tag:blogger.com,1999:blog-7820485130017459619.post9106542577498293229..comments2023-10-24T01:46:47.151-07:00Comments on CynicusEconomicus: Recessions are Hard to Predict?Unknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-7820485130017459619.post-23410984959116476582008-07-27T18:18:00.000-07:002008-07-27T18:18:00.000-07:00Hi MarkI'm still a bit baffled, and this section s...Hi Mark<BR/><BR/>I'm still a bit baffled, and this section seems to fit quite neatly with my question on fractional reserve banking. If money is created only when someone takes out a loan, then by definition isn't all economic growth really a growth in debt? And as the debt is taken on in order to spend the money, isn't that growth going to be driven, in large part, by consumer spending?<BR/><BR/>I was thinking of this when I asked my earlier question. If I understand the UK's 'FRB' system correctly, it appears that someone, at some point, decided that the best way to regulate the growth of the economy is to base it on the man-in-the-street's judgement, as measured by his requests for loans. <BR/><BR/>It seems like a strategy designed to lead to disaster: the man-in-the-street borrows money for a variety of reasons, most of which are quite stupid. He may have a poor, insecure job and but he believes it is necessary to have a plasma television in every room. He doesn't worry too much about how he will pay off the loan; something will turn up. It is obvious that biggest borrowers are often the most stupid people. Businessmen are often just as stupid, taking on huge debts to pursue very fashionable - which bamboozles the lenders - but very poor, ideas e.g. the dotcom bubble.<BR/><BR/>And the opposite can happen, in that people stop borrowing and spending money based on equally spurious grounds.<BR/><BR/>The central bank has a blunt tool in its control of interest rates, but as we are seeing now, conflicting requirements result in it being impossible to set the 'right' level. <BR/><BR/>I am aware that all the above is based on 'a little knowledge' and so is probably way off the mark, but is it really possible that the apparent growth of the economy is regulated by the most stupid people in society? If so, there's no wonder it's unstable!Anonymousnoreply@blogger.com