The economic consequences of cheap money

Ludwig Von Mises

[From a memorandum, dated April 24, 1946, prepared in English by Professor Mises for a committee of businessmen for whom he served as a consultant, this article appears in The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression (2006) as chapter 5, "The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money."]

The author of this paper is fully aware of its insufficiency. Yet, there is no means of dealing with the problem of the trade cycle in a more satisfactory way if one does not write a treatise embracing all aspects of the capitalist market economy. The author fully agrees with the dictum of Böhm-Bawerk: “A theory of the trade cycle, if it is not to be mere botching, can only be written as the last chapter or the last chapter but one of a treatise dealing with all economic problems.”

It is only with these reservations that the present writer presents this rough sketch to the members of the Committee.

I. The Unpopularity of Interest

America, I don’t want to work for you anymore

FDR Memorial Bread Line
Wiki Image

Fire Dog Lake 

Probably by now, we’ve all seen this graph or one like it. Just one in a series of graphs that rub in our faces a fact that I have known for decades (yes, decades). The rich are stealing from you.

You can pretend that the rich people in this chart actually earn their extravagant livelihoods, but everything in the evidentiary world points to the opposite. They steal it. From endemic fraud, shady accounting practices and off-shore accounts to government bail-outs, regulatory cop-outs and refusal to prosecute the most egregious actions, the rich have gamed the system so entirely that most people, still to this day, have no idea what I am talking about. And it’s been going on for decades.

The top end of the income scale since the seventies have seen incredible increases while the bottom has remained flat. When I say the top, I mean the top ten percent, in particular the top one percent. The other ninety percent of us have flat-lined for over thirty years, despite tremendous advances in our productivity!

US to press China on financial reform: Geithner

© AFP/Getty Images/File Justin Sullivan

AFP
  
WASHINGTON (AFP) - The United States will press China to make progress on financial reform at high-level bilateral talks next week, Treasury Secretary Timothy Geithner has said.

The US is going "to put a little more attention this time on expanding our discussion to the next stage of financial reform in China," he told a US-China Business Council forum in Washington.

"If China's going to be successful in moving the economy away from exports to a more domestic-demand economy, it's going to have to increase the return to savers in China and dismantle the set of protections that are now designed to lower the cost of capital to state-owned enterprises."

Home of the Brave

John Steinvold
Activist Post

The Economists concede that economics is an inexact science. What does that mean? Perhaps it means their economic forecast is better than yours or mine. Recently, economic indicators have been rising and people have their fingers crossed. Economists have given us reason to hope that the job market will improve and that the stock market will continue on a steady climb. Yet, the newspapers continue to report more layoffs and more jobs going overseas.

Meanwhile, our economy is getting more and more complex. We associate complexity with progress for some ungodly reason. The following problems, however, have become inherent in our economy. What does that mean? It means they will be around for a while:

Americans pessimistic about economy: poll

New York job hopefuls
© AFP/Getty Images/File Spencer Platt

AFP

WASHINGTON (AFP) - Americans are more pessimistic about the economy than they have been at almost any time since the start of Barack Obama's presidency, according to a poll released Friday.

As candidates begin to limber up for the 2012 presidential race, a New York Times/CBS News survey showed 80 percent of Americans think the economy is in bad shape and 39 percent think it is getting worse.

That depth of pessimism is similar to levels seen in the first months of Obama's term, when the economy was still in the throes of recession.

The poll offers the White House painful evidence that rising gasoline prices and stubbornly high unemployment is roiling voters, with Obama personally taking lumps for the malaise.

Some 57 percent of people disapprove of his handling of the economy, more than at any time during his presidency.

The poll was conducted between April 15 and 20, with 1,224 adults surveyed across the United States.

© AFP -- Published at Activist Post with license

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Celente: American Empire is Collapsing

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As the US economy continues to struggle, it seems Wall Street and big banks are doing better than ever. The income disparity gap in the United States is the largest of all the developed industrial nations. The Trends Research Institute Director Gerald Celente says the American Empire is collapsing and the banks have committed the greatest bank robbery in the history of the world.



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Nouriel Roubini: U.S. On Track For A 'Fiscal Train Wreck'

Roubini - CFR

Reuters

The U.S. economy is a "fiscal train wreck" waiting to happen that risks ushering in a period of stagnation featuring by minimal growth, high unemployment and deflationary pressure, U.S. economist Nouriel Roubini wrote on Friday.

In a commentary for the Financial Times, Roubini -- one of the first economists to predict the housing crash in the United States and known as 'Dr Doom' for his pessimistic forecasts -- said fiscal and monetary stimulus had prevented another depression.

But he said that further quantitative easing likely to be announced by the Federal Reserve next Wednesday will have little effect on U.S. growth in 2011, "so fiscal policy should be doing some of the lifting to prevent a double dip recession," he said.


He said the U.S. remains on an "unsustainable fiscal course" and the likely make-up of Congress after elections next Tuesday, in which the Republicans look set for strong gains, virtually takes fiscal reform off the agenda.

"The risk ... is that something on the fiscal side will snap ... The trigger could be a debt rollover crisis in a major U.S. state government," he wrote.

"The worst of the coming fiscal train wreck will be prevented by the Fed's easing. But the risk is (Obama) ... will then preside over ... a Japanese style stagnation, where growth is barely positive, and deflationary pressures and high unemployment linger."

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