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BC and JBH Responses

 
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PostPosted: Fri Jul 10, 2015 4:01 pm    Post subject: BC and JBH Responses Reply with quote

PeakTrader:

Orthodox theory says sustainable growth is optimal growth.

It has been shown, monetary and fiscal policies help smooth-out business cycles.

For example, when the economy slows too much, taxes should be cut, and when the economy speeds-up too much, taxes should be raised.

Debt, or liabilities, while ignoring assets doesn’t mean much. Chart:

http://www.advisorperspectives.com/dshort/charts/index.html?Z1/Real-TNWBSHNO-with-regression.gif

You can praise the Fed later.

****

And, the amount of debt is unimportant.

What’s important is can you afford the debt.

(And, most people live month-to-month). Chart:

https://research.stlouisfed.org/fred2/series/TDSP

****

BC and JBH,

If money is lent to people who can’t afford to pay it back, then it’s a problem.

And, even people who borrow money and can afford to pay it back can lose their job or income.

That’s why appropriate monetary and fiscal policies, along with other appropriate government policies, are needed to smooth-out business cycles.

Otherwise, the economic booms and busts (not to be confused with asset booms and busts) would be bigger, like in the pre-Fed economy.

I stated before, if Congress raised housing lending standards in 2004, when the Fed began the tightening cycle, the financial crisis may have been averted, and a mild recession may have been achieved.

****

BC,

It’s “too simplistic,” because you aren’t aware of the implications, and interrelationships, of my statements, which are based on “mainstream,” i.e. neoclassical, economics.

The Fed works in the future economy, because of lags in the adjustment process.

When you say “the market,” you should note there are many markets in a large and diversified economy.

Commercial banks provide valuable services. Their input costs are low. There are other industries with much greater input or production costs that earn higher profit margins.

Although, the number of U.S. commercial banks has declined over the past few decades, the U.S. still has many more banks than most other countries. So, it’s a very competitive industry.

On a personal note, I went to one bank (Wells Fargo) and got a deal for a loan. Then, I went to another bank (Bank of America) and showed them the deal. They immediately gave me a better deal.

And, it should be noted, the 2001-07 expansion was on top of strong growth from 1982-00, a mild recession in 2001, and increasingly larger trade deficits, in the 2000s (which subtracted from domestic growth). Moreover, oil prices had a steep gradual rise from $10 a barrel in 1999, to $30 in 2003, $70 in 2006, and $140 in 2008.

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BC Video of Economist (Minsky model):

http://www.debtdeflation.com/blogs/2015/07/09/will-we-crash-again-ftalphaville-presentation/

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