Can the working of an economy be commanded? - The Daily Reckoning

Can the working of an economy be commanded?

Sep 2, 2011

Paris, France We're in the Charles de Gaulle airport, in Paris, en route to the USA.

Not much to report anyway...at least not to you, dear reader. The Dow went down 119 points yesterday. Gold lost 2 bucks.

Nothing revelatory...no burning bushes...no booming voices from the heavens.

But, the rest of the world is waking up to what you've known for years.

Here's the headline in the Financial Times today: Hopes for global recovery take a hit.
Yes, the world's financial elite still believes in the recession/recovery concept. What a pity it never seems to work out. The report continues:

The global manufacturing recovery appears to have come to a grinding halt in August, activity surveys suggested on Thursday, undermining hopes of a vigorous economic recovery in the second half of the year.

And what's this? Martin Wolf, chief economist at the FT, has finally realized...

This is no normal recession.

Of course, Dear Readers, have know that for years. Now, after trillions spent trying to treat it as though it were a typical post-war recession, leading economists are finally noticing the obvious. All that spending has stimulated nothing but larger debts:

In the US, unemployment is still double pre-crisis levels...

But neither Mr. Wolf nor Mr. Bernanke are ready to give up. Nor are any of the other misters who are in position to manipulate the system...influence it...or steal from it.

Mr. Wolf promises to give us his 'fix it' solutions in next week's newspaper column. He hints that the US government should...surprise!...spend more money.

Either he has learned nothing. Or we haven't. He still believes that the challenge is basically a matter of repairing the economy...fixing it...so that it works like he think it should. What does that mean? How many people should have jobs? How fast should GDP grow? What should be the interest rates charged by lenders?

Ask him!

Dear readers see the absurdity of this immediately. In the minds of the meddlers, an economy should work as they command. It has no natural state...no normal functioning...no purposes to which they aren't privy.

In short, the economy should do as it is told!

How will this command economy thing work out? Stay tuned...

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*** Well, we don't have any more thoughts. We have to run to catch a plane. But here is Frank Shostak, with some ideas of his own...

The Monetary Tsunami Is Coming
by Frank Shostak on August 31, 2011

In his speech at Jackson Hole, Wyoming, on August 26, 2011, the Fed chairman disappointed most pundits. He did not promise another massive infusion of fake money, i.e., QE3. I suspect that a strengthening in bank lending is an important factor behind the Fed's decision to postpone the pushing of more money into the economy.

The yearly rate of growth of our measure for banks' inflationary credit jumped to 8.2 percent so far in August from 4.3 percent in July. A visible strengthening in commercial bank inflationary credit, i.e., credit "out of thin air," will provide the "necessary" monetary stimulus. This means that the massive amount of money pumped by the Fed since 2008 (over $2 trillion) is starting to be funneled into to the economy by the banks.

This has long been the hope of the Fed, and the goal of the huge increases in bank reserves that have been created during the downturn. Until recently, these reserves have been stuck in the system - unable to find lenders and borrowers willing to make a deal. This has been a good thing because prices have been held somewhat in check.

That is now changing. As the pace of lending picks up, and the fractional-reserve system of loan pyramids kicks in, we could see new floods of money pouring through our economic life and causing untold damage.

Contrary to most experts - including Bernanke - the more aggressive the Fed's policies are, the worse the economy is going to be. If all that is required to revive the economy is pushing more money, then all third-world economies would be very wealthy by now.

The latest trends in banking foretell the possibility of very dangerous times ahead where developed economies go the way of such undeveloped economies and destroy wealth through inflation in the name of stimulating production. As we may soon discover yet again, printing money is no substitute for real wealth creation.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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