Tamny represents Austrian cycle theorists as claiming that stock market booms and bubbles are caused by the central bank arbitrarily reducing interest rates.
The decline of interest rates on loans is merely one of the results of this expansion of money and credit and is not essential to the process.
On the one hand, banks could arbitrarily lower the interest rate on loans and this would not initiate an inflationary boom; on the other hand, banks could leave the interest rate unchanged but lend out newly-created bank reserves by lowering credit standards, which would ignite a boom and asset price inflation.
If a bank does not expand circulation credit by issuing additional fiduciary mediait cannot generate a boom even if it lowers the amount of interest charged below the rate of the unhampered market.
Supposedly the Fed's artificially low rates boosted equity prices.
To then presume that the Fed, merely by decreeing "Cheap credit," can make it cheap is not something one would expect Thornton to take seriously.... Furthermore, if zero or low rates were the path to soaring stock markets as Thornton et al assume, Japan's stock market would have outperformed all other global equity markets by many miles when it's remembered that the BOJ has kept the rate it targets near zero since the 1990s.
First, neither Thornton nor any other Austrian economist, past or present, has ever proposed that the Fed lowers interest rates "Merely by decreeing 'cheap credit.'" The fact that Tamny maintains this indicates that he is innocent of any knowledge of the crucial role of money and credit expansion in ABCT. As pointed out above in the quotation from Mises, what engenders the boom and perpetuates it is the injection of fiduciary media into credit markets regardless of the movements of interest rates, especially short rates.
https://mises.org/wire/money-creation-not-low-interest-rates-behind-boom-bust-cycle
The decline of interest rates on loans is merely one of the results of this expansion of money and credit and is not essential to the process.
On the one hand, banks could arbitrarily lower the interest rate on loans and this would not initiate an inflationary boom; on the other hand, banks could leave the interest rate unchanged but lend out newly-created bank reserves by lowering credit standards, which would ignite a boom and asset price inflation.
If a bank does not expand circulation credit by issuing additional fiduciary mediait cannot generate a boom even if it lowers the amount of interest charged below the rate of the unhampered market.
Supposedly the Fed's artificially low rates boosted equity prices.
To then presume that the Fed, merely by decreeing "Cheap credit," can make it cheap is not something one would expect Thornton to take seriously.... Furthermore, if zero or low rates were the path to soaring stock markets as Thornton et al assume, Japan's stock market would have outperformed all other global equity markets by many miles when it's remembered that the BOJ has kept the rate it targets near zero since the 1990s.
First, neither Thornton nor any other Austrian economist, past or present, has ever proposed that the Fed lowers interest rates "Merely by decreeing 'cheap credit.'" The fact that Tamny maintains this indicates that he is innocent of any knowledge of the crucial role of money and credit expansion in ABCT. As pointed out above in the quotation from Mises, what engenders the boom and perpetuates it is the injection of fiduciary media into credit markets regardless of the movements of interest rates, especially short rates.
https://mises.org/wire/money-creation-not-low-interest-rates-behind-boom-bust-cycle
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