Sat 5 Aug 2006
It seems as though everyone is pointing to one thing or another and finding imbalances. Austrians and Keynesians fight it out as to what is right.
Schumpeter argued that economic recoveries that are largely a consequence of fiscal and monetary stimulus must ultimately fail. Schumpeter writes:
Our analysis leads us to believe that recovery is sound only if it does come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own.
I ponder this quote when I think about how the Fed aggressively lowered rates after the 2000 Nasdaq bubble burst… and how the housing “bubble” immediately formed.
When I go down this path, my main question is, “What’s Next?” So if the Fed, in it’s bubble management role is trying to slow the housing market and create a soft-landing, what maladjustment will that market manipulation produce?