'ArtM72' pid='38718' datel Wrote:How does this interpret when looking at the possibility that the money supply itself in 2008 was the issue and not those goods and services which (at least in my ignorance) are considered in the traditional economic models? A rapid drop in available funds (loss of supply) didn't result in an increase in demand so much as it created a further loss of supply as the credit markets went on lock down. Not until liquidity was restored to the market (which has taken years as banks couldn't deleverage overnight) did demand resume as evidenced by the regrowth of the economy. A pretty clear case of shortage begetting shortage. Bless the Fed and those that have been in the position to actively support its actions.
Yes, there was a 'credit crunch', yes, there was and it was having a real impact. Banks weren't even lending other banks anymore, for a while, the whole credit system screeched to a grinding halt. After the Fed had restored some semblance of order in the credit markets, credit was still considerably tighter than before 2008, as banks were amongst those which wanted to repair their balance sheets and delever.
And yes, that did have negative effect on the economy, there are always parties dependent on credit, and when they couldn't roll-over old credit lines, they had to tighten their belts (or go out of business altogether or rescind their house, stuff like that).
But credit demand was also weak, exactly because households, hit by a $9 trillion decline in house values and a sudden decline in employment, tightened their belts considerably (which worsened the recession, needless to say).
All this points to a demand side problem as the main culprit, not a supply side problem, needless to say.