The Military Budget Is Another Bubble

By Kenn Jacobine

It has been financed for years by deficit federal spending monetized by the Federal Reserve in other words debt.

As students of the Austrian School of Econo understand, financial bubbles are caused by central bank monetary policy and government intervention in the economy. The housing boom and subsequent crash in the first decade of this century is an excellent example of the Austrian Business Cycle Theory (the Austrian School’s explanation for booms and busts in the economy).

Tom Woods's Liberty Classroom

For more than 4 years between June of 2001 and September of 2005 the Federal Reserve kept its Federal Funds interest rate undert Artificially low mortgage rates resulted. This coupled with large investments by the Bush Administration for low income homebuyers created the largest housing boom in American history. As interest rates were gradually increased by the Fed, reaching a decade high of 5.25 percent in June 2006, investments in housing that were made at lower interest rates became unsustainable at higher rates. As adjustable rate mortgage rates rose, defaults increased eventually causing home prices to plummet. The housing bubble had burst.

Of course, pundits, politicians, mainstream economists, and others dependent on big government for their sustenance blamed the free market and deregulation for the housing boom and bust. Yet, time and again in the Twentieth Century, from the stock market crash of 1929 to the dot com bubble of the late 1990s, the fingerprints of Fed manipulation and monetary price fixing have been all over every economic downturn and crisis.

The Military Budget Is Another Bubble [continued]


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