I have been on a six-week hiatus caused by the quadrennial football World Cup celebration. Quite frankly, being the avid football fan that I am, it was extremely difficult to take notice what was going in the world around me. But now that the tournament is over, I can return to monitoring the actions of “world improvers” – that is, those people that want to run other’s lives. One of the organizations that is a primary target of my accusation is the Federal Reserve Board, the federal government’s central bank.
Contrary to popular belief, including those spouse by court economists, of which the Central Bank is replete, economic recessions are the result of government’s interference in the free market. Recessions, in a way, are the free market’s way of correcting the bureaucratic (i.e. political) allocation of capital. Recessions are not haphazard, unpredictable, or without merit. Recessions are not caused by “irrational exuberance,” “animal spirits,” “not enough fiscal stimulus.” These explanations are nothing short of fantasy and make-believe.
There is no doubt in my mind that we continue to head for a major contraction in capital markets. Indeed, we will witness extreme volatility, but the trend is down. Why this practically a forgone conclusion, you have to understand the “Austrian Theory of the Business Cycle:” growth in the rate of printing money and keeping dead companies alive, couple with the inherent price (not necessarily consumer, however,) inflating effect of such government policy, gives the impression of a robust economic environment. When the government slows the rate of growth, the economy is on its last legs. In other words, monetary inflation is bad because when growth declines, the economy is doomed.
One way we can see monetary inflation is by looking at the adjusted monetary base. Consider the following chart:
As you can see, (roughly speaking) the rate of growth has been declining. This implies a recession is coming. It will surprise many, because while they believe a recession is possible, it is highly unlikely of ever coming into fruition. My prediction is that, absent of another massive government intervention program, a major pullback is due before 2010 is over.