The problem is that State distortion of the credit market prevents people from making rational “time preference” decisions.
Suppose I put my money in a bank and earn 2% interest. True inflation is 20%-30%. By keeping my money in a checking account, I’m earning a negative inflation-adjusted return.
I can’t validly express a preference for consumption later, because none of my investment options yield a return rate greater than 0%.
Even the stock market does not yield a positive inflation-adjusted return!
Corporations can borrow at artificially cheap rates. A corporation may borrow at 6%, while inflation is 20%-30%. Therefore, it makes sense to borrow and build a factory. The consequence is that too many factories are built. The Federal Reserve’s interest rate policy tricked corporate management into making bad decisions. There’s a boom of factory building, and then a bust when there’s too many factories and they can’t sell their products and repay their loans. Small businesses are bankrupted by the cycle, but large corporations can withstand the bust phase.
As an individual, if I want to borrow, I have to pay 8% or more, and I can’t borrow that much.
As an individual, I have no safe place to store my savings. Even gold and silver are risky. Transaction costs on gold and silver are high, due to State regulation of the market. There’s no safe place for me to store my physical gold or silver.
I can’t make the rational economic decision to work now and consume later, because the State distorts the credit market.