Financial crisis optimism
The world is not going to end.
This blog has a couple of financial-crisis-pessimists (JC & pommy), so I want to give the other side of the story. I accept that we are facing a financial crisis which is decreasing the access to credit and liquidity. I accept that this will lead to a drop in the share market and a recession. However, I believe that (1) this isn’t such a bad thing; and (2) we’re not facing a “great depression” scenario.
When I say it’s not such a bad thing, I don’t mean that recessions are good. However, in some situations they are inevitable. Austrian economists have been warning for many years that the American monetary policy has been too loose and that this would lead to a recession. I believe they were correct.
Wall Street Journal touts for a Gold Standard
This article in the Wall Street Journal, whilst perhaps offering a little too much hyperbole, none the less gets to the crux of the matter. An extract below;
If capitalism depends on designating a person of godlike abilities to manage demand and supply for all forms of money and credit — currency, demand deposits, money-market funds, repurchase agreements, equities, mortgages, corporate debt — we are as doomed as those wretched citizens who relied on central planning for their economic salvation.
Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year’s crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.
“There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.” It would be easy to dismiss this statement as a quaint relic from Mr. Greenspan’s earlier days as an Ayn Rand acolyte; his article on “Gold and Economic Freedom” appears in her 1966 compendium “Capitalism: The Unknown Ideal.” But Mr. Greenspan said it, rather emphatically, last October on the Fox Business Network. He was responding to the interviewer’s question: “Why do we need a central bank?”
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