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Politics : Formerly About Advanced Micro Devices
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To: Joe NYC who wrote (153329)10/15/2002 8:47:28 AM
From: Dan3  Read Replies (1) of 1585256
 
Re: For example, you put your money in the bank, the bank lends the money to someone (or a more sophisticated version of you buying into a mutual fund which buys an MBS) to buy a new home, which will employ architect, construction people, people who make appliances, of course lawyers, etc all of whom will use their income for other consumption (and some investments). The person who got the mortgage will get the house (which he otherwise could not afford) and he will live in the house tomorrow, which itself is consumption.

The problem arises when there is insufficient demand for loans from those whom the banks feel can pay back the loans. That's a liquidity trap, Japan's in one now, and we are flirting with one.
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