When I read columns like David Wessel’s “Prescriptions for Getting Out of the ‘Liquidity Trap’” I find myself grabbing the vomit bucket I keep on the right side of my desk, at home, and using it generously.
John Maynard Keynes (1883-1946) wrote about the “liquidity trap” during the Great Depression. A liquidity trap “is a situation where monetary policy is unable to stimulate an economy, either through lowering interest rates or increasing the money supply. Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest.”
WSJ writer David Wessel believes in Keynesian fairy tales and inflation for the masses
To an Austrian economist this would fall under if you cannot win them over with logic baffle them with BS category.
Wessel backs up his argument for a trap by citing that the S&P 500 have $963 billion in cash that they hold onto in safe short term T-Bills. This is considered “bad” for the economy to a Keynesian because all money must be spent on consumption or investment. Idle money is to be condemned. Consumption is the way to economic paradise to any Keynesian. Therefore these companies are bad and harming the economy and the government must punish them and force them to spend their money. It is always up to the all powerful masters in Washington to make the economy whole again, never the private sector.
Their prescription for getting out of the liquidity trap scares the hell out of any Austrian economist.
The first proposed method would be to borrow, tax, or print more money and “create” jobs. Even though welose 2.2, or more, private sector jobs for every government job, this fact has not penetrated the minds of Keynesians like Wessel. They are oblivious to any detrimental effects misallocation resources have on the economy.
To a Keynesian borrowing, or printing money, it makes no difference to them, another $2 trillion. $5 trillion, $10 trillion, to “create” jobs is the logical thing to do. Similar to the USSR where the government pretended to pay workers and workers pretended to work. FDR did this in the 1930s and unemployment averaged a spectacular 17.2%. Just the kind of economic policy I want to emulate, not.
Fortunately for we the people even Wessel admits there is no political support for this idea.
John Maynard Keynes solution to every economic problem was to print more money
The second method is to devalue the currency. Wessel is serious about this. Creating inflation is not a problem for the Keynesians, which is exactly what devaluing the currency would do. The idea is to make exports cheaper and imports more expensive. Similar to China’s mercantilism trade policy. Starve the peasants, enrich the ruling class.
For the elite capital owners of exporting industries this would make them richer but for the American people this policy would be a disaster, as we are witnessing today with the drop of the dollar. $6.00 a gallon gasoline is very desirable to a Keynesian as long as we export more than we import. I can’t make this stuff up. Read Wessel’s column.
The third way is to create more inflation. Wait, wasn’t that the second way also? And the first way? I am getting confuse because I am not a Keynesian, all the solutions seem to be variations of print more money and create inflation, but I am not Harvard Economist Kenneth Rogoff, Swedish central banker Lars Svensson, David Wessel, or Paul Krugman. I digress.
The third strategy is to create 4% to 6% inflation and force the $963 billion to become more costly to hold onto in reserve and force the companies to spend the money or lose it through inflation.. To a Keynesian inflation equals more employment. They call it the Phillips Curve or some such nonsense. This justifies ripping off every citizen in the country who will pay the hidden tax every time a product is purchased. At 5% inflation rate that is a cool $750 billion dollars transferred out of the peoples pockets into the central banks, Wall Street, and Washington’s pocket.
Some would call it stealing your money, taking a cut, then paying you back in your money minus the cut and expecting you to be happy and praise the crook. I think the shrinks call it Stockholm Syndrome.
It amazes me Rogoff, Svensson, Wessel, Krugman, are taken seriously. They are nothing more than modern day alchemist trying to create the economic philosopher stone that will magically transform the economy to one of immense wealth for all.
All three methods involve printing money. Let’s print money and hire a bunch of people to dig ditches. Let’s print a bunch of money and dump it on the international money markets to devalue the dollar. Let’s print money and dump it on Main Street and create inflation.
Do you see the pattern? The only trick these dishonest “economist” have is to print money. That is it. Keynesians are a one trick pony. They print money and create inflation. The trick is to bundled the inflation up, and packaged in different ways, similar to changing the body style of an automobile, but it’s the same trick over and over again.
Murray Rothbard was a Austrian economist that exposed the tricks of the rip off artist in Washington, Wall Street, and the Federal Reserve
The reason it never works is the problems of the economy are never addressed. In our current economic malaise the problem of 4.2 million unsold homes has never been addressed. The federal government has stepped in time after time with trillions of dollars to prop up to big to fail banks as well as homeowners who refinanced homes they cannot afford. Printing money and passing it out.
The correct solution would be to let the banks and homeowners fail and go bankrupt, lowering housing prices, clearing out corrupt banks, and starting fresh. Capitalism works wonderfully as a disinfectant for society, but only if it is allowed to.
The real reason people like Rogoff get to be Harvard professors is the elites know Keynesian economics does not work and never has worked but they need credible front men to sell the crap to the public and students. It is nothing more than a collection of fancy English fairy tales.
The real reason people support the fairy tales is the tall stories disguise the rip off that occurs in the United States every year, year after year, by Washington, Wall Street, and the Federal Reserve.
Do people like Rogoff truly believe that inflation is the cure all for all the worlds economic ills?
I imagine some are true believers but most realize they are nothing more than actors for the elite hiding what is really going on inside Washington, Wall Street, Fortune 500 corporations, and the Federal Reserve.
Ludwig von Mises exposed banking secrets in his masterpiece The Theory of Money and Credit (1912)
The first rip off artist is the Federal Reserve. The Federal Reserve prints money and buys private and public bonds for nothing more than the cost and labor of printing money.
What is the profit margin? 98%? 99%? I have no idea but just imagine of you could go to your computer, spend a few hours, print up a million dollars, and go down to Sun Trust and buy a million dollars worth of certificate of deposits. Pretty sweet life if you can get it. I would wear a three piece suit and talk gibberish all day in front of congressmen for that job. And people think bankers are dull.
The next crook is the federal government. The people with the guns. The feds can order Texas taxpayers to surrender 17 cents on every dollar they pay in taxes to the federal government and spend it on other favored states, mostly northeastern and western states, that vote for the favored federal government politicians time, after time, after time.
There is no recession in Washington DC. These people can use up to 67% of every tax payer dollar for bureaucracy and still sleep well at night. There is no press coverage of the waste, they control the press. Whenever there is a scandal the bureaucrats simply whip out the “helping the poor” card and keep on spending other peoples money. The federal government is for, and about, the federal government, and if you resist they have guns and jail cells. The federal government is the master of the peasants. Resistance is futile.
CATO Scholar Dan Mitchell has worked for decades to expose Keynesian economic policy failures
The third crook is Wall Street. Wall Street has had inside information since 1913 when the Federal Reserve was created. Wall Street talks to the Federal Reserve and Washington. It is how they make their money, information. People think Wall Street hates big government. Propaganda.
Alexander Hamilton understood that if the federal government ran up the debt the people buying the debt would be the wealthy on Wall Street. If the wealthy on Wall Street own your debt then when you, the federal government, propose new taxes on the people the wealthy will support the new tax hikes. And the game has been going on ever since.
Wall Street loves big government. It is how they get rich. Wall Street loves Democrats. They donate overwhelmingly to Democrats. Wall Street has had a love affair with Washington since Alexander Hamilton.
Getting back to the “Liquidity Trap” it is nothing more than fancy economic crap designed to confuse the masses with BS. The real game has always been, and is, Wall Street, Washington DC, and the Federal Reserve. Keynesian economics is the current smoke screen. When Keynesian economics loses all credibility academia will come up with another “new” economics to baffle the masses with BS. It will never end until the masses have enough understanding of economics to create a limited government.
FYI the Austrian solution to the economic crisis?
Cut back the size of the federal government to 10%, 15% of the GDP. Balance the budget. End the Federal Reserve. Return to free banking. Some favor isolationism, I do not. I favor the Peter Schiff foreign policy. If a country challenges the USA we attack, destroy, topple the government and get out. End of war.
Charity should be local government and private institutions.
There is no reason the purchasing power parity should not be $100,000 per person in the United States. With the proper economic policies that figure could be achieved in the average young workers lifetime with relative ease. We can just as easily go the opposite direction and continue Keynesian economic policies that concentrate power and money into the hands of a few elites in Washington, Wall Street, Fortune 500 companies, and the Federal reserve.
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