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Re: QE2 (Not the ship) just around the corner, no thoughts from EJ?
As c1ue mentioned, it can continue right up until the dollar collapses, because until then, what other choice does the Fed have?
If the Fed just lets asset prices settle where they may, not only do bank equity investors get wiped out (which in many cases should have happened two years ago), but the debt investors (pension funds and bond funds supporting retirees) and the FDIC (backed by the US Treasury) also get crushed.
I'd guess that the political reaction to bank debt default and collapsing nominal real estate prices would be worse than the reaction to inflation. Pensioners, investors, and homeowners will clearly see and react to nominal wealth destruction, and are among the most likely voters, while the inflation option is less visible and probably takes longer to play out. (The Fed also wants to keep its owners in business, which doesn't happen if the debt clears through default.)
Either way, the value of much of the artificial debt-based "wealth" that has supported the standard of living is going away, whether through default, inflation, or both.
By the time this is over, I wouldn't be surprised to see the unemployed and hungry filling up those empty condos, because no one will care enough to bother kicking them out.
As c1ue mentioned, it can continue right up until the dollar collapses, because until then, what other choice does the Fed have?
If the Fed just lets asset prices settle where they may, not only do bank equity investors get wiped out (which in many cases should have happened two years ago), but the debt investors (pension funds and bond funds supporting retirees) and the FDIC (backed by the US Treasury) also get crushed.
I'd guess that the political reaction to bank debt default and collapsing nominal real estate prices would be worse than the reaction to inflation. Pensioners, investors, and homeowners will clearly see and react to nominal wealth destruction, and are among the most likely voters, while the inflation option is less visible and probably takes longer to play out. (The Fed also wants to keep its owners in business, which doesn't happen if the debt clears through default.)
Either way, the value of much of the artificial debt-based "wealth" that has supported the standard of living is going away, whether through default, inflation, or both.
By the time this is over, I wouldn't be surprised to see the unemployed and hungry filling up those empty condos, because no one will care enough to bother kicking them out.
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