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It also shows how great crisis always start, the problems with low wages and global competition for some type of work is not there.. this is a problem after the lack of demand is resolved... Although it is true that higher income differences make a large scare more likely.

What seems to happen is that the financial sector, if unconstrained, will always try to juice the economy with debt. Steve keen has shown that employment is strongly related to the change in debt. See Deleveraging, Deceleration and the Double Dip Debt allows future purchasing power to be brought into the present and this increases growth -- until a society is drowning in debt. When TPTB are driving down consumption by driving down wages so as to keep a larger piece of the pie for themselves, they seem naturally to turn to debt bubbles for relief from the contraction that naturally occurs.

Debt adds to growth in the early stages of a bubble. But when the bubble bursts and the debt has to be repaid debt repayment subtracts from growth as people defer or forgo consumption to pay down debt. The role of debt is like the third rail for "mainstream economics". They try to deny its relevance, because, if its role is understood it undercuts their arguments and exposes their manipulations.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 20th, 2011 at 10:10:47 PM EST
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