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A good analysis of the article in WSJ The Fed Is Out of Ammunition by Chris Martenson here
This was written by an equity strategist in Hong Kong; be sure to catch his startling conclusion at the end. Startling because of where it was printed – in the main circular of the high church of fiat money, a.k.a. the WSJ.
The whole thing is worth a read, and a ponder, but let’s review some of the more relevant bits.
My comment: Here he’s laying the groundwork – our current crisis is ultimately one of “too much borrowing.” Given this, one can easily be stumped by the current plan of having the US government borrow even more to give to already failed institutions. How does borrowing more solve a crisis rooted in “too much borrowing?”
It’s a great question, and one that you will be hard pressed to find discussed in the usual mainstream media outlets.
Why is the government so desperate to borrow our way out of this deflationary problem? Let’s continue.
My comment: The great fear of a deflationary spiral for central economic planners (like the former Soviet Union or the US central bank) is the loss of policy traction. That is, once the main levers break, the Federal Reserve rapidly loses both the ability to effect outcomes and credibility. Of the two, credibility is the most important feature in a faith-based economy. This is a large reason why such an outcome will be fought with every tool in chest. And also every dollar. Read on.
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The whole thing is worth a read, and a ponder, but let’s review some of the more relevant bits.
The Fed Is Out of Ammunition
A discredited dollar is a likely outcome of the current crisis.
With an estimated $4 trillion in housing wealth and $9 trillion in stock-market wealth destroyed so far in the United States, there is little doubt that we are witnessing a classic debt-deflation bust at work, characterized by falling prices, frozen credit markets and plummeting asset values.
Those who want to understand the mechanism might ponder Irving Fisher's comment in 1933: When it comes to booms gone bust, "over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money."
A discredited dollar is a likely outcome of the current crisis.
With an estimated $4 trillion in housing wealth and $9 trillion in stock-market wealth destroyed so far in the United States, there is little doubt that we are witnessing a classic debt-deflation bust at work, characterized by falling prices, frozen credit markets and plummeting asset values.
Those who want to understand the mechanism might ponder Irving Fisher's comment in 1933: When it comes to booms gone bust, "over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money."
It’s a great question, and one that you will be hard pressed to find discussed in the usual mainstream media outlets.
Why is the government so desperate to borrow our way out of this deflationary problem? Let’s continue.
The growing risk of falling prices raises a challenge for one of the conventional wisdoms of the modern economics profession, and indeed modern central banking: the belief that it is impossible to have deflation in a fiat paper-money system. Yet U.S. core CPI fell by 0.1% month-on-month in October, the first such decline since December 1982.
The origins of the modern conventional wisdom lies in the simplistic monetarist interpretation of the Great Depression popularized by Milton Friedman and taught to generations of economics students ever since. This argued that the Great Depression could have been avoided if the Federal Reserve had been more proactive about printing money. Yet the Japanese experience of the 1990s -- persistent deflationary malaise unresponsive to near zero-percent interest rates -- shows that it is not so easy to inflate one's way out of a debt bust.
The origins of the modern conventional wisdom lies in the simplistic monetarist interpretation of the Great Depression popularized by Milton Friedman and taught to generations of economics students ever since. This argued that the Great Depression could have been avoided if the Federal Reserve had been more proactive about printing money. Yet the Japanese experience of the 1990s -- persistent deflationary malaise unresponsive to near zero-percent interest rates -- shows that it is not so easy to inflate one's way out of a debt bust.
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