Gold, Professor Fekete And The Economic Armageddon Signal

Economics / Great Depression II
Apr 13, 2010 - 04:25 AM

By: Darryl_R_Schoon

When the end comes, it will be a surprise even to those who expect it

When Professor Antal E. Fekete began lecturing on Austrian economics in Hungary in the spring of 2007, the global economy had not yet experienced the collapse which Austrian economist Ludwig von Mises had predicted over a half century before, to wit,

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Human Action, a Treatise on Economics, Ludwig von Mises (Fox & Wilkes, 4th rev. ed., 1963)

A quarter century of uninterrupted and unprecedented credit expansion begun by the US in the 1980s, however, came to an abrupt halt months later in August 2007 when global credit markets froze, precipitating an economic crisis the severity of which surprised all except those who expected it.

Among those who foresaw the crisis was Peter Warburton. In 1999, Warburton warned in his extraordinary book, Debt & Delusion, that changes in our financial system masked deep maladjustments that would someday make themselves known, that rapidly rising valuations would readjust, perhaps violently, and that we were particularly blind in recognizing the dangers which confronted us.

Warburton was not an Austrian economist who believed in the inevitable collapse of excessive credit driven markets. Warburton instead believed that debt-based money and credit aggregates controlled by central bankers were critical components of modern functioning economies.

In an article in 2001, Warburton wrote:

We called ourselves international monetarists then and we had a model that determined the inflation rate from the growth of money stock per unit of output, with long and variable lags… We felt sure that if the authorities could regulate the growth of the money supply, all would be well.

He then added,

How wrong we were.

WARBURTON’S CONTRIBUTION

Warburton’s contribution to the current economic dialogue derives from his belief in that which he now critiques. Warburton’s blinding insights are those of one who was himself previously blind.

Warburton’s Debt & Delusion, published in 1999, is a seminal work explaining what went wrong and where. His explanation of the changed role of banks and government in the issuance of credit is uniquely insightful; and, whereas Austrian economics offers a wide-angle view of the present crisis, Warburton’s Debt & Delusion gives what only a jeweler’s loupe can provide, a close-up focus that explains and exposes the blind spots of those who still purport to see.

the leading economies..have fallen victim to a dangerous illusion, related to the anarchic development of global capital and credit markets. … the thesis is very straightforward: that both citizens and governments have become heavily addicted to borrowing and no longer care about the consequences.

Seen through Warburton’s eyes, the delusions of modern economists are many, such as central banking’s believed containment of inflation, what economists such as Paul Samuelson and Ben Bernanke call “the great moderationâ€