Will 2011 Be The Year The Von Mises Prophecy Comes True?

December 13, 2010 06:16

The dynamics of the Von Mises prophecy also help clarify why we have rough waters ahead. The problems of the “debt mountain” have not been dealt with — which means they will continue to press in future.

Mercenary Trader at Business Insider


In that respect, there is something I think of as “the Von Mises prophecy,” which is a sort of one paragraph summation of Austrian thought — anchored to a prediction — as put forth by Ludwig Von Mises himself:

There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

As credit expands, more and more unproductive debt is taken on in pursuit of marginal return investments. This process can play out over years, or even decades (as we have seen in the U.S. via a 25-year leverage and debt supercycle).

The prophecy’s “final and total catastrophe of the currency system” comes from last ditch emergency measures in the face of a debt avalanche.

The pattern as described above is now in full swing in the United States and Europe, and coming to potentially spectacular fruition in Japan.

he United States too, of course, is on a similar path. This is why U.S. yields have been rising, not falling, even as the Bernanke Fed has promised to keep rates low. As we wrote in the 12-2 Global Macro Notes:

In short, the Federal Reserve has made clear its intentions to utterly trash America’s finances, as it seeks to paper over the excess leverage and debt sins of the entire planet.


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