Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable.

Nevertheless, the legacy of the huge contraction in credit is not likely to go away anytime soon.

Even if a bailout plan were implemented quickly which appears increasingly unlikely there would be some credit contraction.

It misjudged the consequences of fiscal consolidation and credit constraints, underestimating the contraction of employment and overestimating exports and privatization receipts.

China s Inscrutable Contraction

Since many of the best ideas and innovations come from small companies rather than large, established firms, the ongoing credit contraction will inevitably have long term growth costs.

The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete.

The Second Great Contraction

Second, the troika based its programs on overly optimistic assumptions. It misjudged the consequences of fiscal consolidation and credit constraints, underestimating the contraction of employment and overestimating exports and privatization receipts.

Fiscal contraction is contractionary, period.

The Great Contraction of 2008 2009

Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. Moreover, the ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves.

This contraction has become even more severe since then.

There need to be increased funds available to support small and medium size enterprises the main source of job creation in all economies which is especially important, given that credit contraction by banks hits these enterprises especially hard.

This threatens to aggravate the damaging contraction of global trade.

The ensuing losses will aggravate the financial turmoil and economic contraction.

But Keynesianism involved continued fiscal expansion, with no offsetting monetary contraction.

After many years of contraction, investment in construction also will rise slightly.

But, in a Great Contraction, problem number one is too much debt.

The period of gravitational contraction lasts about 10 to 15 million years.

Then We draw it in towards Ourselves , a contraction by easy stages .

Credit Where Credit is Due

Forecasters assumed that monetary expansion would provide an effective antidote to fiscal contraction.

Following the German economy s sharp contraction in the last quarter of 2012, the question for the country today is whether it can avoid a technical recession (defined as two consecutive quarters of economic contraction).

First, there is the counterfactual case How would Japan s economy have performed in the absence of fiscal stimulus? Given the magnitude of the contraction in credit supply following the financial crisis of the late 1990 s, it is no surprise that government spending failed to restore growth.

Even though the British government s credit is still solid gold, Prime Minister David Cameron s administration is about to embark on what may be the largest sustained fiscal contraction ever a plan to shrink the government budget deficit by 9 of GDP over the next four years.

The latest estimates for Italy and Spain project a deeper contraction, prolonged into next year.

And emerging markets will suffer once the US contraction and global slowdown undermines commodity prices.

Credit

Credit

The maximum rate of economic contraction a veritable freefall came in the last quarter of 2008.

In 2004, for example, Chad s 39.4 annual growth rate contrasted sharply with Zimbabwe s 6.8 economic contraction.

A more accurate, if less reassuring, term for the ongoing crisis is the Second Great Contraction.

In contrast, QE3 will be associated with a fiscal contraction, possibly even a large fiscal cliff.

This contraction of the job market has had a greater impact on youth than on adults.

Unfreezing Credit

Photo Credit

Rural Credit

Financial Credit

All of this, according to Reinhart and Rogoff, involves a protracted and pronounced contraction in economic activity.

At the same time, it spares an already weak economy damaging fiscal contraction in the short run.

There is a real possibility that global growth will register its first contraction since World War II.

This way public credit registries and credit bureaux may be able to operate and provide adequate and up to date electronic credit information.

Banks and credit card companies have become much more cautious about extending credit.

Credit histories cannot be shared, because a credit bureau is just getting started.