Loose Money, Tight Money, and the Illusion of Control

With the Fed’s latest rate cut still in view, economic fallacies abound. Policymakers and talking heads speak of monetary policy as a lever that can be flipped back and forth without issue. But, as the Austrian school demonstrates, simply reversing monetary course cannot undo the malinvestment caused by easy money. The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold. Many think of the economy as being like a space ship, which occasionally slips from the path of stable economic growth and stable prices and has to be steered back by the “experts” in monetary policy. When economic activity slows down and falls below the path of stable economic growth and stable prices, it is the duty of the central bank to give the economy a push, which will place it back onto the right path. This “push” is done through expansionary monetary policy—the artificial lowering of the interest rates by the expansion of money and credit. Conversely, when economic activity is perceived to be “overheating” (i.e.,…