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Paying down debts promotes long term growth though capital acquisition. Someone invested that money in a loan, they now have that money back plus a little inte
by onemoreact 15y ago
Paying down debts promotes long term growth though capital acquisition. Someone invested that money in a loan, they now have that money back plus a little interest, they are now going to look for someone else to loan that money to or do a direct investment.
- bryanlarsen 15y agoThat would be true if banks weren't reducing their ratios at the same time. Because their percentage of bad debts is going up, they have to reduce their lending to keep their bad debt to capital ratio at the same level. Even worse, their trying to improve their ratios because they now realize they had let them get out of hand during the boom.
- onemoreact 15y agoThe 'classic' great depression view of the monetary system is horribly outdated in large part because most people don't get their money by farming land, but the lending market has also shifted. Secularization, Car Loans and Credit Cards have greatly shifted the banks roles in the overall lending market.
- nhaehnle 15y agoYou are either ignoring banks or the fact that banks simply create money when they extend a loan. Disregarding that particular issue: Sure, banks are always looking for people to loan money to, because that's how they make a profit. But what if they simply don't find many people they can give loans to? That is still the problem, and that is an important reason why direct spending has a higher multiplier than tax cuts. People are still repairing their balance sheets, which means there are simply fewer people who are creditworthy and willing to borrow money.