History

Re: Consequences of The Austrian Business Cycle Theory?

Solredime — Fri, 26 Mar 2010 11:05:37 GMT

Gandso:

I know it is not possible to know "the perfect interest rate". I am just new in economic theory, and would like to understand the ratio between inflation and interest rate. And when you say 15%, I thought you had your own idea of the interest rate which would match a given inflation - and why you had that idea :)

But thanks for the answers. I have understand a little more about it now.

The 15% was just some random number I gave :)

I'm not sure what you mean by ratio. The real interest rate is the nominal interest rate minus the inflation rate. It's not really a ratio though.

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Thu, 25 Mar 2010 21:44:54 GMT

I know it is not possible to know "the perfect interest rate". I am just new in economic theory, and would like to understand the ratio between inflation and interest rate. And when you say 15%, I thought you had your own idea of the interest rate which would match a given inflation - and why you had that idea :)

But thanks for the answers. I have understand a little more about it now.

Re: Consequences of The Austrian Business Cycle Theory?

filc — Thu, 25 Mar 2010 21:32:25 GMT

Seems like the consequences you should focus on are un-employment, idle capital, and living conditions.

Re: Consequences of The Austrian Business Cycle Theory?

Solredime — Thu, 25 Mar 2010 21:31:20 GMT

Gandso:

How can i know the interest rate which would match the inflation? I cannot understand the ratio. Can you suggest some easy-to-read sources about it? :-)

If there was a way to know, then the social engineers at the Fed could potentially be capable of setting the "correct" interest rate. I'm afraid there's no way to know what the interest rate should be, except to let the market decide, which in this case it does not. Although I may have misunderstood what you were asking?

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Thu, 25 Mar 2010 21:20:04 GMT

How can i know the interest rate which would match the inflation? I cannot understand the ratio. Can you suggest some easy-to-read sources about it? :-)

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Thu, 25 Mar 2010 21:16:59 GMT

Great graphs. The graph i found was from 2006-.

Now it also fits my understanding :-). Thanks! What was his meaning of making such low interest rates?

Re: Consequences of The Austrian Business Cycle Theory?

Solredime — Thu, 25 Mar 2010 21:01:42 GMT

Gandso:

I have just looked at the interest rate in Federal Reserve on http://www.fxstreet.com/fundamental/interest-rates-table/.

It looks like the interest rate about 5.25% in the period 2006-2008. That is against my understanding of ABCT. Is it not the artificial low interest rates which causes crises?

"Artificially low" means anything lower than the natural rate, or what would be the rate if it was determined by the interplay of supply and demand of loanable funds on a free market. The problem is further complicated by inflation. If inflation is expected to be, say, around 4%, then 5.25% is pretty low. For all we know, the natural rate was supposed to be 15% at that time. Remember, "low" is a relative, 2% could be too high, or 10% too low.

Re: Consequences of The Austrian Business Cycle Theory?

Scott Jefferies — Thu, 25 Mar 2010 20:55:55 GMT

Gandso:

I have just looked at the interest rate in Federal Reserve on http://www.fxstreet.com/fundamental/interest-rates-table/.

It looks like the interest rate about 5.25% in the period 2006-2008. That is against my understanding of ABCT. Is it not the artificial low interest rates which causes crises?

I'd look at what was happening to interest rates between 2000 and 2004. Greenspan had slashed short term rates down to 1% by 2004. He only raised short term rates up when inflation started to really pick up after 2004. When rates were raised to 5.25%, year over year inflation was reaching up to 4%, and while inflation began to fall afterwards, in 2008 year over year inflation peaked at around 5.5%. I think this fits my understanding of the ABCT.

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Thu, 25 Mar 2010 09:22:05 GMT

I have just looked at the interest rate in Federal Reserve on http://www.fxstreet.com/fundamental/interest-rates-table/.

It looks like the interest rate about 5.25% in the period 2006-2008. That is against my understanding of ABCT. Is it not the artificial low interest rates which causes crises?

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Thu, 25 Mar 2010 09:02:26 GMT

It is a combination between the subjects "social society" and "history". I am going to analyze some sources and conclude which consequences are lead from Mises' wording of the theory. That's why i though about to put my focus on the Chicago Boys' influence on the Chilean economy around the 70s.

That's a great idea to compare interest rates. Do you know where i can find those?

Re: Consequences of The Austrian Business Cycle Theory?

socialdtk — Wed, 24 Mar 2010 22:50:10 GMT

If you choose to write your paper on The Great Depression there are multiple problems you could write your paper on. If you plan to to write a paper applying the Austrian Business Cycle Theory to The Great Depression you should probably focus on the expansion of the money supply through the FED and fractional reserve banking system that lead to a massive mis-allocation of resources. It might also be helpful to compare interest rates during The Great Depression with interest rates during the Depression of 1920.

Re: Consequences of The Austrian Business Cycle Theory?

JackCuyler — Wed, 24 Mar 2010 21:21:50 GMT

Gandso:

I am writing a paper about the historic consequences of The Austrian Business Cycle Theory.

Does any one know which consequences i can concentrate on? I have thought of writing about the consequences for the economy in Chile (Miracle of Chile).

I am open to all suggestions! I am pressed for time. My synopsis is going to be ready friday and my exam is in about a month.

I'm not quite sure I understand what you mean by the "consequences" of the theory. The theory explains why Action A will lead to Result B. Do you mean you are going to use the theory to explain the consequences of some set of actions?

Re: Consequences of The Austrian Business Cycle Theory?

Gandso — Wed, 24 Mar 2010 20:30:36 GMT

Hi,

Thank you for the answer! My paper should include an overall "problem", which i shall answer in the end. Besides, it should include some sources which i have to analyze to answer the "problem".

It sounds good to focus on The Great Depression. But which "problem" could i use, where is is possible to answer it by analyzing some sources and use some academic methods?

Re: Consequences of The Austrian Business Cycle Theory?

socialdtk — Wed, 24 Mar 2010 15:41:31 GMT

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My knowledge of business cycles are limited mostly to the United States so my suggestions will reflect that. Very strong evidence of the validity of the Austrian Business Cycle Theory can be found when comparing the 1920-1921 depression with the Great Depression. I recommend Rothbard's America's Great Depression which is available for free online and Robert P Murphy's The Politically Incorrect Guide to The Great Depression which is around $20 at most major bookstores. The Politically Incorrect Guide to The Great Depression also includes a chapter that applies the ABCT to the depression we are currently facing and advocates a free market approach to ending it.

Consequences of The Austrian Business Cycle Theory?

Gandso — Wed, 24 Mar 2010 15:29:32 GMT

I am writing a paper about the historic consequences of The Austrian Business Cycle Theory.

Does any one know which consequences i can concentrate on? I have thought of writing about the consequences for the economy in Chile (Miracle of Chile).

I am open to all suggestions! I am pressed for time. My synopsis is going to be ready friday and my exam is in about a month.