Great analysis. The key distinction is with distorted prices, comes a misallocation of capital and ultimately, it's destruction. When US home prices were 200 dollars per square foot, and doubled to 400 dollars per square foot, was it a good use of the national savings to invest in more houses? Did US homeowners and speculators ultimately profit from that decision? Why or why not? When tulips cost 12 guilders per bulb (1 months salary), and appreciated to 2,500 Guilders per bulb (16 years salary), was it a wise investment decision to leverage the countries savings and buy tulip bulbs? Did that ultimately profit the Dutch? Why or why not?
My main point is that I believe Soros' arguments are compelling and that markets, while they may, generally don't find equilibrium naturally when not manipulated. This view of mine is at odds with current economic theory. Soros believes, as do I, that markets seldom exist near equilibrium, let alone actual equilibrium, and they can just as naturally move further away from equilibrium as they can toward equilibrium. In fact they may be even more disposed to move "naturally" away, rather then toward, equilibrium. You apparently accept current economic thinking as correct, which puts you in the mainstream. I won't argue with that point of view, other than to say I think it is wrong. If you want to delve into the arguments on the other side, then I would suggest reading Soros.
Interesting. Does Soros give any concrete examples? If his theory is correct, how did empires grow and thrive for thousands of years, prior to central banking and interest rate manipulation?
Controlling inflation has some advantages in regards to international investment. I don't know if the interest rate is the right tool to hit the target, that is a different matter. Read below. http://morganisteconomics.blogspot.co.uk/2011/02/milton-freidmans-greatest-contribution.html
Achilles, go to Amazon and order "The Soros Lectures at the Central European University" it's only 119 pages. (I had to read the first chapter twice and some of the paragraphs multiple times.) But yes he gives specific examples. These lectures are also on You Tube , but you'll understand them far better if you read them. My personal opinion of his contribution to what I suppose the economists would call "behavioral economics" is nothing short of brilliant . But frankly this is not the kind of stuff that will make points in the mainstream, academic economics community. Soros is in a unique position having studied both economics and philosophy (Karl Popper) at the London School of economics. His training in Philosophy has enabled him to put forth his economic ideas with the kind of logical rigor that is necessary if they are going to be taken seriously. What I find most beautiful in this work of his is that what to me is common sense is at the same time Earth shattering in its importance to understanding financial markets and ultimately to Central Bank regulation.
Make sure the Fed Chairman is independent of the politicians - otherwise he is just their financial yes man and worthless, like poor Benny. Fine those responsible for the financial meltdown - leave them owning $500, the clothes they stand up in and a public whipping. For too long the US has been over kind to the ruthless manipulators and fraudsters. Reorganise teaching organisations to start up new businesses. Pipe or canal water to the drought affected regions. Cut red tape Sack incompetents. Cut costs Put drugs on the same basis as alchohol. Give the super rich a financial haircut. Get rid of the nanny state etc.