"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." ~ H.L. Mencken
The Term Structure of Savings
"Recognizing different types of savings allows a more fruitful analysis of the business cycle. Sustainable investment activities must be financed by an equivalent amount of savings, both in length of availability and quantity. Upward-sloping yield curves are a feature of the unhampered loanable funds market. Interest rates differ along this curve depending on the investment community’s demand for funds. While free market maturity mismatching can be successful and advance intermediation, the existence of either a central bank or a fractional reserve banking system skew the yield curve, resulting in malinvestment-fueled boom-bust cycles. Credit expansion alone fails to explain the full extent of these cycles."
(2 votes)
- Login to post comments