On Mythili's Mythology

Mythili Bhusnurmath of the Economic Times, affectionately known as “Myth,” has published her opinion on the US Crash. (Thanks to Chandra.)

Yet, I find myself in total disagreement with her views.

Myth’s article is entitled “The Good, The Bad and The Ugly” and accordingly she lists out what is “good” about the crisis first.

She says: “The good thing is that the world will have to seriously think of an alternate international reserve currency.”

In reality, this word “reserve” as used by central bankers – and Myth is a central banker – is just one big lie. Central bankers actually have no “real reserves” to back their paper notes. And they hold notes of other central banks like the US Fed in a pyramid. This pyramid is collapsing. What should be done? Is Myth seriously suggesting that another central bank take over the task of inflating the world with another fiat paper currency?

Yes, I agree that the US dollar is in free fall. This is the end of US imperialism. Good. Very good. But to me this should signal the end of Keynesianism, Monetarism and Central Banking. If we truly want the world economy to grow in a stable manner, thereby lifting the masses out of poverty, we need to usher in “sound money.” Myth’s article does not contain this vital term. Like Keynes, she probably thinks gold is a “barbarous relic.”

Myth then goes on to say that the “best thing” about this Crash is “it will be a while before the US (not to forget the IMF and the World Bank) lectures developing countries about giving markets free rein or about the folly of government bailouts.” Here she shows her statist bent: say no to free markets; say yes to state intervention.

According to me, it is a tragedy that economists from developing countries need lectures on free markets. If Myth was not caught up in the mythology of central banking, she would see reality differently. Her perceptions, based on her theories, are in serious error.

Myth then lists out “The Bad”: the fact that the world will suffer along with the US. Further, that it will take a while for “confidence to return in financial markets.” Confidence in what? I ask. Confidence in paper notes? Or confidence in gold? Or confidence in “legitimate banking”?

She then proceeds to “The Ugly.”

She says, “The ugliest aspect, however, is the possibility the world will once again seek band-aid solutions rather than address the root cause of our present problems: the pivotal role of the dollar as reserve currency that gives the US the ability to privatise the gains and socialise the losses.”

She then proceeds to champion precisely these “band aid solutions” – she calls for “all-out rescue efforts of central banks (flooding markets with liquidity) and governments (bailing out institutions with exposure to toxic US assets) all over the world.” Here too, she uses terms that reflect the mythology of central banking. They do not “flood markets with liquidity”: rather, they flood markets with paper money. And the US assets she refers to are not “toxic”: they are worthless. They are the result of the US central bank's artificial boom of the recent past. It is central banking that is “toxic.”

Myth concludes with pure double-speak: “Today, the situation is too critical for the world to baulk at bailing out the US. But once the crisis is over we need to focus on the moral hazards of bailing out the US. Desultory talk of the need for a new ‘Bretton Woods’ will not do.”

We must bail out the US now and then think of moral hazards later! What is the right word for this – “mendacity”?

Is there nothing called Truth any more?

If there isn’t, we will all sink.

As Ludwig von Mises said: "No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result."