Come to think of it...
...There were different approaches to the way the crisis was handled by the BOJ and our Fed.
Give some credit to the Fed, they totally failed in diagnosing the problem, but at least they knew there was a problem after the nuclear bomb went off.
Back in the 90's after the Nikkei and the Japanese economy blew up, it took the BOJ a year to start cutting interest rates. It took them some seven years to expand their balance sheets to try to recapitalize their banking sector. It took Japan some 2 years to effectively approve a stimulus plan to help their economy.
But again, the reaction time has little to do with the anything after the cat is out of the bag. The virus has already spread. The problem was never higher rates, it was low rates that rationalized absurd financial leverage and complexity. Nothing the Fed has done is going to cure the patient. The virus has spread too far and too fast. Injecting the patient with serum is not going to help the patient if that patient is already terminally sick, as is our economy. The Fed should have never left rates so low in 2003, this caused the virus to gain more traction and momentum. Japan is a great example that governmental stimulus is not going to help the system once the problem is already in motion.
The vast amount of Americans need and must reduce debt. The ones who wont or don't have to reduce debt, have a false sense of security that the government will be there for ever. Once this confidence slips away...what do we have?
This is a balance sheet recession. There is no better word for it.
The Fed is in a furious race to inflate asset values, but the bond market is not buying it. Bond yields are at all time lows, another striking similarity with Japan.
I will say it till they put me in the pyre.
Bad debt, low rates, and complex financial products were the root cause of the crisis. Fiscal stimulus may help for a few years, but once that wears off, the global economies will fall back into crisis mode. The crisis wont be over until the bad debt has been extinguished from the balance sheets of US & European Banks. We need to go back to a less accommodative monetary policy. A policy that encourages taking undue risks with borrowed/leveraged money less likely to happen. We need to kill and eliminate complex financial products that only rocket scientists can understand.
So far policy makers are just ignoring that swollen lymph nodes exist. They are sweeping these problems under the rug, hoping that they go away when the economy improves. Japanese policy makers tried and ultimately failed as their economy just didn't have the momentum needed.
We will suffer the same fate. Guaranteed.
History will always repeat itself when ridiculous assumptions are cultivated and implemented as public policy.
"We need to go back to a less accommodative monetary policy. A policy that encourages taking undue risks with borrowed/leveraged money less likely to happen. We need to kill and eliminate complex financial products that only rocket scientists can understand."
ReplyDeleteEnd the Fed. Let the discount rate float publicly. Break up these "too big to fail" institutions. End the public-private Oligarchy that is only serving itself. Lets get some REAL Capitalism instituted. You over leveraged and fucked up? Dead. You didn't know what you were doing when you purchased Bond Insurance (CDS) from shell corporations in the Canary Islands? Dead. You didn't think that leveraging leveraged assets that were leveraged on borrowed money might cause a chain reaction if anything shifted negatively? Dead.