An Unstable Economy Wobbling Atop Unsound Money

It’s a clumsy old thing, that all-knowing, all-seeing government. No matter how hard it (says it) tries to “fix” the problems of the world, to the extent that the state intervenes, things only seem to get worse.

Let’s start with the economy…

This week we heard from Chairman Bernanke about how his “on sound footing” recovery (somehow, remarkably, standing atop unsound money) is beginning to falter. The recovery, says he, is now “moderate,” requiring the Fed to maintain their historically low interest rates for “an extended period.” More unsound money, in other words…designed to build a surer foundation on which to erect that ever-illusive recovery.

So, are investors actually buying the Chairman’s newspeak? At the very moment The Bernank was busy proclaiming his commitment to a “strong dollar policy,” the dollar index hit a brand new, post-2008 recession low. Strange, no?

What about precious metal investors? Are they betting on The Bernank? The price of gold says, emphatically, NO! An ounce of the anti-dollar metal this week hit $1,560…although, by the time you read this, it may have already moved higher. (Of course, for our purposes, it’s more correct to say that the dollar actually slid to 1/1,560th an ounce of gold…but that’s a tale for another day.)

And what of those other anti-dollar investments? Silver is back up to $48 an ounce and crude (West Texas Intermediate) climbed back above $113 per barrel. Of course, Bernanke tells us this high price will be a temporary phenomenon. Yes…and spending money to get rich is a sound financial plan, too.

No, Fellow Reckoner, the powers-that-be are not here to fix your problems and cure your ills. They’re here to cause, induce and exacerbate them. They fiddle with this sector and stimulate with that one, trying to get the “machine” to correct its course. But every time they hit the accelerator, the wheels fall off and the engine stalls. Individual components seize up and cease to work. And so the wonks scratch their heads and go back to the same old drawing board.

They fret that unemployment is too high or that the growth rate is slowing…and presume to know what to do about it. Take GDP, for example. As you might have seen, this rather meaningless “measurement” contracted during the first quarter of the year, down to 1.8% annualized from a 3.1% rate the previous quarter. It was the “worst” showing since last spring, the (thus far) height of the European debt debacle.

Astute readers can already see here how the measurers and fiddlers have missed the point altogether. Then again, to our recollection, they’ve never displayed a shred of evidence that they grasped it in the first place.

First of all, there is no “machine”…no “economy” of which to speak. Not in the sense they are expecting, anyway. There is no economy that isn’t comprised of individuals and their reliably untamable, unforecastable, untinkerable aspirations and desires.

As Frank Shostak, an adjunct scholar of the Mises Institute, puts it, “The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the ‘economy.’ However, at no stage does the so-called ‘economy’ have a life of its own independent of individuals. The so-called economy is a metaphor – it doesn’t exist.”

And thus is this fundamental flaw of the orderers’ and meddlers’ plans laid bare for all to see. They are tuning something that can’t be tuned, trying to create demand – along with dollars – out of thin air, rather than allowing the market to respond to the wills and desires of its many millions of participants.

This is their error, one F.A. Hayek so eloquently referred to as “The Fatal Conceit.”

And with that, we’ll leave you with a bit of entertaining weekend viewing, courtesy of the good-humored people at


Joel Bowman
For The Daily Reckoning