Economic Downturn ???

Message 63 of 4919

What did we learn from the savings and loan scandal? Other than Charles Keating did less than five years for the disappearance of a half a trillion dollars. The financial institutions took the tax payers for 144 billion? They learned they can get away with it and this time it was close to a trillion and a lot of that went to bonuses of the execs of those companies too big to fail. This is a free market?
This is nothing short treason. Those institutions made loans they knew could never be paid back. Then they bundled those mortgages and sold them on the international markets. To hedge their bets they gave three to five years before the piper was to be paid giving them ample time to sell off and get clear of the consequences.
We have been had folks some of us have been double whammy'd some folks lost their homes and they pay the taxes that went to the bailouts. Unfortunately our children and grandchildren will be paying this debt for decades to come.
They took the american dream and turned it into the worst nightmare imaginable. Our economic health is founded and grounded in the housing market.
They, the wall street crowd, knew it, and did it anyway because they are the largest lobby in the country and too big to fail...
Its premeditated treason folks and we've been had....like the S&L scandal 99% of the politicians are bought and paid for. Geko said it "Greed is Good"

posted by mevysen

Replies 41 - 43 of 43

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amen to that Bunnies.

posted by galivantstom
25 days ago

Back to the velocity of money concept. If there is more money involved in speeding up the exchanges why then have the money lenders slowed down the transactions? They are holding the money. Why? What is their objective?

posted by havemercy
24 days ago

Krugman's take on the velocity of money:

view link

Here’s my problem. Underlying the focus on nominal demand or GDP is some notion that there’s a quantity equation:

MV = PY

where M is the money supply, V the velocity of money, P the price level, Y real GDP. And of course this always holds true, by definition. But the temptation is to take it as a causal relationship — to say that real GDP fell because nominal GDP fell, and that this in turn was caused by either a fall in M or a fall in V; and furthermore that any such decline is a failure of monetary policy, because the central bank should have either prevented the fall in M or increased M enough to offset the fall in V.

A dozen years ago I would probably have agreed. But way back in 1998 I tried to think my way through Japan’s situation with a little intertemporal model, and surprised myself with the conclusion: under liquidity-trap conditions, it doesn’t matter at all what happens to M.

In that model, prices are assumed sticky in the short run, so P is predetermined. What, then, determines Y? Well, it’s a real thing — as opposed to a nominal thing. In the model it’s actually tied down by an Euler condition, by future consumption and the real interest rate (which is stuck thanks to the zero lower bound). Monetary policy has no traction at all against the right hand side of the equation.

Now, the equation still holds. But all that tells us is that any changes in the money supply are offset one for one by changes in velocity. Focusing on nominal spending makes you think that low nominal spending is the problem, a problem with a monetary solution; but actually it’s the symptom, and monetary policy doesn’t matter (unless it can affect expected future inflation, but that’s another story).

Actually, in the real world it’s even worse, because central banks don’t control the money supply, they only control the monetary base. Broad aggregates like M2 may well be unaffected by what the central bank does: increase the monetary base, and all that happens is an offsetting fall in the money multiplier.

The bottom line is that when you’re in a liquidity trap, focusing on nominal magnitudes doesn’t clarify matters; it obscures them.