The View From 1776
Saturday, September 19, 2009
Is The Economy On The Cusp Of Recovery?
Jim Grant, no stock salesman, thinks yes.
Even our partially free-market economy, which we have until the Democrat/Socialists complete their socialist takeover plans, has self-correcting features. It’s those that are now taking effect, Mr. Grant believes.
But hold onto your hats, he notes, because the Fed has set the stage for punishing inflation and loss of the dollar’s status as the international reserve currency, both of which will inflict severe economic pain within the next few years.
Moreover, the Fed’s flooding the market with fiat dollars has pushed interest rates, especially on the short end, to historic lows. This grievously distorts economic investment incentives, as lenders and investors can borrow short at near zero interest cost and lend or invest in risky assets to offset the low interest and investment returns from sounder assets.
We are bound for a replay of the dot.com tech boom in the Clinton administration and the housing and subprime mortgage boom of recent years. Exactly what the next wave of excessive exuberance will come to rest upon, nobody can know. But niagaras of money flooding the financial markets have always led investors to put their money on horses that can’t finish the race.