This paper shows credit money to expand beyond base money to fund debt. Two financial innovations (securitisation and derivatives) were used to expand the money supply to dangerous levels. The optimism of economic actors fails to support... more
This paper shows credit money to expand beyond base money to fund debt. Two financial innovations (securitisation and derivatives) were used to expand the money supply to dangerous levels. The optimism of economic actors fails to support the hypothesis with subdued levels of confidence seen over the period. Looking at three sectors of the economy (firms, households and banks), greater indebtedness is seen to differing degrees. Monetary financial institutions saw the greatest rise in debt but along with firms, escaped the financial crisis in a fair condition (mainly due to government bailouts). Households, although not as indebted as banks, bore most of the fallout. Household debt -to-income did increase heavily over the period sustained and directed towards residential property. A tipping point was reached whereby households defaulted on payment commitments resulting in a debt-deflation spiral. Finally, this paper shows that the profit and investment of private sector firms to drive the economy.
