When the writer and economist Kurt Richebacher died two years ago, I lost an irreplaceable friend. Kurt was a German who had been chief economist at the Dresdner Bank. He was living in the South of France when he died. On several occasions he had come to Minnesota and stayed at my home. Our friendship developed twenty years ago when I called him about an article he had written on the U.S. economy.
Kurt was the only economist of the Austrian School who wrote regularly about the economic follies of the U.S. and applied Austrian thinking to contemporary issues. Here’s an example written five years ago. “An impending U.S. downturn is poised to hit a deceptively frail financial and economic foundation. The consumer sector is tapped out with a monstrous debt load and negative savings. The business sector is running a huge cash flow deficit while in the midst of an unsustainable borrowing binge and aggressive expansion of dubious enterprises. In the financial sector, overleveraging and reckless speculation exist as never before. The combined excesses of all three sectors underlie the unprecedented U.S. stock market and economic bubble. In short, the entire system is an accident waiting to happen.”
In 2005 he wrote, “Given the preposterous leverage underlying all U.S. asset markets, the Fed is running an immense risk of bursting the asset and credit bubbles with a bang. The second major risk we see is that an unexpected sharp slowing of the U.S. economy will shake the prevailing complacency, with dire consequences for the economy and its financial system.”
It’s a shame he did not live to see the accuracy of these warnings. There isn’t an economist living today that begins to approach his analytical skills. They give Nobel prizes to some character writing about carbon footprints or a whiz kid at the New York Times who thinks the cure for poison is to drink more poison. The world will never know about Kurt, yet he was a genius and none of the other economists, writers, politicians and talking heads could see what he saw. That’s why you can’t be persuaded by their endless opinions. You must think for yourself.
I’d love to be able to ring up Kurt today and get his opinion on what’s going to happen now. If I had to guess, I believe he would say the credit excesses have not been fully liquidated. He would anticipate a further downturn. He would be shocked by the Federal Reserve’s unprecedented attempts to reliquify the system. He would see grave danger in excessive credit growth. He would not be anticipating a strong recovery because of the erosion of the manufacturing and production base. He would warn against speculation and be fearful that the Fed’s attempts at quantitative easing would generate another asset bubble. He would be fairly certain that the American consumer was finished for a long time to come. In effect, he would say that America has shot itself in the foot.
Kurt Richebacher would be at odds with most everything the government is doing to revive the economy. The fact that he so accurately predicted the severity of the current downturn suggests that Austrian economics can’t be denied. It offers a road map to the future. That means the greatest Austrian economist, Ludwig von Mises (1881-1973) should be heeded when he warned about a crack-up boom and hyperinflation. It also means we should harken to the words of Nobel Prize winner Friedrich Hayek (1899-1992), in his book “The Road to Serfdom.” We are definitely on that road. I believe that if all three of these economic thinkers were alive today, they would be deeply pessimistic about our future.