Lew Rockwell’s new article at Mises extols the virtues of the market:
What consumers need to spend is a solid inducement, one that coordinates financial responsibility with their material needs. And the retailers are there to provide it. Thus are prices being chopped from one end of the country to the other. Earrings that were $700 are now $250, purses that were $1000 are now $250, large-screen televisions that were $2000 are now $1,200, and suits that were $900 are going for $400. Deals are everywhere, from laptops to cell phones to cars. The street wisdom is that now is the time to buy.
Those worried about deflation are worrying about the wrong thing. This is exactly what needs to happen. Prices need to fall to spur demand and clear out inventories. It’s no fun for the retailer who might book a loss on the sale, but if the choice is book a loss or have no sale, it’s better to book the loss and move on.
And while this may be viewed as deflationary right now, it won’t last:
Many people have wondered how it is possible that the Federal Reserve would be engaging in such a massive expansionary trend, creating money without limit, even as prices tend to fall. The answer can be found in the balance sheets of the banking system. The reserves are there but they are finding few willing borrowers. We often hear about the credit crunch, but the real source of the supposed problem here is a borrowing crunch. Borrowers are not in any position to expand and invest for the future. This is why, despite the Fed’s effort to expand, the money supply today is actually shrinking.
The Fed is pushing a variety of workarounds that would inject trillions in new money into the economy while bypassing the banking system altogether. Time will tell whether or not this will succeed. Meanwhile, a serious danger lurks around the corner. Once the recession is over, the lending will start again. With fractional-reserve banking and limitless supplies of cash on hand, we will likely see the overall price trends reversed, from deflation to inflation to possible hyperinflation. The timing and the extent entirely depend on many unknowns, but it is something worth thinking about today.
If we let the market work through this, the economy will bottom sooner and the recovery will come sooner. Anything the government does will just slow things down. I say let it run its course and get it over with.