Print the page
Increase font size

Posted June 23, 2022

Sean Ring

By Sean Ring

Mises Was Right. Powell Is Wrong.

  • Unsustainable profits brought upon by reckless credit expansion cause recessions.
  • Raising interest rates just pricks the bubble further.
  • That’s why central banks are always too late in their moves, as the Fed is now.

Good morning on this fine, sunny Thursday!

Since this edition of the Rude is to refute Jay Powell’s delusions with Mises’s excellent economic theory, there will be many quotes.

I do this because Mises was so spot-on in his analysis, you’d think he wrote it yesterday and not 70 years ago.

Also, I may have been overly flippant about doom merchants yesterday.

If you read Mises, Rothbard, Hayek, and Hoppe, none of what’s happening now is surprising.  And you’d have known about that outcome for over a decade.

What was shocking to us - and yes, I include myself in the not-so-merry band of doom merchants - is the State’s manic quest to maintain power.

That’s the only way central banks have been able to keep up this monetary nonsense for so long.

And when the policy outcomes are so crystal clear, you’re going to look wrong for a very long time… until those outcomes finally manifest themselves.

So today, let’s look at Powell, Mises, and why the inevitable is smacking us in the chops.

Let’s Start With Human Action

As you read this next bit, think about how it applies to today’s world.

In his magnum opus Human Action, Mises writes (bolds mine):

Economics recommends neither inflationary nor deflationary policy. It does not urge the governments to tamper with the market’s choice of a medium of exchange. It establishes only the following truths:

  1. By committing itself to an inflationary or deflationary policy a government does not promote the public welfare, the commonweal, or the interests of the whole nation. It merely favors one or several groups of the population at the expense of other groups.


  2. It is impossible to know in advance which group will be favored by a definite inflationary or deflationary measure and to what extent. These effects depend on the whole complex of the market data involved. They also depend largely on the speed of the inflationary or deflationary movements and may be completely reversed with the progress of these movements.


  3. At any rate, a monetary expansion results in misinvestment of capital and overconsumption. It leaves the nation as a whole poorer, not richer.


  4. Continued inflation must finally end in the crack-up boom, the complete breakdown of the currency system.


  5. Deflationary policy is costly for the treasury and unpopular with the masses. But inflationary policy is a boon for the treasury and very popular with the ignorant. Practically, the danger of deflation is but slight, and the danger of inflation tremendous.

Much of this will sound familiar to you, I’m sure.

But it’s incredible to me how Mises organized this knowledge decades ago.

It resonates because it’s a universal set of truths.

Notice especially point 3.

Mises explains that monetary expansion results in malinvestment, leading to inflation.  

The inflation leads to a crack-up boom and breaks down the currency system.

Sound familiar?

When you know this, it’s hard to take Jay Powell’s testimony seriously.

Powell’s Testimony  

I had a chance to review Jay Powell’s uncomfortable testimony and Q&A session before the Senate yesterday.

He opened by saying:

At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all. 

Nowhere does Powell say, “Look, we were too expansionary for too long.  We caused all this inflation by recklessly expanding the money supply.  Now, we’re ratcheting up rates as fast as we think the markets can take it, so we kill the inflation we, The Fed, created.”

A simple mea culpa wouldn’t go amiss, Jay.

It’s Not the Hikes.  It’s What Came Before.

Let’s remind ourselves of the rampant money printing Jay Powell and his predecessors took part in:

The first gray bit is the recession during the Great Financial Crisis.

Before that, the Fed’s balance sheet stood at about $1 trillion.

Afterward, it nearly quintupled until the corona crash, when it went up to $7 trillion.

Powell didn’t stop there.

Now we’re at $9 trillion, but you may notice a little arc downward.

That’s the Fed trying to unwind this mess.

It won’t happen cleanly or with a “soft landing.”

This reckless balance sheet expansion has led to massive malinvestment.

That’s the problem.

Raising interest rates to a more normal level is the consequence of prior stupidity.

Not the cause of a coming recession.

However, the raising of rates will indeed harm businesses.

And the Fed speeding up these hikes will only hurt more.

Mises Knew How It Ended

Mises wrote this piece, "Inflation Must End in a Slump," in 1951.

In the article, he said that all periods of government-induced credit expansion must end in an economic crisis:

This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion.

As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise.

Business is booming.

Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later.

For paper money and bank deposits are not a proper substitute for nonexisting capital goods.

Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis.

It has happened again and again in the past, and it will happen in the future, too.

Amazing that it was written in 1951.  It looks like it was printed yesterday.

Wrap Up

“You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work.  And I hope you’ll reconsider that before you drive this economy off a cliff,” said Senator Elizabeth Warren.

Pigs must be flying for me to agree with her.

Of course, the Democrats will complain.

But Republicans showed a bit of backbone as well.

Senator Richard Shelby chimed in, “I believe the Federal Reserve and this administration failed the American people by not heeding these warnings a year ago and by not acting sooner to address it.”


Senator Mike Rounds also mentioned that Powell would be the one who’ll take the fall should the economy roll over.

I’m not sure that matters anymore.

Nothing will happen to Powell besides a slightly tarnished reputation and a cushy retirement.

Still, it’s galling watching this slow-motion car crash when great economists of old already told us what would happen.

Until tomorrow.

All the best,


The Fading Fortunes of Famous Families

Posted August 17, 2022

By Sean Ring

Good morning on this gorgeous morning from northern Italy! My jetlag seems to have gone already, thank heavens. It usually lasts longer. But after all these years spent on planes, I guess I’m...

Is This Rally Real?

Posted August 16, 2022

By Sean Ring

Happy Tuesday! Thank heavens it’s cooled off here in the north of Italy. I was sweating profusely in NYC and was hoping I’d get a respite back here. And while I’m enjoying the...

A Summer’s Odyssey

Posted August 15, 2022

By Sean Ring

Happy Monday from a much cooler Asti! It’s been ages since I wrote you from here, and I’m excited to be back. But my NYC trip, while infested with rats and stinking...

Enjoying the Inflation? Have Some More…

Posted August 12, 2022

By Sean Ring

Yesterday morning, the PPI number came out. This Rude was first written on December 14, 2021.  But it mirrors perfectly what’s going on today. I know newsletter writers are prone to hyperbole...

Zero Percent, Joe? Come On, Man!

Posted August 11, 2022

By Sean Ring

I’m nearly done with this graduate program and head home on the Friday night red-eye to Milan. So tomorrow’s Rude will be a re-run. From then, I’ll be writing fresh new columns...

Even Donald Trump Needs a Second Passport!

Posted August 09, 2022

By Sean Ring

Last night, I shared a wonderful dinner with my cousin, Corey, and his wife, Kim, in downtown Hoboken, NJ. Hoboken, a square mile where Frank Sinatra was born, is just across...