From: Padraig Breathnach 
Newsgroups: uk.finance ie.general
Subject: Re: Fixed-rate Loans
Date: Fri, 23 Mar 2007 13:18:01 +0000

"Tim"  wrote:

>"Padraig Breathnach" wrote
>> Money supply is a macroeconomic variable, meaning that
>> its impact on one person is not looked on as important;
>> it's the impact on the economy that matters. ... In normal
>> situations, no one person's spending power is great
>> enough to impact noticeably on an entire economy.
>
>Of course, but such a large number of people
>have unused overdraft limits and credit card limits
>which they can spend that, taken together, that's
>an awful lot of spending power that's being ignored.
>
True. It's a Sword of Damocles hanging over the economy. Credit limits
have no economic impact until they are used. If everybody went
shopping next week and maxed out their credit cards there would be a
huge jump in the money supply and inflation would also jump. In the
short term interest rates would go up because the financial
institutions would need to get funds to meet the demand, and the way
for them to get more funds is to pay more interest. That would
encourage borrowers to reduce their borrowing as fast as they are
able, but it might take a lot of time.

No individual would be responsible, because individually our impact
would be minuscule. It's not on the agenda of the financial
institutions to control inflation: they simply want to maximise their
profits. That's why governments and central banks interfere in the
economy: nobody else has a motive.

>Surely that *does* have an impact on the economy?
>
It *can* have an impact on the economy. Happily, in normal
circumstances things do not play out as severely as that. Borrowing
drifts up (or down) and interest rates drift in response.

>"Padraig Breathnach" wrote
>> ... On your more substantive question: I don't know the answer.
>
>Anyone else care to elaborate?
>
We have scared off most of the small number of participants in this
group! I'm curious, too. If time permits, I'll dig through a few books
and see if I can find the answer -- no promises, though, as I'm
passing time here as a diversionary activity while real work and real
life wait.

-- 
PB
The return address has been MUNGED
My travel writing: http://www.iol.ie/~draoi/