Express

Issue date: 5/11/09 Section: News

This is my last Econoblog for the year. I hope I have shed some light on the most important issue of our day. Contrary to what the media pundits are saying, the financial crisis is far from being over. In fact, I expect it to get much worse. But the one thing I have failed to do through this series is to provide the solution.
So to finish off this series I'll do just that.

As I have said before, the greatest fighter of economic depressions was Warren Harding. Even though inaction won't get you reelected, it is the best strategy. But inaction is only the solution when the market is free. As it stands right now, we are far from having a free market. This is largely due to the Federal Reserve, our biggest problem.

The Federal Reserve creates this massive credit expansion that leads to the artificially low interest rates and massive borrowing. This economic expansion creates these booms which we love so much. But eventually, the boom will come to an end. This is what's happening now.

The market needs to reset completely. Jobs need to be lost, businesses need to fail, and a recession needs to take place. This is the inaction that is required for the best economic recovery.

There is action that needs to be taken. The Federal Reserve should not continue to engage in this credit expansion. The policy needs to be drastically changed in order to avoid these economic meltdowns.

I'm not saying there would never be downturns in the economy without a central bank. I'm just saying there would never be the systematic failure of the largest economy in the world.

And when these downturns do occur in the market, it is best to sit back and let the market adjust. Fortunately, without the Federal Reserve's credit expansion we would never have as bad of a crisis as we have now. The downturns would be minimal.

So this is my proposed solution: Stop the credit expansion of the Federal Reserve, let all banks and businesses fail, don't give government employment, don't increase taxes, and massively cut the size of government.

That's it for this series; I hope everyone has enjoyed my opinions of this crisis. I can always be reached at

matthew.hickok@gmail.com if you have any questions or comments.

As for an ending note, I would like to leave you with a quote from my favorite economist, Murray Rothbard: "This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio."

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