Dear Keynesians: Your Sad Devotion to Your Failed Religion Hasn’t Conjured Up a Recovery–Here’s Why
Charles Hugh Smith
March 27, 2014
That any schoolkid could predict eliminating feedback and consequences will lead to a series of disastrously poor choices by speculators and imprudent borrowers doesn’t register with the Keynesian Cargo Cult.
The Keynesian Cargo Cult’s ability to print and squander money is insignificant next to the power of Diminishing Returns. By now we all know two things about the Keynesian Cargo Cult’s religion:
1. It has failed to conjure up the recovery its sadly devoted believers insist is “just around the corner if we only borrow and squander more money” because…
2. Its main tenet–that the problem is “lack of aggregate demand,” i.e. people will buy more stuff made in China and corporations will open more stores to sell the stuff made in China–if only it was dirt-cheap to borrow more money–is completely, utterly, painfully false.
The central premise of the Keynesian Cargo Cult is that this mechanism of making it cheap and easy to borrow money will work a kind of magic that can only be manifested by dancing around a fire at night waving dead chickens and chanting “humba-humba.” The Keynesian cargo Cult calls this magic “animal spirits.”
Unfortunately, waving dead chickens while dancing around a fire doesn’t do anything in the real world, and neither does making it cheap and easy to borrow more money. It turns out that prudent people have no interest in borrowing more money, even at low rates of interest, and imprudent people are happy to do so but will stop paying the loan as soon as something untoward occurs in their finances. The cheap, easy-to-get loans default and either the banks who made the loans collapse or the taxpayers have to bail out the banks who foolishly lent money to imprudent borrowers at super-low rates of interest.