The high and pro-cyclical elasticity of money supply means that the financial markets for investment are non-equilibrating. Interest rates do not adjust to enable market equilibriums between capitalized expected profit and supply costs of investment. Hence financial markets are dominated by positive, disequilibrating feedbacks between asset prices and balance sheets, and money supply and demand.
This elasticity arises from 3 factors: the intangible nature of credit, the money multiplier, and the expectational climate of bankers and businessmen, which is procyclical, contains biases and moral hazards, and is short term.
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