Posted on 09/07/2014 3:22:37 PM PDT by hripka
A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding level of credit for its survival. Without additional credit, interest on previously issued liabilities cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of debt deflation, recession and ultimately depression. It is this expansion of private and public market credit which the Fed and the BOE have successfully engineered over the past five years, while their contemporaries (the ECB and BOJ) have until now failed, at least in terms of stimulating economic growth.
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Not my title but it clearly broke out of trend range
Right. They tightened. They didn’t supply the necessary liquidity.
Okay different bit related example, see the result of Fed tightening in 1937-38
Yes. Germany and one other have negative overnight rates for banks. They are trying to stimulate more lending with the only mechanism they have. Fighting a difficult headwind with fiscal and political issues though.
I don’t believe you’re correct. The BOJ practiced its own QE and it is a complete failure.
https://en.wikipedia.org/wiki/Economy_of_Japan#Postwar_period_.281945.E2.80.93present.29
Worse, the Japanese miracle (1960-1980)was the result of government intervention in the economy, which is Japan’s history pre- and post-WW2. Post WW2 Japan filled the niche that China most recently filled, which is now failing for them.
http://www.tradingeconomics.com/charts/japan-gdp-growth.png?s=jgdpagdp&d1=19800101&d2=20141231
The cause of Japan’s current situation is both central bank and government policy. Even Japan’s entry into WW2 is a government error.
Can either of you find a historical example of a market that fell into a deflationary spiral? I cannot. The only ones I have found were driven by government intervention.
Most people reasonable folks who've looked into it can name several nations that have blundered into excess inflation, endured and suffered loss from it, and have recovered. Same for deflation. This is kind of a 'global-warming' or 'income-equality' topic where fact and reason don't apply because the belief is one of choice and not of observation.
I cannot find one example of either runaway inflation or long term deflation in which the direct cause was the marketplace. In every case the direct cause of runaway inflation or continual deflation over years is government. Do you know of a contrary example?
Freeman used to say that inflation is “always and everywhere a monetary event” so you won’t find one since governments manage the money supply.
Not in early America. There, despite the freedom of the market, you don’t see permanent deflation or inflation. You see normal volatility and corrections. All without government intervention.
The argument that the FED did the right thing if flawed. If we had no FED what would have happened.
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