Economics Questions

Re: Crash and Carry- the Real Cause of the ABCT

ladyattis — Thu, 09 Jul 2009 23:32:44 GMT

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?

Re: Crash and Carry- the Real Cause of the ABCT

nirgrahamUK — Thu, 09 Jul 2009 23:25:08 GMT

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:

B&B:
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.

Re: Crash and Carry- the Real Cause of the ABCT

Wilmot of Rochester — Thu, 09 Jul 2009 23:04:58 GMT

scineram:

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.

Re: Crash and Carry- the Real Cause of the ABCT

scineram — Thu, 09 Jul 2009 19:08:06 GMT

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

Crash and Carry- the Real Cause of the ABCT

Physiocrat — Thu, 09 Jul 2009 12:57:06 GMT

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: http://www2.units.it/~etica/2009_1/BARNETT_BLOCK.pdf