Charles Hugh Smith does another brilliant analysis of how central planning, by the Federal Reserve, has markets completely distorted to the point that nobody knows what is real or fake, in this article, After 6 Years Of Central Planning, The Economy Is More Fragile Than Ever.
Artificially holding interest rates lower than they would be in an unhampered market, distorts the production process. It brings about economic activities that wouldn’t have existed if the market was left to decide what the interest rate should be. Interest rates “coordinate production across time”. Any interference with the knowledge that passes through the production process, because the interest rate is distorted by the Fed, consumes scarce resources, scarce capital, and scarce labor. As we talked about in this article Capital Consumption, aka, Eating Our Seed Corn, and this article, A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road.
Here are some excerpts from CHS’s article.
“Here are the key characteristics of Central Planning:”
1. “The central bank/state intervene in the economy in a dominant fashion, controlling functions such as interest rates…”
2. “The central bank/state pick winners and losers: ….. The central bank/state bailed out the too big to fail banks private losses with public-taxpayer money. In effect, the central state/bank enrich cronies at the expense of everyone else.”
3. “The central bank/state manipulate the nominally “free” market to boost asset valuations as a way of enriching cronies who own most of the financial assets and as a public-relations charade to mask the failure of their picking winners and losers.”
“In other words, in centrally planned economies, markets are not allowed to discover price–they exist only to reflect positively on Central Planners.”
4. “The central bank/state use the power of the printing press to create as much money as they need to reward cronies and cram their decisions down the throat of the economy.”
5. “The central bank/state use the power of their public policy announcements to manipulate behavior and the financial markets while keeping programs that might attract scrutiny secret.”
“Central planning fails for intrinsic reasons unrelated to the specific policies. The decentralized, self-organizing market is like the immune system for the economy; it keeps the system healthy by burning off the deadwood of failed bets and failed investments and distributing credit and risk on performance rather than cronyism.”
“By eliminating the economy’s immune system, Central Planning dramatically increases vulnerability and guarantees systemic crises down the road…”
“The economy becomes dependent on the The central bank/state intervention and loses the ability to function in the real world. When the real world finally intrudes, the weakened, strung-out addict, no longer capable of responding to reality in a positive fashion, expires.”
“The damage done by Central Planning has yet to come home to roost. Six years into the Grand Experiment–that Central Planners can pick winners who just happen to be their cronies–the chickens of consequence are still making their way home.”
CHS has some great charts that show the results of the Feds interventions, which are hard to see let alone understand. As J.M. Keynes wrote, “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.”
In order to understand what Keynes was talking about concerning counterfeiting by central banks, you first have to understand this quote by his rival F. A. Hayek, “The coordination of mens activities through central planning or through voluntary cooperation are roads going in very different directions, the first to serfdom and poverty the second to freedom and plenty.”
Voluntary cooperation through free markets brings about individual freedom and a higher standard of living, while its opposite, central planning, brings about coercion by the state and a lower standard of living.
Related Article/Video – Keynesianism vs. The Austrian School, by austrianaddict.com.
Related Article/Video – Keynes vs. Hayek Round II, The Fight Of The Century, by austrianaddict.com.
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