Oddbean new post about login | logout The issue with fiat money is the money itself is debt. Debt exists in time. So yes you’re correct you borrow against time, but the bond yield curve is really a measurement of how much money exists now vs the future. When the liabilities are now, and the assets are in the future, it’s a bust. It’s not “impossible to avoid”, the answer is the money supply has to be an asset... and not debt
Well boom busts are impossible to avoid, because you can't stop people from lending to each other. But Keynesians think that by creating money during the bust they can smooth it out, which works but it causes even worse problems that accumulate as we can all see. Fractional reserve lending exacerbates it a lot, because *everyone's* money is being lent out, whereas without it it would just be people that want to lend creating the cycle, you have to have capital earmarked for lending normally but when everyone's money is controlled by a bank that lends it out now you have all liquid capital contributing to the problem.
Different industries could experience drawdowns, but under a supply based economy (real money), there is no logical reason for unrelated industries to be connected. Capital flees one industry to go to another. While as under fractional reserve banking, the money created leads to malinvestment, where they think there will be all of this return, but in fact, it’s due to the artificial credit boom. Under the system Austrian economics proposes, people are not stopped from lending to each other. The primary difference being that those who are lending, know their funds are tied up and can not access them for a given period of time. This prevents them from thinking they can use these assets to pay down debt. The yield curve inverts during a credit crunch, as more money is needed in the present than exists. The assets are in the future, but the liabilities are due now.