The only cogent explanation for our current ills to which we would add dollar hegemony, which gave an irresponsible central bank, the FED, international reach and the practice of fractional reserve banking, to which we must add the shadow banking system. So this credit bubble is like none before.

From Wikipedia.

"According to Austrian economist Joseph Salerno, what most distinctly sets the Austrian school apart from neoclassical economics is the Austrian Business Cycle Theory: (2)“ The Austrian theory embodies all the distinctive Austrian traits: the theory of heterogeneous capital, the structure of production, the passage of time, sequential analysis of monetary interventionism, the market origins and function of the interest rate, and more. And it tells a compelling story about an area of history neoclassicals think of as their turf. The model of applying this theory remains Rothbard's America's Great Depression. ”


Austrian economists focus on the amplifying, "wave-like" effects of the credit cycle as the primary cause of most business cycles. Austrian economists assert that inherently damaging and ineffective central bank policies are the predominant cause of most business cycles, as they tend to set "artificial" interest rates too low for too long, resulting in excessive credit creation, speculative "bubbles" and "artificially" low savings.(44)

According to the Austrian business cycle theory, the business cycle unfolds in the following way. Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable "monetary boom" during which the "artificially stimulated" borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable. The global economic crisis of 2008 represents, according to some pundits, an example of the Austrian business cycle theory's dependability.(45)

Austrian economists argue that a correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when credit creation cannot be sustained. They claim that the money supply suddenly and sharply contracts when markets finally "clear", causing resources to be reallocated back toward more efficient uses."

Here is more detail...
The theory begins with the claim that in a market with no central bank, there would be no sustained cluster of malinvestments or entrepreneurial errors, since astute entrepreneurs would not all make errors at the same time and would quickly take advantage of any temporary, isolated "mispricing".(14) In addition, in an open, non-centralised (uninsured) capital market, astute bankers would shy away from speculative lending and uninsured depositors would carefully monitor the balance sheets of risky financial institutions.

The "boom-bust" cycle of generalised malinvestment is generated by centralised monetary intervention in the market - specifically, by excessive and unsustainable credit expansion to businesses and individual borrowers by the banks.(15) This "over-encouragement" to borrow and lend is caused by the mispricing of borrowed money via the central bank's attempt to centralise control over interest rates and "protect" banks from periodic bank runs (which Austrian economists believe then causes interest rates to be set too low for too long when compared to the rates that would prevail in a genuine non-central bank dominated free market).(16)(14)

The proportion of consumption to saving or investment is determined by people's time preferences, which is the degree to which they prefer present to future satisfactions.