What would happen if changes in bank regulations expand the availability of credit cards? March 26, 2010
Posted by Credit in : Economics , trackback
★♥♪♥♪♥☆ ★♥♪♥♪♥☆ ★♥♪♥♪♥☆ asked:
Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash.
Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash.
How does this event affect the demand for money?
If the Fed does not respond to this event, what will happen to the price level?
If the Fed wants to keep the price level stable, what should it do?
Comments»
It’s a double edged sword. On one hand, people claim that the restricted access to cash, credit, and loans is slowing down the economy. On the other hand, and this is widely accepted as truth, is that easy availability of credit led to the current predicament that we are currently in.
If we expanded credit AGAIN, this is what would happen. Irresponsible spenders (like those who maxed out their credit cards on buying blinged out cars instead of paying their mortgage) would get NEW credit cards with relaxed interest rates, and go right back to their old ways, incurring more piles of debt. Then they will request a hand out from other hardworking Americans who actually manage their household budget and live within their means.
A greater availability of credit reduces the need for hard money (as in from holding a job and actually getting paid) and so people are more inclined to sit on their butts and not hold down a job because ‘hey, I’m getting free money’. Watch unemployment rates rise, and welfare distributions rise…..
I think we should maintain/raise interest rates. Force out those who clearly cannot manage their budget as it with a low interest rate loan, and let them starve or freeze to death or whatever happens. Restrict the economy and lending process to the serious players who actually pay their bills and let everything get back to normal.
Straight up.