tsuomela + interest-rates   4

Auerback: The Real Reason Banks Aren’t Lending « naked capitalism
More striking, private credit growth seemingly had nothing to do with the takeoff of the economy. Industrial production, off the 1932 low, doubled by 1935. By contrast, bank credit to the private sector fell until the middle of 1935. Because of the collapse in nominal income during the depression, the U.S. private sector was more indebted than ever in the Depression lows. Yet somehow it took off and sustained its takeoff with no growth in private credit whatsoever. The 14% average annual increase in nominal GDP from early 1932 to 1935 resulted in huge private deleveraging, largely as a consequence of aggressive fiscal stimulus.
economics  history  great-depression  recession  federal-reserve  interest-rates  debt 
august 2010 by tsuomela
interfluidity » The stickiest price
Among the stickiest prices, of course, is the wage rate. In practice, from the mid 1980s right up through 2008, the one thing modern central bankers absolutely positively refused to tolerate was “inflation” of wages. God forbid there be an upcreep in unit labor costs, implying that a shift in the income share away from capital and towards workers. Central banks jack up interest rates right away, because what if the change in relative prices is a mistake? We wouldn’t want that to stick, oh no no no no no. But when the capital’s share of income shifted skyward while deunionization and globalization sapped worker bargaining power? Well, we learned the meaning of an asymmetric policy response.
federal-reserve  banking  interest-rates  wages  monetary-policy  jobs  inflation 
july 2010 by tsuomela

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