Clown-Free Zone... sorry, no clowns allowed Message Board

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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: reaper who wrote (150298)	2/8/2002 5:34:04 PM
From: pater tenebrarum	Read Replies (1) of 436258

well, an essential point here is that the rate of investment to consumption has been extremely large during the bubble years, due to a way too easy monetary policy. as Shostak says, by creating money out of thin air, an exchange of something for nothing takes place, which perforce leads to a shrinking of the real pool of funding. the central banks manipulation of interest rates has led to entrepreneurs misreading future demand. result: malinvestment and massive industrial overcapacities. other manifestations of the bubble are the huge rise in private sector debt and the plunge in the savings rate: both have reached extremes that HAVE to be corrected in order to lay the foundations for a durable recovery. however, monetary and fiscal policy is geared toward warding off the necessary correction, which harbors the risk of entrenching the downturn for a very long time. Japan is a case in point actually. everybody is shying away from taking the bitter medicine, which would involve a great deal of short term pain. instead we're likely in for a lengthy period of sub-par economic performance, interrupted by frequent recessions.

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