The velocity of money, not exactly the money supply necessarily is most crucial at this juncture. Now it is GDP=V x M, moving forward Gross Domestic Product=Velocity times Money. Going forward the Fed should signal to the banking system to loosen the tightness in credit. This may seem ridiculous, however, full documentation of earned income to pay a loan back and other resourceful qualitative research on whom the loans are being made to rather than FICO scores alone, would be extremely helpful in his wind-down. Perhaps: GDP=V x C; C meaning more credit available. Moreover, if there is responsible borrowing rules this time-(post Greenspan), it would be immeasurable. 20% down, and the old FICO score rules. Additionally, proof of income that the borrower is responsible needs to be met. The sheer quantity of money is not necessarily the issue, yet the velocity can make up the difference; if QE3 is removed from the system. Circulate at a high-rate, (like now), the money supply, (M2), that is "already" in the system would allow for this expansion to continue. Fear of reckless lending is not realistic in the aftermath of the credit crisis. If the Federal Reserve System instituted quotas for all banking institutions, it may have a minimal impact in reality- and in the psychology of the consumer whether it is a corporation or individual.
Posted on: Mon, 08 Jul 2013 03:16:45 +0000
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