MISES

Central-bank monetary inflation and credit expansion cause a boom-bust cycle by distorting prices and profitability. They incite entrepreneurs across the economy to malinvestments and misallocations. With- out artificial credit-expansion, cronyism would result in higher profits for the cronies at the expense of lower profits or greater losses for the non-cronies. But it would not produce a business cycle.

I think it is important to keep in mind how fast credit can expand and then contract. Japan had numerous periods in the 90's where credit would expand and the economy would briefly recover, but it never was really able to get things back on track. The US is vulernable to any contraction in credit. It is impossible for credit to be extended at over ten percent a year forever. It will contract and there will be a very unpleasant credit event with consequences that no one can predict. Financial participants are still searching for profits via lending. Thats all we can do in a 70 percent gdp consumption economy. Keep people spending at all costs. The problem is that demand is softening for the largest loans. Residential and auto loans. A new source of lending must be found.