Al Capital

CPFF, TAF, TARP, Bailouts and All That Jazz

Note that when credit contracts r becomes negative.

CPFF, TAF, TARP, Bailouts and All That Jazz

Back of the envelope calculation (the basis of capitalism) assume that: economic growth = M + rG where M is available liquid capital for investment, G is inherent economic demand for goods and services, and r is a coefficient determined empirically (but is inversely related to the cost of credit). A the cost of credit increases r gets smaller (it is certainly less than 1 now). The most important factor in this equation is r. So, as simply as one can express this situation, it means we are deflating rapidly, and will continue until credit EFFECTIVELY cheapens considerably.