Is QE3 Ahead?
Austrian School economists have often explained the business cycle using the metaphor of liquor or drugs. The expansion of paper money and credit gives a sense of exuberance, an economic high that leads to excessive risk-taking and ballooning production. But it can’t be sustained. There is a morning after.
Then what? There is a choice: more drugs and liquor or sobriety. Sadly, the economy – meaning the choices made by you, me, and billions of others – is not permitted to make the choice. It is made for us by our lords and masters in Washington. Here are the meth dealers. Guess what choice they make.
And so we had Bush’s QE1 (QE stands for “quantitative easing,” a euphemism for printing money), but the effects didn’t last that long. Then there was Obama’s QE2, and the effects of which are likely to run out sometime this summer. (As an aside, maybe we should just start referring to the QE[n] administration, inserting the appropriate number, since otherwise these presidents are mostly interchangeable.)
Note the following important point. These various attempts to restore the inebriated happy time have unpredictable and uncontrollable effects, and the metaphor helps here, too. The body is weakened. It might take more of the drug to get the same effect. The drug promotes underlying disease. Each new dose makes the person ever less rational and coherent.
The stimulant can land everywhere but where it is intended to land by the money printers. The Fed wanted to lift housing prices and re-stimulate the entire real estate sector. But guess what? Housing prices are still falling, and new home construction just tanked at a faster rate than at any time in 27 years.
And now… the rest of the story. …..
Harold
