The boost to growth from more monetary easing and more deficit spending — naturally always transitory and the source of further misallocations of resources — will be ever more faint and short-lived.

Instead of igniting a new false boom, a progressively larger share of the policy stimulus will simply evaporate in the service of maintaining the accumulated misallocations, of avoiding a correction of artificially raised asset prices and of bloated balance sheets.

As the manufactured recoveries get weaker, fiscal deficits get larger as a result of the combination of ongoing welfare state outlays and futile Keynesian stimulus spending.


The persistent inflationism of our contemporary monetary system must lead to the accumulation of more and more dislocations over time. Only an end to money injections and an uninhibited market can reveal to what extent the level of asset prices has been artificially lifted, to what extent the structure of production and the size of the debt load and of the financial industry have been distorted.

Those who argue for an end to the manipulation of the economy through easy money, rising indebtedness, and a larger state will find it ever more difficult to make themselves heard in the debate. Liquidation will appear a more and more frightening prospect, and the pain involved will be considered intolerable and unacceptable.


Restoring the economy to health would necessarily involve a stop to any inflationary policies and a position of strict laissez-faire toward the market-driven reallocation of resources and readjustment of prices, even if this meant tolerating a near-term contraction in overall economic activity and an overall drop in prices (deflation). However, this is precisely what the governments and central banks try to avoid with all means at their disposal.

To the extent that their policy can claim success, it is only in postponing the necessary adjustment into the future and in making the dislocations larger in the interim. The hope is always that the next dose of extra money will ignite a self-sustaining recovery in which all the sins of the past will be miraculously forgiven and all previous dislocations painlessly corrected. This study has shown that this is an entirely irrational and futile hope.

Paper Money Collapse