Any economist or economic historian will tell you: volatility will kill you. Any physical scientist will tell you that a system that experiences oscillations that rapidly increase in size will soon tear itself to pieces. Please watch the illustration below; it is the famous “Tacoma Narrows Bridge.” “Galloping Girtie” was a bridge made of concrete and steel that spanned the Tacoma Narrows across Puget Sound in Washington State. The wind started a cyclic rocking that became self-reinforcing and ultimately collapsed the bridge.
I’ll bet you didn’t know concrete and steel could do that. This is why engineers study failure.
The Federal Reserve was supposedly instituted to smooth out the business cycle and thus stabilize economic activity. A noble goal, no doubt. Has the Fed succeeded in smoothing out the business cycle? Have they really repealed instability? Or have they, rather, merely postponed business corrections and thus guaranteed the correction will be devastating when it finally arrives? Are they making it easier to do business, or harder?
Pretend you are a businessman or businesswoman. Your task is to do business with a long-term perspective, creating value for shareholders while standing on the bridge. Remember, you don’t know when these swings are coming, but the people at the Fed do because they cause them.
Here is the value of your currency, the Federal Reserve Note, compared to other similarly unbacked paper currencies:
Here is your cost of capital:
Here are your short-term borrowing costs for things like meeting payrolls:
Finally, here is a chart of inflation:
Now, get out there and hire people to make stuff!
