I’ll blog shortly about the Independent Commission on Banking’s Interim Report but, as I see Spain is thought by some to be next for a bailout, this quote from Mises’ Causes of the Economic Crisis seems apt:

In discussing the situation as it developed under the expansionist pressure on trade created by years of cheap interest rates policy, one must be fully aware of the fact that the termination of this policy will make visible the havoc it has spread. The incorrigible inflationists will cry out against alleged deflation and will advertise again their patent medicine, inflation, rebaptizing it re-deflation. What generates the evils is the expansionist policy. Its termination only makes the evils visible. This termination must at any rate come sooner or later, and the later it comes, the more severe are the damages which the artificial boom has caused. As things are now, after a long period of artificially low interest rates, the question is not how to avoid the hardships of the process of recovery altogether, but how to reduce them to a minimum. If one does not terminate the expansionist policy in time by a return to balanced budgets, by abstaining from government borrowing from the commercial banks and by letting the market determine the height of interest rates, one chooses the German way of 1923.

It’s my view that the fundamental cause of the crisis has been Governments’ use, over the last 40 years, of our institutionally-inflationary financial system to bankroll politician’s promises. Sooner or later, it must and it will end.

The challenge of our time is to stop this statism, this fantasy that we can consume without producing, before the social and political consequences are too grave.

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