Saturday, January 26, 2008

A good question is posed here

Don't Blame Subprime Lenders

Why would a businessperson choose to lend and borrow in an artificial boom once they've seen several business cycles? Because, even though business investors know that the bust will come, writes Jim Bradley, it makes no sense to refuse funds while other businesses are using the new funds to compete. And why doesn't the population at large just refuse to participate? Because Congress has established high transaction costs (capital gains taxes) and legal tender laws that prevent common citizens from the use of alternative assets to replace government money. As a result, expanding businesses get to use cheap socialized financing. That financing gains its value from diluting existing money. But the real negatives occur not in the booms and busts, but their additive result over time.

Posted by lvmreader @ 01:23 PM (728 views)
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3 thoughts on “A good question is posed here

  • Good article. The question is, will this bust herald a new era of gold-backed non-fiat money, or will that happen in the next bust, or the bust after that?

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  • Oh Drewster, you are such an optimist!
    Here’s an article about what happens to people who challenge the Fiat monetary system:

    http://politicalticker.blogs.cnn.com/2007/11/16/illegal-ron-paul-currency-seized/

    I cannot see our political parties giving up Fiat currency – especially when there is such widespread ignorance about the real nature money.
    This rather reminds me of one of the quotes from lvmreader’s post about Ludwig Von Mises yesterday:

    “It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.”

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