Sunday, January 04, 2009
So, let me get this straight...
After presiding over the inflation and bursting of the biggest financial bubble in the history of Mankind, in the process blessing soaring home prices that far outstripped any reasonable expectation of borrowers to repay and praising the "financial innovation" of Wall Street for facilitating such, the smartest economists at the world's most important central banks are now concerned (actually, "scared witless" as you'll see below) that prices may fall.
Yes, "Deflation is the New Public Enemy Number 1".
It says so right there in the MarketWatch headline in what is quickly becoming one of the silliest ongoing stories in the global economy - dimwitted economists are once again redirecting the discussion and a gullible public and financial media are going along...
Deflation is the problem now.
Never mind what led up to the current crisis.
More of what got us into this mess is required to get us out.
It seems "the drunk must be kept in Scotch a while longer".
Here she is, doe-eyed Janet Yellen, President of the Federal Reserve Bank of San Francisco to make the case for why all the stops must be pulled out - governments and central banks must borrow and print money as never before.
Now that short-term interest rates are at zero, Ms. Yellen favors the expansion of the Federal Reserve's recent unconventional monetary policy measures where anything and everything is bought with newly created money.
She also urged aggressive spending of newly borrowed money by the Obama administration.
The menace is upon us again.
The scourge of "deflation" is here, where individuals see prices dropping like a rock and defer purchases, pulling the rug out from underneath a consumer-led economy, creating a vicious downward spiral, an economic black hole from which there is no escape.
Never mind that people are scared witless because they fear for their job, their retirement accounts, their home, their children's future, and the Western way of life where overconsumption was the rule rather than the exception, something that, up until about a year ago, seemed like a birthright.
Consumers are pulling back because they see prices falling - it's DEFLATION!!
According to the MarketWatch report, central bankers are scared:
But many agree with Barry Eichengreen, a professor at the University of California at Berkeley, who called deflation "a very serious danger."If only the Fed had been a so vigilant a few years ago.
Central bank officials are "scared, if not scared witless" about the specter of deflation, he said.
The good news is that, because the Fed is so vigilant, the U.S. should be able to avert it, he said.
Fed officials would use the new unconventional monetary policy measures to simply buy up "anything whose price shows signs of going down," he said.