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Home Equity Extraction, Growth, and the Subprime Crisis within the Theory of the Monetary Circuit

Author

Listed:
  • Stellian, Rémi

    (Université Pierre Mendes-France Grenoble II)

Abstract

Economic policy attempts to stimulate growth after the subprime crisis. In light of the theory of the monetary circuit, this paper focuses on a too much neglected phenomenon associated with this crisis, which makes it difficult for growth to restart in the United States. The phenomenon at issue is as follows: home equity extraction gave an increasing support to consumption, but this support is suppressed by the subprime crisis. We first explain home equity extraction and the related support, before incorporating the latter within the theory of the monetary circuit. This leads to consider this support as a decisive component of the working of the economy, as it increasingly contributes to the reflux phase of monetary circuits. We then explain the suppression of this support by the subprime crisis. As this comes to suppress a decisive component of the working of the economy, we thereafter explain why recovery is undermined, since monetary circuits can no longer rely on the above support to achieve their reflux phase.

Suggested Citation

  • Stellian, Rémi, 2010. "Home Equity Extraction, Growth, and the Subprime Crisis within the Theory of the Monetary Circuit," European Journal of Economic and Social Systems, Lavoisier, vol. 23(1), pages 45-62.
    • Handle: RePEc:ris:ejessy:0042
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    More about this item

    Keywords

    Consumption; Growth; Home Equity Extraction; Monetary Circuit; Subprime Crisis;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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