Saturday, September 20, 2008

#147 - How depressions/recessions get prolonged

when credit runs loose, prices get artificially high, and there isn't enough saving to serve as a foundation for the corresponding economic adjustment.

The great depression, and the currenct economic crisis are economic adjustments similar to cup with too much water.

Let's say the cup is the economy and water is credit, if you pour too much water in the cup what happens?

It overflows, but for how long, until you let enough water spill out till it reaches a point where the cup can support the amount of water still left. Although if you keep pouring water in hopes of keeping the same level of water you had originally you just prolong the overflow.

The government is feeding more credit into the overextended economy with bailouts and price manipulation which only prolongs the inevitable and sets the stage for a monetary collapse.

Of coursge to learn all the technical details go to http://www.mises.org


Note: During the depression the new deal which manipulated wages and prices actually suppressed job creation instead of helping it, prolonging the depression. The depression ended in spite of the new deal, not cause of it. Also, Herbert Hoover did not cause the depression by being hands off the market, he also signed in plenty of legislation increasing tariffs and manipulating prices which help make the great depressions worse.

For more on this read the book "The Politically Incorrect Guide to Capitalism"

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