3 ms·
The "money" in the economy is actually mostly credit, and during a recession it contracts What arguments are there to support the theory that a recession (
by TekMol 5y ago
The "money" in the economy is actually mostly credit,
and during a recession it contracts
What arguments are there to support the theory that a recession (decline in overall productivity) causes the amount of credit in the system to shrink?
From a look at the M2 and M3 money supply, there never seems to have been a contraction:
https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S
That seems to be a pretty strong argument against the money contraction theory.
- analyst74 5y agoFractional reserve. Also, recession causes people to spend less and save more. Further reducing demand.
- atwebb 5y agoAnother example (I am no expert) is a margin call. If I am purchasing using $100k of margin and my collateral drops to the point that I no longer have the margin. That 100k is gone. It wasn't a real 100k in the first place, it was leveraged and backed by a volatile asset.