[tolbiny]

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Correct me if I'm wrong, but I thought the position of the Austrians was that the contraction was a result of government intervention. I'll come back to this.

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The issue at hand here is what caused the depression and how are those factors working today. It was government intervention (from the Austrian perspective) trying to prevent the market correction that was the problem, not the specific mechanism they chose. If your driving 100 miles an hour and hit a patch of ice you screwed regardless of whether you hit the brakes or not, turn into the skid or not, the problem was driving far to fast.

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Overall numbers on the economy are actually quite good, in spite of the problems you mention. link


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Again there is a fundamental disagreement on what value these numbers hold. If you use the method of CPI calculation from 1980 to figure inflation then those numbers look far worse. From the Austrian perspective, the actions that produce short term "gains" like this in the third quarter will lead to long term losses. The fed rate cuts which appear to have boosted the economy have only done so by encouraging, enabling, or causing (depending on your view) higher inflation over the next X number of years.

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His name is Alan Greenspan.

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The funny thing about Alan Greenspan is the way his opinion on matters changes depending on his job title. Prior to his position at the fed he was in favor of the gold standard, with the fed he held rates at historic lows for long stretches, recently he's been talking about the likelihood of a recession, diversifying out of the dollar and risks of inflation. AG's position on the American economy going forward cannot be described as bullish for sure.

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Also, the holders or dollars do not have an incentive to deplete their own wealth. Does this statement make sense? "OMFG - The dollar is falling and we are having inflation....I know lets dump dollars and make our problems worse." No - The incentive is to create economic activity; i.e. INVEST dollars, not dump them.

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The Chinese, Saudis and other currency holders are not able to "create economic activity" simply with dollars, they can only look for good investment opportunities they cannot create them. If the fundamental problems exist in the economy pumping dollars into it won't help. China can't stop Bernake from printing more money by investing in the US, but they can limit their exposure to the fall by moving away from dollars. As long as you have more dollar sellers than dollar buyers you have a depreciating currency, for a country that imports far more than they export this bodes extremely badly for the US economy.



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I think that intervention in the market by an organization like the fed is a means of encouraging and sustaining that activity. The non-interventionalists think that intervention undermines that activity. I submit that the interests of government and capital intersect in having a robust economy. I also assert a policy resulting in something that undermines that interest is highly unlikely, as self destruction is not the nature of government or business.

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Businesses fail all the time, its not in the owners' interests to fail, but it happens. The market stays healthy through competition, government has no competition and government limits competition in the marketplace. Having a self interest is not enough, there needs to be a mechanism that correctly identifies good decisions and rewards them, and punishes bad decisions.