Are Rates Stressful or Are We Barking Up the Wrong Tree?

up (causing effort to go up)? Or does production go up because costs go down on their own, thereby increasing demand? Policymakers need to know the answer to this question to invest our tax dollars wisely.

This debt-driven lifestyle has created a more fragile economy vulnerable to even a minor economic shock.

savings. Typically we associate rising interest rates with declining stock, real estate, and bond prices. If most of our wealth consists of these three kinds of assets, then higher interest rates should be associated with a decline in our wealth, and because we feel poorer, we reduce our consumption rate. This seems fairly plausible too. When we fe

To sum up, if the savings rate in one part of the economy rises, without an equivalent rise in investment the only way for the economy to balance is for savings elsewhere to decline, and this can happen either in the form of a (usually credit-backed) consumption binge, or in the form of rising unemployment. The first is unsustainable.

Even more than in earlier Crisis eras, this transition from leveraged personal consumption to unleveraged national investment will require unaccustomed sacrifice and wrenching lifestyle adjustments from most Americans. Never before has America approached a major national trial with such a low rate of economic growth, with such a meager savings rate

For finance to consistently grow as a proportion of GDP, either it is simply upping its take — which might be reasonable within bounds, but raises questions of adequate competition in the sector and of possible regulatory capture — or it is making more and more MBS-like time bombs. It is spinning off flows of toxic financial exposure, of whose valu