#plan Ben Franklin Venture Idol… Tue, Nov 16, 2010, 5:30-8:30pm http://planca.st/GPu
Notify me of follow-up comments by email.
Notify me of new posts by email.
Fisi: You misunderstand . “Malinvestment is alawys the result of the inability of human beings to foresee future conditions correctly. However, such human errors and the resulting malinvestments are most frequently compounded by the illusions created by undetected inflation (q.v.) or credit expansion (q.v.). From the viewpoint of attaining maximum potential consumer satisfaction, every political intervention, other than that needed for the preservation of the market society, must lead to malinvestment.”Malinvestment is not just bad investments. They are are investments that would not have happened without the artificial credit creation of the banks. It is this creation of credit out of thin air that causes a whole rash of similarly bad investments that inflate each other in the boom, and feed upon each other in the bust.For example, the houses whose prices rise in the boom only because the injection of all this “” has caused a bubble. Yet when the tide goes out and debts are called in and the bust begins to happen, it’s apparent that the value was never there, that it was all just a bubble, and the optimism across that whole class of investment was illusory.You can see the net result of this in housing subdivisions across the States, and in holes in the ground from Queenstown to Ponsonby to Orewa.Or the businesses at the early stage of the capital structure who have expanded on the back of all this , and whose share prices are going through the roof because of projected profits.Yet as time progresses, these businesses begin to find that everyone else is experiencing the same artificial boom, hiring the same factors of production as they are (bidding up the prices of everything they’re buying) and lowering the prices they can charge once projects are finished.The result is both a bust, and a rash of unfinished projects–unfinished because the resources didn’t ever exist to finish all the projects that were started only because of the injection of all that counterfeit capital, and because the businesses themselves can’t survive once interest rates begin to rise and their real costs become apparent.You could see all this happening during the Dot.Com boom and bust. If you want to read more about how govt’s meddling with interest rates effects Time Preference and causes Boom and Bust, read Gene Callahan’s great illustration of the process .And if you want charts with that, complete with moving parts that explain why it’s whole **classes** of investment that are affected by the injection of credit created out of thin air, then check out .