Friday, 25 March 2016

How To Create Financial "Instability"

In my opinion, the savings data reported by the BEA is among the most important statistics reported for the U.S. Data for Q4 last year was reported today, and comparing it with money supply developments is important for a very intuitive reason: F.A. Hayek once explained that "...saving at a continuously high rate is an important safeguard of stability" and that a high rate of saving would also "...tend to mitigate disturbances arising from fluctuations in credit" (Profits, Interest and Investment, p. 168).

Well, in the U.S. the "guardian" of "financial stability", the Fed, has helped, with great assistance from congress, pull the economy in the completely opposite direction. Here's the "result" as of Q4 2015. 

Economic "policies" in the U.S. is, as they are throughout most of the world these days, geared toward increased consumption (and not production) facilitated by an increase in the quantity of money and a relative drop in the savings rate. In short, economic policies are geared toward increased financial instability. So don't be surprised if the increasing financial instability we've seen of late continues and becomes worse. Much worse.

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