Friday, August 14, 2009

Will currency destruction save us?

According to a press release of August 12, 2009, the Fed is under the impression that its "policy tools," along with other government interventions, are bringing the recession to an end. To wit,
Although economic activity is likely to remain weak for a time, the [Federal Open Market] Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The Fed's Beige Book for July 29, 2009, prepared by the Boston Fed, says that
Reports from the 12 Federal Reserve Districts suggest that economic activity continued to be weak going into the summer, but most Districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level.
The one bright spot for those hoping for a real recovery was that most Fed Districts "reported sluggish retail activity" and that "Consumer spending in the early summer remained below previous-year levels in most Districts, as households continued to be price conscious."

Why is this a good sign?

Peter Schiff explains:
To return our economy to health, we must first allow market forces to ring out the excesses of the bubble years. Even government economists acknowledge that this decade’s spending boom resulted from a combination of asset bubbles and the dangerous overextension of consumer credit. Yet the same economists balk at the logical need for spending to drop now that the stimuli are no longer in effect. They argue for the resumption of spending by any means, regardless of its ultimate cost.
To restore economic health, he says, Americans must "stop shopping, live within their means, and replenish their savings."
But rather than accepting the market’s medicine, our government is overriding its own citizens’ responsible behavior. To do so, it has put borrowed money into consumers’ pockets, and then conjured various incentives for them to go out and spend it. This process requires more government bureaucracy, more debt, and more regulation at a time when we can’t afford any of it.
All the government's "incentives" and the Fed's "tools" are only possible because of the fiat paper currency that by law we're forced to accept. If money and banking were subject solely to free market forces, there would be no "dangerous overextension of consumer credit." Banks that tried would go belly-up. But government wants a money it alone can create at will, and the banks want a lender of last resort to bail them out when reckoning day arrives. Sound money and full-reserve banking have no part in this play.

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