Wednesday, September 27, 2006

So, Said Fred..


"To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end." - Friedrich Hayek 1933

Enough said Fred.

Imagine if Hayek was alive today; looking for a concrete (or timber framed) example to support his thesis that curing a debt binge with more debt was a bad idea. Where oh where would he find a debt engrossed 'guinea pig' to observe,..... no don't tell me... its on the tip of my tongue.

2 comments:

John Fleming said...

About everywhere, I suppose?

dloob said...

I suppose it all goes back to the dotcom boom and the attempt to but off the fallout from that bubble bursting and the 9/11 fallout with a big burst of cheap credit.
It just delayed the downturn and will probably make it worse.

In our neck of the woods it fueled the property market while the rest of our economy weakened. I fear our dependance on construction and the public sector will badly damage the economy as the property market slows and goes into reverse.

Have we squandered our prosperity?