On malinvestment from Seeking Alpha:
“Malinvestment is one of the most useful concepts in Austrian economics.
As Wikipedia puts it, malinvestment refers to
“investments of firms being badly allocated due to what they assert to be an artificially low cost of credit and an unsustainable increase in money supply, often blamed on a central bank.”
Here is a typical chain of events (as laid out by yours truly):
1) Stimulative monetary policy creates falsely optimistic market signals.
2) Private investment firms act aggressively on these false signals.
3) As a result, the private sector “malinvests,” i.e. allocates badly.
4) Capacity is increased prematurely, supply ramped up excessively, etc.
5) When the stimulus wears off, the economy is in worse shape than before.
6) Overhang of excess debt, capacity, supply etc. serves as a dead weight.
7) Struggling to ignite growth, the authorities order more stimulus.
8) A speculative bubble ignites instead, furthering the malinvestment.
9) Yet more excess capacity, debt, supply etc. is accumulated.
10) The additional stimulus wears off…
11) Repeat the process until you get full-on economic collapse.”