Despite assurances from politicians and the media, the Federal Reserve System is not a collection of geniuses who stand guard against inflation and recession. Instead, think of the Fed policy makers as the Keystone Cops of central banking.
Central banks, and especially the Federal Reserve System, continue to churn up inflation and the boom-and-bust cycles—in the name of "stabilizing" the economy.
While the usual characters praise central banks for supposedly bringing economic stability, Dr. Shostak explains that their presence makes things unstable because they break the relationship between saving and lending.
Keynesian orthodoxy claims government can successfully counter recession through "expansionary" policies. To the contrary, these policies increase the danger to the economy.
It seems that governments want to convince us that they have saved the world when the reality is that the misguided lockdowns were the cause of the economic debacle and lifting them is the main cause of the recovery.
An unheralded work on the Austrian business cycle that rivals the work of the greats is Jesús Huerta de Soto’s Money, Bank Credit, and Economic Cycles, which outlines a multistate process of boom and bust.
Thanks to past interventions, the economy is now rife with malinvestments and prices that don't reflect real demand. The solution is to allow deflation and other types of painful readjustment. Otherwise true growth will elude us.
The latest installment in the Understanding Money Mechanics series summarizes the theory of the business cycle originally published in 1912 by Ludwig von Mises and elaborated by Friedrich Hayek.
