Shifting funds between different capital assets has very little effect on economy. Over the long run you just get a more or less competitive economy depending on where the capital has flowed. The flows can be ruinous if governments pass laws laws that encourage consumption over investment, or, in the Japanese case, investment over consumption. Government or any subset of society doesn't have the best judgement about where money should go. That is why we have free markets. A free market is democratic and reflects the accumulated knowledge and judgement of all the people. Where there is democracy, there is the most efficiency.
I'm sure gold mutual funds are having a hard time. Some will be dissolved. This is also part of the Schumpeteran process of destruction. The weak are eliminated. Unmercifully. The 20th century has been devoted to eliminating unmercifulness. Humanity has tried to tilt the playing field to make it fair. If it is good to enable the building of the new and value adding, it must also be good to not interfere with the destruction of the old and value subtracting. Asymmetry only creates disharmony.
The threat isn't that Asia is a problem to us when they are recessing, the threat is that Asia will return back to their former aggressive competitive position. If they start recovering while we are out on strike, you have a double whammy on our competitive position. On the other hand if we hold the line in wages while their recoveries increase their wage rates, we benefit doubly. Asia is at the point where a rebound in economy means an increase of wage demands. The Asians are starting to learn that game. That is another reason why the BOJ worries about opening the money floodgates. Conversely, that is one of the reasons why the FED should have already put some marginal upward pressure on rates, to cool expectations among labor that they could get raises.
Since I've stated many times, the FED should stay out of the market, am I not contradicting myself? The FED will never stay out so we have to go along with their pretense to knowledge. If they want to interfere, then they had better show some anticipatory wisdom. Since our society never addressed the labor monopoly, the only thing that stands in the way of "on strike, shut it down" is the FED using interest rates as the bully pulpit. The FED ends up having to protect the gods from the ugly mob of slobs and protects the slobs from destroying themselves. Do you wonder that Greenspan is so careful when he gives testimony to Congress?
By stabilize our economy I assume you mean slow it down. Probably it's too late to do so without wild-in-the-street developing. The longer the FED and BOJ wait, the bigger will be the problem. The problem is bigger fluctuations in all capital assets than are needed as confidence goes out the window. Central Banks either work insidiously at the margin or wait and introduce Draconian measures. When they work at the margin, the problem is that the market is disrupted imperceptibly and so never knows where equilibrium lies. The final solution is to rid the world of Central Banks. That opinion won't play well in Academia but I'll bet that is what finally occurs. |
