A Tiger by the Tail

Posted by Gary North

Share on Facebook

Tweet on Twitter

You are on the back of a tiger. You had no say in the matter. You are part of the international economy, and central bankers run it.

First they inflate. Then there is a boom. Then there is price inflation. Then they stop inflating. Then there is a recession. To keep it from becoming a depression, they inflate. Year after year, decade after decade, generation after generation, this is what central bankers do.

This time, the tiger is really, truly dangerous. The central bankers have lured the world’s highly leveraged speculators and their multinational bankers into wildly speculative ventures that can keep them growing richer only by threatening them with bankruptcy if the central bankers ever attempt to climb off the tiger’s back.

How did we get into this situation? F. A. Hayek’s book, A Tiger by the Tail: The Keynesian Legacy of Inflation (1972), discusses central banking as the source of price inflation, booms, and busts. The book was a compilation of his predictions about this over the previous 35 years. He saw in 1972 that this would get worse. It surely has. The book is online for free.

All over the world, central banks are inflating madly. They have not offered any theory for their actions. There is no such theory. Nothing in Keynesian theory ever hinted at the need for central bank policies that are now in full force. This is ad hockery on a scale unprecedented in peacetime, other than in defeated nations immediately after a total military defeat.

The absence of any theory to explain America’s position on Asian currencies can be seen by the schizophrenic policies recommended by the U. S. Government.

There are two major currencies in Asia: the yuan and the yen. The United States government has two diametrically opposed policies regarding the central bank policies of China and Japan. Yet the policies are the same. The results of these policies are the same: lower interest rates and increased Asian exports. The Federal government benefits from these policies: Asian central banks’ purchases of Treasury debt at low rates.

I know of no better example of Jesus’ words (though not the context): the right hand does not know what the left hand is doing.

The public, which is utterly ignorant of basic economics, let alone monetary policy, fiscal policy, international trade, and the Austrian theory of the business cycle, is unaware of this schizophrenia. You had better understand it.

…..read more HERE beginning with BIG, BAD CHINA