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Source link: http://archive.mises.org/13796/the-fed-and-the-ratchet-effect/

The Fed and the Ratchet Effect

September 6, 2010 by

Once the monetary interventions start, they can’t be stopped. The economy requires ever more of the same to fix the problems created by the first round. This is the ratchet effect that Robert Higgs applies to statist policies in general. FULL ARTICLE by Robert P. Murphy


Bogart September 6, 2010 at 10:07 am

USA 2010=Japan 1992
These innovations by the Federal Reserve are right from the playbook of the Central Bank of Japan. And the results are exactly the same. In 1990s Japan, banks in the USA, UK, EU, etc would loan billions from the BOJ and then loan this money in their own country for higher interest rates. Everyone thought this was brillian for the BOJ except for the fact that the borrowing countries lowered their interest rates as well. The results were several financial bubbles ending in the bursting of the housing bubble in the USA.

So what does the Brillian Tandum of Wealth Destruction, AG and BB, do? They innovatively do the same thing. So now borrowers from China, India, Brazil, etc are borrowing billions in low interest loans that are leaving the USA.

The unseen here is difficult to track but you can already see the slowing down of innovation and small business in the USA. And when these super-entitlements click in you will see an enormous loss of capital as wealthy people move assets overseas or into increasingly worthless government bonds to avoid the federal taxes.

Marc Sheffner September 11, 2010 at 6:55 am

Japan 1992 = Japan 2010!

Capn Mike September 6, 2010 at 10:08 am

So where does this end? With the FED (and its friends) owning EVERYTHING???

james b. longacre September 6, 2010 at 11:40 am

you can personally refuse to sell right?

Daniel September 6, 2010 at 12:58 pm

For the time being, yes

Marc Sheffner September 11, 2010 at 7:09 am

“Rearden chooses to ignore an order from the State Science Institute for something called Project X. A week later, a man from the Institute comes to see Rearden. He tries to convince Rearden to acquiesce, but Rearden refuses. Rearden tells the representative to bring in trucks and steal as much metal as the Institute needs, but he will not help Washington pretend that he is a willing seller. ” (Spark Notes: Atlas Shrugged, Part II, Chapter 1).

Anonymous September 6, 2010 at 10:30 am

Here is a 100 hundred trillion dollar banknote for the stimulus:


Eric September 6, 2010 at 1:06 pm

It’s a race between new ideas and technologies against the parasitism of government. If the parasite spreads fast enough, it ends in the death of the host.

I’m optimistic, however, that this host can live with an ever growing parasite. This is because we cut off limbs every now and then and grow fresh ones which gets rid of some of the parasite for a while. The internet is replacing the main stream media, a media which is overwhelmed with government disease.

The computer allows us to survive with much bureaucratic entanglements. As awful as the tax system is, the computer allows me to cut through much of the incomprehensibility of the tax code.

In the future, even meddling with medicine might not kill us all because of advances in technology. I’m especially encouraged by entrepreneurs such as Craig Venter who recently discovered ways to not only read out genomes quickly and cheaply, but is also now able to write them from a computer text file. The possibilities are endless.

The only answer to the ratchet effect is to change the game. If we switch to metric, all the English unit ratchets will become obsolete and hopefully we’ll gain back some freedom for a while.

J Cuttance September 6, 2010 at 4:14 pm

Could the missing inflation (that not obscured by dodgy inflation measurements) be manifest in property prices NOT falling as much as they otherwise would have? That is the sector towards which the conjured resources have been directed.

The Arthurian September 11, 2010 at 6:50 am

“…an excellent graphical illustration of Higgs’s ratchet effect…”

Grasping at straws, I think.

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