The Bubble in Real Life

On today is a helpfully short and comprehensible explanation of why the Fed is so significantly responsible for the recent boom and the bust which has followed it:

Artificially lower interest rates cause future spending to happen now – that’s the boom. But there’s a limit to how long they can keep forcing the future into the present – it creates a big gap at some point, and that’s the bust. What the politicians call “stimulating the economy” always amounts to nothing more than accelerating future economic growth to the present, creating a current boom and a future bust. And of course, things in the economy as a whole move slowly, so these economic cycles are longer than our election cycles. That’s why the politicians have an incentive to do it.

When they force future spending into the present, it’s absolutely inevitable that there will be a bust at some point.

I personally have difficulty convincingly making this case on demand — in class, for example — simply because it’s rather complicated and my knowledge of economics is not what it should be. This article provides a condensed version, however, which even I could remember. Read the rest here.

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