Real Economics

If what keeps the economy depressed is too many toxic assets on banks’ balance sheets, then it makes sense to do whatever is necessary to remove those assets from banks’ balance sheets. Equally, it also makes sense to nationalize banks and force them to lend.

We suggest, however, that what matters when it comes to economic recovery is the state of real savings. Contrary to popular thinking, it is real savings that fund economic activity and not bank lending.

via Would Cleansing Banks’ Balance Sheets Kick-start the US Economy? – Frank Shostak – Mises Institute.

This is an excellent piece which explores and explains the real problem with the economy. Focusing on real stuff rather than money removes a lot of obfuscation and confusion. Our curent economic situation, as expressed in terms of real stuff, can be summarized this way: in recent years, we have used real stuff to produce too much stuff that people don’t much want (Chrsylers, for example) and produce too little of stuff people want a lot (like healthcare). Such misallocation of resources results in our being poorer. What’s the fix? Better allocation of resources. This reallocation is a painful and time consuming affair, but it’s what must happen if we want to prosper again.

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