 How many Fed economists does it take to change a light bulb? One, right, they hold the light bulb and the whole world revolves around them. International business cycles. All right, so what I'm going to hope to show in this lecture today is that thinking about this phenomenon of international business cycles is something that can help us not not just understand international business cycles, but business cycle transmission in general, right? So kind of how is it that the business cycle affects, right, not just say the financial sector or we believe that it begins or say just those people working in the really capital-intensive early-stage industries, but actually spreads out and seems to affect basically everybody, right? So how is it that we see this transmission of the business cycle from where it begins, right, to affecting an entire economy, right? And kind of the international context will provide us with, I think, a good way to approach this particular question. Now before we do this, I do want to make some points about kind of what is special and what's not, because as soon as we put in this word international, okay, well, why do we bother including that word, right? What's so special about this, right? Is there something magical, right, about drawing a line, right, on a map somewhere and then suddenly, right, the relationships across the line on this map are totally different, right, than if we're on the same side of the line, right? Well, it doesn't seem like that would be the case, right? Not inherently anyway. I can draw as many lines on the map as I want. I could draw a line down the center of this room. There basically is one, right? See where they've taped down for safety reasons, they've taped down one of the cords it looks like, right? Does that mean that we all relate on this side of the room differently, right, to each other than we do to people on that side of the room? Well, right? Now, it's tempting for me to say no, right? But I think yes might be partially right, right? Because, okay, is it easier for the two of you to carry on a conversation than the two of you, right? I suggest yes, right? So there is actually the spatial component to it, right, that we are geographically closer to each other and that changes the way we relate to people that are geographically further apart. So there is actually an aspect to that, but it's not so clear that that needs, there needs for there to be a line down the center of the room. We could have removed this line from the center of the room, and it's still true that we're going to have easier conversations than the two of us, right? Okay, so there's a spatial component that will be captured here, but that doesn't seem to be the key in this international side of it. Now, what is different though when we look internationally, right? Well, on either side of this border, when we're talking about national borders or even state borders within the United States, is that laws are different on the two sides of this border, right? And laws, well, they may not be magical in themselves, or you know, you can't just legislate prosperity or what have you, right? They nonetheless create consequences for how we can relate to one another, right? And if we have, right, laws that change how I can relate to people on other sides of borders, that's going to create consequences for our behavior and consequences, therefore, for economic outcomes. And so there's nothing magical about laws, nothing magical about lines on maps, nonetheless, right? Because of this difference, right, in legislation, we will actually see impacts, right, as a result of these borders, okay? All right, so I would say that borders matter economically, not because they matter legally, right? There's these legislative differences because we recognize legislatively these borders, okay? So, keeping that in mind, let's then move into thinking about international business cycles. So, like any good Austrian, start with the data, right? Yeah. All right, so what I have here, right, this is a, it's a correlation matrix, right? What I did, you see here, you probably can't see because the type is so extremely small. The color coding is going to help you, but let me explain where the colors came from, right? So each of the columns, each of the rows, right, is a particular country. So we have the US, we have Canada, the United Kingdom, Mexico, et cetera. So a lot of the developed world is listed in here. And probably the least developed countries here, nonetheless, very major economies, we have, for example, India is in there, not a particularly wealthy economy, kind of a middle-income economy as well. Let's see, Brazil has been developing actually quite well, but they're also in this list. So it can mix mostly of what we'd think of as wealthier economies, but also some of these middle-income economies in there as well. Okay, so how did I get to this? Well, I started by gathering GDP, just plain old, real GDP data. Like I could easily find online, because that's what I did. I took it removed, any obvious time trends. So I'm looking at deviations from that trend, using this to get some sense of what the business cycle is acting like in each of these countries. And then look at how correlated these are between different countries. So that is what I'm showing here. This is all the different correlations between them. So, color coding then. Everything that is in green has a value of 0.5 or higher. So if you've taken your statistics, 0.5 is a reasonably strong correlation. Anything above that is pretty good. We see some of these numbers all go all the way up to something like 0.7, 0.8. So some very strong correlations telling us the business cycles in these pairs of countries are pretty strongly correlated. So we're experiencing booms and busts at basically the same time. I also have here, you can see just a few red. Anything if it was negative at all, even negative 0.01, just barely negatively correlated. That means we have a very slight tendency when I'm in a boom, you're in a bust. If that negative whatsoever, I put it in red. Everything that's in white is positive, so it's at least zero, but it's something less than 0.5. So I think what I really want you to compare here is look at the green versus the red. You see which there's more of, and that's really my point. So I'm not going to worry too much about the specific values of each of these, but we see a lot more positive correlation and reasonably strong positive correlation between business cycles and different economies than we do see negative correlations. Now I would suggest negative correlations might make sense in certain circumstances. Say for example, if we have say two economies that compete with each other a lot, so one makes a good strategic decision, that's good for their economy, but bad for the competing economy, that might explain a negative correlation. But we don't see that happen very often. So for the most part it looks like we're basically booming and busting together, either very strongly or somewhat weakly also being very common. So I want to focus then in on specifically the United States because I'm a good patriotic American. It also ends up, part of the reason that I think economists on the whole generally focus on the United States is that historically for whatever reason I've not figured this out, I think it might be Wesley Mitchell's fault. Americans seem to be more obsessed with gathering economic data earlier than a lot of countries are. So we can get longer periods of time for American economic data than when I look. Even places like the UK, which I think culturally is very similar, their GDP data doesn't go back as far as American does. I don't know why, it's something weird about the American psyche I guess. Anyway, so these are the countries that have the closest correlations with the American business cycle. I have the correlations here ranging from 0.76 with the UK, we're actually very closely correlated with the United Kingdom, Canada 0.75. It's not that surprising that the 50 states would correlate very well with the 51st state. I know we didn't win that particular war, or maybe we did. In any case, Canada is still independent. Taiwan 0.62, Australia 0.59 and Netherlands getting a little bit weaker, that 0.52. So still all of these relatively strongly correlated. So keep these in mind, especially those top two as we go through this discussion. So now backing up from the theoretical perspective, why do we want to think about this international thing? First, I know you've probably heard this before, certainly if you're in Dr. Salerno's lecture, you've already heard this story. It turns out thinking about business cycles and money internationally was part of the inspiration for Austrian business cycle theory. You go back to the species flow mechanism. So the idea is that we have these two economies, we have the same monetary-based commodity, so we're both based in gold, but then we have some kind of paper currency, we're pyramiding on top of that, so we have more paper than we have gold underlying it. And we know that if we have one economy that expands more quickly than the other, this paper tends to flow to the other country through trade flows, that gets redeemed and then gold leaves. Of course, as gold's leaving, now we can't pyramid as well as we could before. We have to cut back, save the boom, and now we have the bust as we have to contract the money supply to prevent ourselves from losing gold flows. And then, Mises noticed, this is not just an international thing, that banks hold reserves at his time in gold. They also write pyramid paper on top of that, and you can apply this to business cycle theory as well, and then incorporating capital theory and the distortions in the capital structure. So thinking about things internationally was kind of what led to, in some way, the Austrian business cycle theory as we have it. So I think it is a useful way for us to think of these things. So I want to think then about not this particular mechanism, but if we have a business cycle in one country, how in Austrian terms would it make it into another country? So we know the Austrian business cycle theory story, you are all there for Dr. Garrison's talk. So we know what starts out, you have the central bank or the banking system, injecting new money through credit markets, interest rates are falling. Might this potentially create impacts on the other side of the line? Well, let's suppose that we have a world market in which it is possible for me to make a choice about where I invest. So I, here as an American, I could invest here in New York through our New York financial markets, or I could if I wanted to invest my money in London, London also being a major financial center. Well, if interest rates are falling here in the United States, relative to abroad, and I want to get the best return on my money possible, I'm going to start moving some of my funds to where interest rates look higher. Well, what happens then? Now we have the supply of savings investment that's flowing out of the economy that was creating this expansion and is pushed elsewhere. In this case, this example says I started investing in London, because interest rates are falling in the United States. So it feels like here, okay, we can see where the transmission would happen. It doesn't take every single central bank deciding to lower interest rates at the same time. For one of us, say the Federal Reserve to lower interest rates and that to create pressure on interest rates elsewhere. So then, say the Bank of England has the choice, are they going to let interest rates fall there, enable that, or are they going to try to restrict credit, because now there's this credit coming from abroad, they have to make the choice. And it's perfectly believable, they'll let interest rates fall as well. After all, restricting credit is no fun. So it could be because of this flow of investment. These capital flows is the term that is typically used. We'd see a coordination, even if not totally planned, but in the end an accidental coordination perhaps between what interest rates are doing. Interest rates fall in one place, they end up falling somewhere else as a response. Well, so in order to provide a little bit of evidence for that in the American experience, I looked for those economies that have the heaviest investment flow linkages with the United States. You might not have noticed that I changed slides, especially if you were focusing on the top two. The UK and Canada are number one and number two in terms of correlations with our economic cycle and also are number one and number two in terms of how much investment flow we see between these countries. Well, isn't that interesting? Now, we also have these other three, Germany, Luxembourg and France, are also there in the top five. Now, none of these made the top five in terms of our correlations, but you see they're also not far off. The top five got down to 0.52 for the Netherlands. Here we're looking, everything is 0.4 or higher. So there is a reasonable amount of correlation between the economic cycle as experienced in the countries that we invest with or that invest with us, adding these two together to get flows either direction and our economic cycles. This investment channel does seem to actually have an impact. So we have this interest rate effect. Interest rates do tend to correlate, largely driven by the possibility that these investment flows. So a second possibility is that there might be some kind of, we could think of as an income or a wealth effect. So right here in the United States, we lower interest rates. We know that makes us feel really wealthy as there's all this money coming into the economy. Oh, I especially love when stock market prices go up. Yeah, this is great. My retirement account is looking wonderful and I can't touch it until I retire in 50 years. But I still feel richer. So I'm going to go and I'm going to build that pool in my backyard or what have you. So we have this tendency as we feel wealthier. We're going to spend more. Well, it turns out not all of our spending is going to be on things produced in America. I might possibly buy some things that are produced in China or in Canada or in Mexico or in the UK or wherever. I'm going to buy some additional imports. So what does that do? If we have a lot of us feeling wealthier in the United States, we're buying a lot of additional goods from abroad. But now business is looking pretty good for them as their international sales are improving. So they then would experience part of the boom. Well, let's take a look. Here are the heaviest trade partners with the United States. I don't know why, but for some reason President Trump doesn't pick on number one very often. He's very worried about numbers two and three. But number one is, I don't know, maybe he doesn't actually realize that they're not the 51st state. His knowledge about Puerto Rico is certainly disturbing. But anyway, so Canada, Canada turns out as a number one trading partner and also is one of the two that we have the highest correlation with in terms of our economic state of booms and busts. The UK we know is also right up there in terms of number one or number two. Number one, we can see the number there. That was number one in terms of trade flows, not trade flows, in terms of our economic correlation boom bust cycle. It's number four here in terms of trade partners. I can understand why I wouldn't trade as much with the UK as we would with Canada. If you can't understand that, you know, I was watching a video the other day on YouTube where I think it was Jimmy Kimmel was asking people to identify a country on the map. Here's a map of the world. Identify a country. Yeah, it turns out almost nobody could do it. Yeah, the American knowledge of geography is not very good. Even asking, okay, where's the US? I hear, no, that's Russia. Also disturbing. Anyway, so Canada turns out as much closer to the United States than the UK is. We don't have to worry about getting things across the Atlantic when they're coming from Canada. Similarly with Mexico. Mexico is also very close to the United States. So China here would be kind of the odd one. We do have to get things across the Pacific in order to trade with them. Similarly with Japan as well. But Canada and Mexico, not that surprising that they would appear amongst our top trade partners. The less distance we would generally trade with them more. It also ends up, again, two out of these five we know are ones that are very closely correlated with. Interestingly, but look at the correlation numbers for the other three. It's not quite so strong. So that would suggest that this particular channel, while it may exist, it's all positive. It doesn't seem to be quite as important as the interest rate thing. As someone who likes Austrian business cycle theory, I like this a lot, actually. Because what is at the center of Austrian business cycle theory isn't this whole trade story of, oh, I buy less stuff. So that makes you worse off. We acknowledge that may be a secondary effect. What's at the center of it is the interest rate story. And sure enough, that is where we find the stronger connections. At least in the American case. But these are both things where we do see some potential evidence where it would draw our business cycles to happen at basically the same time. These two effects I actually describe in a paper that I wrote when I was a fellow here in 2004. You can still find that as a working paper. It's called, I think, Business Cycles in an International Context. I was young and I wanted an impressive title and that was the best I could do. In an International Context sounded much better than International Business Cycles, I guess. But there are, however, two additional effects that could potentially lead to maybe some correlation between different economies and their business cycles. Now, before I get into these, first I want to note the first two don't really rely on the international thing. We would expect interest rates to basically move together within a national economy. This particular channel would help to explain why it is that the American economy as a whole, or we don't in a balanced way experience the boom and bust, we tend to experience it roughly at the same time. So take Texas and Ohio and Pennsylvania and what have you. We generally experience booms and busts basically together. Well, we're under the same interest rate regime. So we experience the same interest rate movements. Similarly, income and wealth effects. This is something that we can see happening within the American economy. So within borders, these two channels would still work. Now, the next two, these effects I got much more informed by fairly recently. It was a year ago now. I was here for AARC and I saw a paper presented by Doctors Herbner and Block where they were looking at whether it's possible for the Austrian business cycle theory to be contagious. Is the virus of this interventionism contagious? Or put another way, do business cycles, transmit internationally to different monetary systems. So after I saw the presentation, I went up and I talked to Dr. Herbner, who's in the back now watching me, making me nervous. I was going to make him nervous, but have you all looking at him. So I went up to him afterwards and said, oh, actually I wrote a paper a few years ago. 2004 about this and they brought me in as a third author and I contributed almost nothing to the paper. I handle all the edits that the referees want. There we go. That's a good enough contribution, I guess. But as part of this, we introduced these two additional channels. I will say these are not specifically things that Austrians have invented. These are channels that you would see. They're presented in the mainstream as well. So what are those? So the third channel would be exchange rate effects. This is something when I taught money and banking, and I would talk about the international transmission of business cycles, exchange rate effects was always kind of a funny thing. I try to present myself as being at least somewhat mainstream, and the mainstream doesn't really make much of a commitment about where business cycles come from. And that in turn makes interest rate effects really ambiguous in terms of what they're going to do in terms of transmitting business cycles, it turns out. So something that the book that I was using was very vague. It's like, oh yeah, there's the interest rate channel and it could do something. It didn't make any commitment, didn't really describe logically the course of events, and I actually did similarly in my lectures in class trying to match the textbook. There might be effects but it kind of depends which way it goes. Here I get to be a pure Austrian. Okay, we're starting with a monetary expansion. What is that going to do? So assuming that we have an economy like we do in the world today, lots of fiat currencies around, exchange rates that can vary over time, so we have a monetary expansion say in the United States. But what does that do to the value of our money? It should go down, yes. And if this monetary expansion is kind of unusual, and the US is expanding in an unusual fashion, the value of the money is going to fall not just relative to goods, but also relative to other currencies. So the dollar is getting cheaper. Okay, so what does that do? Think back to what are the effects this might possibly have? Think about things like trade. So if my dollar is less valuable, and I'm trying to buy goods from China or from Japan or more likely from Canada, well, now I'm going to need more dollars to do that. The dollar can't buy as much, including it can't buy as many Canadian dollars, which is what the Canadians actually want. Can't buy as many Canadian dollars as before. Do I really want to buy as many goods from Canada? Well, no. This doesn't look as attractive. I don't want to buy those goods anymore. I'd much rather buy the American goods, and then flip it around. Do the Canadians want to buy these American goods now? Well, the dollar's gotten really cheap. This sounds good. So they find that their Canadian dollars can buy lots of American dollars, and therefore American stuff. Okay, so what does that do? Think through it. So here in the American economy, we have this monetary expansion that leads into a boom. At the same time, it's going to make it less attractive for us to buy from Canada, more attractive for them to buy from us. Does that sound like we're encouraging Canada to have a boom? No, it's actually just the opposite. They're going to be buying a bunch of stuff from us rather than producing it themselves. So that would create an opposing effect right here. So this exchange rate effect would suggest that our boom has an impact on other economies. But it's not a positive one when we have a boom. It's not a negative one. Oh, are these relatively weak numbers perhaps making more sense now? So on the one hand, there's kind of the direct effect where richers who are buying more stuff from abroad, but on the other hand, the dollar's cheaper so we don't want to buy as much from abroad. So that could help to explain why it is that these correlations are relatively weak with the exception of the two where we have lots of financial flows. So we have these two opposing effects. So we're seeing this as perhaps more complicated. So in this case, this would explain, say, going way back, if the exchange rate effect was the primary effect, we'd see lots of red. We don't see lots of red. See a little bit, but not a lot. So I suggest this effect certainly may exist, but it does not seem to be as strong as things like the interest rate effect. The last channel would be the credit channel. This one is one when I first tried to get my head around this. It took some thinking because I was trying to separate it from the interest rate effect. So the idea of the credit channel is that when we have this monetary expansion, there's more credit available. Yes, that's almost by definition the case. That's basically what we mean when we say credit expansion, there's more credit available. And then this in turn helps to fuel the various boom effects. So this particular channel it's very tied with in the Austrian story. It's very tied with the interest rate effect, which I think was kind of the difficult part for me in that I had to separate out the interest rate side of things and how interest rates are affecting our decisions to invest in various sectors and that type of thing. And then the credit channel, which is about the amount of credit that's available. Separating those out, I found challenging mentally. Maybe you don't, you're like, man, this guy is an idiot. Fine, fine, that's fine. But these certainly come together and reinforce each other. So the availability of credit then would help to fuel these additional malinvestments and so on. And certainly if this money flows abroad, then we would also be fueling malinvestments there. So this really would show up as an additional reason that would strengthen the effect of investment flow linkages. So we then have these four channels, interest rates and that very related credit channel as well. These wealth and income effects, this idea that I'm richer so I buy more from you, that makes you richer. So all of these three effects would tend to create this positive relationship. Booms in one places will create booms other places and I'm an optimist so I like to talk about the boom a lot. The other side of it is also true. If I'm poor, I'm going to buy less from you. If our interest rates go up, your interest rates are going to go up while I collapse together at basically the same time. So those three help to do that. But then the exchange rate effect would provide an offsetting effect. So if we have exchange rates that are varying, then that would offset this and create perhaps a large section where we have white positive but relatively weak connections. As far as exchange rate effects are offsetting the others. All right. So let's turn then to the question that we dealt with in this paper with Dr. Block and Dr. Herbner. It's after we established that it is possible, certainly in the real economy that we see for these effects to happen, is there something we can do to try to prevent this transmission of business cycles? It would be kind of nice if the business cycle is just affecting everyone else and I was protected from it. So first I want to think about this from an individual perspective and then we can apply that to the national perspective. So if I decided I'm tired, I'm just tired of the Federal Reserve and all this business cycle stuff that they're creating, I don't want to be involved with it anymore. Can I remove myself from that? I'd be very tempting to say, well no, but the answer is yes. What do I do? I pack up my backpack, go into the middle of the woods, I set up a lean to and starve to death. Oh, okay. Now if perhaps you are a better survivalist than I am, that last step would be not what happens to you. The idea is I could totally separate myself from everyone else or cut off all of these channels. Do I have to participate in financial markets? I don't have to. Do I have to use the US dollar? Well, even in the American economy, not really, I can try to barter with people or just grow my own food, that kind of thing, try to be totally self-sufficient, cut myself off from the things that are causing these. I could also, do I have to trade with people? So do I have to sell things to other people? Well, in a strict sense, no, I don't have to. I could cut off all trade. I'm just not going to trade with anybody. I'm not going to be involved with financial markets. I'm just going to live out in the woods on my own. Well, you know what happened to me, but perhaps you would be better off. I don't know. But would you be better off? Better off than me, perhaps. But we recognize, because of everything we've heard this week, I hope, we've not yet forgotten Dr. Dorvot's lecture about the importance of the division of labor and improving productivity and binding us together as a society, and this being a beneficial thing for each of us. Even those of us who are relative, actually, especially those of us who are relatively unproductive, benefit from these relationships, but even those who are inherently extremely productive can benefit from these relationships as well. So could we cut off all economic connections? It depends on how long you want to live but it's not impossible. But it seems like a substantial cost to me that you're paying in order to do that. So is there anything else we can do? And this is really where the paper with Dr. Block and Dr. Herbner kind of picked up. So the question is, what if, instead of us dealing with, I've been dealing with the case of, here we have the US of the Federal Reserve, there we have UK with the Bank of England, we have the rest of Europe, well, most of the rest of Europe have kind of this modern system of a bunch of fiat currencies. But what if instead, we manage somehow to convince one country to actually run things right, have sound money, know this fiat stuff, some market-chosen commodity money that is more stable, have a banking system that is stable, that is not inflating, that is not expanding credit and so on, might that help? Will that insulate you from these effects? Well, the conclusion we came to is will it insulate you? Sort of. Not entirely. As long as you're still connected, we'd still see some of these interest rate effects. We'd still see some of these trade effects. Now the kind of these asset market effects, I think would be somewhat less, that's offset by exchange rates. So yes, when I look at all of these, say, I don't know, if we have the New York Stock Exchange is going crazy, everything's looking great there, if I'm outside the United States and I see, all of my New York stocks are gaining in value while at the same time the dollar's plunging, I don't feel wealthier. So effects like that, so the kind of wealth that I have stored abroad, exchange rate effects can offset that. So if we have a nice sound money where our exchange rates are going to reflect the fact that these other countries are inflating, we're not going to be as fooled by those particular misvaluations. There are some effects that still very well may happen, but at the same time we do have benefits because of what exchange rates are telling us. So here I want to get into a little more detail about exactly where the distortions are going to go in this international context. So let's focus in here, specifically on first the interest rate effects and then on these kind of income effects. So interest rate effects, we already know where the distortions end up being pushed toward. We're going to be pushed toward having these early stages of production. More investment there than really would be justified because interest rates are falling. But there's also a second effect when we start adding these trade effects arising from income effects. So if the boom is originating somewhere else and part of the reason I'm experiencing a boom is that they're buying a bunch of stuff from us. Well, this is relatively easy to identify. We can watch what are the goods that we're selling to that country. This is fairly easy to pick up. In fact, it's something you can look up the data for the United States because we're obsessive about this. What industries do we trade a lot with other people? Specifically in this case, export a lot to other countries. So we can use this in order to identify where are we most in danger of making these malinvestments. And we suggest that because of the information that exchange rates are providing and allowing us to identify where it is that we have the beginnings of these expansions and because we have good data about what kind of trade we're doing with these countries. Entrepreneurs can be a bit more careful. And they can know that, yes, I could get involved with exporting to this country right now and maybe make some profit right now, but this is going to end. We understand that this boom is going to reverse itself. So I'm going to be much more cautious in investing in that particular path than I would if I didn't have that signal. And that's part of what we're really focusing on was that part of the distortion we get, and this is something that we don't often hear here when we present the Austrian business cycle theory, part of the problem is that it's messing with economic calculation. These changes in the value of money is making accounting lie to us. But by having sound money as a basis here in our sound money economy, now we have a better source we can use for economic calculation and using these other signals, we can calculate using information about where imports and exports are going and coming from. Now we have additional information we can use in order to calculate much more effectively and much more accurately, allowing us then to make wiser decisions. So that's the idea here. Now does that mean that we will be totally insulated if all we do is adopt a good gold standard or whatever the market-based money happens to be, maybe a Bitcoin standard or what have you? So we have Bitcoin standard and we have a sound banking system with no credit expansion, no business cycles, well, no, but less. And as far as I'm concerned, I would rather live in a system where we have a smaller problem rather than a larger one. So it feels like a step in the right direction. In fact, it seems like it would make perfect sense for us to do this. So because it would make perfect sense, we don't like the business cycle. I do. We don't like experiencing the business cycle. You know, there's a silver lining to every cloud and without business cycles, my career would look very different and much less enjoyable to me. But anyway, we don't like experiencing the business cycle. Even I don't like experiencing the business cycle. Actually, okay, I kind of do. Turns out my campus, whenever we have relatively cheap tuition, so when everybody's out of work, I need to go back to college. Yes. Full classes. It was great. When I first got hired there in 2010, classes were filled all the time. Now the economy is looking a little bit better. Looking a little bit better. It's not so full. Really looking for the next bust. We have to help our enrollment again. Anyway. All right. Enough of me benefiting from the business cycle. I'm a terrible person, which is probably true. Where was I going with this? I don't like the business cycle. We don't like to experience the business cycle, specifically entrepreneurs. I don't like to experience the business cycle. So what might they do? I've written elsewhere that part of the reason we experience the business cycle is that we have this variance in entrepreneurial ability. Some people are really smart and some people aren't. And in the boom, the really smart people say, we're going to get a little bit of money, but then we'll back off because we know things are going to collapse. When these people back off, suddenly that opens up resources that people who normally couldn't get resources. I like to say that the fools get to become entrepreneurs. It's not that entrepreneurs suddenly become stupid during the business cycle. The smart ones get out. And that leaves room for the less smart ones to hop in. So there's a particular economy. Well, we understand, we don't want this to happen. So we suggest that it would be possible for entrepreneurs to bind together, to form organizations in order to discourage malinvestments. To help people to make better decisions because it doesn't really benefit any of us if people are making these malinvestments. It's not good for us to watch resources get wasted. It's not something that real normal human beings like to watch happen. So the wiser entrepreneurs can take leadership roles in this economy. Can organize in order to create incentives, to prevent the foolish entrepreneurs from just hopping in because things look good. Can create information for people in order to make these better decisions because that information is actually out there and available to them. If we as economists can identify it, certainly I would expect that entrepreneurs that can actually make money from it would be able to identify this opportunity and take advantage of it. To benefit. To having good signals from having sound money and a good banking system. So let's wrap up then with the key takeaways. First we've identified that business cycles transmit through these four effects. Interest rate effects, wealth effects and credit channel. All of us giving all of those providing a positive connection. We're going to boom together, bust together. On the other hand exchange rate effects move the opposite direction. So whenever we're going across currency areas we need to worry about these exchange rate effects but if we're within a currency area, something like say within the United States, within the Eurozone or what have you, we really only see the other three effects that are going to create positive correlations. We basically see everyone in one currency area experience the business cycle at the same time. A second thing that we've identified is that identifying the source of a crisis is not necessarily easy but it gets easier if we have sound money in a good banking system. Now this is a point that I do want to expand on a little bit here. If we're doing some empirical work say say we want to explain why is it that the 2008 crisis happened. If we take the things that we said here seriously, it suggests if we want to explain the American business cycle, just looking at what the Federal Reserve is doing may not be enough. I've actually done a little bit of work on this and found that there's actually some reasonable evidence, especially when you look at exchange rates we're doing around the time, that a lot of the expansion may have been in Europe and that we in the US were experiencing part of the effects of that. Then you hear people like Ben Bernanke declaring there's a global savings glut that's causing this problem. Well, he's wrong but at the same time he's capturing something and that there is money flowing from abroad into the United States that is having an impact on our economy and fueling the boom that we were experiencing. Now the Fed was doing this as well but we were also experiencing effects from abroad. So if you want to tell the whole story we need to consider the fact that we're not isolated. North Korea is isolated but the other countries are not isolated. We need to take into account these other things that are happening and I think that that will help us when somebody points to us about this particular country their central bank was very responsible but then things just went kaput. The boom and everything collapsed. How do you explain this? Well we live in a global world except North Korea. Maybe it was the Federal Reserve was expanding here and we thought this country looks really attractive so a lot of this money was flowing abroad. They were in fact victims of expansion happening elsewhere. Keeping in mind that we live in this global world helps us to be better interpreters of history as it unfolds and kind of the last point would be that the same proposals that we as Austrians would typically make regarding domestic monetary policy what it should look like sound money and sound banking system this isn't just something that's good if everybody in the world does it we do not need everyone in the world to adopt this system for it to actually be beneficial will be more beneficial if they do that's how it is with most good things but it is still beneficial for us especially if we can just convince one little country like in Steen to make good choices that will be beneficial to them and the rest of the world can see that and continue to follow suit. Thank you very much.