The current economic crisis

As you know, I don't often write on economic or financial matters but the current crisis now looks so serious that I can't resist putting pen to paper.

If we want to understand what is going on, the first step is to entirely forget all that governments and related authorities (let alone the media) are telling us about "sub-prime" matters.

Yes, the sub-prime debacle was the immediate cause of the trouble we are in. But it was and is "only" an immediate cause. We need to dig much deeper.

The second step is to read Ludwig von Mises' book, The Causes of the Economic Crisis (1931) which remains the foundation-stone for understanding business cycles. He demonstrates that economic booms and busts are the inevitable effects of the government's monopoly over money and banking.

Third, there is now a very much more detailed examination of business cycles in Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto, who argues that fractional-reserve banking is the basic reason for the business cycle. If you don't want to read the entire 875-page tome, then do read Chapter 4, "The Credit Expansion Process", and Chapter 5, " Bank Credit Expansion and Its Effects on the Economic System" - though you may also find useful his Appendix to Chapter 7, " A Critique of Monetarist and Keynesian Theories". The Appendix is on "Life Insurance Companies and Other Non-Bank Financial Intermediaries". He argues that life insurance companies are, or should be, "true financial intermediaries", reflects on the contemporary corruption of traditional life-insurance principles, and brings in mutual funds as well as holding and investment companies as examples of other "true financial intermediaries", before going on to provide some provocative comments on Credit Insurance.

However, de Soto's basic point is that fractional-reserve banking is the basic reason for the business cycle.

Well, here you have two great economists disagreeing: von Mises tells us that the basic cause of booms and busts is government's monopoly over money and banking, while de Soto says that the basic problem is fractional-reserve banking. Which is true?

Actually, both point in the right direction but neither gets at the really basic cause. In spite of von Mises' Jewish heritage, he somehow neglected to examine the possibility that the basic cause is usury. De Soto too refers to usury several times, but does not examine this possibility.

So here is my point of view: the most basic cause of the business cycle is usury. That is then magnified by fractional reserve banking, fiat currencies and government monopolies of money and banking (specifically by Central Banks).

A global economy quite likes booms but naturally does not like (and in any case cannot afford) busts. The simple way to grow beyond the business cycle is to abolish usury throughout the world, and bring in 100% reserve banking, gold-backed currencies and free competition in currencies and money.

Monstrosities such as usury, fractional-reserve banking, fiat currencies and central banking not only have compromised economic stability and freedom, the monstrosities must by their very nature compromiseeconomic stability and freedom. In a globalising society that aspires to be free, these mostrosities are intolerable.

Who is FOR these monstrosities? Basically, governments and anyone else in debt (or who likes to use debt). Who should be AGAINST these monstrosities? Consumers who don't want to be hit by inflation, citizens who don't want their savings to be eaten up by inflation, and everyone interested in nurturing liberty.

Now what has "sub-prime" to do with all this? It was only one example of how the current structure of the global economy encourages money to create booms and busts. So let us use the current crisis to argue for the abolition of usury, fractional-reserve banking, fiat currencies, government monopolies and central banks. If, as a result of the sub-prime crisis, we get away from these key causes of booms and busts, the cost will have been worth paying. Sphere: Related Content