To Austrians, all economic “booms” founded on monetary largesse always end in economic busts, roughly equal in size and intensity to the preceding booms. By distorting interest-rate and price signals and, as a consequence, creating malinvestments that must eventually be liquidated, monetary booms necessitateeconomic busts. This is true regardless of whatever short-term benefits the economy or financial markets appear to enjoy from this largesse. And whether that largesse originates via the creation of central-bank base money (through central-bank asset-purchase or loan programs) or via bank-issued on-demand deposit liabilities in excess of bank reserves or what Austrians call uncovered money substitutes (when said banks are making loans or purchasing assets), in the end the result is always economic busts.
Our broad and preferred money supply metric — TMS2 (True “Austrian” Money Supply) — posted another double-digit year-over-year rate increase in March, this one coming in at 14.5 percent. That makes 40 consecutive months of double-digit year-over-year rate increases. To state the obvious, we are in the midst of a monetary explosion.
CONTINUED at the Ludwig von Mises Institute. Written by Michael Pollaro.