Financial Markets

In recent years, we’ve seen more and more Austrian-tinged economic analysis. There has been tremendous growth in interest in Austrian economics among financial professionals.

It’s difficult to envisage a downward-sloping yield curve in an unhampered market economy since this would imply that investors are assigning a higher risk to short-term maturities than long-term maturities. But in today’s economy, an upward or a downward sloping yield curve reflects the Fed’s interest rate policies.

Some economists of the Austrian School contend that business cycles are created when banks use the proceeds of short–term time deposits to create longer-term loans. 

The Fed does not produce work or items of value.

Many still blame “deregulation” for the financial disaster that was caused by an intricate web of federal laws and regulations, writes Dale Steinre

An entire generation of students has been taught to accept efficient market theory (EMT) as gospel.  They have learned about investing in securities in an academic environment that rejects fundamental analysis. 

The theory of monetary disequilibrium, as espoused by Selgin (1988), White (1989), Horwitz (2000), and others, has been used to justify the issuance of fiduciary media under a system of fractional reserve “free” banking. 

Unfortunately, Peter Bossaerts’ text, The Paradox of Asset Pricing, offers no relief from past use of flawed methodologies. Bossaerts is professor of finance and director of the Laboratory

The winner’s curse was “discovered” in low rates of return on certain types of capital goods acquired in auctions or negotiated acquisitions. 

In this article, the prime concepts are based on the Mises-Hayek theory of the business cycle.  Using this model as the general framework for analysis, additions and modifications are introduced reflecting theoretical advances and current problems