Americans to Bear Burden of Monetary System’s Gradual Deterioration, Economist Says

The Epoch Times Header

Ordinary Americans can expect their wealth to get repeatedly chipped away as the monetary system degrades and requires progressively more intervention by authorities to perpetuate itself, according to an influential author and economist. It may take “a very long time,” however, for the system to actually break, he told The Epoch Times.

The recent downfall of two sizable American banks, Silicon Valley Bank (SVB) and First Republic Bank, rattled the financial markets. Investors are now looking to the Federal Reserve to provide relief and within months reverse its policy of raising interest rates. That’s after the central bank, together with the Treasury and the Federal Deposit Insurance Corporation (FDIC), already shored up the banking sector, offering special loans and guaranteeing uninsured deposits for the failed banks.

The failures, however, represent a symptom of a broader problem—one the central bank can’t fix, according to Daniel Lacalle, fund manager, economist, and prolific author.

“The problem here is the concept of ‘what can be done?’” he said, arguing central bank market interventions intended to smooth over market perturbations tend to simply redistribute the risk and losses—and at the added cost of making the system more fragile in the long run.

“Every time they try to solve a bubble with more liquidity injections, they create another bubble,” he said. “What you have to do first is not implement crazy monetary policies.”

He was referring to the policy of extremely low interest rates that the Fed maintained for most of the past decade.

Free Money

Lacalle alluded to the Austrian economic theory, which posits that central banks can’t set interest rates correctly. When the economy is not doing well, central banks set the rates artificially low in order to “stimulate” the economy. That allows companies to loosen fiscal discipline and makes credit available to projects that would be otherwise too risky to attract capital. When the economy “overheats”—the availability of credit outstrips the production capacity of the economy, resulting in inflation—the central bank raises rates, tightens credit, and the poorly performing risky projects go under. Because rate hikes take more than a year to fully manifest in the economy, central bankers tend to continue hiking for too long. Excessively high rates then cause the destruction of even viable businesses. Recession ensues. The central bank then tries to cushion the recession blow by dramatically cutting rates, thereby repeating the cycle.

By Petr Svab

Read Full Article on TheEpochTimes.com

The Epoch Times
The Epoch Timeshttps://www.theepochtimes.com/
Tired of biased news? The Epoch Times is truthful, factual news that other media outlets don't report. No spin. No agenda. Just honest journalism like it used to be.

Columns

Pesky 9/11 Conspiracies Remain Without Explanation!

Wisconsin Senator Ron Johnson (R) recently appeared in an...

Targeting Military Installations, IP Theft: A Look at Criminal Cases Involving Chinese Students

Trump admin’s pledge to “aggressively” revoke visas of Chinese students was made after years of concern over CCP efforts to infiltrate U.S. academia.

Alleged CCP Influence Operations Involve Paid Protesters in New York

Tactics used by the Chinese Communist Party (CCP) to influence public perception in the United States appear to be evolving.

Big Tech Liberals are Using AI to Censor Conservatives

The Federal Trade Commission is gathering information to expose how technology platforms have violated the law in censoring Americans.

Unveiled: Gynocrats’ Brave and Stunning Strategy to Woo Back Male Voters

There’s nothing — nothing — that drives Democrats more bananas than...

News

New COVID Variant NB.1.8.1 Starting to Spread Worldwide: What We Know

WHO has said that the COVID-19 variant NB.1.8.1 is causing more infections worldwide, as China’s health agency said it’s the dominant variant.

Western Pennsylvania Communities Welcome New Steel Partnership, Trump’s Arrival at Rally

Steel workers and Pittsburgh community are looking forward to Trump’s rally at U.S. Steel Corp’s Irvin Works, grateful for efforts to bolster local industries.

Barron Trump Didn’t Apply to Harvard, White House Says

First Lady Melania Trump rejected speculation that Barron Trump was denied admission into Harvard, saying he didn’t apply to the Ivy League school.

PCE Inflation Inches Closer to the Federal Reserve’s 2 Percent Target

According to Bureau of Economic Analysis, PCE inflation slowed to 2.1% last month, from 2.3% in March, the lowest reading since September 2024.

Supreme Court Allows Trump Admin to Remove Parole Status of Immigrants From 4 Countries

Supreme Court temporarily stayed lower court decision halting Trump admin’s removal of parole for immigrants from Cuba, Haiti, Nicaragua, and Venezuela.

Mars Inc. Says It Removed Additive Targeted by RFK Jr. From Skittles

Skittles no longer contains titanium dioxide, identified as potentially problematic by RFK’s commission report, candy’s manufacturer said.

FBI’s Bongino Says Agency Probing COVID-19 Origin Cover-Up as New Strain Drives Cases

FBI is investigating alleged cover-up of origins of COVID-19, agency’s deputy dir., Dan Bongino, said as a new strain of virus circulates in parts of the world.

SEC Dismisses Lawsuit Against Crypto Exchange Binance

SEC on May 29 voluntarily dismissed its civil lawsuit against cryptocurrency exchange Binance, following a nearly two-year legal battle.
spot_img

Related Articles