One More Step on the Road to Ruin

Antony — November 30, 2011

This morning the world’s major central banks announced coordinated measures to “ease liquidity”. What this really means is that they are paving the way for more money printing and quantitative easing. It is a show of force that the keepers of the printing presses are willing and able to coordinate their action, thereby centralizing control of all major world currencies.

They are using their money-creating power to bail out governments and big banks.  The effect is to divert resources away from individuals and their preferences for consumption, investment or holding cash, and to redirect those resources to areas chosen forcefully by government policy. The distortion of interest rates also sends faulty signals to entrepreneurs about people’s time preferences and amount of savings. Both of these effects waste resources by diverting them away from where they would best serve the free preferences of all individuals.

The central banks are fighting reality. The reality is that there is too much debt that cannot be paid back. There are not enough savings to fund capital investment. And what savings there are are being misdirected and squandered by government policies and faulty interest rate signals. They are trying to counter these realities by hiding risks, and propping up unsustainable debts. These measures do nothing to address the real problems, they simply mask them in an illusion of stability.

But the illusion cannot last forever, reality has a tendency to make itself known eventually.

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