Crash and Carry: Financial Intermediaries, the Intertemporal-Carry Trade, and Austrian Business Cycles
Ethics & Politics, Vol. 11, No. 1, pp. 455-469, 2009
15 Pages Posted: 8 Jul 2011
Date Written: July 6, 2011
Barnett and Block (2008) establish that not only are fractional reserve demand deposits fraudulent and create an Austrian Business Cycle (ABC), but that a certain type of mismatching between time deposits and the period for which the depository institution re-lends the deposited funds (banks or other financial intermediaries “borrowing short and lending long”) are also contrary to libertarian law. The question we address in the present paper is whether or not this type of disconnect between the period for which the ultimate lender committed funds and the ultimate borrower gained possession thereof also necessarily start an Austrian Business Cycle. Even though this does not constitute an increase in the stock of money, we answer in the affirmative.
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