Economics Questions

Re: Can other things cause malinvestment?

z1235 — Sun, 14 Feb 2010 02:41:57 GMT

Hairnet:

Yeah, but can the that cluster of malinvestments be caused by something other than the federal reserve? Like stock markets?

No. Markets (of any kind) are never a cause for malinvestments. They are simply places for voluntary exchange of assets/property/money. Inflationary fiat money can/will show up at a stock, real-estate, pork bellies, frozen concentrated orange juice, lumber, junk bond, treasury bond, any and all markets. That doesn't mean markets themselves are at fault, much less that eliminating them would help solve anything.

Re: Can other things cause malinvestment?

scineram — Sun, 14 Feb 2010 02:01:52 GMT

Humans can make errors, that is, malinvest.

Re: Can other things cause malinvestment?

Smiling Dave — Sun, 14 Feb 2010 01:53:01 GMT

Michelangelo:

Hairnet:

Yeah, but can the that cluster of malinvestments be caused by something other than the federal reserve? Like stock markets?

Short answer: Yes.

Yes and no.

To have a cluster of malinvestments, the MONEY to malinvest has to come from somewhere. People's financial lives are like a man driving a car fueled by greed. He doesn't drive off a cliff [malinvest] because he has good brakes called fear [of losing his money]. What is it that makes a huge amount of people suddenly lose their fear brakes and malinvest?

The answer always is that they suddenly have more money than they know what to do with. But as we know, money doesn't grow omn trees. How do so many people get all that money suddenly at the same time? It comes from the Fed deciding to print money like crazy and handing it out to their friends, or lending it out at ridiculously low interest rates.

The stock market crash of 1929 also happened for this reason, as this site has researched and shown.

So yes, there can be a malinvestment in the stock market, like the dot.com boom, but it always is caused by the Fed printing money first.

Re: Can other things cause malinvestment?

Stranger — Sun, 14 Feb 2010 00:55:20 GMT

Any unsustainable situation caused by government can result in malinvestment. Farm subsidies for example will cause farmers to buy more farm equipment to produce crops that aren't needed. If the government takes away the subsidies, then all the farm equipment is useless.

Re: Can other things cause malinvestment?

Michelangelo — Sun, 14 Feb 2010 00:40:56 GMT

Hairnet:

Yeah, but can the that cluster of malinvestments be caused by something other than the federal reserve? Like stock markets?

Short answer: Yes.

However businessmen tend to realize that they've malinvested and begin to shift their resources around to make best of the situation quicker than the bureaucracy that is the Federal Reserve does.

Re: Can other things cause malinvestment?

Hairnet — Sun, 14 Feb 2010 00:33:47 GMT

Yeah, but can the that cluster of malinvestments be caused by something other than the federal reserve? Like stock markets?

Re: Can other things cause malinvestment?

Jonathan M. F. Catalán — Sun, 14 Feb 2010 00:32:11 GMT

Malinvestment always happens. Someone who invests capital in a business that fails has malinvested. What the Austrian business cycle explains is not malinvestment by individual entrepreneurs, but a cluster of malinvestments.

Re: Can other things cause malinvestment?

Jon Irenicus — Sun, 14 Feb 2010 00:25:11 GMT

To use an analogy, if you're basically gathering piles of wood and setting them on fire, things like strong winds can exacerbate it but guess what the root cause will be. Same here.

Can other things cause malinvestment?

Hairnet — Sun, 14 Feb 2010 00:20:06 GMT

I was in a discussion with my stepfather about the recession, and I basically started opening up with cliches about how the Fed is evil. He claimed that it was not just the fed that led to out current situation though. He gave me a news article (I lost it and do not know what it is called).

He claims that the Fed has been displaced in its ability to malinvest by other things like the stock market, which he says can be just as powerful. I was wondering if there was any truth to this.

I have been told that the stock market is pretty corrupt these days. The argument goes something like "there are way to many people investing in the stock market because of government incentives to do so", "this leads to people who have no place investing their treating the stock market as a casino".