“That the rate of interest will be lower when commerce languishes and when there is little demand for money, than when the energies of commerce are in full play and there is an active demand for money, is indisputable; but it is equally beyond doubt, that every speculative mania which has run its course of folly and disaster in this country has derived its original impulse from cheap money.“
– The Economist, 1858 (h/t Jamie Catherwood)
1858. That 162 year old quote might as well have been written yesterday.
“There is a particular lesson that history regularly teaches, yet the public never actually learns. The lesson is simple. When a) the government – or since 1913 the Federal Reserve – insists on making money cheap by aggressively suppressing interest rates, and b) provided that investors are inclined to speculate – an essential condition that we’ll get to shortly – the combination invariably produces an episode of “irrational exuberance,” often with a subsequent collapse that exerts economic damage far exceeding whatever benefits the depressed interest rates were intended to produce.“
—John Hussman, October 2020 Market Commentary