TH,
Here are some more positive non-panicky thoughts (I'm
in a better mood today <g>)
1) I think the global CBs recognize the problem, which is
global, and act in a cooperative manner. Their goal (I hope!)
is to work off the global imbalances over time, as opposed to
a quick meltdown. The gradual dollar devaluation was
engineered with the goal of bringing US current account
deficit down.
I think BIS, and, by extension, the Fed, are quite aware
of the problems we are facing (although sometimes I do
doubt that), but they do get into panic mode, they are human,
and make mistakes. The mopping up after crisis technique
is really silly.
2) I believe CBs are not stupid, and are quite aware of
inflationary implications of incessant printing, and
deflationary implications of leverage/credit contraction.
Thus, Ben is NOT monetizing all the debt. The attempt of CBs is
to limit the pain of deleveraging, but deleverage we now must.
3) The banking crisis is very acute right now, so the first
goal seems to be to stop it at whatever cost, and deal with
that cost (inflation) later. Panic selling of the dollar is
also a concern of the CBs, and they are acting in a cooperative
manner to prevent this from happening right now, as it won't
be good for anyone. Whether or not they succeed is a good
question. In particular, I am not very fond of that latest
bailout effort,
as it does not cure the problem and will lead to more problems
down the road, as Stiglitz noted. In my simplistic view, they
are stimulating the wrong part of the economy (Wall Street)
and could grow more Berserkers who bid up everything in
price later on, while the real economy will continue to
suffer from increased price pressures on the raw material
side, and the lack of demand from folks like you and me.
The job losses on WS were NOT the worst. They were the
worst in the Auto industry, which suffered due to both
credit contraction and high oil price.
4) If they do succeed, then the global imbalances (US current
account deficit, etc.) will dissipate over time as opposed
to suddenly, and the global economic growth will continue,
albeit at slower pace. US will face a recessionary/slow growth
environment for some time with higher inflation. The current
account deficit will have to reverse. The financial part of
US economy will have to shrink, while the real part will
have to grow.
5) It was quite puzzling for everyone that while the value
of the dollar decreased, the current account deficit grew.
The process is now reversing, so, if the effort is
successful, hopefully, the imbalance will be gone, and
the dollar stabilizes and starts to appreciate at some point.
In other words, if acute crisis dissipates, I am just
advocating stagflationary environment for some time,
due to combination of deleveraging and printin'
If they screw things up more, things could get much worse -g- |
