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While previous credit levels were too high, a reduction in credit means a reduction and consumption and hence demand. Overall, this further shrinks the economy,
by dmitri1981 17y ago
While previous credit levels were too high, a reduction in credit means a reduction and consumption and hence demand. Overall, this further shrinks the economy, reducing income and thus savings.
- martincmartin 17y agoAh, but in the current climate, where everybody is worried about banks failing, another big bank failure could freak everyone out and cause another catastrophe. So perhaps propping up the banks increases sentiment more than increasing consumption in 2009?
- gnaritas 17y agoIf a sustainable level of consumption can't support the number of banks currently in operation, then some of them need to fail.
- gnaritas 17y agoGood. The demand was being supported by artificial means and wasn't sustainable. It's bringing the economy down to a sustainable level. Better a smaller sustainable economy than an artificial one that bubbles and crashes routinely because of debt based consumption.
- DannoHung 17y agoIt was being supported by expansion, which I wouldn't necessarily categorize as artificial or unsustainable, more... incredibly fragile.