Russ.
The quote from the Mises Institute describing the nature of a "crack up boom" is fantastic. Thanks for excerpting, though I know I've read many such posts from you prior.
It's interesting to compare this scenario as ultimately (IMO) a policy response to a massive credit bubble bust, and that of the deflationary policy pursued by the U.S. in the early 1930's & Japan in the 1990's. Very different distribution of burdens on creditors and debtors.
But I do question if the best policy response the U.S. policy elites can come up with is a replay of French monetary policy of the late 18th century, or Wiemar German monetary policy of the early 1920's. I mean look at the impact that had on those societies, as well as the Governments it later brought to power (i.e. Napoleon and Hitler).
At the same time, that recent US monetary policy, and the "flight into real goods"/"crack-up boom" scenarios you describe, do suggest that a deflationary policy response of the U.S. 1930's or Japan in the 1990's can not be assumed.
So why not a middle of the road policy response that effectively combines a bit of both, while at the same time seeks to avoid the worst of both scenarios - that is, either a windfall to, or collapse of, the creditor class (i.e. bond holders), or a windfall to, or collapse of, holders of real assets?
This would see, to my mind, a situation where the burden is distributed across both constituencies - i.e. the prices of real assets fall (but don't collapse), and the value of debt falls (but is not obliterated).
And the proximate condition for this, to my mind, is first and foremost normalization of the interest rate structure (i.e. positive real interest rates), hopefully with moderate or significant inflation (but not infinite thereby completely destroying the monetary system). For starters, say 3-4% inflation combined with 6% nominal interest rates. I mean, that's a total crapshoot in terms of what combination of nominal interest rates and inflation would be appropriate from a policy vantage point. But my initial sense is that moderate inflation combined with relatively high real interest rates (say 2-5% above the inflation rate) would be a heck of a lot better than the 5-15% real interest rate suffered under the deflationary period of 1930-32 in the U.S.
See also my previous post this AM that expands on this thesis:
Message 20651958
Anyway, that's the best I can come up with given my limited understanding of the current state of affairs. Please point out where you differ in your reasoning from the above, and where I may have made incorrect assumptions or conclusions.
Regards,
Glenn |
