[Ash Faulkner]

So in effect, while monetary policy may exacerbate or encourage the problem, it does not actually create it: the cause is the bad investment strategy of the bankers, exacerbated no doubt by loose monetary policy, but not magically caused by it. Nothing forced the bankers to invest all the extra credit in housing: they could have invested in industries that produced real growth and real wealth. That they didn't do so is absolutely their failing.

[Kman]

TCR raises a good point, Kman. Why do low interest rates inevitably lead to wasteful asset inflation? Why couldn't those businessmen and bankers, who are supposedly so great, use their great skills and knowledge to take advantage of the easy money and make some great investments?

Investors and entrepreneurs adjusts their activity according to prices and the signals they represent and if the central bank is sending out false signals to them by printing money then they will often engage in foolish behavior. You have to remember that in a market economy nobody has perfect knowledge of everything so people rely on prices to help share information.

A bust as we saw in 2008 is something that happened because the central bank sent out monetary signals to the market that signalled that their were more resources available for capital intensive projects than their actually was in the years leading up to the bust, if the central banks had kept their nose out of the interest rate market then market signals in the form of interest rates would have signalled to housing constructors/housing buyers that people werent abstaining from present consumption in favor of future consumption and this would have made it much more expensive for them to borrow money and this would have subsequently stopped all this frenzied speculation in housing that people were engaged in.

But for one who apparently believes in the wisdom of private investors, you have to explain why artificially low interest rates in 2000s United States led to a housing bubble, but artificially low interest rates in 1950s/60s/70s Japan led to a massive increase in wealth?

http://www.yen-to-dollar.com/yen-to-dol ... est-rates/

The chart alongside shows the historic interest rates from 1955 to 2008 and are kindly provided by the Bank of Japan. As you can see, the rates have fallen from highs of between 7-8% in the 50′s, and 70′s, until, following the burst bubble at the beginning of the 1990′s, rates declined to zero in 2001 where they stayed for the next 5 years

Im curious where you read that interest rates in Japan were low in the 50's, 60's and 70's because according to the chart I found they werent.

Clearly focusing on interest rates is looking at only one side of the relationship: you have to focus on the intentions of the people who take advantage of those interest rates too, but that of course would require you to admit that market actors are in fact often idiots.

Their intentions are immaterial as long as they are engaging in voluntary exchange and respecting contracts since in such a situation their own self-interest is in the interest of the general population.

So in effect, while monetary policy may exacerbate or encourage the problem, it does not actually create it

Monetary policy does create it, it is the culprit behind the bubble, without central banking it would not have formed.

Nothing forced the bankers to invest all the extra credit in housing: they could have invested in industries that produced real growth and real wealth.

Yes well sadly most people are not as smart as the austrian economists that warned about the bubble and unhealthy state of the economy during the early 2000's, most investors just look at whether something is profitable and this type of investing into housing was incredibly profitable during the height of the bubble because of government money printing artifically suppressing interest rates, without the government money printing interest rates would have spiked and made housing speculation/construction unprofitable for most people.

[ralfy]

It wasnt deregulation that created the housing bubble it was central bank and government regulation.

It was deregulation leading to U.S. banks exposed to something like $370 trillion in derivatives:

http://www.bloomberg.com/apps/news?pid= ... refer=home

Part of that casino capitalism was the housing bubble, where financiers lent to NINJAs and then banks repackaged toxic assets in CDOs and offered them to foreigners.

[Albanian Paradox]

Socialism should first be achieved before we arrive at communism, they say.

You can't achieve communism if you can't achieve socialism.

[Daktoria]

You can't achieve communism if you can't achieve socialism.

That's... not necessarily true:

http://en.wikipedia.org/wiki/Deformed_workers%27_state

http://en.wikipedia.org/wiki/Degenerated_workers'_state

It is possible to live in a despotic, primitive, tribal form of communism. Heck, it's arguable that anyone who believes we've elevated beyond that is powerful and/or deluded.

Not that I believe tribal communism is ethical or that such a belief is deluded, but that form and argument are possible.