Monetary Theory

"The Paul Krugman of 2009 completely disagrees with the Paul Krugman of 2003."

The Fed's present monetary policy appears to be ineffective. Despite massive pumping by the US central bank, commercial bank lending displays sharp declines.

Printing green pieces of paper doesn't make an economy richer. If done without restraint, it leads to runaway price inflation. As an added downside, it also allows governments to slaughter millions of people. (The world wars could not have been waged if the belligerents had stuck to the gold standard.)

Don't be among those who believe that the government has discovered the secret of prosperity in the offices of the Bureau of Engraving and Printing.

The consequences of pumping out many trillions of marks (or even just the few trillions of dollars now being created by the Federal Reserve) are simply catastrophic. And such policies lead, as Professors Mises and Rothbard taught us, to collapse, war, destruction, starvation, and death.

Over time, a situation can emerge where, as a result of persistent loose monetary and fiscal policies, there are not enough wealth generators left.

If the government reduces both taxes and spending, it will leave more money in private hands.

In order to keep up the appearances of prosperity, government spending must be constantly increased, with an ever-increasing share of total production going to the nonproductive.

"The key thing is that the price of producer goods has to fall faster and farther than consumer goods for the correction process to proceed."

The Fed has essentially created the biggest shipment of currency ever, but the crippled banking system hasn't yet delivered it to our prison camp. When it arrives, it might be handy to have some spare smokes around to trade with.