Message #174222

[Major Weatherly]

So consumers will borrow less, and the Summers’ plan of multiplying the trillions thrown at the banks by the government won’t result in any meaningful multiplier effect.
Keen continues:

    I’ve recently developed a genuinely monetary, credit-driven model of the economy, and one of its first insights is that Obama has been sold a pup on the right way to stimulate the economy: he would have got far more bang for his buck by giving the stimulus to the debtors rather than the creditors.

    The following figure shows three simulations of this model in which a change in the willingness of lenders to lend and borrowers to borrow causes a “credit crunch” in year 25. In year 26, the government injects $100 billion into the economy—which at that stage has output of about $1,000 billion, so it’s a pretty huge injection, in two different ways: it injects $100 million into bank reserves, or it puts $100 billion into the bank accounts of firms, who are the debtors in this model.