Apocalypse This Way Comes
by Nelson Hultberg
Published Sept 2, 2003
A SMATTERING OF TODAY’S MAINSTREAM PUNDITS IS BEGINNING TO UNDERSTAND THAT WHAT ECONOMICALLY PLAGUES US TODAY IS SOMETHING QUITE DIFFERENT from the standard inflationary-recessionary cycles that have prevailed since World War II. But the great majority of talking heads and financial columnists remain clueless – dutifully accepting the establishment line that depicts the nature of recessions from past models.
The error in this view is that all recessions since World War II have been the result of Fed credit tightening and naturally were quick to respond to credit loosening. But this time around our malaise is not caused by Fed engineered high interest rates. It is far deeper and more systemic.
It stems from the great Keynesian theoretical flaw that will always manifest in the long run: central bank credit expansion leads to “debt saturation” and “malinvestment,” which reverses the boom that the credit expansion was meant to perpetuate, but does not do so until the latter stages of the Kondratieff cycle.
This is because central bank credit expansion brings about healthy growth like cocaine brings about well being. In the early stages of the Kondratieff cycle, businesses flourish, but once an economy becomes “debt saturated,” borrowing drops off drastically, which causes the rate of money supply growth to decline by negating the central bank’s multiplier effect. This brings disinflationary pressures, which then lead to actual deflation. In addition, Keynesian credit expansion also creates widespread “malinvestment,” i.e., capital expenditures for which there is no genuine demand and which cannot be sustained once disinflationary pressures set in.
Thus, what is different this time is that large loads of debt and malinvestment have built up in the economy. They must now be worked off (i.e., liquidated) before demand and growth can be restored, which will require many years and considerable hardship.
As the renowned economist Ludwig von Mises warned us decades ago: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” [Human Action, Regnery, 1966, p. 572.]
Despite this irreparable Keynesian flaw, our statist planners continue to believe that the Federal Reserve will be able to wave its magic “liquidity wand” and rescue us as it always has. We are governed by obtuse bureaucrats guided by neo-fascistic academics. Is it any wonder that dogma is being used to confront problems that require acumen? Those mired in “paint by the numbers” policy approaches are always historically blindsided. Such a destructive hit now awaits us.
Written by aurick
11/12/2010 at 3:55 pm
Tagged with currency debasement, currency manipulation, debt, depression, economic collapse, Federal Reserve, financial crisis, Financial Disaster, Financial Meltdown, Great Depression, Keynesian credit expansion, Keynesian flaw, Kondratieff theory, Ludwig von Mises, malinvestment, Pax Americana, sovereign debt, sovereign default, Wall Street, Wolfowitz doctrine