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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (257540)	6/29/2010 11:27:17 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

I define a Credit Bubble process as an increase in the ratio of debt to income. Once you start the credit bubble process, when ever the growth of credit slows, your economy will experience deleveraging and an associated decline in income. This is because a portion of your current income is being borrowed. At this point you have a choice. You can either increase leverage in the banking system, which reduces interest rates, or you can accept your deleveraging and recession/depression and interest rates will remain within a normal parameter over time. So if you're desirous of creating a credit bubble, it's very easy. By permitting increased bank leverage there's an infinite supply of money which can create a corresponding price and supply anywhere along the demand curve. You either continue to slide further down the price curve or take your recession. Greenspan claims to have found the results of his step-by-step actions a mysterious feature of the free market. Maybe he really did fool himself. The worst part of eliminating recessions is that market participants receive incorrect information and misprice risk, which makes the resulting economic depression even more devastating. As the charts show, another side-effect is the increased debt impairs economic growth. The Reaganistas billed debt and a growth enabler. How wrong they were. .