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Again, maybe dumb question, but what sense is "every dollar leveraged 10x"? Also in 2008, it looks like money velocity decreased during the recession (as it's
by tbabb 5y ago
Again, maybe dumb question, but what sense is "every dollar leveraged 10x"?
Also in 2008, it looks like money velocity decreased during the recession (as it's been doing almost monotonically since the mid 90s). It looks like after the crash, velocity increased slightly, and indeed the supply contracted just slightly at basically the exact same time.
- nightski 5y agoFractional reserve banking.
- tbabb 5y agoIf a dollar is defaulted, I'm not sure it's accurate to say that one dollar is destroyed (as opposed to moved), let alone ten? If the borrower defaults, it is the same as the borrower owing the depositor $1 (the bank is in a sense acting like a risk-absorbing and expertise-adding middleman between the depositor and the borrower). And doesn't whether that dollar is "destroyed" depend on why the borrower can't pay it? If it's because someone else got ≥ $1 richer off the borrower, then it seems to me like the supply of money in the economy as a whole hasn't actually gone down.