Jan Macháček in his regular audit in Respekt he wrote that the Fed and the ECB should be praised, which - unlike crazy politicians - are the only ones behaving sensibly and trying to really do something about the crisis.
Jan Macháček writes:
"Japan's central bank has been printing money for twenty years and has not been able to stop the deflationary stagnation spiral. The US Federal Reserve eased monetary policy in October 2008 and inflation still does not and will not come, even though dogmatists have predicted it for 2009.
Why is it? Probably because the Friedman postulates may still have been valid in the semi-globalized world of the XNUMXs and XNUMXs, in the world of closed laboratories of national economies, but they are no longer valid in a fully globalized world and not at all in the world of so-called deleveraging. Empty money feeds assets abroad, perhaps going to shares or banks hold them in the form of cash, which they are not willing to lend further. But no and not to be reflected in rising consumer prices (a notable exception recently in Britain). "
We will now analyze this piece of text.
Moral hazard by The Bernanke
The US Fed has also loosened monetary policy because private financial institutions have in the past lent both wild "virtual" money in a fractional banking system, that is, how wild it created inflation. They relied on the Fed to "print" new money in case of problems, which in the end happens.
This is called "moral hazard" in economic jargon - financial institutions lend and invest riskier than they would otherwise do because the risk of loss is held by someone else - the Fed. By printing money, the Fed makes the whole situation worse, creating a much greater risk of moral hazard in the future.
Financiers know that in case of problems, gentlemen (and ladies) from the Fed will run with briefcases inflated with new dollars. Why worry about your business and fear of bankruptcy in case of too risky investing? Why assess risk at all investmentwhen the losses are simply paid for by someone else?
Structure, that's what's running here!
And why isn't inflation coming yet? The question is: what is inflation? Actual inflation usually differs significantly from "official" inflation. At the same time, we must realize that the market economy is not a "fixed state" but a development process. New money is gradually entering circulation, so prices are also gradually rising.
It's called economic jargon influencing the capital structure, which is the root cause of the crisis and the main consequence of inflation.
Today, the Fed is "reprinting" new money, catching up with previous inflation created by factional banking (moral hazard), the Fed will soon generate new, future inflation. So is the ECB.
Something about "balancing inflation abroad" is an inapplicable argument. If central banks create global inflation, they can do so thanks to global markets. Although the Japanese do not feel inflation directly in consumer prices, Japanese companies do feel it in the return of global investment. And the fact that they really feel it is also evidenced by the aforementioned 20 years of stagnation.
There is no lack of liquidity, no critical thinking!
"The worst thing is that these lessons from Prague somehow sound in the sense that the ECB and the Fed are acting casually and irresponsibly, that they are printing money because they are bored or perhaps want to please politicians. The opposite is true. In the sad theater performed by impotent European politicians, the ECB appears to be the only responsible institution in the euro area. It is only good that he understands his responsibility more widely than anyone imagined. If the ECB had not bought peripheral bonds, the eurozone would have collapsed by now. "
- Jan Macháček
At present, there is a significant neglect of one option for Fed and ECB advocates: what if the eurozone isn't supposed to be here? What if it's about to fall apart? What if her survival is not a positive phenomenon, but vice versa?
What the eurozone currently lacks is not liquidity, as Macháček and others think, but critical thinking from official positions. The inability of politicians to think at least a little about the existence of the Euro forces us all to pay too high a price for the eurozone. Is it worth it to us?
Let's avoid it
We all know that current politicians do not add much to the good situation. But sometimes it's really better to do nothing, "let it go„. In fact, an active ECB can do much more harm than frightened politicians.
Politicians can stop the growth of our standard of living through taxes or regulations. This can be canceled after the next election.
The ECB and the Fed, with their monetary policy, can wall up any positive future developments with the help of printers and keyboards. However, we will not change their actions "after the elections", we do not collect the issued money back, we will not just fix the capital structure.
The damage done by politics can be reversed anyway. However, the damage done by people from central banks is no longer.
When do we want to solve problems?
"The question is what would have happened without quantitative easing and above-standard programs. The answer is clear: there would be a second Great Depression. Fortunately, thanks to the Fed and the ECB, we only had the Great Recession (so far). "
- Jan Macháček
The question is: when we want to finally solve the problems we have here? At the heart of the crisis are the bad investment carried out under the influence of incorrect pricing information. These bad investment they need to be dismantled, got rid of them, otherwise they will cause more and more crises.
Quantitative easing and other "above standard" programs are not only that many of these (often the largest - see General Motors) bad investment saved (again, we are at moral hazard), but also many new malinvestic created!
However, it is precisely quantitative easing, government incentives and other similar programs that disrupt the functioning of the price mechanism. It is Macháček's much-praised "above-standard programs" that have created bad ones investment through misinformation in the market, they are the ones who created the current crisis.
And again, when do we want to solve the real problems of our economy? By supporting the actions of the Fed and the ECB, we show either our ignorance or our support for postponing the solution to the future. However, the later we embark on a solution, the later we let the crisis manifest itself in full force, the worse it will be.because the more it will be bad investment, the more the structure of capital and price information will be disrupted, the more cheap money will be rooted in the economy.
I am aware of all the social consequences of a possible crisis. That is why I am calling for the ECB and the Fed to do nothing. It is precisely similar institutions - central banks - that have caused the whole problem. We should credit the damage caused by the collapse.
And the sooner the crisis comes, the sooner we will get rid of the problems that central banking has created. Nothing but breaking down the bad investment, namely, there is no crisis.
And the sooner that happens, the easier it will be for all of us. Do we really want to wait until the absolute collapse of the economy?
Who is a dogmatist?
"The very idea that there are the trumpeters in the management of the ECB and the Fed, to whom someone from Prague must explain that they are uneducated, unlearned by history and do it completely wrong, is quite characteristic. "
- Jan Macháček
It is not just about "someone from Prague" - it is about many economists from all over the world, about the whole "Austrian school" and others.
However, yes, science is not democracy (thank God), so even one economist in opposition may be right. However, it does not matter whether he is a damn scientist on the fringes or whether he is the head of the ECB.
At a time when the correctness of the creation and interpretation of scientific theory is judged primarily by the work (or political) position held by a given scientist, it is no longer a question of science, but of politics and ideology.
Those who judge the correctness of the method and theory of scientists according to the positions held by the scientists in question are the very "dogmatists". If Macháček writes about "confused dogmas", he should first and foremost look in the mirror at his own face.