We have today a hybrid of two forms of banking — loan banking (non-inflationary) and deposit banking (inflationary if not 100% reserve holdings). The cause of booms is the credit expansion by central banks that is not backed by pools of private savings. The longer the inflation-driven boom continues, the worse the inevitable clearing bust must be.
Like clockwork, and as projected by the few good economists who understand the trade cycle, the liquidation phase of the current cycle began — once again, due to a central-bank-induced credit crisis. And yet again the credit crisis began in year 7 of the cycle, after close to 6 years of economic expansion, that is, the artificially pushed money
The credit markets are in some turmoil, and numerous market watchers and commentators are calling for or even (like Jim Cramer ) demanding a rate cut from the Fed. The immediate question for these market watchers, of course, is this: how will the market react to cuts, or to no cuts? But the broader question is, how will the underlying economy
On Tuesday September 18, US central bank policy makers surprised financial market players by cutting the federal funds rate target by 0.5% to 4.75%. The key motivating factor behind the hefty cut in the federal funds rate target was an economic model that Fed Chairman Ben Bernanke developed while in academia. Bernanke is of the view that changes
August 2 saw Matthew Beller’s Daily Article “The Coming Second Life Business Cycle,” which sounded at first blush like yet another announcement of the coming Rapture. But it described the fiat money (Linden Dollars) of the fiat world of the Internet, known as Second Life. And sure enough, just like the First Life (this one?), the creation of money
The following thoughts on the current economic and financial environment formed part of a recent commentary sent to our firm’s clients. Users of the blog may find them of general interest. In the Austrian description of the trade cycle, the lack of any generalized rise in the price of final consumption goods is never — repeat, never - to be taken
James Grant writes in the New York Times today , on cue as the housing sector bust continues. He seems to be the guy that the editors call whenever there is a downturn in the market. And every time he writes a variation on the Austrian theme that it all comes down to credit cycles generated by the central bank, which is forever attempting to gin
In the Christian Science Monitor, here is George Selgin: The subprime lending crisis also shows that, while central banks certainly have the power to expand a nation’s spending power, they can’t guarantee that the extra power gets used as intended, namely, to give a roughly uniform boost to the overall demand for goods. On the contrary: The crisis
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The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard.
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