When see deflation, chop down more trees
When deflation is your view, cut down every tree and print as much money as possible to prevent it, right out of the Fed playbook. Fed Pres Bullard is saying “The US is closer to a Japanese style outcome today than at any time in recent history. A better policy response to a negative shock is to expand the QE program thru the purchases of Treasury securities.” Rates aren’t low enough? Greenspan was worried about deflation in ’03 and is why he cut rates to 1% and left them there. This as one of the great commodity bull runs ever was getting underway. The consequence of that policy was a huge credit bubble. So Bullard says the risk again is deflation in the bust and cutting rates to zero and buying $1.5T worth of assets may not be enough. This is the bailout plan of the current bailout plan which followed the Greenspan bailout plan. A deflation outlook just as the CRB index is near a 3 month high and rents (25% of CPI) are moving up.
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July 29th, 2010 at 9:38 pm
Yea, that print-like-no-tomorrow idea worked out really well for Japan, didn’t it?
When are these august people within the Fed going to admit that a broken finance sector is what is a big part of the problem and aim some solutions at *fixing* what is wrong within the banking system? eg, let’s fix bank accounting for starters.
In Japan, they extended and pretended the banks were OK – and that was (and is) a big part of their problem as well.
July 30th, 2010 at 9:42 am
Well, let’s see, dsawy. Japan has 5% unemployment, universal health care, the world’s best math/literacy rates, extremely low crime/drug/mental illness rates, etc…
The US has 10% unemployment, 50 million uninsured, the developed world’s lowest math/literacy rates, the developed world’s highest crime/drug/mental illness rates, etc…
Japan’s “Lost Economy” don’t seem too shabby, huh?
July 30th, 2010 at 2:26 pm
First, have you ever been to Japan? I have. Don’t take their claims at face value that their economy is going gangbusters and everything comes up roses. When you walk their streets, you see the same sort of homeless people shuffling around and sleeping in their shoes you see here. The reason for their low rate of personal crime is that they have a rather draconian police/legal system. You basically have no civil rights. The police often beat confessions out of people, they have a death penalty (and use it) and police poke their noses into everyone’s business.
If you want to live in such a society, I suggest you get up and move there.
Japan has borrowed and borrowed from their own citizens to a point where the convergence of their sheer size of the debt to GDP, coupled with their age demographics and declining birth rate, means that soon they will have to be rolling that debt to offshore lenders. Their leaders can see this coming, and are now talking like the “austerians” you Keynesians like to belittle.
http://www.businessweek.com/news/2010-03-23/japan-may-target-debt-to-gdp-reduction-sengoku-says-update1-.html
This is what Keynesians never want to talk about: At some point, the money runs out, the pile of debt becomes so large that you no longer own the debt, it owns you. At about 200% debt/GDP, Japan’s future is now unequivocally controlled by dealing with that pile of debt.
And they still don’t have a self-sustaining recovery from their crash in the early 90′s.