Inflation or Deflation? Either Way We Will Pay!
The below respons was published on The Big Picture Blog in response to Not deflation but more disinflation should lead to QE2.
A 50 year long expansion in credit, which was helped along by securitization, has led the master builder dilemma on grand scale. The master builder dilemma occurs when entrepreneurs and consumers alike (metaphorically) think they have enough bricks to build a house. At some point they realize they don’t have enough bricks (pull back in lending) and have to make some difficult decisions as to how they should not proceed. The builder thinks to himself, man if I had only known, I would have build my home a little smaller.
Currently master builders are confused. Do I expand my business? Do I build a home or do I rent? Do go back to school/get retrained or is my housing construction job going to come back? Do (corporations) buy back shares our build up cash?
Some of the decisions will ultimately end in malinvestment due to the utter confusion that manipulated time preferences for money have caused (interest rates).
The US has not been a free market since the late 1800′s when the railroads went bust and the US was forced off its prior attempt fiat currency’s (the Greenback). I am a believer that we need quick forest fire (1920 recession) and not an ice age (the Great Depression). Monetarist’s and Keynesians prefer the ice age therefore Austrians are still out numbered. The Fed’s recency bias has falsely led them to believe they can manage us out of this crisis. Essentially the monetary authorities are saying they can manipulate us like puppets and control how we allocate our capital. Decades of false conclusions by the Fed have now culminated into another DEPRESSION. Now the bill is coming due. The question is how much of our liberty will used to pay the bill? Probably more than meets the eye…at first.
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