3 ms·

The focus on our current economic climate frequently seems to be on the experimental dovish policies of central banks and its implications on bubbling asset pri

by jameslk 10y ago

The focus on our current economic climate frequently seems to be on the experimental dovish policies of central banks and its implications on bubbling asset prices, yet nobody seems to be talking about how eerily close this is predicted by the Austrian Business Cycle Theory[0]. I'm confounded by why the theory is considered by mainstream economists as controversial when in instances such as the dot com and housing bubbles popping in the US it was preceeded by the Federal Reserve contracting the money supply after prolonged periods of money printing. I fully expect the next fatal economic downturn to follow the eventual raising of interest rates, if runaway inflation doesn't occur first[1]. 0. https://en.wikipedia.org/wiki/Austrian_business_cycle_theory https://en.wikipedia.org/wiki/Austrian_business_cycle_theory 1. http://www.economist.com/blogs/buttonwood/2010/05/inflation_and_sovereign_debt http://www.economist.com/blogs/buttonwood/2010/05/inflation_...

caublestone 10y ago
Thank you for sharing this theory. I agree with the theory that low interest rates are meant to incentivize riskier investments and can lead to runaway prices in capital asset classes that eventually must correct because they don't provide consumer value. However, based on this theory, the current actions of corporations and investors are rejecting the incentive to place riskier bets and I can't see run away prices on a capital asset on the macro us or global scale as we saw with housing from 80s to 2008. Perhaps capital allocation managers implicitly agree with the theory and taking cautionary steps to avoid the bust. But I wonder if this fear of busts is holding back innovation. Society is helpless to progress at a faster rate because God forbid there is another bust and people lose jobs and hope about the future. I think companies are waiting with cash in hand to buy up the good deals in an expecting bust. But I would prefer to have the cash used for risky ventures and I accept the bust outcome.

by jameslk 10y ago

caublestone 10y ago

Thank you for sharing this theory. I agree with the theory that low interest rates are meant to incentivize riskier investments and can lead to runaway prices in capital asset classes that eventually must correct because they don't provide consumer value. However, based on this theory, the current actions of corporations and investors are rejecting the incentive to place riskier bets and I can't see run away prices on a capital asset on the macro us or global scale as we saw with housing from 80s to 2008. Perhaps capital allocation managers implicitly agree with the theory and taking cautionary steps to avoid the bust. But I wonder if this fear of busts is holding back innovation. Society is helpless to progress at a faster rate because God forbid there is another bust and people lose jobs and hope about the future. I think companies are waiting with cash in hand to buy up the good deals in an expecting bust. But I would prefer to have the cash used for risky ventures and I accept the bust outcome.