Today in the The Telegraph, there is an excellent article by Allister Heath blasting to the arrogance of central bankers and their role in the growing global financial crisis.
Heath goes on to illustrate how vital Austrian economics is to understanding how the world really works:
It was Friedrich von Hayek, the great Austrian economist, who explained just how central the price system is to capitalism and our civilisation’s astonishing prosperity. The fact that goods, services, assets, money, time, ideas and risk all come with a price attached allows resources to be allocated remarkably effectively....
Instead of working freely, as it should, the market has become distorted and corrupted, sending out misleading price signals and guaranteeing clusters of errors from investors. A failed intervention begets another failed intervention, and another, and another: this cycle has been ongoing for 25 years at least, triggering ever more extreme action. None of this is novel: Ludwig von Mises, another Austrian economist, described earlier versions of this phenomenon in the early 20th century. The next step in some countries will be negative interest rates, followed by helicopter money. Central banks need to ensure that there is enough money in the economy. But they should follow simple rules to ensure that this happens, not seek to micro-manage sentiment.
The price of equities should be determined by investors interacting freely; instead, the primary driver is now hints from the Federal Reserve. This isn’t right; it is bad for our long-run economic prosperity and very dangerous politically. Other markets are equally mispriced. A 10-year Bond yield at 0.168pc implies zero growth and zero inflation for the next decade, which is nonsense. Investors who feel let down by central banks are fleeing equities and piling into safe havens beyond anything that can be justified through fundamental analysis. This storm may yet blow over, but the economy will only be truly cured when the root causes of its ailment are finally addressed.
