Why would a businessperson choose to lend and borrow in an artificial boom once they’ve seen several business cycles? Because, even though business investors know that the bust will come, it makes no sense to refuse funds while other businesses are using the new funds to compete. And why doesn’t the population at large just refuse to participate? Because Congress has established high transaction costs (capital gains taxes) and legal tender laws that prevent common citizens from the use of alternative assets to replace government money. As a result, expanding businesses get to use cheap socialized financing. That financing gains its value from diluting existing money. But the real negatives occur not in the booms and busts, but their additive result over time.
Jim Bradley
