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|User Info||The Long Weekend Mind-Soak; entered at 2012-02-20 13:37:03|
Fractional reserve lending doesn't create the business cycle. The business cycle is created by the mathematical fact that two exponential functions always run away from one another.|
Since nobody will ever lend INTENTIONALLY at a loss, you therefore have two compound functions (rate of required return in GDP growth and rate of interest charged) that always have a spread.
And as a consequence, contractions to clear out the weakest credits are inevitable. Attempting to violate the laws of mathematics is how you turn an ordinary and mathematically-necessary recession into a depression.