By Thorsten Polleit
The Austrian business cycle theory offers a sound explanation of what happens with the economy if and when the central banks, in close cooperation with commercial banks, create new money balances through credit expansion. Said credit expansion causes the market interest rate to drop below its "natural level," tempting people to save less and consume more. Credit expansion also drives firms to increase investment spending. The economy enters into a boom phase.
However, the boom is unsustainable. After the effect of the injection of new money balances has worked itself through the