Explaining Economic Crashes: A Lesson in Austrian Business Cycle Theory

So, clearly the Fed engineered the boom, and hence the Economic Crash of 2008.

Austrian economists, and of course Ron Paul, tried to sound warnings early and often. They did so not because they’re clairvoyant, but because they understood ABCT.

Now, as the housing bubble was expanding, the people who created it were either playing dumb or just plain ignorant. Fed Chairman Alan Greenspan (from 1987-2006) repeatedly publicly denied or downplayed the existence of a housing bubble, as did the FDIC, The New York Fed (headed at the time by Obama’s first Treasury Secretary Timothy Geithner), and Paul Krugman, who, as I have previously noted, actually recommended the housing bubble (sources follow the article, as well as the highly instructional story of Iris Mack and Larry Summers, Obama’s Director of the U.S. National Economic Council). Then there’s former Chair of the Council of Economic Advisors for Obama, economist Christina Romer. Romer gave a “valedictory” speech upon leaving the Obama administration to go back to teaching at Berkely. The Washington Post summarized her speech – specifically her comments on the 2008 Economic Crash – this way:

“She had no idea how bad the economic collapse would be. She still doesn’t understand exactly why it was so bad. The response to the collapse was inadequate. And she doesn’t have much of an idea about how to fix things.”

Comforting, isn’t it? But really, why did Greenspan, et al, deny or downplay the existence of a housing bubble as it expanded, in the first place? We’ll never know.

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Now, how did DC and the Fed respond to the 2008 Crash? Unprecedented inflation and credit expansion – more of what caused the crash to begin with. The monetary base has risen from $901 billion in 2008 to $3.848 trillion today. What about MZM? From $8,722 billion in 2008 to $12,886 billion as of November 2014. Total Reserves have risen from $47 billion in 2008 to $2,519 billion as of November 2014. Now, given what we have learned, WHAT COULD POSSIBLY GO WRONG?

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That’s not a rhetorical question. Let us know what you think:

Based on what you know about ABCT, what could possibly go wrong with the Fed and DC’s inflation and credit expansion in response to the 2008 Economic Crash? Please sound off in the comments section. Are we in another boom? If so, in what sector of the economy is the boom fueling a bubble? How will the Fed respond to the next bust? Or do you actually believe the mainstream media and President Obama, who’s touting his “economic recovery”?

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*Note that ABCT still explains economic crises in the pre-Fed 19th century U.S., as monetary inflation and credit expansion caused the Panics of 1819, 1837, 1857, 1873, 1893, and 1907. It’s also important to note that none of these Panics were as severe as the economic crises after the Fed was established at the end of 1913.

Next: For those who want to learn more about ABCT and the economy, here are some excellent suggestions…

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