Tuesday, January 21, 2014

My letter to the Wall Street Journal re: Central bankers cannot "buy time" for politicians

Re: Euro Zone Must Defeat the Deflation Ogre, by Simon Nixon

Dear Sirs:
Simon Nixon does an admirable job of showing that "cronyism, corruption, and vested interests" are a greater threat to the Euro Zone nations that the so-called (by IMF chief Christine Lagarde) "deflation ogre".  Yet the implication is that the ECB monetary inflation can "buy time for politicians" to get their houses in order.  Such is not the case.  If, in fact, central banks could postpone the day of reckoning, then why not keep printing more money and postpone it forever?  Because the day of reckoning is inevitable and necessary.  More money printing, even if tapered, as the Fed is attempting, masks the underlying additional dislocations to the time structure of production and makes the inevitable correction even that much worse.  Sound money reveals all these dislocations in an economy that has undergone a credit induced boom, and sound money prevents the next boom--and the inevitable and necessary bust--from happening in the first place.

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