<How much of a collapse does the Fed need in order to justify QE3?>
If I knew the answer to that, it would be like winning the lottery.
My guess is that it won't take much at all... my guess is that there will be any number of reasons used to justify it... my guess is that we are still playing the same game Japan played during the "lost decade" that has been going on for 20 years or so -- with the big difference being trade exports (they have 'em, we don't)... but if you think about it, Japan has been "easing" for 20 years, not allowing their banks to fail and keeping interest rates at zero or close to it for longer than anyone thought possible...
Japanese economic summary from wiki (does it sound familiar -- especially the 2nd paragraph, last sentence?):
For three decades from 1960, Japan experienced rapid economic growth, which was referred to as the Japanese post-war economic miracle. With average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s, Japan was able to establish and maintain itself as the world's second largest economy from 1968 until 2010, when it was supplanted by the People's Republic of China. However, in the second half of the 1980s, rising stock and real estate prices caused the Japanese economy to overheat in what was later to be known as the Japanese asset price bubble. The economic bubble came to an abrupt end as the Tokyo Stock Exchange crashed in 1990–92 and real estate prices peaked in 1991. Growth in Japan throughout the 1990s at 1.5% was slower than growth in other major developed economies, giving rise to the term Lost Decade.
The problems of the 1990s may have been exacerbated by domestic policies intended to wring speculative excesses from the stock and real estate markets. With government efforts to revive economic growth throughout the 1990s unsuccessful, Junichiro Koizumi adopted policies to promote exports, effectively raising GDP on an average of 2.1% annually from 2003 to 2007. Subsequently, the global financial crisis and a collapse in domestic demand saw the economy shrink 1.2% in 2008 and 5.0% in 2009. Japan has the highest gross public debt in the world with 225% of GDP.
(and lastly, I find this interesting about Japan's recent economic history):
Despite having interest rates down near zero for a long period of time, the Quantitative easing strategy did not succeed in stopping price deflation. [18] This led some economists, such as Paul Krugman, and some Japanese politicians, to speak of deliberately causing hyperinflation. [19] In July 2006, the zero-rate policy was ended. In 2008, the Japanese Central Bank still has the lowest interest rates in the developed world, deflation has still not been eliminated [20] and the Nikkei 225 has fallen over approximately 50% (between June 2007 and December 2008).
For more on QE and parallels to Japan:
en.wikipedia.org |
