We agree that deflations are painful. I believe they’re necessary and a part of the regular economic cycle. My complaint is that the Fed isn’t the best method for handling the problem.
Keep in mind that one of the reasons we’re still in this bubble is that we never had a full accounting from the last bubbles. The Fed just kept the party going and enabled bad fiscal policy to be implemented.
If interest rates were allowed to rise as they would have naturally the market would already have been cleared. That’s my contention. Pre-Fed, deflations cured themselves and the economy thrived. Think Gilded Age.
If we were to return to those growth rates the debt would be repaid in a little over a decade, the need for welfare entitlements, including Social Security which is simply a tax, would come to a swift end. The disruptions in employment would be resolved on the state and local level, along with welfare. I don’t blame the Fed for everything, but it is a big part of the problem.
I believe in the free market and there are free market alternatives to the Fed. Can you think of some?
--just as there are free market alternatives to the courts, the legislature, and law enforcement.
Most people want no part of that kind of thinking because the best justice money can buy is simply not very good justice. Governments do have a purpose. We want them to maintain order and provide an environment where laws are standard and contracts can be enforced. It's a function that must remain entirely separate from the market place --like religion. Nobody likes a religion that's primarily a business, or even one that's an agency of the government for that matter.