Food for Thought! Some basic relations of macroeconomics that even teaching staff of orthodox persuasion fail to comprehend. 1. Spending stimulus induced by skeptical expectations given surprise, financed by net credit and public funds, subject to the marginal propensity to spend out of income, generate income flows (vertical process). This spending stimulus consists of a) investment from private economic units bounded by their marginal credit worthiness and credit rationing that is based on marginal capital adequacy of financial units, fragmentation and segmentation of financial structure; b) net fiscal spending bounded by monetary policy OMO facilitation and their marginal credibility with financial markets; c) net export balance bounded by export credit extension. 2. Income flows generate saving flows subject to the marginal propensity to save out of income. 3. The accumulation of saving funds, net financial public assets and private stocks of titles of financial securities is allocated among wealth portfolios (horizontal process) subject to the marginal liquidity preference and relative asset preferences that determine the structure of interest rates and net equity value of wealth portfolios which is further enhanced by higher duration and intermediation spreads of portfolios. 4. The accumulation of wealth titles imposes increasing administration/organization costs of scarce resources and increasing danger exposure from higher complexity, duration and inter-mediation spread of portfolios and this causes a curvature burden that reduces wealth equity value and asset prices. 5. The reduction of wealth equity value and asset prices raises debt leverage and has a negative feedback upon spending stimulus and private credit creation.
Posted on: Tue, 15 Apr 2014 08:00:40 +0000
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