Weimar solution beckons as manufacturing crashes in US Fifth District? … Worker at General Motors. The collapse in US manufacturing is worrying … If so, we can all have a ferocious argument – yet again – about what to do next to avoid a global depression (if we are not in a "contained" variant already). Needless to say, I will be advocating 1933 monetary stimulus à l'outrance, or trillions of asset purchases through old fashioned open-market operations through the quantity of money effect (NOT INTEREST RATE 'CREDITISM') to avert deflation – and continue doing so until nominal GDP is restored to its trend line, at which point the stimulus can be withdrawn again. And the Austro-liquidationists (whom I love during bubbles, and hate during busts) can all hurl shoes at me. – UK Telegraph
Dominant Social Theme: Money printing is a necessity.
Free-Market Analysis: Ambrose Evans-Pritchard is feeling the heat from his suddenly affirmed Keynesian tendency and has mentioned it in this article appearing in the UK Telegraph (see above).
What might seem an unimportant conversation between a journo and his readers is much more important than that, in our humble opinion. The conversation is actually breathtakingly sophisticated compared to the kinds of monetary discussions that occurred in the 20th century.
It shows us how far what we call the Internet Reformation has travelled in a short ten years. In fact, the interplay is equivalent to what might have been found in a Mises Foundation free-market journal in the 20th century, written by a handful of idiosyncratic outsiders on cheap paper and distributed to a tiny audience of aficionados.
But in the 21st century, this conversation takes place on the Internet within the context of literally millions of readers. Evans-Pritchard discusses his Keynesian sympathies and readers fire back. Here's some more from the article:
As Britain tanks by 0.7pc in the second quarter (much worse than Spain at 0.4pc), it is worth keeping a close eye on the very ominous turn of events in the US. The Richmond Fed's twin indices of manufacturing and services – a very good indicator at the onset of the Great Recession – collapsed this month.
They are now falling at a steeper pace than in early 2008. Current activity in manufacturing fell 16 points from -1 to -17. That is a major shock. We will find out soon what the US GDP numbers are for Q2. The preliminary reading will no doubt be positive, creating a false sense of relief.
But remember, the GDP data was massively wrong at the inflection point in early- to mid-2008. The first read of Q2 2008 was solid growth of 1.9pc. Only later did it become clear that the US recession began in late 2007, and was much deeper than originally thought. Now it really gets dirty. Weimar without Weimar, so to speak; a victimless crime.
What Evans-Pritchard is referring to here, of course, is the great inflationary depression of the Weimer Republic early this past century. The Weimer inflation is often trotted out as a terrible inevitability but in fact it was a raging inflation in a circumscribed area with unique causes and consequences.
It may not serve as a model for the entire Western world, or even America, in the 21st century. In any event, there is a good deal of irony in its use of the Weimer anecdote, as he is arguing for the kind of monetary stimulation that certainly makes hyperinflation a possibility.
On a deeper level, Evans-Pritchard is adopting the language and promotional elements of the power elite that sponsors both central banking and its various justifications. We wrote about this intellectual tradition (if one can call it that) here:
John Maynard Keynes was indeed in a sense "hired" by the power elite to justify the craziness of allowing a tiny handful of men to fix the value and volume of money around the world on a daily basis.
In the 21st century, the conversation as been fully exposed, and even when someone as financially savvy as Evans-Pritchard begins to make a monetarist argument, he gets a good deal of pushback.
The feedbacks basically debunk Evans-Pritchard's position that extraordinary money printing is necessary to avoid a deeper recession/depression. They point out that such a strategy is monetarily damaging and probably impotent in any case.
What is not discussed, however, is why Evans-Pritchard believes the current system is worth saving. We've written about this many times previously.
The current economic system is the outcome of a century's worth of fiat-money stimulation. Who knows what the larger economy would like if it had grown normally instead of via a series of manic central bank episodes.
China is a good case in point within this context. China's intractable poverty and lack of industrialization has been all but eradicated in the past 30 years. Centuries of impoverishment are being remedied.
At the same time, the economy of the post-war leader of the world, America, is collapsing. Fiat money printing is simply not the answer to economic woes. It is kind of the crack cocaine of monetary remedies. There is an initial rush, but once it wears off the old problems are still present, but only with renewed impetus.
Evans-Pritchard is wrong to argue for the faux-stimulation of paper money printing. The power elite that apparently wants to run the world has created the current monetary paradigm as well as the economies that react to it. But that does not make either state of affairs correct, only ubiquitous.
These kinds of articles and the feedbacks they elicit show us clearly that a new kind of monetary system is probably inevitable. The end result of such suasion as Evans-Pritchard wants to induce is not going to be stimulative but part of a larger crisis of confidence.
The import of these conversations lies not in their narrative but in the interaction itself and its sophistication. It leads us to believe significant changes may be closer than they seem.
And by significant, we mean fundamental.