Nutshell View of Where We are Headed … Off a Cliff

If you want a simple, one article explanation of where we are going, read this article. Simple. Direct. Easy to understand.

From the article:
There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. – Ludwig Von Mises

A step-by-step explanation:

So the process by which the Von Mises prophecy is fulfilled can be generalized like this:

  • The economy has an upswing.
  • The upwsing starts to falter, as is natural to the business cycle.
  • Politicians say “Hey, let’s keep this thing going.”
  • The system is juiced with leverage-enhancing liquidity.
  • Via stimulative reinforcements, a boom mentality takes hold.
  • The boom continues, now in an unnatural state.
  • The “can’t lose” mentality sets in. Greed and hubris run amok.
  • Via risky marginal investments, unproductive debt accumulates.
  • After a period of years (or even decades), cracks reappear.
  • The “mountain of debt” now casts a long cold shadow.
  • That same mountain threatens to topple and collapse.
  • The authorities panic. They know the debt will crush them.
  • To circumvent the avalanche, the debt is monetized.
  • Via monetization, the economy experiences temporary relief.
  • But the relief is not enough… the problems persist…
  • …and so more monetization is applied.
  • As alternative to full collapse, the currency is destroyed.

    Notice where we are in bold. The debt is monetized, the economy experiences temporary relief. This was QE1. But the relief is not enough…the problems persist…and so more monetization is applied (QE2,3,4…)

Happy Sailing.

This entry was posted in monetization, qe, von mises. Bookmark the permalink.

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