Tuesday, 22 May 2012

Quote of the Day, ‘Economic Breakdown’ Edition

When there’s blood in the streets, a globe choked with debt and the world’s eggs are being broken in a Hellene handbasket it’s time to get to grips with some rational economics. Actually, it was time about sixty years ago when the Keynesian poison first began being mainlined…

There has never been a time since the rise of laissez-faire capitalism* when economic systems were entirely free of turmoil. Bubbles, panics, crashes and depressions have come and gone with the regularity of floods and hurricanes. This is not surprising, because the underlying dynamics of economics, rooted in human nature, are always at work. Yet the new scientific economics promised better. Economists promised that through fine tuning fiscal and monetary policy, rebalancing terms of trade and spreading risk through derivatives, market fluctuations would be smoothed and the arc of growth extended beyond what had been possible in the past. Economists also promised that by casting off the gold standard they could provide money as needed to sustain growth, and that derivatives would put risk in the hands of those best able to bear it. However, the Panic of 2008 revealed that the economic emperors wore no clothes… With few exceptions, the leading macroeconomists, policy makers and risk managers failed to foresee the collapse and were powerless to stop it except with the blunt object of unlimited free money.
James Rickards in his book Currency Wars: The Making of the Next Global Crisis

The twin tragedies are that the emperors of failed economic theory have learned nothing and revised nothing; the politicians they advised to make promises that could not be cashed are retreating into grander promises that will never be cashed; and all those leading macroeconomists, policy makers and risk managers who failed to foresee the collapse and were powerless to stop it are now in charge of the “rescue.” A “rescue” whose cure is proving worse than the disease.

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* Which has been expiring by degree due to lack of interest since at least August 1914.

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