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Crash and Carry- the Real Cause of the ABCT

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Physiocrat posted on Thu, Jul 9 2009 6:57 AM

Here's a great new paper by Bill Barnett and Walter Block. In it they strip away inflation, FRB and fiat money as the causes of the FRB to reveal the fundamental cause: mismatched time deposits. In other words A lends £100 to B for 1 year who then lends that money to C for 2 years. This creates a lower than otherwise interest rate for C, as ceteris paribus borrowing for longer increases the interest rate, leading malinvestment and thus to the ABCT.

Read it all here:

The atoms tell the atoms so, for I never was or will but atoms forevermore be.

Yours sincerely,


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I would want to hear what other Austrians say about this. Notably Garrison, White, Horwitz.

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I would want to hear what other Austrians say about this. Notably Garrison, White, Horwitz.

I want to hear why it's FRB and not central banks that cause this. 


Also, I want an explanation for why consumption does not increase during a downturn - please, don't hang me for this, people, I would just like to know.

existence is elsewhere

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physio's synopsis isnt quite accurate. 

their paper shows that there are two independently sufficient ways to achieve an ABCT. FRB alone will do it. alternatively , mismatched time deposits will do it. 

of course they are not mutually exclusive ways of getting ABCT, both can be going on.


the quote from the conclusion is:

In our view, in contrast, FRB is only sufficient to this end. Another phenomenon, not unrelated to the first, is also sufficient
(although not necessary): mismatched time deposits. These, too, as we have demonstrated, can artificially lower interest rates below levels
that would otherwise occur.

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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Top 150 Contributor
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Couldn't the FRB's discount window in terms of encouraging other lending banks to lend to each other (and to consumers at the end of it) be a similar phenomena? Being that each bank that lends down the line would have a different expected time of fulfilled payment for a given loan to a given consumer/bank?

"The power of liberty going forward is in decentralization.  Not in leaders, but in decentralized activism.  In a market process." -- liberty student

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