The Mises Moment In Pictures

In Global Markets: From “Minksy Moment” To The “Mises Moment” we characterized our Mises Moment as ``governments faced with a crisis will run the printing presses to reflate the system at the expense of its currency system.”

We have long said that politicians REACT to developments than PREMPT them arising from populist political concerns whether real or imagined. The belief that authorities can “do something” basically means manipulating varied legal tools (fiscal or monetary) aimed at controlling market forces for political objectives.

The problem is that such intuitive attempt to defeat or suppress business cycles by perpetuating boom conditions has been the root of today’s crisis. In other words, deflating markets are a consequence of previous inflationary activities which has distorted price signals in the markets and has similarly led to capital misallocation in economies.

Yet, it appears that massive efforts are underway to reinflate, which risks intensifying or prolonging the crisis conditions.

To quote Friedrich Hayek in Monetary Theory and Trade Cycle, ``To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection -- a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end.”

So even without the bailout package, the Federal Reserve has undertaken a massive campaign to flood the world with money.

And signs have been all over…

In the monetary system (data from St. Louis Federal Reserve)…

Federal Reserve Lending…

Changing Fed Balance sheet composition…

Courtesy of Cumberland advisors

Aside, the recent enhancement on TAF and swaplines with global central bank as declared by the Fed,

``Actions by the Federal Reserve include: (1) an increase in the size of the 84-day maturity Term Auction Facility (TAF) auctions to $75 billion per auction from $25 billion beginning with the October 6 auction, (2) two forward TAF auctions totaling $150 billion that will be conducted in November to provide term funding over year-end, and (3) an increase in swap authorization limits with the Bank of Canada, Bank of England, Bank of Japan, Danmarks Nationalbank (National Bank of Denmark), European Central Bank (ECB), Norges Bank (Bank of Norway), Reserve Bank of Australia, Sveriges Riksbank (Bank of Sweden), and Swiss National Bank to a total of $620 billion, from $290 billion previously.”

So the US isn’t just inflating its own financial system. As we have been saying it has also been inflating the world.