Luis Enrique Ponce Goyochea

Towards a Greater Depression? Luis Enrique Ponce Goyochea

Essay from the year 2013 in the subject Economics - Economic Cycle and Growth, , language: English, abstract: Within the context of any financial crisis, government manipulation of the monetary base causes the downturn to last even longer than in the framework of a purely free market, thus leading to a sharper depression. From an Austrian viewpoint (Murray N. Rothbard 2000 [1963], 2008 [1983], 2009, 2010 [1963]), the ultimate cause of business cycles is the underlying distortion of interest rates through the interaction of two core inflating mechanisms: commercial bank credit expansion fueled by fractional reserve banking and government manipulation of the monetary base through central banking. In this sense, it is precisely the latter which allows the former to increase its influence beyond the natural free market constraints upon inflation.