Credit Expansion And The Real Economy Internal Imbalance

This paper is intended to find whether the credit expansion will put bad effectson economy which is about the inner imbalance of real economy, based on relativetheories and facts. According to inspection into the economic theories about the creditexpansion and imbalance of economy, both of Marxism and other main westernschools, this paper builds a frame to analyze the credit expansion how to bring realeconomy total imbalance and structural imbalance, after coming to an viewpoint thatcredit expansion will definitely bring real economy inner imbalance. On one hand,credit expansion will lead real economy to inner imbalance by affecting aggregatedemand; on the other hand, it will do the same thing through making financial marketunstable. Meanwhile, this paper also analyzes the economic data of our country afterillustrating imbalance with the phenomenon of our country which is due to the creditexpansion caused by our central bank, following the frame we built before. In the dataanalysis, this paper uses data of credit increase of financial institutions, GDP and theproportion of investment-consumption to build two different Vector Auto-Regressionmodels, then prove that credit expansion which deviates from the potential increasingpath will make the GDP deviate its potential increasing path, which means aggregatedemand surpass the aggregate supply, so that create the total numerical imbalance.And this also can prove excess expansion of credit may lead to imbalance of theinvestment and consumption, which means the structural imbalance of our economy.In addition, I discuss the opportunity of credit expansion leading to the innerimbalance through the financial market. At the end, I make two suggestions in thispaper. The one is to suggest our central bank should control credit expansionreasonably, and coordinate with fiscal policy which is mostly intended to improve ourinfrastructure. The other is to suggest our government carry out better financial policyto help our consumption, so that can keep better balance between investment andconsumption in the credit expansion.