Antithesis of the Austrian solution

Looking for the reason we are having difficulty getting a recovery on track one needs look no further than this explanation below.  As long as central banks keep expanding their balance statements by buying assets of governments we will have the makings of ever expanding financial bubbles.  This is all the antithesis of the Austrian school of economics solution which calls for the elimination of the misallocation of capital by allowing markets to function freely.  No pain no gain.

Then we get into more exotic territory, such as this offering from Steven Lewis at Monument Securities, via the FT:

More likely, investors realise the ‘knock-on’ effects from a Cypriot default are literally incalculable. But they are insensitive to bad news. They respond to those factors which would lead them to buy financial assets; they can do nothing with any other information. Central banks’ massive asset purchases have set up a situation where the markets’ normal signalling mechanisms no longer operate because investors have huge volumes of uncovenanted liquidity, created by the central banks, to commit to long-term assets. The central banks would, no doubt, claim this as a triumph for their asset-buying policies. They do not want to see economic recovery blown off course by recurrent financial crises. However, for those who believe free markets are the most efficient means of allocating capital, the impairment of the capital markets’ pricing function must be cause for concern. It presages serious misallocation of capital, carrying negative implications for future economic capacity. The most extreme and obvious form of misallocation is seen when a market ‘bubble’ forms. The bursting of a bubble may have spectacular consequences. But misallocation of capital may occur even when a ‘bubble’ does not form. For example, when investors, in their quest for yield, overlook significant differences in the risk-adjusted returns that assets may realistically be expected to provide. Central bankers say they are on the look-out for ‘bubbles’ but they seem unconcerned about any broader misallocation of resources their policies may generate.