Mark Spitznagel, a hedge fund manager known for employing Austrian economics in his investment strategies, recently noted in an interview with The Financial Times that central bank policy have destroyed the value of markets: “Markets don’t have a purpose any more — they just reflect whatever central planners want them to.”
Given Spitznagel’s Austrian background, it’s likely the Spitznagel understands well how one of the market’s most essential services is found in the pricing mechanism. Without allowing free movement in prices, there’s no way of knowing what anything is actually worth. The distorted price signals lead to malinvestments.
In an environment of relentless manipulation of the money supply, markets cannot accurately price good and services, and without relatively stable and predictable interest-rate and money-supply policies from central banks, we’re only left guessing what asset prices actually are. In turn, this then permeates outward to the entire economy.
This has always been an issue to a certain extend in the presence of central banks, but as Spitznagel points out, things are different now. “This is the greatest monetary experiment in history,” he notes, and concludes that since we are now experiencing unprecedented manipulation of markets, it only follows that we’re risking an unprecedented collapse:
Why wouldn’t it lead to the biggest collapse? My strategy doesn’t require that I’m right about the likelihood of that scenario. Logic dictates to me that it’s inevitable.
