The problem with ABCT and bubbles is, it doesnt explain why LOW ORDER capital industries are often in bubbles. Dotcom bubble: dotcoms are a relatively fast return companies. mostly they dealt directly to consumers, like pet product seller pets.com , amazon.com etc. tulips: also fast return, give th…

Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust? (Gene Callahan & Roger W. Garrison) 1999–Winter 2000: The Height of Madness Between 1950 and 1992, the personal savings rate had never gone above 10.9 per cent and never fallen below 7.5 per cent, except in three isolated…

I don’t know why this is so controversial… First order goods can be consumed on credit just like higher order capital goods. Consumption of first order goods is still related to the term structure of interest rates being manipulated. I don’t see a reason why first order goods would be discluded fr…

Exactly. The level of credit has the same affect on goods of all orders. But my impression is that the ABCT asserts that low interest rates increase the relative investment in high order goods: From Wikipedia : Borrowers, in short, are misled by the bank inflation into believing that the supply of…

Sure, because it pushes the yield curve to the long end which makes it more affordable to invest in long term investment projects. Consumables aren’t among those.

Non sequitur. Just because credit expansion may have some effect on all orders doesn’t mean it has the same effect on all orders.

Or rather I should have phrased it, “The same effect from credit expansion will be the effect that is creating malinvestment in all orders.” You’re right the proportion of effect will not be the same.

Sure, because it pushes the yield curve to the long end which makes it more affordable to invest in long term investment projects. Consumables aren’t among those. It also makes it more affordable to invest in short-term projects and buy consumables, does it not?

Yeah. Although, more credit would be diverted to where it looks the most profitable (artificailly, in the long term). Low interest rates indicate high savings and this in general would cause people to increase consumption. You see, it should provide some sort of bottom for consumer spending (when t…

The problem with ABCT

Economics Economics Questions

Fool_on_the_Hill June 10, 2012, 3:31pm 4

I’ve actually just been asking the same question in this thread. I still haven’t been able to figure out where the high/low order relation comes into play.

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The problem with ABCT

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