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Politics : Stockman Scott's Political Debate Porch
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To: tonka552000 who wrote (22910)7/22/2003 12:07:50 PM
From: lurqer  Read Replies (1) of 89467
 
In my view, all this is indicative of what happens when deflationary risks of post-bubble economies take monetary policy into uncharted waters. As short-term nominal interest rates approach zero, central banks start to lose control of financial markets and the real economy. That’s precisely what has happened in Japan under the BOJ’s zero-interest-rate regime. And the rout in America’s bond market may well be a warning sign of a similar fate for the Fed.

Worked for a number years as a systems analyst. I'll let JW discuss this from an economic perspective. From a general systems perspective, there are many systems that are well behaved within a range of input (driving) parameters. Push them outside their normal range and instability results. So far, the Fed has made some very bold pronouncements. When chastised about “almost out of bullets”, they said there was “plenty” they could do. This was followed by discussions of buying long end bonds (to pressure long term rates) and revving up the printing presses. The long end purchases are now viewed as ”just so much talk”. And that’s part of the problem

More serious is “As short-term nominal interest rates approach zero, central banks start to lose control of financial markets and the real economy.” With the economic system already pushed beyond the point of stability, and hence requiring frequent “adjustments”, loss of control is a prescription for disaster.

Sounds like we’re “on the edge”

JMO

lurqer
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