Quick thought of the day...
The world is Keynesian now - even the "Republican" president of the USA is talking about spending $1 Trillion on infrastructure in order to "prime the pump". Classical economics is dead.
F. Hayek though that this pump priming always leads to bubbles,and that collapsing bubbles were more painful to go through than plowing through a recession,setting up real positive growth when you came out the other side.
The thought - we are now so deep into the mindset of a Keynesian bubble-fest that we do not even think about the alternative. Investors buy when news is bad hoping for more stimulus and intervention. Governments and central bankers spend most of their time inventing new tools to be used to stimulate growth (NB - expect the US Fed to be on to negative interest rates within a few years.) The world blithely stumbles along with mass indebtedness hoping and praying for more borrowing to cure what ails them.
The alternative is balanced budgets and paying off debt while limiting regulations to mitigating the worst ills of capitalism, while also ensuring that competition is fair and letting interest rates find their own level as a reflection of the risk inherent in debt. No one is talking about this today. The last time we did this was after WW2 - when we saw the greatest economic expansion in human history.
What is the cost in terms of investments forgone and risks not taken from knowing that governments are wildly ignorant of the long term risks from excess debt, while also supporting crony capitalism and distorting markets for everything from milk, to gold, to cars, to stocks, to bonds?
The key psychological hallmark of the post-WW2 era was confidence, which is what follows taking on mass debt and winning.
The key psychological hallmark of today is the unspoken fear that comes with the realization of mass financial indebtedness and an utterly empty policy toolbox, coupled with an unconscious decision to just ignore it hoping all will miraculously work out well. The "animal spirits" are not released by timidity and fear.
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