Current Fed Policy: An Exercise in Keynesian Folly

John Cochran writes in today’s Mises Daily:

If yields move much higher I feel that the Fed will have to intervene to bring them back down. In other words, the Fed will find it much harder to exit QE than it was to enter.

Austrians long ago showed the folly in such policies. Hayek’s lead essay in Profits, Interest and Investment (1939) provides an early Austrian response to Keynes’s nonsense.[3] In what is one of Hayek’s most difficult articles, Hayek explicitly argues that such a policy will ultimately not only fail to achieve its stated objective, but will lead to significant long-run harm to the economy. The policy might temporarily appear to increase employment, but the effect is an illusion.[4] Credit creation and artificially low interest rates, even if applied to an economy with currently unused resources still misdirects production leading to boom-bust episodes and higher future unemployment.

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