Beginning in 2001, Dr. Kurt Richebächer began writing in his monthly newsletter about what he said would end in disaster in the capital markets, namely, the expansion of central bank credit around the world.
In every issue, he came back to that theme. In every issue, he warned that this was going to create a devastating recession and breakdown of capital markets. The problem was this: however sound his analyses were, issue by issue, it got boring. It was the same old theme, over and over. He became Johnny one-note. He would talk about this aspect of the misallocation of capital, and then in the next issue, he would talk about another aspect. On and on and on he went.
At the age of 88, on August 24, 2007, he died. The following December, the recession hit the United States. Throughout 2008, large, overextended banks and financial houses began to go under, culminating in the bankruptcy of Lehman Brothers in September 2008. In 2009, the worst recession of the post-World War II era was visible to everyone.
He did not live long enough to see the fruition of his predictions. He was right the entire time, but it seemed at the time as though his warnings would never come to fruition. With respect to his own lifetime, they did not come to fruition. He did not live long enough to see the outcome of the capital markets of the process which he had been railing against for six years.
The problem he faced is the problem that David Stockman now faces. Stockman is playing an almost identical tune. He talks about the misallocation of capital, not once a month, but every day. He writes long, detailed articles on it. He is well informed about the details of the financial markets, and he is an Austrian in his perspective on the effects of central bank and commercial bank monetary expansion. He understands Ludwig von Mises’ monetary theory of the business cycle. He not only understands it, he believes it. He not only believes it, he tracks it. He not only tracks it, he reports on it.
I will not say that Stockman’s writing gets boring. He is a lively writer. But his theme is the same, day after day: the misallocation of capital as a result of central bank monetary expansion. He looks at one market. He looks at another market. He sees the same pattern. He keeps coming back to the same message, which is this: central bank inflation and fractional reserve commercial bank inflation have misallocated capital, and when the process finally ceases, there is going to be a crash.
I have no doubt that he is correct. I see the scenario in much the same way. But the problem for Stockman is the problem that Richebächer faced. People get tired of hearing the same old story, despite the fact that the story is accurate.
(For the rest of my article, click the link.)