Malinvestments

A malinvestment is a misguided investment made as a direct consequence of price-signals coming from central banks. Artificially low interest rates makes it profitable to invest in projects that would otherwise not be undertaken. Capital gets typically diverted from immediate concerns to more secondary concerns. The production of capital goods get a boost at the expense of more pressing issues.

The strip mining of the tar sands of Alberta is but one example of a massive mallinvestment. All concerns for the environment have been pushed aside in favor of huge investments in capital goods and infrastructure. The destruction of rain-forests is also enabled through artificially low interest rates.

The damage to the environment caused by central banks is clear to see. However, rather than blaming the central planners, the entrepreneurs and capitalism are blamed, and more central planning is called for. The historic fact that central planning always result in waste and destruction does not seem to sink in with the average environmentalist, and they certainly don't see the connection between malinvestments and central banking.

While it's understandable that those unfamiliar with the concept of malinvestments are clueless to the destructive side of central banking, it's a little strange to hear people familiar with the concept express opinions that are clearly at odds with what they claim to understand.

It has been known ever since Ludwig von Mises wrote in his books on the subject that artificially low interest rates cause malinvestments, especially in capital intensive industries such as mining and manufacturing. The result of such investments are always a fall in prices for both the capital involved and the end products. Both oil prices and the capital invested in oil production are therefore headed for a fall in prices.

Another malinvestment that has seen a spectacular rise and fall over the last two years is the crypto-currency industry. This whole industry came into existence for the sole purpose of getting away from central planning. Its very existence is due to central banks messing around with currencies. If central banks had stuck with a gold standard, no-one would have had any reason to look for alternatives.

The very fact that we have to constantly monitor the crypto space for technological developments tell us that crypto is not money. Money is a store of value while technology is fleeting. We can put a gold coin in a box and know with certainty that the coin will be valuable many years down the road. The same cannot be said about crypto, which almost certainly is headed to zero, certainly if there is a return to a gold standard at the end of the recession we are currently headed into.

Alberta tar sands and crypto are some of the best current examples of malinvestments. Still, we have Peter Schiff talking about malinvestments one moment and the near certainty of a sustained price rise in oil the next moment, and Maneco64 does the same with crypto. It is baffling to hear such well educated people get these things so wrong when everything else they say makes perfect sense.

Syncrude mildred lake plant

By TastyCakes is the photographer, Jamitzky subsequently equalized the colour. - Transferred from en.wikipedia to Commons., Public Domain, Link