FYI | Jul 21 2011
By Tim Price
“We hear that in the future we're going to have a better economy and everybody hopes so, but it's hard for me to believe because I look back on our past three years and what Congress has done and what the Fed has done is literally injected about $5.3 trillion and I don't think we got very much for it. The national debt went up by $5.1 trillion; real GDP grew by less than one per cent; unemployment really hasn't recovered – we still have 7 million people that have become unemployed.. one statistic that is very glaring if you look at the charts is how long people are unemployed. The average time used to be 17 weeks – now it's nearly 40 weeks. Nothing there reassures me.. Also, when we talk about prices, we're always reassured that there's not all that much inflation, and we're told that they might start calculating inflation differently with a new CPI.. of course, we changed our CPI a few years back. There's still a free market group that calculates the CPI the old-fashioned way. They come up with a figure – despite all this weak economy – that prices have gone up 35%, 9.4% every year, and I think if you just went out and talked to the average housewife, she might believe the 9.4% figure rather than saying it's only 2%.. So I would say what we've been doing isn't very reassuring with all this money expenditure.. Spending all this money hasn't helped. That $5.3 trillion didn't go to consumers, it went to buying bad assets, it went to bailing out banks, it went to bailing out big companies.. lo and behold, the consumer didn't end up getting this, the consumer lost their job, their houses and their system.”
If that isn't plain enough, try Frank D. Graham in 'Partial Reserve Money and the 100% Proposal' (American Economic Review, September 1936):
“The attempt of the banks to realize the inconsistent aims of lending cash, or merely multiplied claims to cash, and still to represent that cash is available on demand is even more preposterous than.. eating one's cake and counting on it for future consumption.. The alleged convertibility is a delusion dependent upon the rights not being unduly desires.”
Note that Rothbard conjoins “depression” and “recovery”: they are one and the same thing. You cannot have economic recovery without a cleansing, cathartic depression.
“Wasteful projects.. must either be abandoned or used as best they can be. Inefficient firms, buoyed up by the artificial boom, must be liquidated or have their debts scaled down or be turned over to their creditors. Prices of producers' goods must fall, particularly in the higher orders of production – this includes capital goods, lands, and wage rates.. Not only prices of particular machines must fall, but also the prices of whole aggregates of capital, e.g. stock market and real estate values. In fact, these values must fall more than the earnings from the estate.”
The economic severity of the depression, in a Mellonite world, would “purge the rottenness out of the ensue.”
Rothbard's thesis is most striking in relation to the role of government. His first and clearest injunction to return the economy to “normal” prosperity is: don't interfere with the market's adjustment process.
“The more the government intervenes to delay the market's adjustment, the longer and more gruelling the depression will be, and the more difficult will be the road to complete recovery. Government hampering advocates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to intensity.”
Rothbard holds that only governmental inflationism can generate a true boom and bust cycle, and that any depression will be prolonged and intensified by inflationist intervention on the part of presumably well-meaning politicians. 'America's Great Depression' showcases Rothbard's firm belief that Hoover's aggressive interventionist measures ended up aggravating the economic slowdown:
“The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free- market economy, and placed where it properly belong: at the doors of politicians, bureaucrats and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the outcomes.”
Well, he said it. We note that gold has now broken through the £1,000 ($1,600) level. Having become front page news, there may be better times to add to positions. But the supportive backdrop for precious metals remains utterly compelling.
Tim Price
Director of Investment
PFP Wealth Management
19th July 2011.
Email: tim.price@pfpg.co.uk Weblog: http://thepriceofeverything.typepad.com
Group homepage: http://www.pfpg.co.uk
Bloomberg homepage: PFPG
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
