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chefjeff
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01-02-2010, 04:12 PM

Quote:
Originally Posted by jsp View Post
I found this little blurb in one of Keen's published economics papers entitled "The coming depression and the end of economic delusion" (here, p.135).
Therefore, although I differ with the Austrian school of economics in both my underlying analysis of capitalism and my preferred solutions to this crisis, I concur with them that government intervention has made this crisis far worse than it would have otherwise been. Where I differ from them is that, while they would see such a system as a nirvana, I would still expect a Minskian financial cycle that culminated every 20–30 years in a financial crisis like those that peppered the nineteenth century. They just wouldn’t be as big and as systemically threatening as the one that misguided, neoclassically inspired government regulation has given us this time.
For now, I agree with Keen's assessment. Though, if we were to reach "nirvana" according to some Austrians such as Rothbard who believe all fractional reserve banking should be abolished (not all Austrians believe this), then I feel this would solve the boom-bust cycles. However, the question then becomes would we want to live in such an economy? Karl Denninger has argued how fractional reserve banking comes with both benefits and drawbacks, and that he believes the pros more than outweighs the cons. The main disadvantage in an economy allowing FRB is that recessions/deflation are absolutely mandatory in order for the economy to purge all the malinvested debt accumulated over time. If government intervention prevents them from happening (as the case with this country the past several decades), then we'll have a complete disaster like what we're just beginning to experience.
Great questions and my answer is the same as for other things: Let the market, not the govt, for money and banking decide. And the ONLY way to have that happen is with maximized liberty which means you-know-what and on that, I think we mostly agree.

How are you protecting yourself against deflation, if you don't mind my asking?

Jeff Livingston
  
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