(Please excuse the plebbit spacing, I just find it makes things more readable.)
If I've understood the gist of Austrian business cycle theory correctly, it goes something like this:
When a central bank lowers interest rates, it increases the profitability of long-term investments. The reason for this, is that with a higher interest rate, it would make sense to just hold the money and accumulate the interest, rather than invest the money in something that will only yield returns after a long time.
On the other hand, with a low interest rate, you don't accumulate much interest by holding the money, so investing the money in something makes sense even if you don't receive any return on investment for a while.
However, the low interest rate is only temporary, and the central bank will eventually raise the interest rates. This means that a lot of those long-term investments turn out to have been unprofitable.
My questions are these:
1. Even if these long-term investments cause a loss compared to how much money the investors would have made if they had accumulated interest instead, this does not mean the investors have less money now (once the investment has paid off) than they had to begin with, right? In other words, there is a comparative loss, but not an actual loss?
2. Assuming there is an actual loss, how do we know this is the main cause of recessions? How do we know it outweighs the potential benefits of the low interest rates?
3. Isn't it reasonable to assume, that at least some of the investors would realize that the low interest rates won't last forever, and would be able to, within a margin of error, anticipate how and when the central bank raises interest rates?
>1 This all depends on prices. Recessions end when demand and supply aka prices are once again aligned to the time value of capital. If the price doesn't fall too much, then the investor could have still made a good profit. It all depends on how much prices fall.
>2 The main cause of recession is the death of credit. Then prices which were elevated because of the excess credit come tumbling down. This causes fire sales and then employees are laid off. Malinvestment is exposed.
>3 Investors always anticipate but hardly get it right and they are on constant pressure to make higher returns. This causes them to be blind. The Fed has been increasing interest rates for the past year now, and we're still not in a recession. Also, entrepreneurs and corporations are a big part of the economy, and they don't care about the central bank. All they see is customer demand and how cheap loans are. They don't anticipate central bank actions.
Nathaniel Rodriguez
Good luck getting more then 8 replies with this wall of text
A lot of debt is used to fund non-productive assets these days also.
Colton Wood
thank you
i care more about quality than quantity of replies
Jace Reed
As long as you control the debt, it doesn't matter how large it is.
Grayson Phillips
There are other ways to jew the system: cause conflicts, change the price of some basic stuff like gasoline, retarded political decisions on purpose and other theatre induces people to move their money around in predictable ways.
Camden Foster
All recessions since the FED is in charge are completely manufactured.
How come a recession magically appears every time the market is first flooded with liquidity over years and then interest rates are suddenly hiked like there is no tomorrow.
It is what is happening right now. Note that at this time the FED is reducing its balance sheet as well which means we have an effective rate that is at least 1.0% higher.
Try to life a stable, productive and meaningful life in such an envrionment. You can't. Central Bankers will not stop until all people of the world are reduced slavery and servitude.
Aaron Fisher
>Austrian business cycle theory It's a scam. It's just usury. It's just buying assets with paper money when in recession. There is not such a thing as an indipendent central Bank. There is always a policy, a purpose behind. Behind the ICB there are private firms instead of elected goverments. They drain weatlh simply as that. They use inflation to justify everything they do, they carpet bomb every argument with muh inflation. CB must be under stricly gov control.
Drop interest rates, let the sheeps challenge the market and force them to be more profitable than their competition. Then kill the air backed economy with air backed recession and crisis for buying the already found out profitable business for dirt cheap prices. Rinse and repeat. In a few mere swipes in the pendulum, now the high finance (not international, not at all) players own the most profitable that market has to offer with zero blood&/sweat. >CB must be under stricly gov control. Up to here, I agree. >gov You mean ZOG? That is what is taking place already.
>If I've understood the gist of Austrian business cycle theory correctly why wouldn't you study voodoo, basically the same thing, a religion
Lincoln Ross
This post is fascinating. It makes some very good points about currency manipulation via central banks. But i don't think the solution that the burger proposed (burn your money and revert to a bartering system instead) would solve the issue. Mainly because very few people would be willing to even consider such a measure. If trading communities did start popping up again, the government would intervene. The only way out that I can see is something similar to sea-steading. Though you'd have a very difficult time creating a sustainable society in the middle of the ocean, even if you had trillions in start up capital, without continuing to rely on global trade for goods. And that means relying on paper money.
Here is a simpler way of looking at it. Assume that economy is energy-limited. Money is a system of tokens allowing you to purchase energy. If the central bank increases money supply, the economy accelerates, and in doing so, starts requiring more energy. However since energy supply cannot be increased willy-nilly (new oil wells take time to drill etc.) the system hits a limit. The economy can no longer grow, so the interest on debt will not be paid. This means loaning money is becoming more risky, so the interest rate goes up.
Anthony Ross
>gov i mean elected guys,known guys, prosecutable guys.
Christopher Bennett
>prosecutable I chuckled. I do think, it hardly matters which puppet does the angry mob lynch. I also hope your star guys are not fully corrupt. I'm cheering on Italy fucking with EU anytime.
Can you read italian? goofynomics.blogspot.com/2016/09/fantapolitica.html So far so good, Lega is stopping them. It will end very badly in a way or the other, there is no safe future, no peaceful partnership. Last time it took a couple of WW to gain 30 years of wealth.
Brody Reed
>Can you read italian? No. > peaceful partnership. Oh you mean peaceful slavery to the Brussel? What a shame. I'm deeply saddened for the bureaucrats of the EU, will no one think of the old man? >violent escalation Please so. There needs to be a rediscovery that no country has a standing army, that any army will dissolve after the first actual significant loss.
>Please so. There needs to be a rediscovery that no country has a standing army, that any army will dissolve after the first actual significant loss. This will be interesting to see. There is Russia and there is Turkey. USA are soooo far way. We are ready to be picked up.
Bentley Hill
>USA are soooo far way. That was a very retarded post, pasta. US has active bases Germanistan, Greece and Turkey. Not even mentioning the Carrier Task Forces that just happens to be in Mediterranean.
