- Sun Mar 17, 2013 4:28 pm
#20584
Bernanke
The bubble in the credit and housing markets fueled excessive investment in housing and, through the wealth effect, unsustainable consumer spending. When the bubble burst, that investment and spending stopped, and households began to deleverage. In order to repair their own balance sheets, banks cut back on their borrowing and lending, thus squeezing credit for small businesses and consumers.
The immediate impact was a sharp decline in output, employment, spending and investment. The economy has not fully recovered, because consumers can’t spend enough to keep all of our productive resources employed. Income growth is weak, net wealth is reduced, and borrowing is down. Banks don’t want to lend, and consumers don’t want to borrow, as is usual following financial crises.
According to the Bernanke view, what’s needed at this point is continued accommodative monetary and fiscal policy until the labor market has recovered. Then it’ll be time to raise interest rates and reduce government deficits, which will promote maximum growth and employment in the longer run.
Ryan
The government inflated the housing bubble by officially encouraging banks to make bad loans to risky borrowers. The government then bailed out the banks, and spent trillions of dollars wastefully on pork-barrel boondoggles and direct payments that encouraged people to remain unemployed.
Excessive regulation prevented the banks from offering credit, and kept businesses from expanding. Rising government debts are crowding out private investment and are keeping consumers afraid to spend, knowing that eventually they’ll be taxed to pay for the government’s debts.
According to the Ryan view, the government is the problem. The economy would be fine if there were less regulation, lower taxes and lower deficits.
The bubble in the credit and housing markets fueled excessive investment in housing and, through the wealth effect, unsustainable consumer spending. When the bubble burst, that investment and spending stopped, and households began to deleverage. In order to repair their own balance sheets, banks cut back on their borrowing and lending, thus squeezing credit for small businesses and consumers.
The immediate impact was a sharp decline in output, employment, spending and investment. The economy has not fully recovered, because consumers can’t spend enough to keep all of our productive resources employed. Income growth is weak, net wealth is reduced, and borrowing is down. Banks don’t want to lend, and consumers don’t want to borrow, as is usual following financial crises.
According to the Bernanke view, what’s needed at this point is continued accommodative monetary and fiscal policy until the labor market has recovered. Then it’ll be time to raise interest rates and reduce government deficits, which will promote maximum growth and employment in the longer run.
Ryan
The government inflated the housing bubble by officially encouraging banks to make bad loans to risky borrowers. The government then bailed out the banks, and spent trillions of dollars wastefully on pork-barrel boondoggles and direct payments that encouraged people to remain unemployed.
Excessive regulation prevented the banks from offering credit, and kept businesses from expanding. Rising government debts are crowding out private investment and are keeping consumers afraid to spend, knowing that eventually they’ll be taxed to pay for the government’s debts.
According to the Ryan view, the government is the problem. The economy would be fine if there were less regulation, lower taxes and lower deficits.
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