Let’s do a logical reasoning first.
Austrian theory suggests that it is precisely the intervention of the central bank, through the manipulation of the reference interest rate (the most important price in a capitalist economy) the element that has promulgated and worsened financial disconnection.
The purpose of social control got out of hand, as Mises himself documented it in Economic Calculation in the Socialist Commonwealth and in Planned Chaos.
The central planning of an economy inevitably leads to a bust; a “mixed” economy, or positive action in its mechanics, channel it into a purging economic cycle that has the task of cleaning up the mistakes that have accumulated over time and limiting such interventionism.
These interventions manipulating the reference interest rate attract businesses and consumers in cheaper economic decisions: the former consider investments that would be unimpeded in an unhindered economy, while the latter contract debts upon debts, believing they can live beyond their own means.
The combination of these factors creates the so-called “perfect storm”.
Here it is when the central banks come back into play: instead of allowing the cleansing process, implementing anti-cyclical policies that settle economic mistakes in the past (making them structural rather than cyclical) and create new cycles, companies and financial institutions secured with the central bank’s security net continue to bake production for which there is little or no demand, preventing existing or new cycles from delivering the products that most are actually required by economic actors.
The bust is transformed “magically” into a boom and everyone believes that the economic cycle can be “defeated”.
Truth is that the consequences of the next crisis are aggravated.
In this case, the wavering of job creation. Such policies do not stimulate job creation neither public administrations works for it. The parliament can approve laws that are supposed to create jobs, but all that it does is actually taking money from a slice of the population and give it arbitrarily to another.
It is therefore a fake job that would not exist in a world of free interaction between supply and demand.
Without markets determining prices, the competition that push inefficiencies away and the reward/punishment and profit/loss mechanism, there is no way to know whether these jobs are worthy of being done or not.
That is why the work “created” by the parliamentary squads ends up being a work that is incapable of producing real wealth: they deprive resources and money from the real economy by reducing the number of real jobs.
The standardization process of interest rates will only show off this and other illusions.
For example we should look at how much of a predicament are the crazy peaks reached by the stock market not supported by economic fundamentals; the financial engineering that thrived in the wake of risk cancellation in the stock market; the bubble of sovereign bonds; the student loan bubble; the Chinese black hole and so on.
The quicker central banks will reverse their policies, the faster the boom will bust out.
Likewise, the more central banks will keep interest rates suppressed, the more unproductive investments will thicken by severely increasing the requirement for a next adjustment.
That is why the rate rises will be very slow in time and there will be a lot of “talk-through” before implementing concrete restrictive policies will be deemed feasible.
Sovereign bonds is the most dangerous bubble in a financial system, as central banks have been enormously inconsistent at safeguarding finances of financially state-owned gas cans and now they dry funds due to the continuing erosion of the basin of real wealth in the past years.
Therefore, truth is that the actions of central banks have placed the world economy on the road to inflation, giving rise to increasing amounts of money uncovered to cover the mistakes of the past.
The prestigious game has succeeded: the social contract was traded with the constitutions of the various states, distracting attention from fiat money.
As cleverly created and polished, a scam remains a scam.
Then a plausible, long-term lasting, satisfying outcome…
Consequently, emancipating from well-thought scams is the only way to avoid a continued looting of necessary resources.
The empirical demonstration that money emerges spontaneously from the free interaction of economic actors and not as a social instrument imposed from above has been the birth of cryptocurrencies, among which Bitcoin is the most well-known one.
Despite the fact that such alternative monetary digital take-on was initially welcomed by unbelief and skepticism, it now has a market capitalization that exceeds over $ 100 billion.
Specifically, they embody Friedrich Hayek’s wonderful essay The Choice of Currency theses thanks to their existence: they exist and compete with other currencies so to be adopted more commonly.
Since there are no barriers forbidding entry, their value fluctuates in accordance with demand and supply.
Not only that, it is also based on the service they can provide as a means, with their credibility functioning as a value reserve.
The proliferation of cryptocurrencies is a benchmark for what will probably be the money of the future.
Money, way more than democracy, embodies the essence of social contract.
Its legitimacy derives from its free acceptance by all market players and the current manipulation inevitably causes the decline of society.
Then, is it understood the importance of money emancipated by the central control?
By doing so it brings out social equity and it promotes peaceful cooperation and exchanges between humans — regardless of their views, sex, origin or preferences. It’s, pretty much, the conductor that governs human action.
Anyone who wants to suppress these features and take advantage of it in a parasitic way is ready to replace it with a planned economy with bureaucratic cohorts that ensnare it forcibly.
Matter of fact, the worst tyrannies are those where market players are deprived of their money.
Although money is regularly accused of being the root of most evil on earth, it is too often the pariah of those who control it.
Instead of blaming money, blaming whoever corrupt it.
Freedom to choose currency is the best guarantee for having money in a free society.
Click the following link to read Part 1: https://medium.com/@melis.io/the-great-disconnection-part-1-feabb20ecd94
