According to Austrian Business Cycle Theory, the boom in the capital goods industries generated by artificially low interest rates will end unless interest rates are continually cut further. Why is this? It seems to me that all of the investment in the capital goods industries for that low interest…

Because the definition of a malinvestment is an investment that possesses no real yield potential; if one is to then continue production further and further one needs to borrow more and more as the yields will not pay for the investments. Could you clarify this, please?

Be carefull here. The ABCT does not predict that the boom can be kept going indefinitely by continually lowering the interest rates. Eventually raw material costs for capital goods will be bid up beyond the level at which a profit can be made even at the lower interest rates.

While not all of them would be malinvestments in order to maintain the boom you cannot allow those businesses that are to fail. Artificially low interest rates also help to create an optimism about the economy that perpetuates poor investment decisions so those malinvestments are much more common. …

As I have interpreted ABCT (an interpretation which might be completely wrong), lower interest rates create real booms in the capital goods industries, booms which cannot survive under free market levels. Due to these booms, more is invested during the low interest rates in the capital goods industr…

First of all, if you have a checking account, a savings account, a retirement plan, or an insurance policy, your money is invested in the stock and bond markets. You might not be directly investing in these markets, but the bankers and plan administrators who control your money are. Secondly, even …

Be careful with that sentence. The boom in capital goods must be perpetuated by increasing inflation, but that can be achieved simply by leaving interest rates where they are (below the natural market rate), or increasing them more slowly than the natural market rate is rising.

Please note Rothbard’s use of the word “inevitable”. He doesn’t say you can keep the boom going indefinitely. To grasp the reason they are malinvestments even at lowered interest rates you must bear in mind that ultimately what we are all competing for is not money or finished goods but raw materi…

Here is the link to that thread: [image] The Fed & Interest Rates Economics Questions As someone who’s not very educated on the Federal Reserve, banking, etc, I am wondering what exactly it means when the Fed cuts interest rates. Interest rates on what? How d…

Ok. Here’s the reason that the boom requires ever increasing injections of money: In an economy without monetary inflation, the structure of production is in sync with the time preferences of consumers. The economy is stable, and grows at a rate consistent with the overall time preference. But wh…

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Economics Economics Questions

Charles_Anthony February 13, 2008, 5:56am 9

Here is the link to that thread:

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