"The financial crisis has fully exposed the intellectual bankruptcy
of the world’s central bankers.
...Central bankers neglect the fact that interest rates are prices.
Manipulating those prices through credit expansion or contraction
has real and deleterious effects on the economy.
...the myth persists that central banks are a necessary component of market economies.
These economists understand
that having wages or commodity prices established by government fiat
would cause shortages, misallocations of capital and hardship.
Yet they accept at face value the notion
that central banks must determine not only the supply of one particular commodity
– but also the cost of that commodity via the setting of interest rates.
Printing unlimited amounts of money does not lead to unlimited prosperity.
This is readily apparent
from observing the Fed’s monetary policy over the past two decades.
It has pumped trillions of dollars into the economy,
providing money to banks with the hope that this new money will spur lending
and, in turn, consumption.
These interventions are intended to raise stock prices,
lower borrowing costs for companies and individuals, and maintain high housing prices.
...Fed governors behave as if the height of the credit bubble
is the status quo to which we need to return.
This confuses money with wealth,
and reflects the idea that prosperity stems from high asset prices
and large amounts of money and credit.
...the dotcom bubble of the early 2000s; and the current recession
all have their root in the Fed’s loose monetary policy.
Each of these crises began with an inflationary monetary policy that led to bubbles,
and the solution to the busts that inevitably followed
has always been to reflate the bubble.
...Lowering interest rates
in an attempt to forestall a recession in the aftermath of the dotcom bubble
required massive credit creation that led to the housing bubble,
the collapse of which we still have not recovered from today.
Failing to learn the lesson of the bursting of both the dotcom bubble and the housing bubble,
the Fed has pumped trillions of dollars into the economy
and has promised to leave interest rates at zero through to at least 2014.
This will only ensure that the next crisis will be even more destructive than the current one.
...Through currency swaps,
it has committed to offering potentially hundreds of billions of US dollars
to the European Central Bank
and we cannot rule out the possibility of direct intervention.
...it is a problem of poorly allocated investments
caused by improper pricing of money and credit pricing
which is distorted by the Fed’s inflationary actions.
The Fed has made banks and corporations dependent on cheap money.
...We live in a world
that seems to have abandoned the concept of savings and investment
as the source of real wealth and economic growth.
Financial markets clamour for more cheap money creation on the part of central banks.
Hopes of further quantitative easing from the Fed, the Bank of England, or the Bank of Japan
– or further longer-term refinancing operations from the ECB – buoy markets,
while decisions not to intervene can cause stocks to plummet.
The so-called capitalists have forgotten
that capital cannot be created by government fiat.
...True prosperity requires sound money, increased productivity,
and increased savings and investment.
The world is awash in US dollars,
and a currency crisis involving the world’s reserve currency
would be an unprecedented catastrophe.
No amount of monetary expansion can solve our current financial problems,
but it can make those problems much worse."