Monetarism is back after a decade or more but too late to save the day!

For more than a decade monetarism has largerly been ignored. US broad money supply (M2) has doubled in a decade and credit fuelled massive increases in household debt and asset prices.

Now the pyramid game has come to an end and monetarism seems to be making a come back  – “Governments must reduce interest rates and support the banking system otherwsie we will end up repeating the mistakes of policy makers following the 1929 crash!”.

This is wishful thinking and it is way too late to become a monetarist. Yes, reduce interest rates but who is left that wants to borrow? Borrowing has tanked in all sectors except between banks.

The correct response is to a Keynesian reflation. Reduce taxes, free up the labour markets further and carry out those infrastructure projects that have been put on hold due to worries about arbitrary Government borrowing levels imposed by those idiots in Brussels.

As you can tell I am more of a believer in Hayek’s view of the causes of the great Depression. If you are not, ask yourself this, who in your entourage is taking out a new loan, who is buying a car on the a finance lease?

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