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As opposed to commodity credit, circulation credit is not supported by any real saving. This type of credit is just an empty claim created by banks. In the case of commodity credit, the borrower secures goods that were produced and saved for him.
This is, however, not the case with respect to the circulation credit. No goods were produced and saved here. Once the borrower uses the unbacked claims, it is at the expense of the holders of fully backed claims. In this way, circulation credit undermines the true wealth generators.
Now, as a result of an increase in the supply of circulation credit money market interest rates fall below the natural rate, that is, the rate that would be established by supply and demand if real goods were loaned directly in barter without the use of money. (In his later articles, Mises referred to the natural rate as the rate that would be established in a free market.)
How Circulation Credit Triggers Business Cycles
As a result of the artificial lowering of interest rates, businesses undertake various new capital projects to expand and lengthen the production structure. Prior to the lowering of interest rates, these capital projects didn't appear to be profitable. Now, however, as money market rates are kept below the natural rate, economic activity zooms ahead and an economic boom emerges.
The forced lowering of interest rates bring into being production processes that would not otherwise be undertaken. A production structure is now created that produces goods and services that consumers in fact cannot afford.
Instead of using the limited pool of the means of sustenance to make tools and machinery that will generate consumer goods on the highest individual priority list, the means of sustenance are wasted on capital goods that are geared towards the production of low-priority consumer goods.
At some point, the producers of such goods will discover that they cannot make a profit or even complete their plans. What we have here is not over-investment but misdirected investment or mal-investment.
At some point in time, banks discover that marginal businesses are starting to under-perform. This causes them to slow-down the expansion of circulation credit, which in turn puts an upward pressure on interest rates. As a result this starts to undermine various other business activities (non-marginal), and can often be the precipitating event that leads to an economic bust.
Mises wrote that the bust phase of the business cycle process could be precipitated by other events. The expansion in the money supply enriches the early receivers of money. Those individuals who have now become wealthier as a result of receiving the money may alter their pattern of consumption.
This may force businesses to adjust to this new setup. Once the rate of expansion in money slows down or comes to a halt, the new pattern of consumption cannot be supported and the new capital structure that was erected becomes unprofitable and must be abandoned.
It is not surprising that Mises was strongly opposed to the idea that central banks should impose "low" interest rates during a recession in order to keep the economy going.
Instead, he believed that the policymakers should not engage in the artificial lowering of interest rates but rather refrain from any attempts to manage the economy via monetary policy.
By curtailing its interference with businesses, the central bank provides breathing space to wealth generators and thereby lays the foundation for a durable economic recovery.
När nyproduserade varor ej Längre Finner Någon Köpare.
Marknaden sväller över av produkter, vilka måste säljas billigare trots skitvalutan.
Tänk om köparna uteblir.
Något som kan ändra på tillväxten. Behov och efterfrågan, en stor del i sammanhanget.
Ingves får det svårt om köparna uteblir
Ingves: Centralbankernas centralfigur, vars policy endast han själv känner till varför
Mannen med bäst före datum.
När vikten i dumhet väger över till negativt efter experimentet.
Åsikterna går isär om vad som behövs på hemmaplan.
Helt fel ute, med stort riskbeteende angående trovärdig vauta.
läget är "crazy" som vanligt
Ja varför måste Sverige sticka ut med det övelägset högsta inflationsmålet inom hela Europa?
En..eller flera bubblor har det blivit..men ingen vidare inflation...ett MÅL som nu måste revidera!
-0,4% inflation i Sverige juni 2015, senaste är 1,2% oktober 2016
trenden är upp
Aahh KPI.
Senaste 20 åren har KPI gått upp sisådär 25%? Hushållens utgifter har ökat med ungefär det tredubbla av det? Huspriser har ökat med i runda riksslänger 300% (nästan det dubbla i Stockholm)?
Indexera avdrag och ersättningar efter KPI och beskatta sdean realvinster och man har en finfin affärsmodell som dock inte är hållbar i längden.
Problemet är att många beslutsfattare tar siffrorna för sanna värden.
Finns det någon som gör en fristående svensk inflationsberäkning a la http://www.shadowstats.com/?
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