Thursday, February 2, 2012

Economic cycles before FED

If students of Austrian economics school (such as Ron Paul) claim that economic cycles are caused by FED's machinations with money supply (i.e., inflation) and artificial manipulation of interest rate, what about the depressions before FED's existence? How do you explain those?

Please watch this video with one of my favorite speakers, Tom Woods:

Many people in discussions of pre-FED booms and busts will point to one of the most famous cases of those: tulipmania in Holland —
A period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble (or economic bubble), although some researchers have noted that the Kipper- und Wipperzeit episode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble. The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate fromintrinsic values).
Please read an amazing article by Doug French: "The Truth About Tulipmania".

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