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To: SeekAndFind

While Austrian economics teaches that nominal prices are related to the money supply, they never pretend to predict where this effect will show up.

When Alan Greenspan held interest rates abnormally low in the 1980s, who could have predicted that money would have funded a bubble in tech stocks? Or after the 9/11, who could have predicted that the money printing of the Fed would cause a housing price bubble? Indeed, when we were well into both bubbles, how many Keynesian economists accepted any suggestion that we were in a bubble that was unsustainable?

Thanks to the Austrians, I now know that an economy CANNOT function for long when interest rates are suppressed to zero. And when the Federal Reserve prints money out of thin air to buy 50% of the federal spending, it is indeed bound to cause higher prices, even though nobody at this time can predict where or when.


6 posted on 11/30/2012 9:14:56 AM PST by theBuckwheat
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To: theBuckwheat
"When Alan Greenspan held interest rates abnormally low in the 1980s, who could have predicted that money would have funded a bubble in tech stocks?"

You don't need intervention to have a bubble. All you need are speculators to raise the prices. Doesn't matter whether it's tulips, cabbage patch dolls, stocks or dotcoms.

8 posted on 11/30/2012 11:07:55 AM PST by DannyTN
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