oftwominds-Charles Hugh Smith: Misunderstanding Austerity, Stimulus and Demand | Gold and What Moves it. | Scoop.it

Keynesian policy requires an expansionist Central State and Bank bent on imposing central planning on every level of the economy. Keynesians are natural partners with the neofeudal financial Aristocracy which benefits so enormously from Keynesian print-borrow-blow policies.


Here is the standard Keynesian cargo-cult analysis of our economic woes:
1. The problem is a lack of aggregate demand, i.e. people buying stuff and services.2. As a result, the economy is running below capacity, i.e. economic output is below potential.3. The solution is fiscal and monetary stimulus, i.e. the Central State borrowing and spending trillions on politically directed programs and the Federal Reserve printing and injecting trillions of "free money" dollars into the financial sector to boost borrowing and lending. The cargo-cult program has failed for a number of fundamental reasons. Let's illuminate these reasons with a few thought experiments. 1. If we borrow or print $1 trillion and bury it in the ground, how much demand does it create? Answer: none, of course; it just sits there, utterly inactive. The Fed has printed around $2 trillion and made huge sums available to the financial sector at 0% interest. Most of the funds are sitting in the Fed as reserves, doing nothing except earning interest for the banks who borrowed it at 0%. ...