Douglas Carswell's Blog

Central banks hand out more cash - it ain't going to work this time either

Central banks around the world, led by the US Fed, have increased liquidity with lots of cheap cash for big banks, the headlines tell us this morning. 

One or two pundits have even implied that this will avert the next episode in the West's unfolding financial drama.

But hold on a second.  What makes anyone believe that making lots of cheap cash available to banks is going to work this time?  Isn't that pretty much what central banks have been doing ever since the credit crunch first struck.  It's hardly fixed the problem, has it?

Indeed, it has been central banks making lots of cheap cash and credit available for the past twenty something years that landed us in this mess to start with.  

Credit conjured out of thin air by central banks is not someone else's defered consumption - also know as savings.  Which means that whatever sort of economic activity it then stimulates will turn out to be a bubble.  Far from being real credit, generating sustainable growth, it turns out to be economic candy floss.  One big sugar rush.     

When, the central bankers ought to be thinking, did you ever cure a patient by giving them more of what made them ill?

Media pundits should not be quoting central bankers this morning, but Ludwig von Mises or Ayn Rand:

"It is not the moochers or the looters who give value to money" - Ayn Rand, Atlas Shrugged

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved" - Ludwig von Mises, Human Action

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