The role of interest rates allocating resources is critical to the trade cycle.  Booms and busts begin when interest is manipulated.  Lowering the rate might stimulate the economy in the short run.  This will give the appearance of profitability.  However, the manipulation misallocated resources.   Projects that wouldn’t have been undertaken under natural conditions are taken under the manipulated rates.  An adjustment will happen eventually.

The upward movement of certain projects can’t continue.  The upward trajectory can continue if the public thinks the rise of prices will stop.  Panic sets in when they see they will not.  Unjustified investments will come to a halt.  This will cause the end of the boom.  At most, the public will realize the currency is losing value and spend it while they can.  This is just a crack up boom and can’t last either.

Interest rates will move to their natural condition, and this will put a stop to the unhealthy boom.  The longer this goes on, the worse it will be.  The boom might feel good, but it’s the fictitious growth that’s unhealthy.  The bust is a healthy reorganization of resources.  The unhealthy portion—the boom—was by design.  This is about bamboozling the public into voting for a particular candidate.

The market is a profit and loss economy.  Capitalism is profits and losses.  A good entrepreneur will earn profits if he forecasts demand accurately.  A poor entrepreneur will suffer losses, and go out of business if he doesn’t make adjustments.  The poor entrepreneur will be replaced by another.  The process will continue.  Manipulation of interest rates doesn’t favor the excellent forecaster, it favors those that are politically connected.

The trade cycle doesn’t serve the people.  It serves the people in power and those politically connected.  Capitalism serves the people.  The banking industry wouldn’t be able to expand like it does without a legal cartel.  The trade cycle doesn’t exist under capitalism.  Of course, there are mistakes and fraud can happen.  However, small disruptions are nothing like the booms and busts we see under central banking.

Reference

The Austrian Theory of the Trade Cycle and Other Essays; edited by Richard M. Ebeling