just in in-tray
From: H
There has certainly been a great deal of restructuring in the private sector - speaking specifically of the US - however, the interventions by the government in the financial and housing sector have averted the normal market clearing processes that would have paved the way for a genuine sustainable recovery. In the meantime, the 'stimulus spending' and the Fed's inflationary policy have further delayed and hampered the process, while creating a brief illusion of stabilization.
Why is the Fed embarking on 'QE2'? Essentially for the same reason the revolutionaries in France embarked on 'QE2' (and later QE3, 4, 5, etc., until they issued a new currency altogether) and printed more assignats after the first 'temporary' issue. Once the inflationary illusion of the initial issue dissipated, which happened as soon as the money had percolated through the economy, they had to continue the inflation to give the illusion another shot in the arm.
The modern economy is far more flexible than the economy of 18th century France, and due to producing far more goods and services far more efficiently won't be so easily derailed by inflationary policies - and yet, the principle behind the policy is exactly the same.
Also worth considering is that private sector deleveraging has barely begun. So far most of the decrease in outstanding bank credit can be accounted for by defaults, not the paying back of debt. So the great danger is that the Fed will fight this deleveraging process tooth and nail, and eventually find out that it has a tiger by the tail with no viable 'exit strategy' at all available (at least not one that would be acceptable to Bernanke & co., since it would involve dispensing some pain). They will eventually realize that their strategy is self-defeating, the question is if by that time there is anything left worth saving or if they will have run the cart so deeply into the mud that it can't be drawn out anymore (looking at Bernanke's papers and speeches over the past decade, one must fear the worst).
On Mon, Nov 1, 2010 at 10:25 PM, R wrote:
fwiw- am not a "believer in the recovery" and worse still, feel we are are past the point of the central banks being able to stop the in process train wreck-it's just a question of what side of tracks the wreckage lays-more assignats/no more assignats/new assignats all roads lead to rome-or oz.
On Nov 1, 2010, at 1:42 PM, H wrote:
would note though, money supply growth in Japan has - to date - been very low post crisis (only recently annualized Japanese TMS accelerated to 2.1%, which is the highest reading this year!) and in the euro area it has begun to slow down (to 8.1% recently from a 15% peak in 2009).
this explains inter alia why the yen has been so strong.
that said, something is cooking in Japan, some kind of response to the coming Fed announcement. the BoJ has rescheduled its next meeting so it will take place one day after the FOMC decision is announced.
meanwhile, the ECB has withdrawn some of the long term emergency funding and thereby lowered euro-area base money supply. this show of prudence will probably last until the next blow-up (which seems to be in the works already - recently Greek, Portuguese and Irish bond markets have all sold off sharply again).
On Mon, Nov 1, 2010 at 7:15 PM, R wrote:
never liked roubini's reasoning-that said it i hard to be anything but "a bear" on the US in particular and anyone who follows in its monetary policy footsteps-which to date has been everyone.
On Nov 1, 2010, at 9:58 AM, H wrote:
His stimulus package, together with a backstop of the financial system, low rates and quantitative easing from the Federal Reserve, prevented another depression.
where is the proof for this assertion? if we take John William's shadow-stats measure of unemployment, which basically corresponds to how unemployment was measured in the 1930's, then US unemployment is now at roughly 22% (i.e. counting not only the people who are currently receiving support, but really all of those out of work, whether it's for one year or longer, whether they are 'long term discouraged' or not, etc.). if that is not a depression, then what is it? if the people who have no work are not 'unemployed', then what are they?
On Sun, Oct 31, 2010 at 12:28 AM, B wrote:
Roubini
ft.com
A presidency heading for a fiscal train wreck
By Nouriel Roubini |
