Understanding the Crisis (Lew Rockwell)

Lew Rockwell shows how Austrian Economics explains the financial mess we're in, and why the work of the Mises Institute is so important:

What caused this? It is a simple question, and yet answers are all over the map, as you might expect. Here's mine in two words: fiat money.

The word "fiat" means "out of nothing." Money out of nothing is money that is eventually worth nothing. The possibility of precisely that happening emerged in August 15, 1971. Since Nixon severed the last tie of the dollar to gold, the world's monetary system has not been restrained by anything physical. We've depended on the discretion of central bankers. We can't trust that, and this crisis shows precisely why.

Of course there are subsidiary factors: the lifting of restrictions on Freddie and Fannie; subsidized lending; the Fed's artificially low interest rates; the Community Reinvestment Act; financial "deregulation"; the war; Bush profligacy; debt. There is much more besides. But fighting each of these forces individually is like battling down flies at the garbage dump. The core issue is that there is nothing to restrain money creation.

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