Summary
http://www.bloomberg.com/apps/news?pid=20601082&sid=avSjOB31D7is&refer=canada
Stephen Harper said the worsening slump requires the use of everything necessary to spark growth, including possible esteps by the bank of canada to inject money into the economy. Central bank is preparing to use policies beyond interest rates moves as borrowing costs approach zero. This includes buying securities and creating money to pay for them in order to expand lending. This strategy carries the risk of faster inflation.
Connections
This chapter is about money and the canadian banking system. Banks creating money without securities or fiat money is made. According to Greshams Law, bad money forces good money out of circulation. This is partly the cause of the slump and the bad money must be renwewed into good money. The central bank's interest rates moves lower as borrowing costs approach zero. The Bank rate of canada is already low and chartered banks still dont have enough people borrowing money. By creating money, there are indivuduals who are willing to buy money and there are those who are willing to supply money. But demand for money is lower, the government has to create some money to put water on the house on fire. But the water may flood the basement of the house. The risk of faster inflation is a risk the government is willing to pay. It is possible for further economic growth if the bank is able to expand the money supply. BWhen teh bankregulates the money supply in order to influcnce the economic conditions, it is referred to as the monetary policy.
Reflection
I think this is a necessary step for the government in order for growth of the country, if not, a further slump would happen. No risk means no action and we cannot tell the future of the economy so the governemnts decision in doing this to create securities by creating money is a step on using the tools such as the monetary policy to include changes in the bank rate and open market operations.
Tuesday, March 31, 2009
Sunday, March 8, 2009
Wanted: Strong support for Aggregate demand
Summary
http://news.bn.gs/article.php?story=20090211193203973
The decline in GDP in the fourth quarter was less than expected this year thanks to an increase in inventory investment. The final sales fell at a rate of 5.0%, it was the largest decline since the second quarter of 1980. Many companies fell at a high pace and this created a big drag on GDP growth this quarter. The employment data from Janujary provided evidence that there is furthur deterioration from the economy. the employment in the house hold survey declined by 1.2 million. the unemployment rate fell from 7.2 % - 7.6%. Household debt has risen from 65% to 135% after tax income. Consumer spending has fallen from 10% disposable income to practically nothing. Orders for capital goods indicate that more declines lie ahead. Mortgage rates have backed up again and applications for lones to purchase homes are falling. The only sector of domestic final demand continuing to grow is government spending. The economy needs strong support for aggregate demand to keep from going crazy ASAP. Revenues will rise back up if the economy recovers. The stimulus packages are temporary but the substancial deficit remaining will have to be dealt with.
Connections
This article talks about how the economy is basically dying. The equilibrium GDP has gone down by by 3.8% at an annual rate. The Aggregate demand for consumption is needed. Disposable income, the income that remains in the household is now practically nothing. because interest rates are killing the mortgage owners. This also reduces spending in the economy because interest rates are high. After-tax incomes remaining reduces even more consumer spending This also triggers 'dissaving'. The unemployment rate going higher makes it so that people have less income or spending is greater than disposable income. Over this period of time, the Aggregate supply is less because less companies are able to increase their total production of goods and services available in the economy over this period of time. The paradox of thrift, the final result, is that since there is an increase of the level of savings in the economy, it will lead to a lower level of income and lower the levels of saving.
Reflection
Wow, there are so many factors considered in the economy dying down. The economy really needs strong support for aggregate demand. The government should get this to the economy ASAP. I believe this has happend because there are leakages from the circular flow of money from the business cycle and that the leakages exceeds the additions.
By the way, here's an interesting video on how the crisis of credit started
http://vimeo.com/3261363?hd=1
http://news.bn.gs/article.php?story=20090211193203973
The decline in GDP in the fourth quarter was less than expected this year thanks to an increase in inventory investment. The final sales fell at a rate of 5.0%, it was the largest decline since the second quarter of 1980. Many companies fell at a high pace and this created a big drag on GDP growth this quarter. The employment data from Janujary provided evidence that there is furthur deterioration from the economy. the employment in the house hold survey declined by 1.2 million. the unemployment rate fell from 7.2 % - 7.6%. Household debt has risen from 65% to 135% after tax income. Consumer spending has fallen from 10% disposable income to practically nothing. Orders for capital goods indicate that more declines lie ahead. Mortgage rates have backed up again and applications for lones to purchase homes are falling. The only sector of domestic final demand continuing to grow is government spending. The economy needs strong support for aggregate demand to keep from going crazy ASAP. Revenues will rise back up if the economy recovers. The stimulus packages are temporary but the substancial deficit remaining will have to be dealt with.
Connections
This article talks about how the economy is basically dying. The equilibrium GDP has gone down by by 3.8% at an annual rate. The Aggregate demand for consumption is needed. Disposable income, the income that remains in the household is now practically nothing. because interest rates are killing the mortgage owners. This also reduces spending in the economy because interest rates are high. After-tax incomes remaining reduces even more consumer spending This also triggers 'dissaving'. The unemployment rate going higher makes it so that people have less income or spending is greater than disposable income. Over this period of time, the Aggregate supply is less because less companies are able to increase their total production of goods and services available in the economy over this period of time. The paradox of thrift, the final result, is that since there is an increase of the level of savings in the economy, it will lead to a lower level of income and lower the levels of saving.
Reflection
Wow, there are so many factors considered in the economy dying down. The economy really needs strong support for aggregate demand. The government should get this to the economy ASAP. I believe this has happend because there are leakages from the circular flow of money from the business cycle and that the leakages exceeds the additions.
By the way, here's an interesting video on how the crisis of credit started
http://vimeo.com/3261363?hd=1
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