all too common phrase "learning from history" between the rhetoric of governments and central banks for decades. And since we've heard most of our lives we think that today's economic events will have terrible consequences of past mistakes. So is the case with the infamous property bubble that is our economy experienced almost every decade in our lives. What puzzles me is the fact that the academic macro-economists always debate whether the central bank only needs to prick bubbles or a run out of steam on its own instead of focusing on how to avoid them.
As many of the diseases are the result of individual lives - and in many cases can be prevented - the law of cause and effect applies to the economic bubble of the event. For example, the Real Estate Bubble that we experienced during the early 2000s was not "just happen." Something is causing a bubble that eventually brought us the current financial crisis. From the Austrian school perspective, there is no logical explanation of how man-made economy (Keynesian-ISM) bubbles form and why it allows to operate a free market would be prevented.
The demand for loans
When the economy is experiencing high demand for credit, due to the high demand for scarce resources. As a result of lack of market entrepreneurs to participate in the production of these resources by creating investment boom. Without the intervention of central banks - in a truly free market - high demand for credit will be reflected in an increase in interest rates u. This is part of the economic laws of supply and demand. When the goods, for example, is in short supply with high demand commodity prices going gore.Isti law applies to a loan request when the loan is limited - because of the limited savings -. And the demand is high, the price of the loan or have to go up
cost of credit expressed in interest rates
So, what happens if the cost of the loan is suppressed by the central banks? Clearly, the investment boom does not stop. First of all, it gives the wrong signals to business people as well as in the previous example, the builders will be built over. This results in the arena of the other players / participants that May is not necessarily equipped to handle credit and / or business requirements - new home builder and the marginal buyer. In Austrian economic terms, which are called "malinvestments." Malinvestments are investments that the free market - an unprecedented government and central bank intervention - not nastupiti.Podrijetlo word "mal" comes from the Latin word "malus". Its meaning is "bad" or "insufficient ."
If the central bank would fix the price of interest rates - such as Alan Greenspan is not the time Real Estate Boom - the market would be adjusted so as rates go up. As a result of increasing interest rates at least two events would have occurred. 1) Malinvestments would be prevented, and 2) the asset price would be inflated. In our example, housing prices would not have gone so quickly and toliko.Cijena assets - real estate - would be kept in check by the market. Of course, things have not happened this way. The central bank has adopted a man-made basis so that the economy keeping rates at low levels, leading to malinvestments and artificially inflated property values. Therefore, no natural growth rates, control rates for inflation to be directed to the property itself.
credit expansion performed by the central bank before and during the events of the so-called "economic boom" that can temporarily create the illusion that there is more real resources available than actually exists. Moreover, it seems many people feel when they are rich overview of their net worth, in terms of valuation of assets. In reality, the effects of the Bubble, no doubt, painful burst. There is no such thing as a soft landing when it comes to economic bubbles,. Must be prevented by the government and central bank allowing the market to adjust freely, without their intervention
Lessons from the Great Depression
of the Great Depression in the 1930s was the impact of a number of basic events that have occurred. First, it was the 1929 Stock Market crash, which is driven by credit expansion that led to artificially inflated share prices. Credit expansion has always been inspired by the joint efforts of central banks and governments. If rates were allowed to adjust freely - without the intervention of central banks - malinvestments to prevent and shareholder value would be maintained at the value dictated by the free market. Many Americans are exuberant their new found wealth in the stock market. As (more) young people act like they are invincible, so many "new rich" individuals and businesses. Second, when the explosion shares Bubble, instead of allowing "too big to fail" entities fail politicians decided to save them. Thus, more government intervention in the form of regulations, taxation and saving. People have lost their stock investments and bank savings. Bank runs occurred because the bank only kept some of their deposits in their vaults - Fractional reserve banking system that is used today - while the rest was lost due loans are secured by shares. I see many similarities between the events of yesterday and today. Briefly here are:
1 Credit expansion promoted by the central banks;
Second The emergence Malinvestments;
Third Asset bubbles;
4th Bubble burst;
5th "Too big to fail" corporations are saved by rescue;
6th Asset deflation;
7th Government enforcement of new regulations;
8th Keynesian principles that are applied causing more money to print;
9th Stagflation - our current economic phase - in which commodity prices go up, and the value of assets - like real estate -. Continue to blow
Finally, if central banks, governments, politicians, economists and modern really would stand by the motto "learning from history, so it does not happen again," they will do well to pick up a few books of Austrian economists such as Mises, Rothbard, Hayek, and Hazlitt.