[Newman]

When the central bank creates new money, it parades around as loanable funds because it enters through credit markets. This puts downward pressure on the interest rate, encouraging consumers to spend more and businesses to invest more (especially in new projects that before seemed unprofitable). Unfortunately, when those new business projects (like house construction, new factories, or even new technology) come to fruition, there's no demand because the resources invested weren't backed by real savings, and folks consumed too much earlier because of the artificially low interest rates. Though those businesses expected profits, they are now posting losses, so prices fall, employment shrinks, and all affected sectors in the economy suffer according to the magnitude of the preceding boom caused by the original artificial credit expansion.

So the Austrians point to the economic boom as where all the problems were occurring--i.e., the malinvestments made by the businesses and the overconsumption made by the consumers. Both made honest mistakes. Both relied on honest interest rates that represented real societal savings and the supply and demand for loans, but instead got a lie that encouraged them to act the way they did.

If the boom is where the problems were happening, then the bust, for the Austrians, is the necessary period of corrections needed to get the economy where it should have been, had it not received the stimulant injection that knocked it off track in the first place. The corrections are painful, for sure, but necessary in the long run. Any short run "stimulus packages" or "quantitative easing" only exasperate the problem by diverting resources further away from where they "should" be and further manipulating the farcical interest rates that caused the boom-bust cycle in the beginning.

[kmoney]

I'm currently reading Keynes Hayek: The Clash that Defined Modern Economics" and it has been going over Hayek's view of what you describe. I think there is some truth to it. I've said before that I thought our economy needs to fall and level out at a more realistic, sustainable level. I struggle to see how stimulus can produce anything more than short-term improvements.

[Zeke]

David Graeber wrote an interesting book on Debt, the first five thousand years. Weaponized Debt is the ingame that inslaves those under it.

Most of the rich are forgiving when it comes to each other's debt, (except for scape goat once in a while) its the rest of the populace they seem to have a different set of prinicples for when it come to alot of unbacked funny money, and credit being owed that has no real substance to make the case it is being abused by anyone except those who control it.

Jubilee is the only solution that would wipe out the falsh quilt, and power of the rich to keep everyone inslaved.

[99lamb]

murray rothbard.

[kmoney]

Would the Austrians say we should drive off the fiscal cliff?

[Nick M]

Originally Posted by Newman

When the central bank creates new money, it parades around as loanable funds because it enters through credit markets. This puts downward pressure on the interest rate, encouraging consumers to spend more and businesses to invest more (especially in new projects that before seemed unprofitable).

Just like the two greatest economic powers the world has ever known. Rome before they limited money supply, and the USA. We are going down the chute for the same basic reasons.

Unfortunately, when those new business projects (like house construction, new factories, or even new technology) come to fruition, there's no demand because the resources invested weren't backed by real savings, and folks consumed too much earlier because of the artificially low interest rates.

There is no demand because there is no demand. I am not going to buy a home in Fort Meyers becasue it is cheap and in a great spot. I already have a home. Demand exists because people need something.

[WizardofOz]

Peter Schiff Mises.tv broadcast