The author of the article almost alludes to this when they write:
>Consider the freeze that started in August of 2007. Each bank was adopting a prudent course by turning away questionable borrowers and holding on to its capital. But the results were mutually ruinous: once credit stopped flowing, many financial firms—the banks included—were forced to sell off assets in order to raise cash. This round of selling caused stocks, bonds, and other assets to decline in value, which generated a new round of losses.
We might be less crash-prone if we had system that didn't crash when the growth of the money supply was interrupted. It seems like it's not just maintaining the current level of credit is necessary for stability, but the indefinite exponential expansion of credit is necessary to stave off problems.
>Consider the freeze that started in August of 2007. Each bank was adopting a prudent course by turning away questionable borrowers and holding on to its capital. But the results were mutually ruinous: once credit stopped flowing, many financial firms—the banks included—were forced to sell off assets in order to raise cash. This round of selling caused stocks, bonds, and other assets to decline in value, which generated a new round of losses.
We might be less crash-prone if we had system that didn't crash when the growth of the money supply was interrupted. It seems like it's not just maintaining the current level of credit is necessary for stability, but the indefinite exponential expansion of credit is necessary to stave off problems.