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Strategies & Market Trends : Heinz Blasnik- Views You Can Use
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To: Box-By-The-Riviera™ who started this subject5/7/2003 12:30:51 PM
From: ild  Read Replies (1) of 4913
 
Date: Wed May 07 2003 11:50
trotsky (fatty) ID#377387:
don't be so sure about the Fed's alleged ability to create inflation at will. the BoJ has now tried to do this very same thing for 13 years running, with exactly zero success ( in fact, with JGB yields close to an all time low, we can see that Greenspan's 'deflation fighting plan' of supporting long bonds via the open market desk is doomed to failure as well ) .
there is of course one possibility of unleashing inflation, and that is to pull out ALL the stops ( in Japan's case e.g. the entire bad debt book could be monetized ) . but it is highly unlikely that an independent CB will opt for that 'solution', since it would ultimately lose its power if it did that ( since its currency would cease to be a viable medium of exchange ) . as long as the BoJ and the Fed stick to their traditional inflation inducing policies ( remember that their policy is to ALWAYS inflate ) , adding a few 'innovative' twists here and there ( like the relatively recent decision to monetize mortgage debt, a la John Law, or the BoJ's direct lending to businesses and purchasing of stocks from member banks ) , all that's going to happen is that the newly created money will slosh about in the system unused, or flee into government debt and gold. the deflation can ultimately not be stopped by these means...note that the so-called 'evil of deflation' is only the destruction of money that was previously created out of thin air, and the liquidation of the malinvestments it created. this adjustment process can not be stopped by monetary pumping once the pool of real funding has begun to shrink.
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