The Worst Recession in 25 years?

The Fed cut its target for the fed funds rate by 50 basis points, from 5.25% to 4.75% which surprised many analysts who had been expecting a more modest cut. Not only will it pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years.

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Twenty-five years - that take us back to the post Carter times (we all remember those right?)

In the Austrian view, the boom-bust cycle is caused by the Fed's maintenance of artificially low interest rates, which causes businesses to expand, hire workers, buy other resources, and so forth, even though these projects are not justified by the true supply of savings in the economy. The greater the "stimulus" the worse the malinvestments.

From 2001–2004, the Fed kept (real) rates at the lowest they've been since the late 1970s. One of the consequences that has already manifested itself is the housing bubble. But a more severe liquidation seems unavoidable. The recent Fed cut may postpone the day of reckoning, but it will only make the adjustment that much harsher.

It is all smoke and mirrors and most of the "zombies" among us do not realize it.