Trapped??
(1) Stand back and let everyone go bankrupt in a deflationary collapse. This is the classical solution. You could then reorganize and not have wasted 20 years. This is brief, terrible and politically untenable.
-or-
(2) Print new base money immediately. This will seemingly be inflationary but in reality you are only pulling the money supply along to keep up with the asset inflation that has *already* occurred. Some debt may be destroyed by inflation but it is much less disruptive if it is at low levels.
Bill Gross pushed this very well in March 2009.
http://www.pimco.com/LeftNav/Featured+Ma rket+Commentary/IO/2009/Investment+Outlo ok+Bill+Gross+March+2009+Hairy+Lips+Sink +Ships.htm
Gross said in order to deal with the debt load, we need a “return to nominal GDP growth levels of 5-6%, the majority of which might actually come in the form of higher prices as opposed to increased production. This Faustian bargain would be acceptable if only to stabilize what now appears to be an even more dangerous deflationary debt liquidation.”
Posted by DanHess | Report as abusive
MONDAY, JUNE 7, 2010
This is just too good to miss - Rosie
We highly recommend The Deflation Dilemma (page 18) and A Winding Path to
Inflation (page 84) of the current Economist. The second article is particularly
enlightening because it shows how ineffective a policy aimed at creating
inflation will be because the bond maturity profile of most industrialized
countries is short. Over half of U.S. government debt and 40% in Germany and
France roll over within the next three years and so an overt policy to inflate away
the massive public debts will be self-defeating if the bond vigilantes demand a
higher premium upon refinancing time. Besides, an inflation-is-always-around-
the-corner culture still permeates most central banks: the Bank of Canada
hiking, the Fed district banks clamouring for a rate hike, the tightening moves
this year by India, Brazil and China, as well as the refusal on the part of the ECB
to go beyond shifting the composition of its balance sheet and actually expand it
in a classic quantitative-easing style.
Parades and Rain - Rosie
A FEW MORE DISTURBING EMPLOYMENT TIDBITS
First, if it weren’t for the plunge in the labour force, the U.S. unemployment rate
would have climbed to 10% in May. Second, the Household survey actually
flagged a 35,000 outright decline in employment last month. Third, the 41,000
increase in private payrolls, about one-third of what was widely expected and the
low-water mark for the year, was exaggerated by a 29,000 boost from the “birth-
death” model. Fourth, the fact that the hottest sector of the economy,
manufacturing, could only post a 29,000 gain, a sharp slowing from 40,000 in
April is quite disconcerting — especially since it is clear that the ISM index has
peaked for the cycle. Fifth, the declines in the financial sector, construction and
State/local governments are a vivid reminder that the parts of the economy that
were most affected by the bursting of the housing and credit bubble are still
licking their wounds and cannot be relied upon to play any role in helping revive
what is still very much a moribund jobs market.
It’s not just the labour market that is behaving poorly, but the housing market is
too. It is remarkable that with interest rates so low that we would be seeing
mortgage applications for new purchases down to a 13-year low. Take a look at
page A6 of the weekend WSJ and you will see that Ivy Zelman, the country’s best
housing analyst, is calling for nationwide home sales to slide between 25% and
30% in May and that is sequential, not year-on-year (that is very close to a 100%
annual rate plunge. Even the usually optimistic National Association of Realtors
is expecting “June and July to remain fairly weak”). A survey conducted by Credit
Suisse (released on Friday) showed that in stark contrast to the latest National
Association of Home Builders survey, the traffic of prospective homebuyers in
May was back to depths of late 2008 when the financial crisis was in full gear.
SATURDAY, JUNE 5, 2010
Percent job losses aligned at bottom
This is a stunner, the dotted line is corrected for the Census Hires:
No comments:
Post a Comment