I believe the real disease is that the cost of capital was too low, with the capital providers either
(a) forced to accept a low return on their capital by what the maestro was doing to the FED discount rate, or
(b) accept a fatally risky equity return.
Capital providers, thus punished, are in full retreat, leaving the consumers, and borrowers (telcos etc) to their own respective devices (cut back, going bankrupt, etc).
If so, the economy will only recover when the capital providers are sure that they have survived the worst of the storm, and that can only happen if the maestro stop meddling with the weather, and let the full fury rip into the markets.
If the maestro step out of the way, let the markets seek own clearing price, the economic badness will probably last only 18-24 months, and the market recovering 6 months ahead of the end of badness.
If maestro fail to step out of the market's way, then 18-24 months after he leaves the pumpkin patch central bank, whenever that is.
Japan's group/party driven decision making ensured that the central bank never stepped out of the market's way, and thus we have what must be a historic record of recession.
Chugs, Jay |
