Could a bust be avoided by changing time preferences?

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  • #17135
    rt
    Member

    When the Fed stops printing money and the people continue to disburse their income according to their old time preferences, interest rates start to rise again and the bust follows. Could people avoid a bust by saving more and keep interest rates naturally low? This is of course very unlikely but would it work in theory?

    #17136
    jmherbener
    Participant

    No, because 100 percent of the Fed inspired monetary inflation and credit expansion originates as a new supply of credit. But our time preferences cannot be zero. We must consume something sooner instead of later. Otherwise we perish.

    Although the bust cannot be avoided, it can be mitigated by people raising their time preferences to provide more saving which can be used in the process of reallocation of resources and reinvestment of capital. Increasing saving and holding more money are common behaviors during busts.

    #17137
    rt
    Member

    Thanks!

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