Here's a great new paper by Bill Barnett and Walter Block. In it they strip away inflation, FRB and fiat money as the causes of the FRB to reveal the fundamental cause: mismatched time deposits. In other words A lends £100 to B for 1 year who then lends that money to C for 2 years. This creates a lower than otherwise interest rate for C, as ceteris paribus borrowing for longer increases the interest rate, leading malinvestment and thus to the ABCT.
Read it all here: http://www2.units.it/~etica/2009_1/BARNETT_BLOCK.pdf
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Physiocrat
I would want to hear what other Austrians say about this. Notably Garrison, White, Horwitz.
scineram: I would want to hear what other Austrians say about this. Notably Garrison, White, Horwitz.
I want to hear why it's FRB and not central banks that cause this.
Also, I want an explanation for why consumption does not increase during a downturn - please, don't hang me for this, people, I would just like to know.
existence is elsewhere
physio's synopsis isnt quite accurate.
their paper shows that there are two independently sufficient ways to achieve an ABCT. FRB alone will do it. alternatively , mismatched time deposits will do it.
of course they are not mutually exclusive ways of getting ABCT, both can be going on.
the quote from the conclusion is:
B&B:In our view, in contrast, FRB is only sufficient to this end. Another phenomenon, not unrelated to the first, is also sufficient(although not necessary): mismatched time deposits. These, too, as we have demonstrated, can artificially lower interest rates below levels that would otherwise occur.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Couldn't the FRB's discount window in terms of encouraging other lending banks to lend to each other (and to consumers at the end of it) be a similar phenomena? Being that each bank that lends down the line would have a different expected time of fulfilled payment for a given loan to a given consumer/bank?
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