This is a short study note on the nature of upswings and downswings in asset price cycles.
Credit and the Upswing of Asset Price Cycles
Big danger of upswing: Cycles of over-supply and over-demand of credit
Credit and the Downswing of Asset Price Cycles
Big dangers of an asset price downswing: Bankruptcy, default, debt overhang
Adair Turner on Banking and Financial Crises
“Modern financial systems left to themselves inevitably create debt in excessive quantities. In particular, the type of debt that does not fund new capital investment but rather the purchase of already existing assets, above all real estate.”
“Banks do not only “take deposits from households and lend money to business,” but they also “create credit, money and purchasing power.”
“Debt can be dangerous, even if all bankers are as honest, responsible and professional as possible, and even if each individual loan seems in itself socially useful and economically sustainable.”
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