My former partner (Mauldin) and my former stock broker (Schiff) square off. This is the way to get issues clearer.
It’s muddle-through economics vs. the Austrian theory of the business cycle.
My view: it’s time to prepare personally for the impact of the Austrian theory of the business cycle by taking advantage of Bernanke’s monetary muddling.
Keynes will lose this war in retrospect. Fiat money will not fund at zero social and economic cost the massive federal deficits that are justified by economists who claim to be extending Keynes’ legacy, but who in fact have no theory, merely ad hoc justifications of the relentless bureaucratization of the economy by means of the Federal Reserve System.
Mises long ago won this analytical war. But people will not believe this until it comes out of their hides. It will. The question is: How soon?
Keep this analytical question in the back of your mind. “Where does the federal government get the extra money beyond taxes to run its $1 trillion-a-year deficits?” There are two answers: (1) borrowed money that would otherwise have funded capital expansion; (2) the Federal Reserve’s creation of digits out of nothing.
Next question: “Do digits create wealth?” Alternatively: “Do we really get something (economic growth) for nothing (digits)?”
Then ask this: “If the federal government ran budget surpluses, where would the money saved go?”
If you answered, “into the private sector,” go to the front of the class.
On this, there was agreement: the unfunded liabilities of the U.S. government are unsustainable.