"The lesson from
the events of 2007-2008 should have been clear: Boosting GDP with loose money –
as the Greenspan Fed did repeatedly between 1987 and 2005 and most damagingly
between 2001 and 2005 when in order to shorten a minor recession it inflated a
massive housing bubble – can only lead to short term booms followed by severe
busts. A policy of artificially cheapened credit cannot but cause mispricing of
risk, misallocation of capital and a deeply dislocated financial
infrastructure, all of which will ultimately conspire to bring the fake boom to
a screeching halt. The ‘good times’ of the cheap money expansion, largely
characterized by windfall profits for the financial industry and the faux
prosperity of propped-up financial assets and real estate (largely to be
enjoyed by the ‘1 percent’), necessarily end in an almighty hangover. (...)
In America, QE2 was already targeted at boosting the prices of government debt and thereby lowering interest rates and encouraging more lending – which naturally means more borrowing and more debt, the opposite of deleveraging and rebalancing. And QE3 – which is an open-ended $85-billion-a-month price-fixing exercise for selected mortgage- and government- securities – is even targeted officially at lowering the unemployment rate, meaning Fed officials seriously claim that they can create (profitable and lasting?) jobs by cleverly manipulating asset prices. (...)
Rising real wealth is always and everywhere the result of the accumulation of productive capital, which means real resources saved through the non-consumption of real income, and its employment by entrepreneurs in competitive markets under the guidance of uninhibited price formation. This process requires apolitical, hard and international money. Monetary debasement always hinders real wealth creation; it does not aid it. Easy money leads to boom and bust, never to lasting prosperity. Easy money is not a positive-sum game and not even a zero-sum game. It is always and everywhere a negative-sum game."
http://detlevschlichter.com/
