Increased regulations will not just fail to head off the next crash, they will make the next recession worse. Federal regulators are not capable of determining what is “excessive” risk. Instead, that determination is best left to market participants. Regulators are subject to having the same Fed-induced distorted view of the marketplace as nearly everyone else. Thus, regulators may mistake a growing asset bubble as a thriving sector of the economy that will serve as a long-term source of growth. This is especially the case if, as with the housing bubble, government policies such as the Community Reinvestment Act encourage the malinvestments. Also, regulators may impede the growth of businesses that are actually responding to real economic conditions instead of Fed-created illusions.
Support among the people, if not among the financial and political elites, for auditing and even ending the Fed, as well as for cryptocurrencies and precious metals, suggests we may soon reach what Ludwig von Mises referred to as the “crack-up.” The crack-up occurs when enough people realize that continuous expanding of the money supply, and the accompanying decline in a currency’s purchasing power, is a feature of central banking. Therefore, they spend their money as soon as they get it, accelerating the rise of hyperinflation.