Commodity Trade Mantra

Posts Tagged ‘Bank Credit’

Temporary Stimulus Policies turn Permanent; Credit & Debt Expansion is Here to Stay

Given the extraordinary failure of both Keynesian stimulus & private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep expanding the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

Equity Markets and the Credit Contraction

Macroeconomic policy is centred on ensuring that bank credit grows continually, so since the Lehman crisis any tendency for bank credit to contract has been offset by central banks creating money. The bald fact that equity markets have now lost upside momentum and appear to be at risk of a self-feeding collapse will be viewed by central bankers with increasing alarm.

Deflation comes Knocking at the Door

The economic establishment associates deflation, or falling prices, with lack of demand. If it is allowed to continue, deflation will lead to business failures & ultimately bank insolvencies due to contraction of bank credit. Therefore, the reasoning goes, demand and consumer confidence must be stimulated to ensure this doesn’t happen.

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