The Fed Cuts Rates to Start A New Bubble

First, if you haven’t you should read my posts on the Austrian Business Cycle here and here. My very first discussion of recessions can be found here. I can only repeat myself so many times.

Now we have heard that the Fed is going to cut interest rates, this from The USA Today:

“The Federal Reserve slashed interest rates a half-percentage point to the lowest level in more than four years Wednesday as policymakers try to limit the pain of an economic downturn.

Lower interest rates should eventually encourage consumers and businesses to borrow money once the crisis in credit markets eases. That will help the economy recover as people buy homes, machinery, cars and other items, PMI Group chief economist David Berson says.”

Of course, what happened around four years ago? The housing boom. If you look at the graph you will see that the interest rate was low for people to buy these housing. It went up and people couldn’t afford them. The natural rate of interest went up even more than that.

So this is the final step and the connector of the Austrian Business Cycle. If the Austrian theory is true then we should expect these moves to start another boom to pull us out of this recession and in about 7 years we will have another bust. We will then do it all over again.

~PCCapitalist

Advertisements

The URI to TrackBack this entry is: https://pccapitalist.wordpress.com/2008/10/29/the-fed-cuts-rates-to-start-a-new-bubble/trackback/

RSS feed for comments on this post.

One CommentLeave a comment

  1. […] Read the rest of this great post here […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: