

Forced Savings: Malinvestment and Overconsumption - ChuckMcM
http://www.acting-man.com/?p=25709

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ChuckMcM
I found this through a friend and it is a very interesting analysis of the
impact of artificially low interest rates on the economy, in particular this
intro:

 _" We want to discuss the problem of forced saving as it seems to us that it
is of particular relevance to the current 'echo boom'. Also, it complements
what we have previously written about capital consumption and the pool of real
funding. In Mises' rendition of the business cycle, we can find two different
conceptions of the term forced saving. A classical boom based on credit
expansion results in both malinvestment and overconsumption, as the accounting
profits of entrepreneurs and capitalists in the higher order stages of the
production structure, as well as the increase in wages of workers employed in
them, leads with a very small time lag to higher consumption expenditures. Not
only that, but the artificially lowered interest rate provides a disincentive
to saving, so that consumption overall actually tends to increase relative to
the pre-boom configuration of the economy. Consequently, resources are not
only drawn toward the early stages of production (that are temporally most
removed from the final goods production stages) as lower interest rates make
these investment projects seemingly profitable, but also toward the late
stages, which experience a surge in demand."_

Which really resonated with me, it seems with interest rates so low people are
drawn to invest in startups more aggressively than they might if there was a
more reliable return in the markets.

