In Jim Cook's Archive


The business cycle theory of the great Austrian School economist Ludwig von Mises maintained that a reduction in the growth of money and credit would almost immediately translate into a slowing economy. A corollary was that the stock market would sense this decline and begin to roll over. In the last few months, that is exactly what happened. The reaction by the monetary authorities has been to reverse course and jack up the expansion of money and credit once again. However, Mises also warned that the amount of money and credit needed to restart the boom must be greater than ever before.

He also warned that the process of monetary expansion could not go on indefinitely. Unless money and credit growth was stopped at some point, it would lead to runaway inflation. However, over the last few years we have had aggressive monetary expansion but subdued inflation. Debt defaults have reduced inflationary pressures. Now the world is entering a new phase of aggressive monetary expansion to offset slowing economies and debt deflation. This money creation promises to be extraordinarily large. The slightest hint of recession, here or elsewhere, will bring on a cascade of easy money policies that threaten currency debasement. The days of helicopter money and desperate governments are coming. A sharp decrease in government tax revenues with a strong need to maintain government spending and difficulty in borrowing can lead to runaway inflation. That’s a distinct possibility and reason enough to own silver and gold.

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