The interest rate plays a fundamental role in coordinating the time preferences of individuals and in orienting the structure of capital. However, our current economic system relies heavily on manipulating the price of money and capital. This manipulation takes various forms: arbitrary increases in the money supply, manipulation of key interest rates and quantitative easing. According to Austrian economics, these interventions disrupt the equilibrium between savings and consumption, misalign the structure of capital and create intertemporal incoordination throughout the market.

The essence of a central bank's role lies in regulating money issuance via key interest rates. These rates directly influence the interest rates charged by commercial banks on loans. In a fractional reserve system, banks create money every time they lend. As Saifedean Ammous explains, banks allow their customers to access their money at any time, even though a large percentage has been issued in the form of loans. This system allows the money supply to multiply far beyond the real savings available.

When key interest rates are artificially low, as they were in Europe during the 2010s, commercial banks grant loans at extremely low rates. Entrepreneurs thus receive a signal of high capital availability, which would normally indicate savings destined to be transformed into future consumption. However, this interpretation is misleading: consumption remains high, and real savings do not exist.

Entrepreneurs therefore engage in production detours that do not correspond to consumers' real time preferences. The result is what Austrian economists call a false economic boom: unviable projects are financed, massive investments are made in sectors that do not correspond to real demand. This phenomenon lies at the heart of the Austrian business cycle theory developed by Ludwig von Mises and Friedrich Hayek.

Quantitative easing is a less restrictive technique than manipulating key interest rates. The central bank buys financial assets on a massive scale, essentially government bonds, using money created for the purpose. This money ends up in the pockets of bond sellers: commercial banks and investment funds on the secondary market, or governments on the primary market.

In Europe, these injections of liquidity enable bond sellers to increase their cash holdings, deleverage or buy financial securities. These additional purchases once again increase the money supply, creating a cascading expansion that is difficult to control. In the United States, the Federal Reserve can buy public debt securities directly on the primary market, thus financing the public deficit with newly created money. The stated aim is to stimulate the economy, but this artificial stimulation creates the conditions for a future crisis by disconnecting price signals from economic reality.

Direct lending is another form of monetary manipulation. The central bank grants loans directly to institutions and banks, without recourse to a commercial bank. This last-resort solution gives players facing a liquidity shortage direct access to freshly printed banknotes that would normally be denied to them.

In particular, the U.S. Federal Reserve strategically lowers borrowing rates during short periods known as discount windows. This approach was adopted in 2020-2021, when rates were cut from 2% to 0.25%.

From the Austrian point of view, all three mechanisms produce the same effect: creating money ex nihilo and distorting the price signals essential to the market. Entrepreneurs receive false signals about available savings, engage in unviable projects, and the structure of capital becomes misaligned with real consumer preferences. This systemic distortion creates the conditions for an inevitable economic crisis.