Economic Policy

President Back Tracks On Liquidity
The End Of An Austrian Moment In Bush’s Brain

Well that didn’t last long.
Yesterday when Fox News business guy Neil Cavuto asked President George Bush about the sub-prime mortgage market meltdown, the president replied that the US was “suffering from an excess of capital, I mean, liquidity.”
But the president sounded a very different note when he was asked a similar question just moments ago in the press conference now underway at the White House, Instead of citing excess liquidity, the president focussed on the question of whether there was enough liquidity.
“Another factor one has got to look at is whether there is another liquidity in the system to enable markets to correct,” Bush said. “And I’m told there is enough liquidity to enable markets to correct.”
As we noted in Opening Bell this morning, yesterday’s remarks from the president echoed the arguments of the Austrian school of economics. Many economists working in the Austrian school have argued that the boom-and-bust business cycle is set off by central bank monetary expansion.
For a few hours, it seemed that America had suddenly discovered it was being led by a president schooled in the Austrian theory of the business cycle. “Has Dub-Yuh broken his habit of never reading anything, even the newspapers, and picked up a copy of America’s Great Depression by Murray Rothbard for his summer vacation reading?” economist Thomas DiLorenzo asked on the blog at LewRockwell.com.
Or perhaps he has been reading Barron’s, which recently described the Austrian theory:

In the Austrians’ staunchly free-market ideal, if central banks peg the cost of credit below its natural rate, it results in an excessive credit expansion and inflation, which includes asset prices. Rising asset prices result in bubbles and malinvestments, which invariably lead to busts in direct proportion the preceding bubble. The only solution to the bust is to ride it out, allowing prices to fall and the assets to liquidate, permitting the capital that has been misallocated to be put to more productive uses.

This morning’s remarks, while not calling for a credit expansion, clearly pointed away from the risks of too much liquidity to the risks of too little liquidity. It was a change of emphasis. Someone, it seems, has given Bush a stern talking to. With the European Central Bank injecting $130.5 billion of Euros into the markets and the Fed making smaller moves to increase liquidity, the message of the central bankers is certainly not of the Austrian school.

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30 Responses to “President Back Tracks On Liquidity
The End Of An Austrian Moment In Bush’s Brain

  1. Anonymous says:

    good looking out Carney.

  2. John Maynard Von Mises says:

    The faction group known as the “burganland school of economics” has always proposed increasing liquidity in the face of higher inflation. They had great results with their work in the Central Banks of Yugoslavia and Zaire during the 90s.
    http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=e967658f-9514-465d-a0d7-0ce004009742

  3. george washington says:

    I just love it when 2 different branches of our government act contradictory to each other, i mean honestly who’d want it any other way

  4. Fake Lili Reifenthal says:

    Oh no! Near German economics! Thank Got that there haven’t been any Presidential displays like in my movie “Triumph of the Will” where dear Adolph flies down in a Fokker triplane from the clouds to land in front of cheering throngs of Berliners to declare the worst is over and……huh?….Was ist?…..you mean…on an aircraft carrier??….Mission accomplished???….oh no…well, the Devil has been looking for Karl Rove so now we know where to look, ja??

  5. Fake Lili Reifenstahl says:

    Oh no! Near German economics! Thank Got that there haven’t been any Presidential displays like in my movie “Triumph of the Will” where dear Adolph flies down in a Fokker triplane from the clouds to land in front of cheering throngs of Berliners to declare the worst is over and……huh?….Was ist?…..you mean…on an aircraft carrier??….Mission accomplished???….oh no…well, the Devil has been looking for Karl Rove so now we know where to look, ja??

  6. anon anon anon says:

    I see the hand of Karl Von Mises Rove behind this play.

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