Bankkrisen — hvordan den begyndte og hvordan den vil ende

Professor Steve Henke har en usædvanlig god kronik pÃ¥ Cato Institutes hjemmeside om arven efter Bush. “Deflation or inflation?” er titlen. Han kommer bl.a. ind pÃ¥, hvorfor vi stÃ¥r med den finanskrise vi gør nu, og hvad konsekvenserne af den kan/vil være — m.a.o. en gennemgang af børnelærdommen fra Den Østrigske Skole.

Husk altid mantraet: Inflation er skabt af centralbankerne, som trykker penge.

Now the U.S. is on a razor’s edge between deflation and inflation. This requires one to think through how each of these scenarios might unfold.

The prospect of a debt deflation begins when a central bank pushes interest rates below where the market would have set them. This is exactly what the Federal Reserve did. In July 2003, the Fed funds interest rate target was pushed to a record low of 1%, where it stayed for a year. This set off a credit boom which fueled a massive increase in leverage. Over the past year, we have witnessed financial stress, a stampede to deleverage and an economic slowdown.

These events could be the precursors of a classic debt deflation. It would take the following course:

• Debt liquidation would lead to distress selling.
• As loans are paid off, a contraction in demand deposits would ensue.
• This would slow down the velocity of money circulation.
• This would cause a fall in the general level of prices.
• This would lead to a further fall in the net worth of businesses and an increase in bankruptcies.
• A fall in profits, often resulting in losses, would also occur.
• This would lead to a reduction in output, trade and employment.
• These losses, bankruptcies, and unemployment would generate pessimism and a loss in confidence.
• These waves of pessimism would result in more hoarding and further reductions in the velocity of money circulation.
• The debt deflation process would eventually run its course, but only after asset prices have hit bargain basement levels.

Economists of the Austrian school of economics term this type of debt deflation a “secondary deflation”. If the forces of a secondary deflation are strong enough, a central bank’s liquidity injections are rendered ineffective by what amounts to private sector sterilization. When people expect prices to fall, their demand for cash increases and soaks up central bank liquidity injections. This phenomenon characterized Japan’s economy during most of the 1990s.

But what if the Federal reserve–fearing a secondary deflation, as they feared (incorrectly) a mild deflation in late 2002–pushed the Fed funds rate lower (now it’s 2%) and turned on the inflation switch by monetizing more debt? Given the growing mountain of government debt, there is virtually an unlimited potential. It’s a scenario worth thinking about.

To appreciate how the process would work in the extreme, consider what’s happening in Zimbabwe, the first country to realize a hyperinflation (an inflation rate of 50% or more per month) in the 21st century. The government of Zimbabwe issues debt and the Reserve Bank of Zimbabwe monetizes it by printing Zimbabwe dollars. While the RBZ produces a lot of currency, statistics on the quantity of currency in circulation and the inflation rate are in short supply. The most recent official data for currency in circulation were for January 2008, and inflation data were last released for June 2008. To remedy that shortcoming, I have developed a hyperinflation index for Zimbabwe. As indicated in the accompanying table, the monthly inflation rate on September 5, 2008 was 9,914%. That’s a whopping annual inflation rate of 36 billion percent.