The Austrian theory of business cycles is quite simple and may help to understand what is happening now. When interest rates are held too low, they create a credit boom. Low financing costs persuade entrepreneurs to fund too many projects (e.g. housing boom). When the bust comes, the economy is stuck with the burden of excess capacity, which takes years to clear up. It does not take a PhD to understand it.
Interest rates close to 0% (as in 2002 and now) are the driving force behind speculation in hard assets.
George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked best market timer in the 12 and 6 months ending 8/20/10 by Timer Digest
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1 comment:
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