Capital in Disequilibrium: Understanding the "Great Recession" and the Potential for Recovery (Report‪)‬

INTRODUCTION The summer 2007 world-wide financial crisis and the recession in the U.S. that followed later that year have caused a number of journalists and non-Austrian economists to recognize the essential element of the Austrian Business Cycle Theory (ABCT): monetary excess triggered by central bank actions "lead to a boom and an inevitable bust" (Taylor, 2008). (1) Responding appropriately to the current bust, or for that matter any crisis, requires first understanding the root cause. In the present situation, the underlying enabling cause was recently described from an Austrian perspective by Rizzo (2009) when he wrote that "[w]e must remember that the current state of affairs was caused by the Federal Reserve's excessively low interest-rate policy from about mid-2002 through the third quarter of 2006," which "resulted in significant economic distortions and/or imbalances."