When asked on CNBC what he would take if he were appointed the US Fed chairman, Jim Rogers is reported to have said that he would abolish the Fed and then resign…
Absolutely. It is long past time for us to abandon the superstitions of central banking. For decades we’ve been told that central banks are essential to provide “liquidity” to financial institutions, to carry out the scientific management of the money supply, and to provide macroeconomic stability in general. For anyone paying attention, each of these claims stands exposed today as a joke, a fraud, or both.
As Hayek showed, central banks create the phony booms, the false prosperity, and the misallocation of resources, all of which culminates in an inevitable bust. And when they do go bad, the free market takes the blame. It’s about time for supporters of the free market to abandon institutions like the Fed, which, I repeat, are interventions into the free market such people claim to believe in.
Do you feel Barack Obama and his team of officials will be able to get US out of this rubble?
I have confidence in Obama’s team —- confidence, that is, that he and Congress will continue to do the exact opposite of what anyone with any sense would do.
If Obama can’t take the trouble to learn sound economics, he can at least learn from American history. In 1920-21, the US faced a depression that was worse in its first 12 months than was the Great Depression in its first 12 months. Instead of the absurdity of fiscal “stimulus,” the US government actually cut its budget. The Federal Reserve essentially stayed out; the Fed didn’t engage in open market operations until 1922, in fact.
The result? The beginnings of recovery by the summer of 1921. And as I show in Meltdown, this happy result occurred not in spite of the absence of fiscal and monetary stimulus. It occurred because those destructive courses of action were not taken.
That is what we need now. Monetary and fiscal stimulus disrupt and confuse the market’s normal recovery mechanisms... Bailouts, needless to say, disrupt the process further. Instead of letting resources shift from incompetent hands to capable hands, they stay frozen in the possession of those who have proven themselves poor stewards of those resources. How can this do anything but ‘zombify’ the economy?
You recently called the US a banana republic…
Banana republics are associated with several characteristic phenomena: a defiance of the rule of law; the use of inflation, usually on a substantial scale, as a conscious tool of policy; and very high spending and corruption. Every country on earth qualifies to one degree or another, but the US is moving so rapidly according to each of these indicators that I thought the term was apt.
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