Diana Choyleva, chief economist at Lombard Street Research and a China expert, pointed out in a report that a contraction in the money supply, led by a retreat in bank lending, illustrated how well the policy was working.
The implication is that a contraction will follow.Then in the mid-19th century, in "Lombard Street", Walter Bagehot wrote that if that contraction turns into a crisis, forget about economic theory, just bail out the banks.
Real GDP contracted by 12.1% on an annualised basis in the fourth quarter of 2008, and leading indicators are so uniformly negative that a contraction of similar magnitude may also have occurred in the first three months of 2009 (preliminary national-accounts data will be released on May 20th).
That isn't to say that a contraction in venture financing won't be painful at a micro-economic level.
÷2 says that a contraction should not give rise to new beliefs not previously held.
Remark 3.2 It is well known that a contraction mapping must be continuous.
