their financiers make the mistake of taking an
abundance of financial capital (which they them-
selves have largely created out of thin air) for a
correspondingly deep pool of physical capital and
labour resources upon which to draw, without
altering the prices plugged into their ROI calcula-
tions too adversely.
In essence, market interest rates – which are
supposed to express the degree of our preference
for jam today over jam tomorrow – become
scrambled by the credit expansion and are NOT
signalling that savings have been voluntarily
increased (less jam today, please) so that a
greater pool of resources lies available for rede-
ployment into new investment projects (more jam
tomorrow, thank you).
Thus, the timetable for the delivery of sufficient
consumer goods to meet income earners’ sequen-
tial demands will be thrown awry. Lower interest
rates may well allow promoters access to finance,
but do nothing to ensure that they will be able to
turn it into the physical capital they need to carry
out their plans – at least not without putting
themselves dangerously at odds with the desires
of the very consumers they think they are serving.
Long time-scale investment rises, yet no-one volun-
tarily saves any more. To the contrary, given the
increase in money incomes which all that extra busi-
ness activity will bring about, and taken in combina-
tion with the prevailingly low interest rate environ-
ment, saving may well go down, both proportionate-
ly and absolutely. This is especially likely if people are
gulled into believing that the asset price apprecia-
tion which may accompany these conditions has
somehow made them effortlessly wealthier. The
inevitable consequence is that final goods prices will
begin to rise, overtaking the gain in prices previously
being paid for investment and intermediate goods.
Once this happens, the seeds of disaster, sown
by the credit expansion, will begin to germinate.
For this is the point at which the less-specific (or,
if you prefer, the more-versatile) ‘factors’ (peo-
ple, machinery, land, and raw materials) will be
bid away from work on the longer-horizon, slow-
er amortising undertakings – or, just as calami-
tously, from the later processing of their output
somewhere amid their convoluted progression to
the shop window. Instead, they will be enticed
away into now more lucrative activities directly
seeking to fulfil the desires of the crush of
would-be consumers.
It is at this critical juncture that – absent a fur-
ther intervention to re-energise it by injecting yet
more producers’ credit into the system – the great
ocean roller of the boom is likely to topple over
and crash. Assuming no fresh influx of funds, this
may be the point where the dreaded omen of a
negative yield curve may appear. Short-term
money rates will soar as hard-pressed business-
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