CNBC-Here's Why the Fed Plan Is Failing: We’re All Austrians NowSubmitted by bobbyw24 on Tue, 11/23/2010 - 21:45
It’s no accident that Austrian economics is newly popular. It provides the best explanation for the business cycle we just lived through.
But the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation- sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.
The Austrian theory of business cycles is rather straightforward:
1) In a market economy, lower interest rates are a sign that more wealth is available in society for new business projects. Either society is more wealthy—and therefore saving more without lowering spending—or its members are saving more—delaying current consumption in favor of future consumption, and incidentally providing loanable funds for projects that will be sold for future consumption.