john cochran: How Centrally Planned Money Caused The Crisis

It’s impossible for a market economy to function non-pathologically when the backbone of the system — the communication transmission mechanism of money prices — is constantly short-circuited by an unworkable attempt at central planning. John Cochran explains. Quotable:

A major significant failure of the resurgence of market-oriented policies [since the 1980s] was a failure to reform the monetary system. This failure left significant control and direction of all aspects of money, credit, and financial flows under central-bank planning and control. The resulting monetary and financial crisis is not a market failure, but a central-planning failure — an artificial boom is a centrally controlled misdirection of production.

The resulting crisis is a “mini” [socialist] calculation failure. This failure to build economic success and freedom on a solid foundation — a market determined money, a sound money — has resulted in two Fed-originated boom-bust cycles in the last ten years. The most recent and most severe was a direct result of the Fed’s overstimulating the economy in 2002–2004 in an attempt to postpone a necessary correction. By keeping the federal-funds rate too low policy successfully masked the misdirections of production from the previous boom, prevented or postponed the needed corrections, and, predictably, misdirected production in other channels — housing and commercial real estate relative to the earlier dot-com boom — making the necessary redirections more severe.

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In a free society there can be no doubt that some minimum of food, shelter, and clothing can be assured to everybody. — F. A. Hayek

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