Some additional reflections on the economic crisis and the theory of the cycle

posted by
December 29, 2011
Ludwig von Mises Institute
by Jesus Huerta de Soto  
Posted in Commentary

"Nevertheless, free-market-environmentalism theorists have overlooked another major cause of the poor use of natural resources: the credit expansion that central banks orchestrate and cyclically inject into the economic process through the private banking system, which operates with the privilege of using a fractional reserve. In fact, the artificial expansion of fiduciary media triggers a speculative-bubble phase in which there is an 'irrational exuberance.' This phase ends up placing an unwarranted strain on the real economy by making many unprofitable projects appear profitable." (12/29/11)  

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