Mises Was Right. Powell Is Wrong.

Unnecessary credit expansion inevitably leads to recession. [The Rude Awakening] December 29, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Mises Was Right. Powell Is Wrong. [Sean Ring] SEAN RING Dear Reader, Initially written in 2022, this piece covers the economic theory behind the credit expansion and the inevitable bust that follows it. Enjoy! —— If you read Mises, Rothbard, Hayek, and Hoppe, none of what’s happening now is surprising. And you’d have known about that outcome for over a decade. What was shocking to us - and yes, I include myself in the not-so-merry band of doom merchants - is the State’s manic quest to maintain power. That’s the only way central banks have been able to keep up this monetary nonsense for so long. And when the policy outcomes are crystal clear, you’ll look wrong for a very long time… until those outcomes finally manifest themselves. So today, let’s look at Powell and Mises and why the inevitable is smacking us in the chops. Let’s Start With Human Action As you read this next bit, consider how it applies to today’s world. In his magnum opus, [Human Action]( Mises writes (bolds mine): Economics recommends neither inflationary nor deflationary policy. It does not urge the governments to tamper with the market’s choice of a medium of exchange. It establishes only the following truths: - By committing itself to an inflationary or deflationary policy a government does not promote the public welfare, the commonweal, or the interests of the whole nation. It merely favors one or several groups of the population at the expense of other groups. - It is impossible to know in advance which group will be favored by a definite inflationary or deflationary measure and to what extent. These effects depend on the whole complex of the market data involved. They also depend largely on the speed of the inflationary or deflationary movements and may be completely reversed with the progress of these movements. - At any rate, a monetary expansion results in misinvestment of capital and overconsumption. It leaves the nation as a whole poorer, not richer. - Continued inflation must finally end in the crack-up boom, the complete breakdown of the currency system. - Deflationary policy is costly for the treasury and unpopular with the masses. But inflationary policy is a boon for the treasury and very popular with the ignorant. Practically, the danger of deflation is but slight, and the danger of inflation tremendous. Much of this will sound familiar to you, I’m sure. But it’s incredible to me how Mises organized this knowledge decades ago. It resonates because it’s a universal set of truths. Notice especially point 3. Mises explains that monetary expansion results in malinvestment, leading to inflation. Inflation leads to a crack-up boom and breaks down the currency system. Sound familiar? It’s hard to take Jay Powell’s testimony seriously when you know this. Powell’s Testimony I had a chance to review Jay Powell’s uncomfortable [testimony]( and Q&A session before the Senate yesterday. He opened by saying: At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all. Nowhere does Powell say, “Look, we were too expansionary for too long. We caused all this inflation by recklessly expanding the money supply. Now, we’re ratcheting up rates as fast as we think the markets can take it, so we kill the inflation we, The Fed, created.” A simple mea culpa wouldn’t go amiss, Jay. It’s Not the Hikes. It’s What Came Before. Let’s remind ourselves of the rampant money printing Jay Powell and his predecessors took part in: [Rude] The first gray bit is the recession during the Great Financial Crisis. Before that, the Fed’s balance sheet was about $1 trillion. Afterward, it nearly quintupled until the coronavirus crash, when it went up to $7 trillion. Powell didn’t stop there. Now we’re at $9 trillion, but you may notice a little arc downward. That’s the Fed trying to unwind this mess. It won’t happen cleanly or with a “soft landing.” This reckless balance sheet expansion has led to massive malinvestment. That’s the problem. Raising interest rates to a more normal level is the consequence of prior stupidity. Not the cause of a coming recession. However, raising rates will indeed harm businesses. And the Fed speeding up these hikes will only hurt more. [ALERT: Tiny “AI Crypto” Set To Soar?]( Jim Rickards, James Altucher, and Ray Blanco dropped a bombshell on the AI Prophet Mastermind attendees. THREE tiny AI stocks are set to explode during AI’s Second Wave. Stocks that they gave away for FREE at [this event](. In fact, one is still trading for just a couple of bucks. [Click here to get the ticker details now.]( [Click Here To Learn More]( Mises Knew How It Ended Mises wrote this piece, "[Inflation Must End in a Slump]( [in 1951](. In the article, he said that all periods of government-induced credit expansion must end in an economic crisis: This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for nonexisting capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too. Amazingly, it was written in 1951. It looks like it was printed yesterday. Wrap Up “You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work. And I hope you’ll reconsider that before you drive this economy off a cliff,” said Senator Elizabeth Warren. Pigs must be flying for me to agree with her. Of course, the Democrats will complain. But Republicans showed a bit of backbone as well. Senator Richard Shelby chimed in, “I believe the Federal Reserve and this administration failed the American people by not heeding these warnings a year ago and by not acting sooner to address it.” Yes. Senator Mike Rounds also mentioned that Powell would be the one who’ll take the fall should the economy roll over. I’m not sure that matters anymore. Nothing will happen to Powell besides a slightly tarnished reputation and a cushy retirement. Still, it’s galling watching this slow-motion car crash when great economists of old already told us what would happen. Have a great weekend! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( [PREDICTION: The Next Trillion-Dollar Stock]( [Click here to learn more]( In 2007, he predicted Facebook would become a $100 billion company. In 2010, he predicted Apple would reach a three-trillion-dollar valuation. 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