Tuesday, August 4, 2009

A Coming Bust, and I Missed the Boom...

In dozens of past posts, I have argued that the government is to blame for the current economic crisis. For example, the Federal Reserve's efforts to artificially lower interest rates set the stage for the recent housing crisis. I further argued that the leverage created by the Fed's expansion of the money supply coupled with the fractional reserve banking system, causes the well known "boom-bust" cycle, i.e., a period of artificial nominal growth resulting from the creation of paper money followed by a spectacular bust as investment's that depended on the continuation of price increases from the credit expansion eventually go bad - as soon as the government turns off the spigot.

Do you think the Nobel Prize winning economist that shape government policy grasp this point? Of course not. Consider that when you read the following from an
MSNBC article related to the fears of market crash in China:
But while investors expect the market — up more than 80 percent this year — to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.

By changing a few of the details, this article could have been written in 2006, 2001, 1986, ...1929,

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