Reserve, John Maynard Keynes, Quantitative Easing, Vladimir Lenin, zerohedge.com