«The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers.
Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised economic planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies.
These economists understand that having wages or commodity prices established by government fiat would cause shortages, misallocations of capital and hardship. Yet they accept at face value the notion that central banks must determine not only the supply of one particular commodity – money – but also the cost of that commodity via the setting of interest rates.
Printing unlimited amounts of money does not lead to unlimited prosperity. This is readily apparent from observing the Fed’s monetary policy over the past two decades. It has pumped trillions of dollars into the economy, providing money to banks with the hope that this new money will spur lending and, in turn, consumption. These interventions are intended to raise stock prices, lower borrowing costs for companies and individuals, and maintain high housing prices.
But like their predecessors in the 1930s, today’s Fed governors behave as if the height of the credit bubble is the status quo to which we need to return. This confuses money with wealth, and reflects the idea that prosperity stems from high asset prices and large amounts of money and credit.
The push for easy money is not new. Central banking was supposed to have ended the types of periodic financial crises the US experienced throughout the 19th century. Yet US financial panics have only got worse since the centralisation of monetary policy via the creation of the Fed in 1913. The Depression in the 1930s; the haemorrhaging of gold reserves during the 1960s; the stagflation of the 1970s; the dotcom bubble of the early 2000s; and the current recession all have their root in the Fed’s loose monetary policy.
Each of these crises began with an inflationary monetary policy that led to bubbles, and the solution to the busts that inevitably followed has always been to reflate the bubble.
This only sows the seeds for the next crisis.»
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quinta-feira, 3 de maio de 2012
A bancarrota intelectual dos banqueiros centrais
Ron Paul: Our central bankers are intellectually bankrupt, no Financial Times