How to Energise Economic Recovery

ayres bubble economy coverIt’s been almost six years since the fall of Lehman Brothers plunged the global economy into a deep recession. Recovery has been slow. Fiscal policy has been stalled due to a conflict, both real and idopogical, between those who advocate more tax reduction and those who worry about increasing government budget deficits. Monetary policy, a blunt tool at best, has been focused on cutting the cost of money to banks, in the hope that the banks would then increase their lending to businesses — especially to small and medium-sized companies, that are the biggest employers and job creators.  Unfortunately, the banks have not been very accommodating in this regard, since they – in turn – have to satisfy risk-minimization criteria set by the Bank of International Settlements (BIS) in Basel. What happens is that excess money not being invested in the “real” economy is likely to create another bubble. It may be real estate. It may be a commodity bubble (rare earths? platinum) or oil. It may be the stock market, whole or in part.

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