Peter Schiff is right

Highly recommended:
- "104. Peter Schiff: Why Was Anyone Surprised By the Crash?", Peter Schiff on the LewRockwell.com podcast.

The link between ’fiat money’ and boom-and-bust cycles

The link between ‘fiat money’ and boom-and-bust cycles (IEA):

.... interest rates ought to reflect society’s ‘time preference’, the degree to which people are willing to forego consumption today in exchange for (greater) consumption tomorrow.

This rate determines the ‘time structure’ of an economy - the allocation of resources between consumption and investment purposes. It also affects the distribution of investment funds between projects that pay off after a short time and those that require a longer period.

In the Austrian interpretation, the interest rate is the key parameter in the coordination of economic activities. Manipulating it can upset the whole balance of the economy.

If the central bank injects more money into the economy by pushing interest rates below the ‘natural rate’, market actors are lured into believing that people have become more ‘patient’. Hence, additional investment projects are started, especially ones with a long-term horizon.

But these projects are castles built in the sky, because no additional funds for investment have been made available. People’s time preference has not changed. Eventually, the shortage of capital must come to light, interest rates must rise again, and a lot of projects fail. In the Austrian view, the ‘bust’ really means that the time structure of the economy is brought back into line with society’s preferences.

The Austrians Were Right

"The Austrians Were Right" by Ron Paul:

Over and above this are those who understand that political power is controlled by those who control the money supply. Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful. The truth is otherwise. Central economic planning is always harmful. Inflating the money supply and purposely devaluing the dollar is always painful and dangerous.

The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about.

Peter Schiff telling the truth

Peter Schiff in the Lew Rockwell show

Visions and Frameworks in Macroeconomics (2)

Continuing "Visions and Frameworks in Macroeconomics", from the excellent Austrian Economics Seminar of the Foundation for Economic Education, Roger W. Garrison in The Continuing Relevance of Austrian Business Cycle Theory (MP3).

Austrian Theory of the Business Cycle

LewRockwell.com Podcast #17 - Austrian Theory of the Business Cycle

Can Friedman’s Money Rule Stabilize the Economy?

"Can Friedman's Money Rule Stabilize the Economy?" by Frank Shostak:

Contrary to Friedman however, we suggest that the boom is not just about an increase in the rate of growth of the money supply; it is also about various nonproductive activities that spring up on the back of the expanding money-supply rate of growth. Furthermore, we maintain that an economic bust is not about a fall in the rate of growth of the money supply; it is about the elimination of various nonproductive activities on account of the decline in the rate of growth of the money supply.

An increase in the money supply out of thin air sets in motion the so-called "counterfeit effect." It lays the foundation for nonproductive activities, which consume and add nothing to the pool of real funding or real wealth. These activities divert real funding from wealth generators, thus weakening their ability to grow the economy.

Consumers Don’t Cause Recessions

"Consumers Don't Cause Recessions" by Bob Murphy:

.... the circular-flow diagram above is a very misleading model of the economy. It leads us to think that output of finished consumer goods can immediately rise and fall with "spending." This framework would hold if there were no capital goods, meaning that all consumer goods and services were produced immediately, as workers took gifts of nature and produced the finished item on the spot.

Once we grasp the stunning complexity of the true "economic problem"—how all of this interlocking human activity is coordinated so that production flows smoothly and predictably—we see the absurdity of Keynesian pump-priming remedies....

In his discussion of the "paradox of thrift," Paul Krugman proves that he is not an economist—or at least, not a very good one. His policy recommendations are based on a Keynesian model bereft of time and the capital structure of production.

Visions and Frameworks in Macroeconomics

Via Roger W. Garisson (Auburn University), "Visions and Frameworks in Macroeconomics", three excellent powerpoints explaining:

- Keynes' Business Cycle theory
- Hayek's Business Cycle theory
- how the two compare

[AA] Second-year students will notice that the theory of Keynes is the framework we studied in Global Economics. The presentation shows that it doesn't really explain dynamic reality. You have to read just one, make it the Hayek powerpoint. It explains nicely how artificially low interest rates cause boom-bust cycles - hope it sounds familiar :)