In yesterday’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.” Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.”
Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments. What I found most interesting, however, is the author’s argument that the book is a warning today. There is a lively exchange over at The Austrian Economists, led by Pete Boettke, on whether monetary policy is too tight or too loose. Spitznagel obviously thinks policy is too loose. So do I.
Right now there are disinflationary forces still at work in the near term. Many malinvestments have still not been liquidated. Bad commercial real-estate loans sit on the books of many banks. All of this maintains downward pressure on asset prices.
Meanwhile, the dollar has replaced the Yen as the currency of choice for a carry trade that is financing a real-estate boom in Asia, high gold prices and buoyant commodity markets. The Fed is promising near-zero overnight interest rates out as far as the eye can see. The effects of the easy money have not yet manifested themselves in US consumer prices. The asset boom will eventually spill over into final demand, though perhaps last in the US.
In short, the seeds of the next boom and then bust have already been sown. Spitznagel quotes Mises as saying to his fiancée in mid-1929, “A great crash is coming and I don’t want my name in any way connected with it.” Words for our time.