Reply To: Can Consumer Loans Cause the Business Cycle?


I remember reading in Prices and Production (by Hayek) that the capital structure is lengthened when the interest rate is held below the natural rate, and the natural rate tends towards the rate of profit. It seems to me that the industries that will have their capital structure most over-expanded during a boom are the industries with the highest rates of profit. Due to housing policy and lower lending standards, my assumption is that this was the case with the housing industry.

What I’m trying to better understand is, why were people like Peter Schiff able to predict the crash based mostly on developments in the housing market.