Last year I predicted that the US economy would go into recession by December. It didn t. Let me briefly recap.
Austrian theory explains in great detail why monetary booms always collapse.
Because money is not neutral monetary expansion misdirects production creating what Austrians call malinvestments and what Greenspan is inclined to call imbalances. To prevent these malinvestments from emerging as idle capital and rising unemployment the central bank must continually accelerate monetary growth. Eventually it applies the brakes, usually in response to rising prices and current account deficits. I was drawn to this conclusion by the belief that Greenspan was still too much taken by the lesson of the 1920s boom to allow the massive increase in the money supply that would be necessary to sustain increasing output and consumption. This belief was strengthened by his references to the economy s growing imbalances and hints of rate raises to curb the country s excesses.