A 100% reserve requirement would stagnate the economy? Au contraire

[washunut]

I suppose it could happen, but is it likely? I don't think so. Once again, the model is Japan, whose currency represents 11% of the value of IMF Special Drawing Rights. So while the yen is a reserve currency, there are viable alternatives--like the dollar--that are used more extensively to settle international trade. As we've seen deflation flow more than ebb in Japan over the years, there has been a corresponding unwinding of the Carry Trade in which investors borrowed heavily in (low interest) yen. As deflation took hold, these borrowers were forced to repurchase yen and settle their debt accounts (since the real interest rate was rising). This demand for yen caused the value of the currency to rise against other currencies and put additional pressure on the borrowers to purchase the Japanese currency. In that sense, an international borrower is no different from a domestic one: In a deflation, the moron is the guy who owes money, while the genius is the lender. Demand for borrowing is low, and interest rates stay muted.

I am not sure that Japan was a great analogy. First no one wants to follow in the sorry steps of a nation that has been mired in a morass for two decades. Next as a percent of their economy, they are a large net exportrt so they generate funds that way. Next as you indicate most of the debt is held by individuals.

A better example may be the U.K. or some of the weaker EU nations. We are seeing the first real signs of a crack in the developed world's use of debt. What will the end game be, not sure. If I knew for sure I would be writing this from some exotic beach.

 

[phattonez]

Basic micro dude. In the short run, if your revenue equals or exceeds variable cost, then a firm does not need to close. Firms do not close based on lack of profitability, but on a marginal revenue/marginal cost basis. I have nothing against you, however i will continue to press you to actually learn the subject you so deeply desire to discuss/debate. You were getting nowhere.

So in other words, you just wanted me to state it more clearly in a way that you like. Got it, this isn't really a point worth arguing then.

Then why make comments about expansion and over capacity?

I was merely pointing out the flaw in looking at aggregate demand and the fact that raising aggregate demand does not help the person who could expand his operations. He can only expand when savings increases and failing businesses liquidate so that he can get access to more capital goods.

Cyclical pressure explodes onto the scene when income expectations go sour. This seems very straight forward as income is the primary driver for consumer demand.

Again you're stuck looking at aggregates. Demand does not fall in all fields during recessions. In average it falls, but you don't see it fall everywhere.

 

[Esuric]

Cyclical pressure explodes onto the scene when income expectations go sour. This seems very straight forward as income is the primary driver for consumer demand.

Incorrect. Consumer demand for final goods and services is not, in anyway, connected to cyclical pressures, nor does it affect employment rates. The demand for commodities is not the demand for labor.

 

[Kushinator]

Incorrect. Consumer demand for final goods and services is not, in anyway, connected to cyclical pressures, nor does it affect employment rates. The demand for commodities is not the demand for labor.

Right, ABCT tells all :roll