Archive for business cycle

How to Avoid Another Great Depression

Posted in Uncategorized with tags , , , , , , , , , , on January 13, 2009 by enemyoftyranny

Here’s my list of things the government needs to do in order to avoid another Great Depression:

1. Do nothing

That’s it. If the government does nothing, we will have a very sharp, very painful recession, but it will be relatively short, perhaps another year or two. Yes, the Big Three Auto Makers will go under and people will lose their jobs, but those production plants will be bought by someone else and the workers that are hired will be paid something close to what Honda and Toyota pay their employees. This will allow these re-emerging companies to once again be competitive and actually make money when they sell a vehicle. Yes, banks and other financial institutions will go under, more people will lose their homes, etc. However, this is what MUST happen for things to get better again.

People don’t seem to understand what a recession is to begin with. The liberals blame the conservatives and the conservatives blame the liberals, but they are both responsible. Mainstream Keynesian economists will say this is a normal business cycle, but there is nothing normal about what is happening. Recessions come about in this country because of the Federal Reserve. The Fed artificially sets interest rates to increase or decrease the supply of money. Right after 9/11 the Fed cut rates drastically, and we were all told it would be patriotic to go out and buy a car for 0% financing. It was free money, and we took advantage of it. We got really good deals on our mortgages, too. But cheap money makes people buy things they wouldn’t have bought before because it would have been out of their price range or means to do so. So what happens when everybody is up to their ears in debt and all the sudden this bad behavior begins to show consequences? Fast forward to the present day. This recession is a CORRECTION of our previous bad behavior. It must be allowed to occur in order for the economy to get back on its feet again. If the government continues to do everything in its power to “shorten” the recession, what’s left of it will last longer and a full correction will not occur, which means another correction is coming. It’s like death, you can’t put it off forever. Over on the Western Standard blog, it is noted that

“Austrian economists have been predicting precisely this economic crisis for a very long time. They’ve been bearish on housing, concerned about a looming credit crisis, and raising alarm bells about the value of the U.S. dollar (we have yet to see the massive inflation that they’ve been predicting, but I’m no longer as skeptical of their predictions as I used to be). Now they’re screaming from the rooftops about the various bailouts. They’re radical free marketeers — my sort of people — and they think the governments are making a big mistake by throwing good money at bad investments. Having predicted this crisis, it will be interesting if they will also turn out to be right about the disastrous effects of the bailouts.”

Yes, the Austrians have been warning for years that the Fed creates the Boom/Bust cycle with its monetary policy.  It is just a shame that the leadership of the Fed is comprised of people who will be doing the exact opposite of what needs to be done in order to help the economy.  The Federal Reserve should be abolished, and we should return to the sound money principles set forth in the Constitution.