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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 30 / 42

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1/23/2015

Jamshid Damooei, PhD

30

Does the expansion of credit inevitably lead to instability?.....continued

loaned real savings are the key for economic expansion. It is real savings that fund the production of tools and machinery, which in turn permits the expansion of final goods and services.

when a saver lends his savings, he takes a risk.

There are always danger of overinvestment or underinvestment and this show itself by depressed or increased profits.

This process will lead to a withdrawal of real savings from where profits have fallen and channeled towards where there is a higher profit.

This shows that if investment goes too far in one direction, and not far enough in another, counteracting forces of correction will be set in motion.

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