[fbonetti]

The thrust of ABC is that artificially cheap credit, induced by the central bank, causes malinvestment. Interest rates are signals of risk. When you artificially lower interest rates, people take on more debt than they normally would and invest in capital improvements that only make sense in a low interest rate environment. When the central bank attempts to raise those interest rates to the natural level, or there’s a large change in consumer preferences that causes a drop in aggregate demand, all of those over leveraged business fail en masse, which results in layoffs, reduced production, and falling asset prices. It has nothing to do with inventory.

[tomrod]

It does. What do you do with the capital malinvestment? Build up inventory consumers don't want or aren't paying enough for, resulting in layoffs, lost revenue, etc.

The central bank is not the only interest rate driver, as the last 5 years have shown, especially for rates of long tenure bonds. But, regardless of drivers, malinvestment certainly does occur.