Austrian business cycle theory points out that easy money leads to malinvestments. Once easy money disappears, the crash begins. Time to clean up malinvested assets.
At the heart of Keynesian business cycle theory is the so-called liquidity trap. Contra Keynes, however, economies don't falter because a sudden increase in the demand for money.
By all measures, the economic downturn that began in 1920 was worse than what occurred in 1930, yet the economy recovered quickly in 1921. Why the difference?
For nearly two decades, business, academic, and political elites have spread the fiction that central banks can engineer prosperity by printing more money. Markets now are discrediting that fairy tale.
