TD₿: Austrian Monetary Economics & Bitcoin by Stephan Livera with Dr. Guido Hülsmann
TL;DR Government and central bank intervention lead to a deterioration in the quality of money.
Hey Bitcoiners,
If I were asked to describe the last several decades of central bank policy in one word, it would be “interventionism.”
It all really started with former Federal Reserve Chairman Alan Greenspan. His ideas that the Federal Reserve should backstop markets began way back in 1987 when the stock market crashed.
As the story goes…Alan Greenspan was on an airplane to Dallas on “Black Monday” when the stock market began to crash. On arrival, he made a few phone calls, and early the next day, the Fed issued a statement.👇
“The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”
It followed up that statement with substantial open market purchases over the next days and weeks. In other words, it created more money and injected liquidity into the system to buoy the stock market. This forever became known as “the Fed Put.”
Since that day, the Fed has come in to “save” markets every time there has been a major crisis, whether that was the LCTM collapse in 1998, the Dot.com bubble in 2000, the GFC in 2008, and, most recently, in response to the COVID-19 pandemic.
The long-term compounding consequence of these actions is that it reduces the quality of the money.
Dr. Guido Hülsmann sat down with Stephan Livera to discuss this very topic in this podcast episode. (02/05/2019)
By preventing markets from clearing by manipulating interest rates and through money creation, the Federal Reserve has only been successful at kicking the can down the road.
As they continue to intervene in the free market, it is the money that is most negatively impacted over time, and, eventually, the choice to intervene in the markets will come home to roost. As Milton Friedman frequently said, “There ain't no such thing as a free lunch.”
Tick tock next block,
Cory Klippsten
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Quote of the Day
“The best thing we can do is let the market for money function freely, central bank interventionism and attempts to suppress volatility only exacerbate it in the long-run and inflict heavy iatrogenic costs on society.” - Robert Breedlove, Host of the What is Money? Show
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