![]() Translated for those who need it, during good times some of us develop bad habits, make lousy hires, commit capital less carefully, and all manner of other things inimical to progress. Indeed, it cannot be stressed enough that the seeds of actual recession are planted during the good times, while the seeds of recovery are planted during the bad. Recessions are something quite different. ![]() For certain governments can currency devalue, tax, regulate, or tariff economies into slowdown, but that’s command-and-control. The difference between the two is Pacific Ocean wide. What governments cause is economic slowdowns born of barriers to production. The inconvenient truth is that governments can’t cause recessions given the more important truth that actual recessions paradoxically signal economic recovery. It’s a simple way of saying that even if the Fed could shrink bank credit access stateside with artificially high rates of interest, what it would allegedly take away would be made up for in seconds by much, much bigger non-bank pools of capital in the U.S., along with global providers of same.Īfter which, the economists’ definition of “recession” is wholly flawed. It’s not just that investors want to find their way into the U.S., they’re desperate to win market share here. Keep this in mind as economists and their media enablers promote the laughable notion that a “tight” Fed will “ inevitably” induce a “recession.” Oh please, the view is not even remotely serious. Precisely because credit is produced globally, and precisely because it flows around the world without regard to borders, there’s no way for the central bank to control how much credit finds its way to the U.S., nor can the Fed control its cost. Why this detour in a piece about the Fed? It’s useful as a way of reminding readers that contrary to the popular narrative about the Fed as the pipe through which finance flows in little or large amounts, the reality is that the Fed and its fiddling with short loan rates is a non-factor.
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