Depression risk might force U.S. to buy assets
reuters.com
By John Parry
NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.
That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.
In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.
"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.
"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.
Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.
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Inquiring minds might want to know, buy assets with what?
The what is only backed by confidence... and the fact that your neighbor will take the "what" in payment for something.
Each attempt at manipulation seems to me to bring the day closer when the value of the "what" becomes progressively more empty.
Each attempt to prop up something by throwing more borrowed or printed dollars at it seems IMHO to exacerbate the problem... of the value of the "what".
When the "what" becomes nothing, from "what" will the power of the government derive?
Which brings to mind the title of this thread... |
