Are Interest Rates Really That Important?

There is something I never got about interest rates. There is a consensus across economists that interest rates have a very important impact on the economy. Economists of all stripes agree that lower interest rates boost economic growth and higher rates reduce growth. Some go as far as saying that it is through interest rates and monetary policy (not spending and fiscal policy) that governments should manage the economy. It’s a standard classroom exercise to draw curves showing the impact of interest rates on growth. Too low interest rates are one of the main factors blamed for causing the bubble and resulting recession. But I always felt that something didn’t quite add up and I began to doubt how important interest rates really are. Continue reading “Are Interest Rates Really That Important?”

The Return Of Bitcoin

Like a movie sequel bitcoin has blasted its way back into the news after being presumed finished after its dramatic crash last April. Like the Death Star it has returned in the exact same way as before and has re-ignited the debate over the value of an uncontrolled currency. As I write this bitcoin is hovering around the price of $450 and it will probably reach $500 soon enough. Its return has surprised commentators (such as myself) who had presumed the currency was done for.  Unfortunately, like the Death Star, it has the exact same flaw that will undo it as before. Bitcoin is soaring high at the moment, but it is only a matter of time before it crashes. Continue reading “The Return Of Bitcoin”

Why The Austrian Business Cycle Theory Is Wrong

One of the surprisingly popular theories as to why the recession occurred is known as the Austrian Business Cycle Theory (ABCT), which argues that not only is the government not the solution to the recession, but in fact, it is also the cause. It claims that the recession was caused by the government artificially lowering the interest rates and distorting the economy leading to a recession. As you can imagine this theory is very popular among libertarians eager for an excuse to absolve the market of blame for the crash. It is promoted by Ron Paul and Peter Schiff who claim to have predicted the Financial Crash (and the next one too). It is also completely wrong and dangerously so. Continue reading “Why The Austrian Business Cycle Theory Is Wrong”

The Bitcoin Bubble Has Burst

Well it has finally happened. We looked at those charts of ever rising price of bitcoin and said this cannot last, and it hasn’t. The bitcoin bubble has finally peaked and now all that is left is to watch its steady and inexorable decline. But this post will not simply be full of smug gloating (though I see no reason why there shouldn’t be at least a little bit of smugness). You see, the crash of bitcoin mirrors other financial crashes and gives us an opportunity to draw some conclusions. It is best to view bitcoin as a giant experiment of how an economy would operate without a central bank. Continue reading “The Bitcoin Bubble Has Burst”

The Irish Housing Bubble And Bust

The recent housing bubble in Ireland defied the laws of economics. Supply and demand rose simultaneously, the market rose to absurd heights before crashing to unheard of lows. It went from an extreme of being able to sell a house no matter how high the price, to one where you can’t sell a house no matter how low you drop the price. According to everything I have been taught about economics, this could not happen. Textbooks are useless in understanding the bubble. According to them the price is always right, that left alone the free market will make everyone better off. Bubbles or recessions don’t happen. Any exceptions are temporary; it’s not possible for a decade of boom to be replaced by a decade of bust. But that is what has happened. Continue reading “The Irish Housing Bubble And Bust”