> ... Increasing spending beyond the $11.6 trillion already pledged may also > be unnecessary because higher stocks will help boost profits and make > loans easier to come by, Greenspan said. ... > > “When stock prices go up, the market value of common stock or of > equity in banks and other financial institutions rises,” he said. “And > the market value of liabilities is importantly affected by the size of > the equity market value cushion on banks’ balance sheets.”
the theory is has two parts: (1) higher equity prices -> (rich) people have more wealth -> they spend more, stimulating aggregate demand -> more profits are realized, as businesses are able to utilize their capital equipment and other overhead more completely. (2) higher bank equity prices --> more net worth, so given a constant leverage ratio (bank capital/assets), there are more loans (which are bank assets). Both of these are bogus, since they are hanging the economy's hat on basically a speculative surge (and even a bubble). Bull markets regularly become bear markets and thus can't be relied upon. AG should be called the "Mystro"[*], which fits with his ultra-individualistic (if somewhat pragmatic) Ayn Randism. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. [*] This is the name of the program that starts up every time our cable TV shuts down and we have to reboot it. (This happens a lot.) _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
