8 ms·
How is that supposed to work? I can understand if this were a normal cyclical pullback, but this isn't a normal times; there is actual economic destruction wrou
by monetaryvirus 6y ago
How is that supposed to work? I can understand if this were a normal cyclical pullback, but this isn't a normal times; there is actual economic destruction wrought by a real (non-monetary) shock to supply. In order to believe this helps, you have to imagine it happening by this mechanism:
"Can you lend to our business that's not allowed to operate and probably won't pay you back?"
'lol no. ... wait, I just got off the phone with our credit line. We can borrow at 3% instead of 3.25%. What's your business model again?'
- Eliezer 6y agoUsually, destroying some of the supply, but holding the flow of money fixed, means that the remaining items will be bid up. If instead prices are falling, it means that the secondary financial effects of the real shock are exceeding the impact of the real shock itself. If the flow of money is slowing down, one should create more money to avoid worsening the real shock through financial reverberations.
- monetaryvirus 6y agoIf there are actual, viable ventures right now, given the new conditions, then their lenders' investment probably doesn't hinge on whether the Fed is slightly more lose with credit than the ultra-loose policy it's had for the past year.