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Alasdair Macleod: The end of the bank credit cycle
By Alasdair Macleod
Thursday, July 8, 2021
The economic consequences of cyclical expansion and contraction of bank credit are the reason for booms and slumps dating back certainly to the Napoleonic Wars and possibly before. Keynesian remedies, which owe their pedigree to the financial theories of John Law, have never succeeded in taming them.
This article ties Austrian business cycle theory to the cycle of bank credit. It explains how bank credit is created and customer deposits with it through double-entry accounting.
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Central bank interest rate suppression has led to the virtual death of bank credit creation for the benefit of non-financial businesses. Instead, banks have grown their balance sheets to finance purely financial activities and speculation to compensate for reduced lending margins.
The cyclical contraction in bank credit is set to be greater than anything we have experienced since the Wall Street Crash of 1929—1932. The authorities' attempts to defray this reality seems set to undermine the purchasing power of their currencies. ...
... For the remainder of the analysis:
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