Friday, April 29, 2011

Two points

In my "last free article this month" from the Times, Krugman writes:
(And yes, nonfinancial: banks lending to other banks isn’t inflationary unless the credit somehow moves out into the rest of the economy)

Point 1: Krugman says: Yes, credit out in the economy does contribute to inflation.

I would suggest that credit that fails to move out into the rest of the economy, raises costs in the financial sector.

Point 2: Oh, yeah, nonfinancial debt -- productive-sector debt -- is a problem. But so is financial debt. When we had the "financial" crisis, didn't it arise in the financial sector?

The problem, really, is excessive debt. This problem is hidden but not solved by distributing total debt into many different and smaller subtotals.

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