Observation

"Pilate saith unto him, What is truth? And when he had said this, he went out again..."

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Location: Tampa, FL, United States

Sunday, March 08, 2009

Here We Go Again

Staunch Austrian economist Thomas E. Woods, Jr. includes a chapter (#4) on economic boom-bust cycles pre- and post-Federal Reserve Board (1913) in his new book Meltdown. The common denominator to all these boom-bust episodes was inflationary spending and subsequent misallocation of resources due to government meddling in the free market.

The Panic of 1819 was the result of excessive issuance of paper money by the banks apart from it's corrolation with gold reserves. The Bust of 1830 was a result of artificial bank credit. The Panic of 1857? Again, credit expansion by the banks (i.e. flinging of paper money). The Panic of 1873 was precipitated by credit expansion, land grants and low interest loans. So there's four examples of pre-Federal Reserve Board (FRB) crises that fit the pattern desrcibed by the Austrian economists (dating back to Carl Menger's days in the mid-19th century. There actually was a central bank-like atmosphere though established in 1863-64 with the passing of the National Bank Acts.

The bust in 1920-21 is tied to the FRB inflating the money supply during and after World War I (1914-1918). The Great Depression (1929-early 40's) was preceded by a 55% increase in the money supply starting in July of '21 through July of '29 (which is about 1/5 of the increase President Obama has foisted on we alive and kicking Americans. Not 5X the increase, but 1/5, in just a handful of months. Yikes!)


Ultimately, Austrian economics will only take you so far as it is closely associated with libertarianism in general and makes no claim to belief in the importance of the Christian God's sovereign role in the affairs of men and nations. Having said that, they believe in savings and capital accumulation. That's good.

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