Zeev,
"If Japan does not shoulder its part by opening its markets, then the whole world will be set back for a good five years if not more. The danger that Greenspan is fighting here (and allowing our bubble to grow) is a worldwide deflationary spiral. He is in a very tight box. Our interest rates are already historically high and the FED are already in a restrictive stance (I would say almost 2% excess real interest rates), a more restrictive stance will be calamitous."
VERY insightful post. But I wonder if Greenspan and Fed members think of themselves as fighting a "worldwide deflationary spiral". Their rhetoric suggests otherwise, they seem more concerned with inflation in the US, due to increases in wages. Also anecdotal stories about housing prices getting out of control in various places.
The imbalances and dislocations caused by the export-driven economic models that the Japanese/Asian countries have adopted will be with us for a long long time to come. At root, that is what has created (as usual) only bad choices ahead for the Fed and other central banks, each of whom have to fight their own battles. Yeah, the export driven models have created huge wealth for a few, and, in Japan certainly, relatively large trickle down wealth for many, but the chickens will come home to roost as we build more and more productive capacity for goods for which there is no market. |
