There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.
For example, from antiquity until the late-19th century, bloodletting was used to treat nearly every disease. Reputable medical references recommended bloodletting as a cure for acne, asthma, cancer, epilepsy, gout, indigestion, insanity, leprosy, pneumonia, scurvy, tuberculosis, and everything in between. Bloodletting was even used to treat hemorrhaging.
The practice was simple enough. A surgeon, often a barber, would open a vein and drain blood from the patient. Somehow, this was supposed to cure them of disease.
The fundamental idea was that a sick person could be bled to health. Induced fainting, via bloodletting, was even considered beneficial. However, the results were often fatal.
On December 13, 1799, George Washington returned from a cold-winters horseback ride across his estate with a raspy throat. So, he requested bloodletting to make his sore throat better. Over a ten-hour period, roughly 126 ounces of blood was drained from his system.
The next day Washington’s treatment achieved its perfect success. Because of the bloodletting, Washington never suffered from a sore throat again. He’d received a permanent cure. Namely, he croaked.
Wouldn’t a tablespoon or two of honey and lemon have been a better solution to the sore throat problem? Sure, it would have been less effective. But it also wouldn’t have been so permanently terminal.
Curing a Debt Problem with Credit
Certainly, repeated observations of the practice must have shown bloodletting’s cure-all powers to be dubious at best. You’d think that after several thousand years of failure the practice would have been tabled. But it wasn’t.
In fact, by the 17th century, many doctors knew bloodletting was more harmful than beneficial. But the practice persisted for another 200 years. How come?
From what we gather, doctors didn’t want to acknowledge their limitations. Although they had garnered an astute understanding of how the human anatomy functioned, they had yet to discover cures for practically all diseases. Thus, the common belief was that it was better to give a bloodletting treatment than no treatment at all.
These days, many diseases are still without cures. But progress has been made. Doctors and surgeons no longer imagine bloodletting to be the ultimate cure-all. Only a medical quack would carry out such a barbarous treatment.
Unfortunately, the same cannot be said for present day monetary policy. We live under a system of outright quackery. What else, but a quack monetary system, would prescribe ever increasing expansions of credit as a cure-all for a debt problem?
Nonetheless, perpetual increases of credit underpin today’s wild and zany debt based fiat money system. This, no doubt, is akin to attempting to bleed a patient to health. It also guarantees a slow and painful death.
Fed Quack Treatments are Causing the Stagnation
On Tuesday, Fed Chair Janet Yellen, a quack, reeled back her 78-month plan for the national monetary policy of the United States. If you recall, this was the grand plan she rolled out last week. Apparently, she’s already having some reservations.
At the National Association for Business Economics in Cleveland, Yellen said:
“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.
“Although we judge that inflation will most likely stabilize around 2 percent over the next few years, the odds that it could turn out to be noticeably different are considerable.
“In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks over-adjusting policy to head off projected developments that may not come to pass.”
To be fair, Yellen was speaking about the pace at which the Fed will raise the federal funds rate. Though this is different than her plan to unwinding the Fed’s balance sheet, we suspect that, in time, this same rationale will be used to justify further Fed asset purchases.
The point is, the Fed only knows only one cure-all treatment for the economy’s stagnation. Always wrong, but never in doubt. Credit expansion is the Fed’s perennial solution.
Alas, like bloodletting barbers of the 19th century, it’s a quack treatment that has buried the economy under irreconcilable levels of debt. Yet the quacks who deliver it are oblivious to the fact that their treatment is not a cure for the economy’s stagnation, but rather the cause. Perhaps in two thousand years from now they’ll come to grips with this.
for Economic Prism