Booms and Busts

Joe Salerno make sense of market crashes.

The crash of 1929 came after a decade of interventionist politics following world War I. "Free markets" were blamed anyway. Decades later, we pursue even more interventionism, and when it fails, we blame "free markets" all over again.

Consumer prices have been stable, but we should pay attention to 2014's decline in the money supply which mirrors a similar decline from 1927 and 1928, which was followed by a collapse in industrial production.

The Fed is talking about raising interest rates, but it knows that any move in that direction is likely to cause a recession and more economic pain. But it also knows it can't keep forcing down interest rates forever.

In 1925, Winston Churchill, in spite of massive wartime inflation of the pound sterling, restored the gold standard at the old pre-war exchange rate. This set off a chain of events that led to the 1929 crash in America, and the rise of Keynesianism.

Asset-price inflation is being ignored as pundits focus on consumer goods. But if we look at asset prices, the carry trade, and commodities, we have reason to believe that the current boom is entering a stage similar to what we saw in 2007.

The old tricks of conventional monetary stimulus — low interest rates — no longer work, so we've entered the untested waters of zero-interest-rate policy.

The Skyscraper Curse Hits South America!

Physical cash has long been problematic for governments because it allows people to avoid the banking system, which in turn can lead to tax avoidance and bank runs. It’s much easier to control an economy when all money must remain in banks.

Learn the fundamentals of the Austrian school.