The business cycle is something we are taught in school. We are told that it is a certainty in economics. Austrian Economists have proved that the business cycle has a cause.
The cause of the business cycle is coercive control of the money supply and market intervention. Murray Rothbard is my favorite scholar on the topic, and he summarizes the Business Cycle in his book America’s Great Depression
In the purely free and unhampered market, there will be no cluster of errors, since trained entrepreneurs will not all make errors at the same time.4 The “boom-bust” cycle is generated by monetary intervention in the market, specifically bank credit expansion to business.[Excerpted from America’s Great Depression, chapter 1 “The Positive Theory of the Cycle,” section “The Explanation: Boom and Depression,” pages 9–14 .]
The current economic era we are living in is Post Credit Crisis Expansion. During the downturn of 2008 in the United States the response from government was a gigantic bailout called TARP:
- It contributed $67.8 billion to the $182 billion bailout of insurance giant American International Group.
- It used $80.7 billion to bail out the Big Three auto companies.
- It loaned $20 billion to the Federal Reserve for the Term Asset-Backed Securities Loan Facility. The Fed lent TALF money to its member banks so they could continue offering credit to homeowners and businesses.
- It set aside $75 billion to help homeowners refinance or restructure their mortgages with the Homeowner Affordability and Stability Plan.
We are now experiencing a boom in the American stock markets resulting from this injection of paper money. We are now to experience the next cycle unless something magical happens to eliminate the market intervention and fiat money system.