Ludwig von Mises--why you should know him

The great Austrian School Economist, Ludwig von Mises wrote, "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

In other words, Mises, unlike the followers of economist John Maynard Keynes, is of the opinion that governments (and central banks) should stop trying to interfere with market forces. Government intervention via fiscal and monetary policy cannot "control" markets, and cannot prevent booms or busts--they occur naturally, and hence, should be allowed to run their course. All intervention will do is compound and exacerbate said credit expansions and subsequent busts. In other words, they not only create bubbles--they make them bigger, and when they pop, they create bigger busts.

Obama, as bright and insightful as he is, is naturally bending to human nature--the consensus is to solve this huge private, corporation, and institutional debt crisis by replacing it with much larger government debt. In other words, we are compounding a billion dollar debt problem into a trillion dollar debt problem.

While stimulative short-term (public and private works, for instance), it is detrimental long-term, as our generation and future generations are saddled with huge debts and high taxation. Despite cosmetic rhetoric, we are merely deferring out debts into the future, letting them compound at an alarming rate.

The resulting inflation reduces that debt amount into the future, but inflation also punishes savers and investors. Eventually, investors will demand higher rates of return. The combination of capital flooding the markets, and said capital chasing fewer resources (commodities, crops, oil, basic metals, and precious metals), will also cause interest rates to rise.

Inflation is the furthest worry of policymakers and the general public right now, but it will eventually rear its ugly head.

In the immortal words of the recently mortal Milton Friedman: "Inflation is taxation without legislation."