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Source link: http://archive.mises.org/5509/the-reversible-boom/

The reversible boom

August 23, 2006 by

Robert Samuelson verges on Austrian cycle theory–without knowing it, of course.

{ 6 comments }

George Gaskell August 23, 2006 at 10:57 am

The origins of today’s credit culture date to the 1920s and the advent of installment lending

No! Can you think of some other event around, say, 1913 or so, that MIGHT have had some impact on the lending and credit practices of Americans? Hmmm?

I’ll give you a hint: it rhymes with “Nederal Preserve.”

billwald August 23, 2006 at 11:33 am

No, it has to do with human nature and the inability of people who have never seen a day of hard times to plan ahead.

For 40 years people have been living beyond their means and buying consumer goods while The Wife and I never went negative cash flow. Sometimes I was envious of others but not often.

We are now retired and could live on half our pension if the stuff hit the fan. We will get the last laugh.

Jeff Durbin August 23, 2006 at 12:38 pm

There’s nothing wrong with debt. In fact, USAA (one of our credit card companies) let us do a cash advance at 0% interest for almost 13 months with no cash advance fee.

I borrowed close to $10k and then invested it in a CD at 5%. They expected us to use the card for purchases at 12.5% and then over time the blended rate would rise from 0%. We stopped using the Visa card. Thank you USAA for the $500 risk free gain.

George Gaskell August 23, 2006 at 2:02 pm

No, there’s nothing wrong with debt per se.

But there is something wrong with interfering with the signals that people use to decide if, when and how to incur debt.

There’s a similar problem with interfering with the signals people use to make decisions about savings and consumption.

Hand-waving statements like “people should save more” are about has useful and insightful as the common trope, “people are too greedy.” Gee, thanks.

I don’t know what purpose such content-free comments are supposed to serve, but whatever psychological value they may have to those who insist on uttering them, one thing is certain: they have no place in economics.

Curt Howland August 23, 2006 at 2:04 pm

Billwald, I don’t think you’re wrong, neither do I think Mr. Gaskell is wrong either.

The environment of easy money, as epitomized by the Federal Reserve, allows people to borrow easily.

And indeed there has been a cultural shift from saving to borrowing.

Maybe this long period of relatively easy living would have created an environment of borrowing rather than saving, but at the same time without the Federal Reserve and “easy” money, it wouldn’t be possible for the problem to have reached the present size of this ocean of inequity.

I believe that Bank Americard and American Express would have occurred with or without the Federal Reserve and easy money. But as American Express demonstrated, “charge” rather than credit can work just fine. I believe that the charge-card service would be the rule, rather than the exception, if we were still on hard currency.

Stefan Karlsson August 23, 2006 at 3:08 pm

The funny thing about this is that as late as in February this year , Samuelsson denied that the Fed had created the boom by artificially supressing interest rates.

Now, it appears he realizes he was wrong.

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