So if Austrian Business Cycle Theory is right, booms of credit promote resource reallocation. But, like Bob, I don’t think Krugman’s point holds any water. All of this was being done on cheap credit, remember, so you don’t really have to reallocate capital to housing sector. As for employment, who says that new jobs in construction and related industries was being drawn from the unemployed sector?

It seems to me that, besides for the people already in construction, we were getting a lot of immigrant labor and ‘teenagers’ growing up into the construction field. The boom doesn’t have to be preceded by unemployment, just shift resources away from potentially sustainable ones (at an opportunity cost of economic stability) to unstable ones.

Jeff Harding from The Daily Capitalist writes:

Peter “As Seen on TV” Schiff is another. He runs EuroPacific Capital and made a very big name for himself predicting the collapse of the economy. There are many film clips on YouTube where he famously embarrassed many Wall Streeters and economists by his insight into the economy. Peter is of the Austrian School of economics and does an excellent job in articulating these ideas.

There is one hitch to Schiff and that is in making money for his clients. He predicted global equities would be the place to be after the crash and he also predicted that we’d be in hyperinflation. Neither of those things worked out well for him. While I enjoy his film clips, I have tuned him out.

According to this standard Austrian story (or at least how Peter Schiff interprets it) inflation should be heavy and gold prices should be through the roof. However, neither of these things are happening yet. One reason may be because banks aren’t lending out the stimulus money yet and that much of it has yet to be spent.

As the months drag on, however, this story seems less reliable. So here’s my question:

When will Austrians abandon the idea that we’re still heading into hyperinflation – or how much would they bet that it will occur if given reasonable odds?

One possible answer: just in time for hyperinflation to kick in, allowing free market capitalism to get blamed for the mess again.