When Money is Credit, All Problems Look Like Elasticity - E247
In this episode, I react to another Jeff Snider interview, this time on the Mark Moss podcast.
In the interview, Jeff response to Mark's questions about why QE doesn't work and is not money printing. I expand on Jeff's points by describing how QE actually handicaps future growth, and in a credit-based system, it also effects growth.
I wanted to tackle the specific arguments Jeff makes about elasticity next. Jeff claims that the problem with the current system is the lack of elasticity in economic slowdowns. I think he'd also argue that the response to these slowdowns has an effect of ever getting back to a good economy, where credit is expanding, and where elasticity is high.
He claims that lack of elasticity is the main problems we face today.
My analysis is nearly opposite. While I agree on the facts Jeff lays out, I think that inelasticity is the market's way of healing. Jeff goes halfway there with me, but stops short because good banks and businesses are hurt by contagion.
He prescribes a money that has the ability to expand the elasticity when needed for "good" banks and businesses, but allow "bad" banks and businesses (bad debt) to get destroyed. Jeff invokes Schumpeter's creative destruction. However, by arbitrarily controlling the cycle of destruction, you cause it to not be creative. It is contradictory to call for creative destruction through controlled destruction.
This, I believe, is the biggest disconnect I have with Jeff's thinking today. The world is in desperate need for creative destruction, and in that process many innocent businesses, people, and even countries will be affected negatively. We may be able to selectively stem the tide by picking winners and losers in the near term, but eventually, the market will win.
These pressure toward creative destruction will psychologically chase the market into money that can protect against credit crises and collapse. That is sound money and bitcoin.
Original video
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