Dec 3, 2007

Lew Rockwell on printing money to cure a credit crunch

So what good does the new money do? From the perspective of Wall Street, it forestalls a recession. But what if a recession is needed? That is to say, what if a business downturn is what the economic fundamentals call for? In that case, new money injections do positive harm by preventing a correction and only add to the eventual problems that we all must face. It is no favor to the drug addict to keep him high until he is a corpse, and it is not good economic management to keep an economy drugged up until it hits the wall.

But shouldn't we do something to address the credit crunch? Yes, and that is the following: let it happen. After all, a credit crunch is not an act of nature. It is a response to an economic expansion that is not justified by fundamentals. How do these occur? It is not part of the structural dynamic of the market economy that an economy suddenly embarks on irrational exuberance for no good reason. Misdirected investment in some projects at the expense of others is brought about by credit expansion beyond which it is justified.

~ Lew Rockwell, "The Fallacy of Money Mania," LewRockwell.com, November 30, 2007

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