Good question. It could be personalities and culture, or perhaps Australia can afford to "get it" while America can't.
This is what happened from my perspective. The Asia Crisis hit in 1996 sending Asia into a depression. In classic Monetarist response Greenspan hit the gas gunning our economy up to double-speed to pull Asia out of trouble. This actually works in the short-run. Once you lessen the impact of the shock, you need to take your foot off the accelerator and take your recession, which allows for necessary liquidations and adjustment.
Inexplicably Greenspan did not take his foot off the gas. Instead he increased credit creation sending the stock market into a bubble and beginning the real estate bubble. At this point Greenspan lost the support of many economists and even some Fed governors, in particular Larry Lindsey. You can read the minutes of the Fed meetings during this period pointing out the obvious bubbles yet Greenspan didn't indicate what he was really thinking except to say the Fed could once again hit the gas if they were bubbles and collapsed.
It's understandable why Australia has turned away from this course. But what is Greenspan thinking?
Is he afraid of deflation if he takes his foot off the gas? Did he think that a longer course of asset inflation was needed to provide the spending power for American consumers to further stabilize Asia? If anything like this is the case, I believe Greenspan is only creating a worse problem. Monetarist games, although useful short-term, always fail in the long-run.
I repeat again two pieces of wisdom from the 1930s which say in effect, if you don't want the economic depression - don't create the bubble in the first place.
"Policy does not allow a choice between depression and no depression, but between depression now and a worse depression later".
"Inflation pushed far enough would undoubtedly turn depression into the sham prosperity so familiar from European postwar (WW-I) experience, and would, in the end, lead to a collapse worse than the one it was called in to remedy."
For "recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead"
Joseph Schumpeter
A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920's teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation.
Charles Rist |
