Tuesday, January 31, 2012

glass house credit goes smash...death to the NK paradigm ... the credit con macronautics has run aground








to maintain acceptable average levels of unemployment over the cycle

new keynesian models are used to cover
what in reality is a credit flow rate adjustment to households
yes usury macro

the trick is to tilt toward housing loans
without relying on  rising lot values as part of the collateral

that maxim got violated over the two last cycles

boink

when the lot bubble poped
we got not just foreclosures
we got bank loses and a huge back up of inventory

result:
the  new housing production rate collapsed
and feed forwards kicked in
that were arrested by deficit spending increases but
not replaced by renewed household spending

because the household credit window narrowed
 as collateral crumbled
not to recovery let alone surpass earlier peaks


the only solution is to push up nominal wages

that has only happened once in the  last 32 years
during the second term of clinton
when we were in an investment boom domestically
as well as the end time of a trade gap hiatus
besides the usual consumer durable/housing credit goose
to think we can return to the new keynesian model
that supported a  credit only macronautics
is nonsense