Most believe that expansionary monetary policy helps ease crises. Austrian School economists argue that central banks don’t help in smoothing the amplitude of the cycles, but rather are the cause of cycles. In this microdocumentary video, we look back at four major busts in the last 100 years and explain how central banks created them. We also clarify why we believe the next bust is just around the corner. This video will not explain the mainstream view, but rather the view of the Austrian Business Cycle Theory (ABCT).
Austrian economists argue that business cycles are a direct cause of excessive credit flow into the market. This is facilitated by an intentionally low interest rate set by the government. This situation gives the false impression that money originally saved for investment has increased and the pool of investable funds is bigger. This creates an illusion and leads to misallocation of investments or ‘malinvestments’.
This post was published at GoldSilverWorlds on October 8, 2014.