On the Relationship of Money Supply, Consumer Demand and Debt

15 Pages Posted: 25 Feb 2017 Last revised: 30 Apr 2017

See all articles by Gökhan Cebiroglu

Gökhan Cebiroglu

University of Vienna, Faculty of Business and Economics

Stephan Unger

Saint Anselm College

Date Written: February 24, 2017

Abstract

This article assesses economic growth in the context of consumer saturation. We show that consumer based economies tend to suffer from demand saturation after an initial and prolonged period of growth. However, structural demand saturation irrevocably triggers a Minsky-type super cycle that is characterized by high debt, high income inequality, stagnation and financial instability. We argue that controlled debt deflation through negative interest rate policies can be effective in combating recessionary conditions and resolving the debt crisis.

Moreover we show that monetary policy can help to mitigate the effect of consumer saturation through yield curve targeting. The idea is to ensure that economies do not grow too quickly, but maintain a growth rate which corresponds to the demand growth rate at which consumers replenish their stock of goods in the long run. We argue that such a policy avoids boom and busts and smooths out the business cycle.

Keywords: Monetary policy, fiscal policy, inflation, money supply, debt deflation, GDP, T-bills

JEL Classification: E10, E12, E14, E21, E23, E24, E31, E32, E41, E43, E50, E58

Suggested Citation

Cebiroglu, Gökhan and Unger, Stephan, On the Relationship of Money Supply, Consumer Demand and Debt (February 24, 2017). Available at SSRN: https://ssrn.com/abstract=2923252 or http://dx.doi.org/10.2139/ssrn.2923252

Gökhan Cebiroglu (Contact Author)

University of Vienna, Faculty of Business and Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, 1090
Austria
+43-1-4277-38682 (Phone)

Stephan Unger

Saint Anselm College ( email )

100 Saint Anselm Drive
Mancheter, NH 03102
United States

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