The quick hit is this: A. US Monetary policy provides large banks with extremely cheap capital B. Large banks competing with each other in the free market must make use of that capital C. Only so many investments are good investments, because in the end, there's only so much consumption, but the unnatural levels of capital driven by US monetary policy push banks to make bad investments (see every financial crisis since the Fed was founded). D. Those bad investments fail, and mass margin calls lead to an economy-wide de-leveraging that destroys economic growth for months or years.
Systemic financial crises can't happen without cheap, printed money.
It's also reasonable to question whether giant companies could exist at all without US monetary policy. Companies of that size are almost completely dependent on the financial industry, which is completely dependent on the Fed's cheap currency.
[0][PDF]https://mises.org/files/americas-great-depressionpdf-0/downl...
Edit: added PDF label
His "analysis" harks back to economics of the 1800s, similar to Marx, where you would try to understand the economy by intuition, using nothing more than the english language. It turns out if you don't rigorously test your ideas you can use the english language to make a case for all sorts of loopy theories.
What's really happening is an allocation of resources. Banks can only back specific kinds of investments which approximate zero sum as you keep pumping ever more resources in ex: Real Estate. yes, everyone wants shelter. So, we can all get a 100,000 sf house! Well, no.
However, you can increase the money supply without simply handing banks all that money just increase reserve requirements as your pumping money into the economy.
If the US government in 2008 had let Goldman Sachs (and others) to get what they really deserved, possibly keeping afloat tiny investors/victims for social reasons, I think investment would be pretty balanced.
I would argue that the problem is a revolving door between Goldman and the US Gov that benefits very specific ppl and not the FED's policy.
The way I see it, the Fed is inflating bubbles by pumping cheap money into the financial sector, and then the US Gov is bailing out the financial sector when the bubbles burst.
It's hard to distinguish between the government and big finance, that's for certain.
"Systemic financial crises can't happen without cheap, printed money"
is ahistorical nonsense.
You'll have to cite with examples. Here's some of mine:
Amsterdam opens the precursor to central bank in 1609[0]. Less than thirty years later, one of the earliest speculative financial crises on record demolishes the Dutch economy.[1]
In the early 20th century, fractional reserve lending practices paired with a rapidly growing economy leads to the first banking crises, most notably in 1907[2]. The damage is largely limited to financial types, but the banking industry starts clamoring for government help to feed their recklessness.
The government obliges them with founding of the Federal Reserve in 1913[3], which allows fractional reserve lending to go off the rails. A World War and a boom cycle later, and we have the worst financial catastrophe in history in 1929[4].
Going off the gold standard in the 1970s preceded the financial crises of the early 80s[5] and the Black Monday in 1987[6]
Finally, another lax round of monetary policy under Greenspan led to a rash of bad investments in dotcoms, and then Bernanke helped precipitate the 2008 financial crises.
Now, you can go ahead and say that I'm making a post hoc ergo propter hoc argument, and that's fine, BUT you absolutely cannot say Austrian economics is ahistorical. It completely relies on history as its foundation.
[0]https://en.wikipedia.org/wiki/Amsterdam_Wisselbank
[1]https://en.wikipedia.org/wiki/Tulip_mania
[2]https://en.wikipedia.org/wiki/Panic_of_1907
[3]https://en.wikipedia.org/wiki/Federal_Reserve_Act
I'm objecting to the rather stronger (than an austrian would make) statement that :"systemic financial crises cannot happen without cheap,printed money". Emphasis mine. You even have to squint very hard at your first example to make it fit - it's increasingly hard to try and argue from anything pre 18th century. You can probably (and many Austrian's would) try and make the argument for this as a root cause of most/all modern crisis, but of course alternate analysis exist that are similarly grounded. It's a complex subject.
I bristled at the idea that my statement is ahistorical. It may have other problems, but I've yet to see any historical counter examples - a period of mass-deleveraging leading to economic retractions in the absence of artificially low interest rates. If you can cite an example like that, I'll rethink my statement.
1) I think you are now narrowing quite a bit ".. mass-devleveraging ... interest rates"
2) Consider e.g. sovereign defaults of England and Spain in 14th, Roman bank collapses & liquidity issues - multiple times during both Roman and Byantize (will posit that many early issues are difficult to separate from wars, but there were fairly clear panic effects in iirc 3rd and 4th). Italian banks in 14th c. etc.
But where's your counter example? What book should I read to become enlightened? If I was curious enough to read Rothbard's book from 1963, don't you think I'd at least consider your recommendation?
If you can find me a Keynesian who can explain a systemic financial crisis without ringing their hands and shouting "Capitalism is reckless and greed causes financial crises!" than I'll consider their ideas.
But a systemic problem demands a systemic explanation. Austrians give us monetary policy. Keynesians give us greed.
I'm not going to simply side with the Keynesians because they have the dominant view. I'm not built that way. I need a better explanation than hand wringing and worship of Piketty.
Keynesians give regulation. If you're unwilling to consider the ideas of someone who believes that capitalism is reckless, that greed does cause financial crises and that regulation is an answer, then why are you asking for a book recommendation? You should also note that I believe in regulated markets not socialism or communism. There are a million shades of gray here.
>I need a better explanation than hand wringing and worship of Piketty.
Have you read Piketty?
I'm going to recommend two books which should be a gentle introduction to my viewpoint:
23 Things They Don't Tell You About Capitalism by Ha-Joon Chang
Economism: Bad Economics and the Rise of Inequality by James Kwak
EDIT: I'd also note that one of the things that frustrates me most is to see the politicization of economics. The misuse of economic terminology to advocate a specific political viewpoint is exactly what mises and similar institutions engage in and it leads to a group of the public who believes that they're educated in economics when they're actually just inculcated to a political worldview. If you read those books and still disagree, that's fine but just think about whether it's an intelligent disagreement. I've run into so many individuals who know Friedman, Hayek, Mises, Rothbard, maybe Hoppe and no one else. People who explain to me all about how supply and demand lead to market clearing but don't know a single model other than "the free market model" (actually the perfectly competitive model) and definitely don't know its assumptions. People who have never read an empirical/econometric study of economics that did not come with an easy synopsis from a blog they read(and agree with). These people do not know economics, they know politics.
I'd like to see a separation of politics and economics too, I just think that's sort of a utopian ideal. What I really want is a separation of coercion and economic opportunity. Pre-Fed, most concentrations of wealth were driven by private-sector coercion - industrialists like Vanderbilt, Carnegie, and Rockefeller coerced both their competition and their labor force, which is as equally distasteful to me as government coercion leading to concentrations of wealth.
Anyway, I'll get back to you. Do you have some social media or email address I can reach out after I've read your suggestions?
Not at all. We dealt with a similar collusion between the government and private banking industry in the housing collapse of 2008. Cheap money along with bad policy is problematic no matter where it occurs because the cheap money ends up in the stock market/speculation market eventually.
The main cause you get by reading the research on 2008 is that bank managers were incentivized by their shareholders to take excessive risks. This is because 1) shareholders are pretty shortsighted and 2) managers suffer comparatively little personal consequences by crashing a bank (clearly they don't go to jail; they still get the massive bonuses in the years where they pumped returns with excessive risks, etc.)
Which is no different than supplying money to a market below cost. Any market failure that leads excessive lending will lead to asset inflation and reinvestment of that money in speculation.
Oh, is that a new one? It's the first time I read someone stating that when VCs get high on drugs and spend their money on stupid ideas, it's because of something the government did.