Sunday, August 28, 2016

Financial Repression Is
Freezing The Economy
"The suppression of interest rates is yet another desperate attempt to stimulate demand, hoping that it will lead to productive economic activity. But it flies in the face of Say’s Law, which holds, correctly, that we produce in order to consume. Reversing these leads to the idiocy of 'demand management' – as if stimulating demand will magically generate the production needed to satisfy that demand! If that were true, Venezuela and Zimbabwe would be vying right now for the title of the world’s most prosperous economy. Suppressing interest rates destroys the natural measure of time preference. It leaves many long-term infrastructure investment plans on hold, simply because no private sector producer of capital projects will commence a venture that cannot be reliably costed. After all, who knows when interest rates will rise? And at what economic cost to the project? Uncertainty stifles action. The risk of misallocation of capital resources is simply too great for the private construction sector – just look at the many public sector cock-ups: there are Spanish airports at which no plane has landed, and Portuguese motorways on which there are no cars."
- Emile Woolf - teacher, lecturer, best-selling author of professional texts, practising accountant, forensic expert witness & one of the profession’s most widely read columnists & magazine journalists.
LINK HERE to the essay

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