Comments (14)

• Horst Muhlmann

  "suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible."

  Fortunately we have the 8th Ammendment barring cruel and unusual punishment.

  Published: February 19, 2009 9:35 AM

• RickC

  The important thing for me is the date of the original article. The Austrians and their followers deserve kudos and recognition for their ability to see this mess coming. And now, they are being all but totally ignored in the discussion about what to do about it.

  Someday economic historians will puzzle over the current rebirth of Keyensian economic theories when Austrian economic theory was clearly more predictive and offered more viable, long-term solutions to our troubles.

  Published: February 19, 2009 9:43 AM

• Ash

  Great and a very simple article. Helps to understand the gravity of the problem of expanding credit.

  Published: February 19, 2009 9:45 AM

• David Spellman

  The final comment about actual ownership is the most important thing people don't understand about credit. In the absence of credit, good are still produced and owned, but we no longer pay rent for them to banks. You would still own just as much, but you would not pay any third party and prices would be cheaper.

  Bankers charge interest for the privilege of buying what you would otherwise be entitled to. It is a parasitic business that provides virtually no benefit that could not be realized through other means. Paying interest is slavery, just like paying taxes is slavery.

  Published: February 19, 2009 10:16 AM

• Jake Taylor

  I don't think of paying interest as slavery. In fact, I'd say it's closer to a form of freedom. It gives people the freedom to shift their consumption habits based on temporal preferences. But like any freedom, it carries a responsibility. Some people do too much shifting and make themselves indentured servants. That's their choice, which contradicts the very definition of slavery.

  Published: February 19, 2009 10:43 AM

• cybertarian

  "Paying interest is slavery, just like paying taxes is slavery."

  False, paying interests under a mutually consent contract is not slavery.

  Even under real money there would still be mortgages, borrowers and lenders.

  Except that credit would be extremely hard and not facilitated by government meddling.

  So ordinary folks who would save their money to later on buy a house would have to pay less for their house because the prices of housing would not be bid up by easy credit.

  What makes credit easy is government's monetary policies and garantees. Banks are garanteed not to lose so they go out and lend lend lend.

  In a world with no taxes and no inflation, credit would be hard because money would have value and banks would not want to risk losing this value. Because the government would no longer garantee against losses.

  Published: February 19, 2009 10:57 AM

• pbergn

  The analogy is not complete, even though it illustrates the idea of excess quantity causing devaluation:

  It does not take into account the Jaguar losses due to massive exporting and speculators, such as certain more or less larger Jaguar dealerships accumulating excessive stock-piles to re-sell at a slower pace but at higher price, and some, even intentionally destroying the excess value of jaguars which they just bought - to keep the prices up...

  Remember what happened with farmers that started to overproduce in 70's it was I guess - they intentionally were destroying the excess amount of produce to keep the prices up...

  Published: February 19, 2009 11:39 AM

• Kurt Hinz Jr

  "" Remember what happened with farmers that started to overproduce in 70's it was I guess - they intentionally were destroying the excess amount of produce to keep the prices up... ""

  Did the farmers actually do it?

  See Hazlitt's Economics In One Lesson, chapter XVI, for an adequate answer...

  Published: February 19, 2009 12:09 PM

• Dick Fox

  Great analogy that is a powerful argument to counter those who support stimulus. It takes away the smoke and mirrors of rhetoric and makes it simple and real.

  Thanks.

  Published: February 19, 2009 1:33 PM

• filc

  In addition to the countryside being saturated with jaguars the immense amount of resources that is consumed to produce these jaguars are taken away form other industries that produced other things. So your net wealth is actually less because you are producing less things in general. Less variety of products are produced, competition is nullified, and other industries produce less. The much needed capitol will be soaked up by the government to pay for this jaguar expansion. There would be less food, fuel, and raw materials. The nation as a whole would be poorer.

  Great article.

  Published: February 19, 2009 5:36 PM

• Vangel

  I am confused. How can Bob Prechter make the argument that he makes in the article above and still be warning his EWT subscribers about a deflationary episode that will cause gold to fall in price as the purchasing power of their fiat money holdings explode?

  It seems to me that as long as the central banks are willing to expand the supply of credit there is little doubt that borrowers will say thank you and keep taking it. Human beings don't just decide that they have too much of everything and that the appropriate response is to stop wanting things. They will act as they always have and continue to try to acquire as many things as they can to satisfy their desires as long as they think that they can get the cash flows necessary to pay for them.

  The collapse that Bob is predicting will come not when the banks find that consumers no longer want credit but when individuals figure out that fiat currencies are just pieces of paper that have no value. At that time Bob will be proven right and we will see the deflation that he keeps predicting. But sadly for his subscribers, that deflation will mean the destruction of their worthless currency holdings, not an increase in purchasing power.

  Published: February 19, 2009 6:38 PM

• Nestor

  I've been reading Prechter from the mid-90's. The man is consistently wrong in his predictions. Ever since the 1987 crash (Which he did NOT predict, it was FROST that made that call), Prechter has been claiming the world would go into a deflationary depression taking the Dow down to 1000 points. And so, he missed the massive bull market in stocks from 1990-2000. Well.. no, that's not true, he turned bullish in 1998. The man is simply wrong. I would always wait for his newsletter so i could eliminate his wave counts from my analysis as having any possibility of being correct.

  
  VANGEL.. i completely agree with your assessment. PAPER moeny, Fiat currencies have to fail first, THEN we'll suffer the deflation... Gold in the mean time, will skyrocket here, both on inflation/hyperinflation fears, and fears in collapse in markets..

  The US is going down the path of massive debt, and massive printing of money. No question this will destroy the value of the USD, and all currencies world wide. Sad what's about to happen.

  Published: February 20, 2009 8:56 AM

• Huang Di

  Such a shame that my commentary was not published ...

  Published: February 23, 2009 7:22 AM

• Huang Di

  Then, I shall post it again ...

  Like the title, "Jaguar" inflation ... any links to the 2012 planetary alignment, described by Mayans (around 5th century BC) as "a rain of Jaguars", by any "chance" ?

  To "cybertarian", a wolf amongst the sheeps :

  1) a mutually consenting contract can only really exist when there is no information assymetry; else, it is only another word for the exploitation of ignorance ...

  2) under "real" money, there wouldn't be parasitic cysts of society (banks' and large corporations' BOARDS for example) that plunder other people's lives for their own private enjoyment, incidentally taking far more than their own share of Earth's natural resources ...

  3) Government's monetary policies : could it be that state-wide elections in the Western world be no more than mere beauty contests in front of the wealthy donors (thus asking for vested interests) ? ... or the fall of the Greek semi-informed decision-taking vs. aligning to the party lines ..

  4) In a world devoid of interest-grafting, persons would lend money to friends, if they NEEDED help, or through misery-relief (as what used to be, amongst other things, the role of the various churches) ... that is, DEFINITELY NOT for buying the latest game console on the market !!!

  5) The government loss-preventing guarantee never existed in the first place : if you are robbed, the government won't step in to replace what you lost because of its own failure (at preventing the rob in the first place) !! More so, there are things that a government simply can't replace (human person ?)

  P.S. : what there is to understand about the sudden empty prison-building frenzy in the USA is left as an exercise for the concerned reader to piece together ...

  P.S. /2 : Ingo Swann is definitely a good read for the things to come ...

  Published: February 23, 2009 7:26 AM