Ambrose Evans-Pritchard is a Keynesian journalist. He fears price deflation more than any other economic outcome. He has warned against price deflation for years.
Put differently, he fears a recession that will re-price assets in terms of what the public really is willing to pay. He fears a time of pricing in which the price inflation that has been created by central bank monetary inflation brings prices into line with what customers are willing to pay. He fears customer authority.
All economists do, except for the Austrians. They reject the idea that central bank inflation that distorts the most important prices in an economy — interest rates — should ever return to normal, as in “rates left alone by the legalized counterfeiting of fractional reserve banking. They think that central banks must create fiat money in order to lower rates — forever.
They believe that the policy of monetary inflation, once adopted, must never be abandoned,
Therefore, the headline reads: World risks deflationary shock as BRICS puncture credit bubbles.
Austrians read this: World risks lower priced goods and capital as BRICS reduce legalized. counterfeiting.
He writes: “As matters stand, the next recession will push the Western economic system over the edge into deflation.”
Austrians read: “The Austrian theory of the boom-bust cycle is still operating.”
He writes: “It is a remarkable state of affairs that the G2 monetary superpowers — the US and China — should both be tightening.”
Austrians read: “It is a remarkable state of affairs that the G2 monetary superpowers — the US and China — should both be tightening.”
He issues his warning: “Half the world economy is one accident away from a deflation trap. The International Monetary Fund says the probability may now be as high as 20pc.”
Economies are threatened by accidents only when central bank counterfeiting has created an unsustainable boom. All booms are unsustainable by counterfeiting. What happens when they cease counterfeiting at the older, higher rate is not an accident. It is the free market’s outcome: re-pricing assets whose prices had been driven up by the counterfeiting.
(For the rest of my article, click the link.)