PAGING MR DRAGHI

PAGING MR DRAGHI

Yesterday’s post THE TRILLION EURO MAN concerned   the most flagrant EUR market manipulation planned to date, which may have serious unforeseen and unintended consequences.

However Mr Draghi can hardly claim with his background that he does not know the consequences of his acts. He obtained a PhD in economics from the Massachusetts Institute of Technology in 1976 under the supervision of two Nobel Laureates Franco Modigliani and Robert Solow. Surely in his studies he read not only Keynesian economists, but also Ludwig Von Mises, Friedrich Hayek, a Nobel Prize winner in his own right, and Hayek’s student Murray Rothbard of the Mises Institute and Austrian school of economics. 

One of Murray Rothbard’s most important contributions to 20^th Century economics was his study of “America’s Great Depression:” widely recognized, even by Ben Bernanke, as the closest parallel to today’s situation.

Among the most significant conclusions of the study were:

“If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt? The first and clearest injunction is: don’t interfere with the market’s adjustment process. The more the government intervenes to delay the market’s adjustment, the longer and more grueling the depression will be, and the more difficult will be the road to complete recovery.”

Rothbard went on to write “The longer the inflationary boom continues the more painful and severe will be the necessary adjustment process… the boom cannot continue indefinitely, because eventually the public awakens to the governmental policy of permanent inflation, and flees from money into goods, making its purchases while the currency is worth more than it will be in future.”

“The result will be a ‘runaway’ or hyperinflation, so familiar to history, and particularly to the modern world. (Weimar Republic) Hyperinflation, on any count, is far worse than any depression: it destroys the currency – the lifeblood of the economy; it ruins and shatters the middle class and all ‘fixed income groups;’ it wreaks havoc unbounded… To avoid such a calamity, then, credit expansion must stop sometime, and this will bring a depression into being.”

Mr Draghi knows all this, the examples of the Weimar Republic and the Great Depression are taught to every economics student.

Why then is he deliberately and with premeditation, pursuing money creating highly inflationary policies, regardless of the known consequences, for the middle classes and people on fixed income such as retirees?