Source: Ludwig von Mises Institute
by Vincent Cook
“The fundamental problem with fractional reserve bank credit is that it funds greater investment spending without the corresponding thrift. Bank credit expansions drive down interest rates artificially, causing too many labor and natural resources inputs to be diverted towards the more interest-sensitive parts of the economy with too few invested in the less interest-sensitive sectors—these inputs are malinvested in unsustainable boom sectors. Such booms can’t be sustained because demand for inputs in the short-term, lower-risk sectors isn’t slackened sufficiently by thrift to match the higher bank credit-fueled demand for inputs from the boom sectors. Input prices increase relative to output prices, eventually squeezing business operating margins to the point where losses begin to appear, particularly in the boom sectors.” (12/17/25)
https://mises.org/mises-wire/next-economic-downturn-will-be-here-soon-enough