Wednesday, October 9, 2013
I tend to agree with the Austrian School of economic thinking as far as causes of the great depression. to be precise the credit boom and bust cycle combined with the low interest rates from the fed led to an abnormally long boom followed by a abnormally big bust. the idea of credit is a sound idea, I borrow money from you and promise to pay back what I owe in the future. the problem occurs when, as mentioned in the book, the interest rates are regulated to be abnormally low and are then not consistent with the interest equilibrium. moreover, when the insert rates are low the market responds in a way similar to when extra money is inserted into the economy, to wit, with inflation. Therefore, my recommendation to the general public is to be very careful with investments/credit especially when interest rates are low.