In 2008, the Mises Institute printed a shirt with the words “Stabilization Is Chaos..” Yes, it’s pretty obscure but the point is that government attempts to stop market functioning in a downturn — deleveraging, bankruptcy, asset re-pricing, labor shifts — will eventually lead to more and more confusion and misallocation than we would otherwise have seen in a pure market setting.
Three years later, this is precisely what we are seeing. Traders are confused. Investors are fearful. Savers can’t find a safe home for their money. The more the government and the Fed intervene with their magical and but essentially stupid activities, the more they send the signal: we have no idea what we are doing but we will try anything but laissez-faire.
So it is with the Fed’s latest trick. It will shift $400 billion from short-term to longer-term securities. The idea is to flatten the yield curve, as if time means nothing, as if the yield curve is a fiction that is easily mashed up by the central planners. The curve responded in the same way that a body on a medieval rack eventually does indeed stretch. Traders bailed and continue to bail. The notion of a double dip is more in the air than ever.
Most commentators are clueless about the intellectual basis of the Fed’s action – and probably the Fed is too. If ridiculously low rates haven’t done a thing to inspire recovery yet, what possible basis is there for believing that expanding the policy out in time is going to make any difference at all? This is the question that the Fed has not answered, and for one reason only: the planners can’t bring themselves to admit that their policies are destructive. Lowering rates is pretty much the only power they have. If that power produces not stability but chaos, what is the reason for their existence?
They are like fake physicians who believe that hammering people’s legs make them run faster. When that doesn’t work, they hammer their heads too. When that doesn’t work, they blame Greece.
The intellectual bankruptcy of the Fed and the entire planning apparatus has been on display as never before. Their policies are directly responsible for the current plight, which would have ended some two years ago if they had attempted to fix what they cannot fix.
Austrians are of two minds. It is sweet justice to see the planning mentality be so discredited so openly. On the other hand, the wellspring of prosperity for the world is being systematically demolished by unteachable and unreachable fools with the power to do whatever they want to the rest of us.
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What I’m perplexed by is the bailing out of assets directly into the US Dollar. When I saw gold being sold off like everything else, I shrugged my shoulders and happily purchased some of it. I’m wondering what the thought process is behind holding a fiat currency over a precious metal.
Sorry for the shameless plug of my own forum, but this might give some insight:
http://www.saloforum.com/index.php?threads/the-lead-standard.1351/
Not really, lots of ad hominems and strange claims that China “needs” the US to consume. A perpetual trade surplus is a very bad thing because it means giving away real goods and services away essentially for free. China would improve tremendously if they quit sending away free stuff to America and started trading that excess internally. The Dollar is no good if all you do is buy Treasury bonds with it.
If I had the money, I would totally buy that shirt! It’s applicable to so many situations!
Important and often-overlooked points, well expressed. … Still, a proofreading or another cuppa coffee might have helped with these two fairly notable (presumed) errors of meaning.
Methinks it should be, in the second graf, “will eventually lead to more and more confusion and misallocation THAN we would otherwise have seen in a pure market setting,” and in the sixth graf, “which would have ended some two years ago if they had NOT attempted to fix what they cannot fix.”
My other favorite: “Planned Chaos or Spontaneous Order: Take your pick.”
Unfortunately, I believe that one reasonable explanation as to why central bankers and the large majority of economists are “unteachable and unreachable” is that their financial compensation, professional advancement, and status and influence in society depend on them continuing to affirm their erroneous economic doctrines.
Firemen bolting shut the exits of a nightclub on fire?
Not sure if the analogy fits, but it’s how I feel.
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