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Unread 10-18-2008, 01:48 PM
 
Location: WA
3,859 posts, read 11,626,959 times
Reputation: 2568
Default The cause of the melt down and the wrong medicine…

Great piece from a real expert…

Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job."

The Weekend Interview - WSJ.com
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Unread 04-16-2014, 12:15 PM
 
192 posts, read 23,810 times
Reputation: 56
"So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is 'the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.'" Nicely put. (From the link)

That was then but the issue remains. Well the Fed is buying up the bad debt. But the issue of insolvent borrowers remains. Higher wages create unleveraged income. unleveraged income gets you more debt at low risk.

A much higher minimum wage will create an environment that has the built in expectation of the repayment of debt. wages will be going up so all debts are good. No defaults. No missed payments.

This addresses the underlying issue that drove the slowdown. The way out of the liquidity trap.
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Unread 04-16-2014, 02:05 PM
Zot
Status: "Doing my time on planet earth" (set 10 hours ago)
 
Location: 3rd rock from a nearby star
360 posts, read 66,683 times
Reputation: 489
At the moment, the U.S. economy is the best looking horse in the glue factory. When that changes, our experience is likely not going to be positive.
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Unread 04-17-2014, 01:46 PM
 
192 posts, read 23,810 times
Reputation: 56
Quote:
Originally Posted by Zot View Post
At the moment, the U.S. economy is the best looking horse in the glue factory. When that changes, our experience is likely not going to be positive.
But it will be educational.
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